Agenda Compliance Committee Open Session November 6, :15-10:45 a.m. Central

Transcription

1 Agenda Compliance Committee Open Session November 6, :15-10:45 a.m. Central JW Marriott New Orleans 614 Canal Street New Orleans, LA Introductions and Chair s Remarks NERC Antitrust Compliance Guidelines Agenda 1. Minutes* Approve a. August 15, 2012 Meeting 2. Find, Fix, Track and Report (FFT)* Information a. Progress to Date b. Preparation for the 12-Month Report 3. Compliance Operations* Information a. Compliance Enforcement Initiative (CEI) Update 4. Regional Entity Topic* Information a. Improvements to Regional Audit Practices (MRO-Dan Skaar) 5. Quarterly Report on Performance Metrics* Information a. Update on Quarterly Performance Metrics to Fulfill the Committee s Mandate Obligations b. Enforcement Metrics Development Update *Background materials included.

2 Antitrust Compliance Guidelines I. General It is NERC s policy and practice to obey the antitrust laws and to avoid all conduct that unreasonably restrains competition. This policy requires the avoidance of any conduct that violates, or that might appear to violate, the antitrust laws. Among other things, the antitrust laws forbid any agreement between or among competitors regarding prices, availability of service, product design, terms of sale, division of markets, allocation of customers or any other activity that unreasonably restrains competition. It is the responsibility of every NERC participant and employee who may in any way affect NERC s compliance with the antitrust laws to carry out this commitment. Antitrust laws are complex and subject to court interpretation that can vary over time and from one court to another. The purpose of these guidelines is to alert NERC participants and employees to potential antitrust problems and to set forth policies to be followed with respect to activities that may involve antitrust considerations. In some instances, the NERC policy contained in these guidelines is stricter than the applicable antitrust laws. Any NERC participant or employee who is uncertain about the legal ramifications of a particular course of conduct or who has doubts or concerns about whether NERC s antitrust compliance policy is implicated in any situation should consult NERC s General Counsel immediately. II. Prohibited Activities Participants in NERC activities (including those of its committees and subgroups) should refrain from the following when acting in their capacity as participants in NERC activities (e.g., at NERC meetings, conference calls and in informal discussions): Discussions involving pricing information, especially margin (profit) and internal cost information and participants expectations as to their future prices or internal costs. Discussions of a participant s marketing strategies. Discussions regarding how customers and geographical areas are to be divided among competitors. Discussions concerning the exclusion of competitors from markets. Discussions concerning boycotting or group refusals to deal with competitors, vendors or suppliers.

3 Any other matters that do not clearly fall within these guidelines should be reviewed with NERC s General Counsel before being discussed. III. Activities That Are Permitted From time to time decisions or actions of NERC (including those of its committees and subgroups) may have a negative impact on particular entities and thus in that sense adversely impact competition. Decisions and actions by NERC (including its committees and subgroups) should only be undertaken for the purpose of promoting and maintaining the reliability and adequacy of the bulk power system. If you do not have a legitimate purpose consistent with this objective for discussing a matter, please refrain from discussing the matter during NERC meetings and in other NERC-related communications. You should also ensure that NERC procedures, including those set forth in NERC s Certificate of Incorporation, Bylaws, and Rules of Procedure are followed in conducting NERC business. In addition, all discussions in NERC meetings and other NERC-related communications should be within the scope of the mandate for or assignment to the particular NERC committee or subgroup, as well as within the scope of the published agenda for the meeting. No decisions should be made nor any actions taken in NERC activities for the purpose of giving an industry participant or group of participants a competitive advantage over other participants. In particular, decisions with respect to setting, revising, or assessing compliance with NERC reliability standards should not be influenced by anti-competitive motivations. Subject to the foregoing restrictions, participants in NERC activities may discuss: Reliability matters relating to the bulk power system, including operation and planning matters such as establishing or revising reliability standards, special operating procedures, operating transfer capabilities, and plans for new facilities. Matters relating to the impact of reliability standards for the bulk power system on electricity markets, and the impact of electricity market operations on the reliability of the bulk power system. Proposed filings or other communications with state or federal regulatory authorities or other governmental entities. Matters relating to the internal governance, management and operation of NERC, such as nominations for vacant committee positions, budgeting and assessments, and employment matters; and procedural matters such as planning and scheduling meetings. NERC Antitrust Compliance Guidelines 2

