Hearing Before the United States Senate Committee on Energy and Natural Resources March 27, Prepared Testimony of

Transcription

1 Hearing Before the United States Senate Committee on Energy and Natural Resources Prepared Testimony of Michehl R. Gent President and Chief Executive Officer North American Electric Reliability Council My name is Michehl Gent and I am president and chief executive officer of the North American Electric Reliability Council (NERC). NERC is a not-for-profit organization formed after the Northeast blackout in NERC s mission is to ensure that the bulk electric system in North America is reliable, adequate, and secure. NERC works with all segments of the electric industry as well as customers and regulators to keep the lights on by developing and encouraging compliance with rules for the reliable operation and planning of these systems. NERC comprises ten Regional Reliability Councils that account for virtually all the electricity supplied in the United States, Canada, and a portion of Baja California Norte, Mexico. NERC supports the reliability provisions (Section 104) of S. 475, the Electric Transmission and Reliability Enhancement Act of 2003, with minor technical changes. The reliability provisions of S. 475 are similar to the reliability provisions that the Senate adopted last year as part of H.R. 4. They are also largely the same as the reliability provisions included in Subtitle C of the legislation approved last week by the House Energy and Air Quality Subcommittee, the Energy Policy Act of 2003.

2 With or without Congressional guidance, the electricity industry is changing in fundamental ways. These changes are disrupting the mechanisms, relationships and incentives that have long ensured the reliability of the North American electricity grid. To ensure that these changes do not jeopardize the reliability of our interconnected electric transmission system, we must shift from a system of voluntary compliance with reliability standards to a system of mandatory compliance. NERC and a substantial majority of other industry participants believe that the best way to do this is through an independent, industry self-regulatory organization to set and enforce mandatory reliability rules, subject to oversight within the United States by the Federal Energy Regulatory Commission. Section 104 of S. 475 embraces this concept and contains largely the same language that we understand the House and Senate conferees agreed to during the conference on H.R. 4 in the last Congress. NERC requests that you make minor changes to the language in Section 104, to track the language on governance of regional entities that is contained in Section 7031 of the bill the House Subcommittee approved last week. I have attached specific suggested language for the revision to this testimony (Attachment 1). NERC will be pleased to work with Committee members and Committee staff on the language. NERC has appeared before Committee on a number of occasions, testifying in support of reliability legislation. The Senate adopted NERC-supported reliability language in 2000 (S. 2071) and again in 2002 (as part of H.R. 4). Today I will focus on two questions: (1) why reliability legislation is needed now; and (2) how Section 104 of NERC testimony for 2

3 S. 475 meets this need. I will also provide NERC s views on the reliability provisions (Title XII, Subtitle D) contained in the staff draft dated March 25, Why Is Reliability Legislation Needed Now? NERC sets the reliability standards by which the grid is operated from moment to moment, as well as the standards for what must be taken into account by those that plan, design, and construct an integrated system that is capable of being operated reliably. The NERC standards do not specify how many generators or transmission lines to build, or where to build them. They do indicate what planned and unplanned contingencies the system must be able to meet to ensure that it can retain its integrity under a broad range of actual supply, demand and equipment outage conditions. We attribute the reliability of the present system to these standards, which have been in practice for decades. The interconnected bulk electric system is subject to any number of unexpected and uncontrollable events, as a matter of course. Severe weather may knock down transmission lines, lightning strikes may cause short circuits, mechanical equipment may fail due to fatigue or overloading, generating plants may suffer breakdowns, fuel supplies can be disrupted, human error can lead to the outage of equipment, or we may inadvertently operate in an unstudied state. To that list of everyday occurrences, we now have added the threat of terrorist activity directed at the bulk electric system. The bulk electric system is designed and operated generally in what we refer to as a first contingency status, that is, the system must be able to withstand the loss of the single largest element (generator, transmission line, transformer, etc.) and still remain stable and secure. Otherwise, because of the instantaneous nature of electricity, we would risk NERC testimony for 3