4 Draft Minutes Compliance Committee Open Session August 15, :45 a.m. Eastern Hilton Quebec 1100, Rene-Levesque Blvd East Quebec, QC Canada G1R 4P Chair Bruce Scherr convened a duly noticed open meeting of the Compliance Committee (the Committee) of the North American Electric Reliability Corporation on August 15, 2012 at 9:45 a.m. local time, and a quorum was declared present. The agenda is attached as Exhibit A. Present at the meeting were: All Committee members, being Bruce Scherr, Chair, Vicky Bailey, Ken Peterson, Roy Thilly, Jan Schori and John Q. Anderson; Board members, Tom Berry, Janice Case, Paul Barber, Fred Gorbet, and Dave Goulding; and NERC staff members Gerry Cauley, David Cook, Charlie Berardesco, Michael Moon, Ken Lotterhos, Rebecca Michael and Tina McClellan. NERC Antitrust Compliance Guidelines Mr. Scherr directed the participants attention to the NERC Antitrust Compliance Guidelines. Minutes The Committee approved the May 8, 2012 meeting minutes. Compliance Enforcement Initiative Mr. Lotterhos, associate general counsel and director of enforcement, provided an update on the Compliance Enforcement Initiative (CEI). He noted that NERC continues to process violations through the streamlined Spreadsheet Notice of Penalty (SNOP) and the Find, Fix, Track and Report (FFT) informational filings with the Federal Energy Regulatory Commission (FERC). Since the last Committee meeting, NERC has made two additional filings for both SNOPs and FFTs, for an aggregate of 10 filings from September 2011 through July FERC has issued notices of no further review on the SNOP and NOP filings submitted through the end of June. Mr. Lotterhos reviewed the next stage of CEI development noting Compliance Enforcement Authority compliance monitoring staff (auditors and investigators) will make recommendations to enforcement staff concerning likely candidates for FFT treatment. Auditors and investigators will continue to make findings of potential non-compliance for which enforcement staff will evaluate and address as possible violations in a SNOP or NOP format or will dismiss them, as appropriate. NERC anticipates that expanding FFT identification will broaden the range of issues that will be afforded FFT treatment much earlier in the compliance monitoring and enforcement process.

5 Concluding his report, Mr. Lotterhos noted that in accordance with FERC s March 15 Order on the CEI, NERC is required to file a 12-month status report in March NERC is working with the Regional Entities and trade associations to collect the information required for the report. Compliance Operations Mr. Moon, director of compliance operations, provided an update on the Compliance Bulletin CIP-002 and the options for transitioning from CIP Version 3 to Version 4. Mr. Moon noted that entities should be determining which electric system assets currently meet the bright-line criteria so that the proper resources can be procured and scheduled to ensure that all the technical work is complete on or before the enforcement date of April 1, Mr. Moon highlighted four scenarios which the industry requested guidance. He also reported that NERC created a Compliance Bulletin to address implementing bright-line criteria into a Version 3 risk-based assessment methodology (RBAM), and which provides compliance information to responsible entities and Regional Entities regarding newly approved Version 4. Mr. Moon provided an update on the Entity Impact Evaluation Template, noting that NERC and Regional Entities finalized the draft template, which was posted on the NERC website for industry comment with the customary 45-day comment period. Comments will be due in early September, and comments and next steps will be considered thereafter. Mr. Moon reviewed the 2013 Annual Implementation Plan and Actively Monitored List (AML), highlighting most changes on the 2013 AML worksheet stem from reassigning tiers of CIP requirements so that each CIP requirement shares a common tier assignment with its own sub-requirements. The anticipated effect of this change is to make it easier for a registered entity to prepare for its audit. Regional Entity Items Ms. Linda Campbell, FRCC, reviewed the status of the Reliability Standards Audit Worksheet (RSAW) development and discussion ensued, addressing, among other things, scope, content and future revisions. Quarterly Statistics Chair Scherr referenced the materials provided in the Agenda package. There being no further business, and upon motion duly made and seconded, the meeting was adjourned at approximately at 10:45 a.m. local time. Submitted by, Charles A. Berardesco Secretary Compliance Committee Draft Minutes August 15, 2012