4 cascading outages with severe economic and public safety consequences that could occur in a matter of seconds. I have attached to my testimony a table describing five notable occasions when we did have such a cascading outage: November 9, 1965 in the Northeastern United States and Eastern Canada; July 13, 1977 in New York City; July 2, 1996 in the West; August 10, 1996 in the West; and June 25, 1998 in the Upper Mid-West and western Ontario (Attachment 2). The scope and duration of these outages underscore why we must take all reasonable steps to prevent such widespread cascading outages where possible, and why we must have solid restoration plans when outages do occur. Mandatory reliability rules and an effective means to monitor and enforce compliance with them are the major component of those reasonable steps. NERC s rules, which are not now enforceable, have generally been followed by participants in the electricity industry, but that is starting to change. As competitive, economic and political pressures on electricity suppliers increase and as the traditional mechanisms, relationships, and incentives for ensuring reliability are altered, NERC is seeing an increase in the number and severity of rules violations. Moreover, new issues are arising that demand an institution focused on reliability that can act fairly, but decisively, and in a timely manner. Let me give you an example. Traditionally, integrated utilities operated their generators to supply both the real (MW) and reactive (MVar) power necessary to maintain reliable operation of the transmission system, and charged for these services as part of the regulated cost of service. (It s worth noting here that control of flows and voltages on an electric system is not accomplished by valves and switches, as in gas or NERC testimony for 4

5 telecommunications systems, but by controlling the real and reactive power outputs of generators.) These services provided by generators included such things as spinning and non-spinning reserves and system voltage support. Now, with the generation function separated from the transmission function in many cases, these services are no longer provided by a single, integrated entity, but must be arranged and paid for separately through tariffs and contracts with generators. To assure that this is done, we need enforceable standards that require transmission operators (including RTOs) to make adequate provision in their tariffs and contracts for these essential reliability services. How these arrangements are made can be the subject of filings with FERC or other regulators, but they must be made. Absent such enforceable standards, the reliability of our interconnected grids will be at serious risk. To accommodate the changes taking place in the industry, NERC is rewriting all of its reliability standards according to a new functional reliability model that sets out measurable and, under Section 104 of S. 475, enforceable requirements for entities that are responsible for performing critical reliability functions. These new standards will place uniform requirements on those that have the responsibility for maintaining the minute-to-minute balance between supply and demand, for seeing that power flows remain within the physical limits of the system, and that grid voltages stay within tolerance. Let me give you another, very different example of why this legislation is needed. NERC plays a critical role in protecting our industry s critical infrastructure from both physical and cyber attacks. Since the early 1980s, NERC has been involved with the electromagnetic pulse phenomenon, vulnerability of electric systems to state-sponsored, NERC testimony for 5

6 multi-site sabotage and terrorism, Year 2000 rollover impacts, and most recently the threat of cyber terrorism. At the heart of NERC s efforts has been its ability to marshall the industry s best experts on the design and operation of electricity systems in North America, and serve as the industry s point of contact with various federal government agencies, including the National Security Council, the Department of Energy, the Nuclear Regulatory Commission, the Federal Bureau of Investigation, and now the new Department of Homeland Security, to reduce the vulnerability of interconnected electric systems to such threats. I know that this Committee understands how vitally important this function is. Yet NERC s continuing ability to serve this function cannot be taken for granted. NERC traditionally has been funded by contributions from its member Regional Councils, which are in turn funded by their member organizations. New entrants and the pressure of competitive markets have made this funding mechanism increasingly unsatisfactory. A new funding mechanism is needed that properly and fairly supports NERC s activities, including its activities related to critical infrastructure protection. Section 104 of S. 475 would address this issue by authorizing FERC to certify an electric reliability organization that, among other things, has established rules that allocate equitably reasonable dues, fees and other charges among end users for all activities under this section. See proposed new Federal Power Act section 215(c)(2)(B). Section 104 of S. 475 Would Provide for an Organization Capable of Protecting the Reliability and the Security of the North American Electricity Grid We need legislation to change from a system of voluntary transmission system reliability rules to one that has an industry-led organization promulgating and enforcing NERC testimony for 6