6 Agenda Item 2 Compliance Committee Meeting November 6, 2012 Find, Fix, Track and Report Action Informational Background On September 30, 2011 NERC made its initial Compliance Enforcement Initiative (CEI) filing which introduced changes to its compliance and enforcement program. The Federal Energy Regulatory Commission (FERC or Commission) issued an Order on March 15, 2012 accepting, with conditions, NERC s proposal to make informational filings in a Find, Fix, Track and Report (FFT) spreadsheet format of lesser-risk, remediated possible violations of Reliability Standards (March 15 th Order). NERC made its six-month status report in May of 2012, accompanied by a compliance filing explaining how NERC considered compliance history in its FFT determinations and its plans for future improvements to the FFT processes. On September 20, 2012, the Commission issued an order directing that NERC file its FFT training materials associated with implementation of the next steps in the FFT process improvements. In October 2012, NERC will file the training materials used in its September workshop on the next step in its improvements to the FFT process enabling Auditors and Investigators to recommend FFT treatment for possible violations to Regional Entity enforcement groups. Summary NERC continues to process violations through the streamlined Spreadsheet Notice of Penalty (SNOP) and FFT informational filing. Since the initial CEI filing on September 30, 2011, NERC has made 13 SNOP filings and 13 1 FFT filings with the Federal Energy Regulatory Commission (FERC). 2 The Commission has issued orders of no further review on the SNOP and NOP filings submitted through the end of September The six initial FFT filings were accepted through the March 15 th Order on the CEI proposal. Through the end of September 2012, NERC has filed a total of 822 possible violations as FFT remediated issues. The March 15 th Order requires NERC to file a 12-month status report in March of NERC is working with the Regions and Trade Associations to collect the information required for the 12- month status report. The Commission will be evaluating the consistency and application of the FFT initiative and will review the effectiveness of the FFT program with regard to such matters as: 1. The effect of the program on improving Bulk Power System reliability; 2. The effect of the program on addressing NERC s compliance and enforcement program, including its caseload; 1 By Commission Order, a FFT filing is deemed closed sixty days after submittal by NERC unless there is cause for the Commission to open particular remediated issues for review. Action on the October 31, 2012 FFT filing is expected by December 28, The fourteenth set of filings will be made October 31, Action on the October 31, 2012 filing is expected by November 30, 2012.

7 3. The effect of the program on NERC and the Regional Entities better focusing resources on addressing more serious violations; 4. How NERC s evaluation of risk in identifying candidate Possible Violations for FFT treatment has evolved during the implementation of the FFT initiative, including but not limited to how the Violation Risk Factors (VRFs) have been considered in the evaluation; 5. Manners in which the FFT mechanism can be improved based on experience to date; 6. The results of any audits, spot checks or random samplings that NERC or the Regional Entities may have performed during the year with regard to implementation of the FFT proposal; and 7. The impact, if any, the implementation of the FFT mechanism has had on the number of self-reports submitted. In the 12-month status report, NERC will also report on results of its evaluation of the consistency and application of the FFT initiative. NERC Enforcement will be administering two industry surveys to gather registered entity input on the topics the Commission seeks information on in the 12-month status report filing. These surveys are scheduled to be administered in late October or early November 2012 and early January NERC Enforcement has reached out to the Trades and Industry Forums requesting registered entity feedback on their experiences in the areas FERC is seeking information on in the 12-month status report. Upon review of this 12-month status report, the Commission may consider any necessary changes going forward, including expanding the scope and parameters of possible violations to be processed by FFT informational filings. In conjunction with the 12-month status report, NERC will also be filing its plans for future changes to the CEI program. To date, the CEI has received significant support from the Regional Entities and the industry. NERC anticipates the FFT process will continue to result in a better alignment between compliance and enforcement resources and the attention devoted to matters that pose a more serious risk to the reliability of the Bulk Power System.

8 August 2012 Compliance Enforcement Initiative (CEI) Phase 2 Timeline of Activities Agenda Item 3a Attachment 1 Compliance Committee Meeting November 6, nd CEI strategic planning meeting between NERC and the Regions. Discussed initial attributes and deliverables for March 2013 filing and the development of a conceptual White Paper due for delivery to the NERC CEO and Regional Executives by August 31. Week of the 13 th NERC Board of Trustees (Board), Board committees and Member Representatives Committee (MRC) meetings held in Quebec City. Announced the development of the White Paper and introduced the overall initiative. The MRC proposed to assist NERC and the Regional Entities with this initiative by development of a CEI Input Group. 16 th First meeting of the White Paper drafting team (includes staffs from NERC and the Regional Entities). 22 nd First review of the White Paper by the drafting team. 24 th First meeting between NERC and the MRC-CEI Input Group. Discussed integration of group into the NERC and regional development process, clarifying the group s role to include policy input and to serve as a sounding board. 31 st White Paper distributed to the NERC CEO and Regional Executives for initial review. 31 st Second meeting with MRC-CEI Input Group. Discussed project scope relative to filing, delivery of White Paper following the review by the NERC CEO and Regional Executives. Also discussed delivery and socialization of White Paper to industry in November after review and feedback from the input group. September th Initial draft of the White Paper provided to MRC-CEI Input Group based on feedback from NERC CEO and Regional Executives. 18 th NERC CEO announces an internal (between NERC and the Regional Entities) executive steering team and project leadership structure. 20 th Re-distribution of revised White Paper to the executive steering team. 20 th Discussion of control elements and conceptual White Paper at industry workshop in Atlanta. 21 st Revised version of White Paper shared with the MRC-CEI Input Group. 24 th MRC-CEI Input Group meeting. Discussed feedback from the group for the revised version of the White Paper. 25 th - Decision was made not to publically post the White Paper until a rigorous review was completed by industry. 27 th Decision was made not to publish the entity impact evaluation (EIE) to be consolidated in the CEI program.

9 October st Face-to-face meeting of the MRC-CEI Input Group. Discussed group input to the revised White Paper. NERC CEO and executive steering team decided on the four Key Change State Elements for the March 2013 filing. 2 nd Discussion of revised conceptual White Paper and Phase 2 of the CEI shared with the North American Transmission Forum (NATF), the Trades and several participants of the MRC. 3 rd and 4 th NERC staff presented an update of the initiatives to stakeholders at the Stinson Morrison Hecker workshop (attended by Trades and key industry leaders) and the ISO-RTO group conference. 11 th Package of material sent to MRC-CEI Input Group, included Gantt chart timelines, major focus areas for endstate CEI filing, outline of enhancements to the program, and change state elements. 16 th Revised version of White Paper with change state elements delivered to the MRC-CEI Input Group for next round of comments and feedback. 17 th Revised version of White Paper, timelines and initial draft of change state element #1 provided to the NERC executive steering team. 17 th Prepared for November 6-7 MRC and Board agenda packages and provided matrix of significant milestones to MRC-CEI Input Group. 19 th MRC-CEI Input Group submitted final round of comments to the White Paper and NERC staff provided a detailed status report on the CEI activities. 22 nd Conducted coordination call with MRC-CEI Input Group to discuss review and timeline of materials through November. 24 th Meeting with North American Transmission Forum to discuss internal control elements. 29 th Meeting with select Trade members to review White Paper and discuss concepts related to the presentation at the November MRC and Compliance Committee meetings. 30 th NERC staff presentation on internal controls and risk concepts at the Constellation Compliance Conference. November th and 7 th Scheduled delivery of initiative status to the Compliance Committee and MRC.