7 mandatory rules, backed by FERC in the United States and by the appropriate regulators in Canada and Mexico. Section 104 of S. 475 would do this. Under its provisions: Reliability rules would be mandatory and enforceable. Rules would apply to all owners, operators and users of the bulk power system. Rules would be fairly developed and fairly applied by an independent, industry self-regulatory organization drawing on the technical expertise of industry stakeholders. FERC would oversee that process within the United States. This approach would respect the international character of the interconnected North American electric transmission system. Regional entities would have a significant role in implementing and enforcing compliance with these reliability standards, with delegated authority to propose appropriate regional reliability standards. A broad coalition joins NERC in supporting this approach to legislation, including the Western Governors Association, the National Association of Regulatory Utility Commissioners, the National Association of State Utility Consumer Advocates, the American Public Power Association, the Canadian Electricity Association, the Edison Electric Institute, the National Rural Electric Cooperative Association, the Institute of Electrical and Electronics Engineers, and the Western Electricity Coordinating Council. Right now a hole exists in the Federal Power Act, because FERC does not have direct authority over reliability matters and does not have jurisdiction over the entities that own almost one-third of the bulk power system. Having an industry self-regulatory NERC testimony for 7

8 organization develop and enforce reliability rules applicable to all owners, operators and users of the bulk power system under government oversight, as Section 104 of S. 475 would do, takes advantage of the huge pool of technical expertise that the industry has been able to bring to bear on this subject over the last 35 years. Having FERC itself set the reliability standards through its rulemaking proceedings, even if based on advice from outside organizations, would require FERC to develop or acquire technical expertise and experience that it does not now have, and would dramatically expand FERC s workload at perhaps the worst possible time. The electric industry is in a great state of flux, as regional transmission organizations are forming and reforming, and vertically integrated companies are separating and selling off various portions of their business. Change is happening at different paces in different places. With all the uncertainty as to who will ultimately operate and plan the interconnected transmission system, it is more important than ever that an industry-led self-regulatory organization be created to establish and enforce reliability standards applicable to the entire North American grid, regardless of who owns or manages which portions of the grid, and regardless of whether the grid is being used for the new markets that are emerging or in more traditional ways. Both market models are likely to exist side by side for a considerable period of time. The self-regulatory reliability system authorized in Section 104 of S. 475 is indifferent to industry structure and can help ensure that grid reliability is maintained, even while new market structures and new RTOs are being formed. Because FERC will provide oversight of the electric reliability organization in the U.S., FERC can ensure that the organization s actions are fair and balanced and closely coordinated with FERC s evolving market policies. NERC testimony for 8

9 The industry self-regulatory organization authorized in Section 104 of S. 475 also addresses the international character of the interconnected grid. There is strong Canadian participation within NERC now. Having reliability rules developed and enforced by a private organization in which varied interests from both countries participate, with oversight in the United States by FERC and with equivalent activity by provincial regulators in Canada, is a practical and effective way to develop the common set of rules needed for the reliability of the international grid. Otherwise, U.S. regulators would be dictating the rules that Canadian interests must follow a prospect that would be unacceptable to Canadian industry and government alike. Or, regulators on either side of the border might decide to set their own rules, which would be a recipe for chaos. Efforts are also under way to interconnect more fully the electric systems in Mexico with those in the United States, primarily to expand electricity trade between the two countries. With that increased trade, the international nature of the North American electricity market will take on even more importance, further underscoring the necessity of having an industry self-regulatory organization, rather than FERC itself, set and enforce compliance with grid reliability standards. The Reliability Provisions in the Staff Draft Are Not Adequate NERC does not support the reliability provisions contained in the staff discussion draft dated March 25, Although much of the reliability language in the staff draft is the same as that in S. 475, the staff draft s introduction of the concept of regional energy services commissions (RESCs) substantially changes and muddles the reliability provisions. Assigning reliability enforcement authority to RESCs, as the March 25 draft does, substitutes a brand new governmental entity, with no technical competence or NERC testimony for 9