10 Agenda Item 3a Compliance Committee Meeting November 6, 2012 Compliance Enforcement Initiative (CEI) Update Action Discussion Background At the Board of Trustees Closed-Closed (BOTCC) meeting in Quebec, dialogue pertaining to a desired endstate of compliance and enforcement, for a mature ERO, was discussed as well as outputs and activities that would support the continued implementation of the Compliance Enforcement Initiative. The activities include drafting a White Paper that identifies the attributes to be ultimately achieved in NERC s compliance and enforcement programs. The White Paper will introduce the areas of fundamental change to the present compliance and enforcement processes and change state elements. Summary Since the meeting in Quebec, the White Paper has been drafted, key change state elements are defined, and deliverables for both the filing and the achievement of the endstate developed. In this regard, these elements will be presented for discussion and will outline the next steps to support the efforts leading up to the anticipated March 2013 filing with FERC of the desired endstate of compliance and enforcement accompanied by an action plan to achieve this endstate. Key elements that will be discussed include a deeper dive from the Member Representatives Committee (MRC) open meeting into the following: White Paper The need for a change to the compliance approach The use of risk-based approaches for the scoping of engagements Designing tests of controls to evaluate compliance The use of auditor discretion The effective use of enforcement Change-state Elements Restyling the overall audit approach Evaluating data retention requirements in support of compliance The flow of information from compliance The redesign of the enforcement strategy

11 Deliverables Actions pertaining to the March filing and planned distribution of materials for feedback Activities related to the design of the pilot and anticipated implementation Short-range activities to facilitate near term changes Long-range activities for the full implementation of the change elements

12 Agenda Item 4a Compliance Committee Meeting November 6, 2012 Improvements to Regional Audit Practices Action Discussion Background As part of the overall Compliance Enforcement Inititative (CEI), the Regional Entities (REs) are performing a gap analysis to understand strengths and opportunities with respect to regional audit practices. The REs will present the basis for the review, expected output, and relative timelines. Summary The REs discussed developing a more consistent approach to conducting compliance audits and agreed to conduct an independent assessment of current compliance audit practices across the Regions. NERC was also invited to participate. In addition to establishing an "as is" state on current practices, the REs expect to develop a compliance audit checklist from the assessment which can promote more uniformity across the Regions. As a secondary benefit, the REs further believe that the results of the assessment will provide valuable insights to the training needs as NERC and the REs move to the next phase of the CEI. The REs and NERC have selected Deloitte to perform the work with completion expected by year-end.

13 Agenda Item 5 Compliance Committee Meeting November 6, 2012 Quarterly Report on Performance Metrics Action None Background NERC staff will present its regular quarterly report to the Committee and stakeholders on compliance statistics to fulfill the Committee s mandate obligations. Summary NERC has been working closely with the Regional Entities to develop a more consistent set of enforcement metrics. The first step in the process to develop a more consistent and informative set of enforcement metrics involved a review of the enforcement metrics used by all eight Regional Entities and NERC. This review was essential to establish a common understanding of what is being demonstrated through each particular metric and by each of the Regional Entities. Once an understanding of the metrics used by NERC and the Regional Entities was achieved, the focus shifted to identifying a finite set of metrics that measure the performance (efficiency, quality, effectiveness) of key Compliance Enforcement Authority (CEA) monitoring and enforcement activities that can be produced regularly, consistently, accurately, and with minimal resources for the individual Regional Entities and ERO Enterprise. The final metrics selected are: Overall caseload index that quantifies the time it would take to clear violations in inventory based upon historical processing rates. Violations in inventory trending over time. Violation aging chart. Completed mitigation duration chart. Violation aging by disposition method (FFT/SNOP/NOP). Future initiatives may discuss enhancements or additions to this initial set of metrics. Once the final metrics were agreed upon, a set of common parameters was developed to ensure that metric measurements by NERC and the Regional Entities remained consistent. Parameters requiring common agreement included violation start date, dismissal date, and violations active and in inventory among the Regional Entities and NERC. From these common parameters a set of examples demonstrating how the metric results would be presented were generated. NERC and the Regional Entities are currently reviewing the metric examples and presentation format. Once NERC Enforcement Staff and the Regional Entities have agreed upon the presentation format and examples, the newly proposed metrics will be presented to the Board of Trustees Compliance Committee (BOTCC) for their approval.