10 experience whatsoever, for the industry-led enforcement, subject to government oversight, that is the essence of the S. 475 reliability provisions. The RESCs apparently would not need to meet any of the requirements for receiving delegated enforcement authority that other regional entities would need to meet. Introducing RESCs into the reliability context also raises a host of unanswered questions concerning the intended relationships among FERC, the electric reliability organization, and the RESCs. It appears that public utilities in States with RESCs are exempted from the coverage of the reliability provisions (which will be in Part II of the Federal Power Act). It is not clear whether the ERO would need to submit its funding requirements to the RESCs, since the RESCs are intended to have rate responsibility within their regions. The staff draft also eliminates the regional advisory body, putting in its place the RESC. NERC urges that the necessary exploration and development of the RESC concept for use in other areas to which it may be more suited not delay prompt approval by Congress of urgently-needed reliability legislation.. Conclusion NERC commends Senator Thomas for the leadership he continues to provide on attending to the critical issue of ensuring the reliability of the interconnected bulk power system as the electric industry undergoes restructuring. A new electric reliability oversight system is needed now. The continued reliability of North America s highvoltage electricity grid and the security of the consumers whose electricity supplies depend on that grid are at stake. An industry self-regulatory system is superior to a system of direct government regulation for setting and enforcing compliance with grid reliability rules. The language of Section 104 of S. 475, with the clarification of the NERC testimony for 10

11 regional governance issue, presents a sound approach for ensuring the continued reliability of the North American electricity grid. It is also an approach that has widespread support among industry, state, and consumer interests. The reliability of North America s interconnected transmission grid need not be compromised by changes taking place in the industry, provided reliability legislation is enacted now. NERC testimony for 11

12 Page 14 from S. 475 Attachment 1 1 for a hearing, that the user or owner or operator of 2 the bulk-power system has engaged or is about to 3 engage in any acts or practices that constitute or 4 will constitute a violation of a reliability standard. 5 (4) The Commission shall establish regulations 6 directing authorizing the ERO to enter into an agreement to del- 7 egate authority to a regional entity for the purpose 8 of proposing reliability standards to the ERO and 9 enforcing reliability standards under paragraph (1) 10 if 11 (A) the regional entity is governed by an 12 independent board, a balanced stakeholder board, or a combina- 13 tion independent and balanced stakeholder 14 board; 15 (B) the regional entity otherwise satisfies 16 the provisions of subsection (c)(1) and (2); and 17 (C) the agreement promotes effective and 18 efficient administration of bulk-power system 19 reliability. 20 The Commission may modify such delegation. The 21 ERO and the Commission shall rebuttably presume 22 that a proposal for delegation to a regional entity or- 23 anized on an Interconnection-wide basis promotes 24 effective and efficient administration of bulk-power 25 system reliability and should be approved. Such reg-

13 DATE November 9, 1965 STATES AND PROVINCES AFFECTED Virtually all of NY state, Connecticut, Massachusetts, Rhode Island, and small segments of northern PA and northeastern NJ; substantial areas of EXAMPLES OF MAJOR BULK POWER SYSTEM OUTAGES NUMBER OF CUSTOMERS AFFECTED 30,000,000; over 20,000 MW of demand Ontario, Canada July 13, 1977 New York City 9,000,000 people; 6,000 MW of demand DURATION few minutes to 13 hours Up to 26 hours DESCRIPTION Attachment 2 A backup protective relay operated to open one of five 230-kV lines taking power north from the Beck plant in Ontario to the Toronto area. When the flows redistributed instantaneously to the remaining four lines, they tripped out successively in a total of 2 ½ seconds. The resultant power swings resulted in a cascading outage that blacked out much of the Northeast. A series of events triggering the separation and total collapse of the Con Ed system began when two 345 kv lines on a common tower line in Northern Westchester were struck by lightening and tripped out. Over the next hour, the Con Ed dispatcher tried to save his system, but in the end the system electrically separated from surrounding systems and collapsed. Generation inside the City was not adequate, by itself, to serve the load inside the City. July 2, 1996 Arizona, California, Colorado, Idaho, Montana, Nebraska, Nevada, New Mexico, Oregon, South Dakota, Texas, Utah, Washington and Wyoming in the United States; Alberta and British Columbia in Canada; and Baja California Norte in Mexico. 2,000,000 (10 % of the customers in the Western Interconnection); 11,850 MW of demand from a few minutes to several hours The outage began when a flashover occurred between a 345,000-volt transmission line and a tree that had grown too close to the line in Idaho. Protective devices detected the short and deenergized the line. A protective relay on a parallel transmission line also detected the fault and erroneously opened the second line. Disconnecting these two lines nearly simultaneously greatly reduced the ability of the system to carry power away from a near-by generating plant, causing other protective devices to shut down two of the four generating units at that plant. With the loss of these two units, frequency in the entire Western Interconnection began to decline. For 20 seconds the system struggled to remain in balance, but the system was becoming unstable. At this point, automatic protection systems were initiated to allow the system to bend, but not 1

14 DATE STATES AND PROVINCES AFFECTED EXAMPLES OF MAJOR BULK POWER SYSTEM OUTAGES NUMBER OF CUSTOMERS AFFECTED DURATION DESCRIPTION Attachment 2 break. Scattered customer outages occurred to help the system regain balance. The interconnected system separated into five pre-engineered islands designed to minimize customer outages and restoration times. August 10, 1996 Arizona, California, Colorado, Idaho, Montana, Nebraska, Nevada, New Mexico, Oregon, South Dakota, Texas, Utah, Washington and Wyoming in the United States; Alberta and British Columbia in Canada; and Baja California Norte in Mexico. 7,500,000 customers; 28,000 MW of demand shed by underfrequency load shedding relays From one-half hour to 9 hours Triggered by a combination of random transmission line outages and resulting system oscillations, the Western Interconnection separated into four electrical islands, with significant loss of load and generation. Prior to the disturbance, the 500 kv and underlying interconnected transmission system from Canada south through Washington and Oregon to California was heavily loaded due to: relatively high demands, caused by hot weather throughout much of the WSCC Region; excellent hydroelectric conditions in Canada and the Northwest, leading to high electricity transfers (including large economy transfers) from Canada into the Northwest, and from the Northwest to California. Failure to trim trees and remove others identified as a danger to the system caused flashovers (short circuits) from of several 500 kv transmission lines, the last of which led to overloads and cascading outages throughout the Western Interconnection. Also, operators were unknowingly operating the system in a condition in which one line outage would trigger subsequent cascading outages because adequate operating studies had not been conducted. 2

15 DATE June 25, 1998 STATES AND PROVINCES AFFECTED Minnesota, Montana, North Dakota, South Dakota and Wisconsin in the United States; Ontario, Manitoba and Saskatchewan in Canada. EXAMPLES OF MAJOR BULK POWER SYSTEM OUTAGES NUMBER OF CUSTOMERS AFFECTED 152,000 customers; 950 MW of demand DURATION DESCRIPTION Attachment 2 19 hours A severe lightning storm in Minnesota initiated a series of events, causing a system disturbance that affected the entire Mid-Continent Area Power Pool Region and the northwestern Ontario Hydro system of Northeast Power Coordinating Council. Lightning struck a 345,000 volt line, and system protection deenergized the line. Underlying lower voltage lines began to overload, and protective devices began to deenergize those lines, further weakening the system. Shortly thereafter, lightning struck a second 345,000 volt line, taking that line out of service. Following the outage of the second 345,000 volt line, the remaining lower voltage transmission lines in the area became significantly overloaded and system protection began removing them from service. This cascading removal of lines from service continued until the entire northern MAPP Region was separated from the Eastern Interconnection, forming three islands and resulting in the eventual blackout of the northwestern Ontario Hydro system. More than 152,000 customers lost power. 3