Click here for: Webinar Registration. Introduction and Chair s Remarks. NERC Antitrust Compliance Guidelines and Public Announcement* Agenda Items

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1 Agenda Member Representatives Committee Pre-Meeting Informational Session Conference Call and Webinar October 15, :00 a.m. 1:00 p.m. Eastern Conference Line: Access Code: Broadcast Audio: Click here for: Webinar Registration Introduction and Chair s Remarks NERC Antitrust Compliance Guidelines and Public Announcement* Agenda Items 1. Opening Remarks 2. Schedule of Quarterly NERC Meetings and Conference Calls* 3. Topics for the Board of Trustees, Board Committees and MRC Meetings* - November 12-13, Overview of Items Included in the Policy Input Letter a. Reliability Assurance Initiative* b. Critical Infrastructure Protection Version 5 Transition* c. Risk-Based Registration Initiative* d ERO Enterprise Strategic Plan and 2015 Performance Metrics* e. Reliability Review of Proposed Environmental Regulations* 5. Informational Items a. Polar Vortex Report Update and Winter Reliability Assessment Preview* b Long-Term Reliability Assessment Overview* c. ERO Enterprise Effectiveness Survey* *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 NERC Fourth Quarter 2014 Meetings The Westin Buckhead Atlanta Schedule of Events 3391 Peachtree Road NE November 12-13, 2014 Atlanta GA All times are Eastern. Meetings and Conference Calls Prior to November Quarterly Meetings October 15, 11:00 a.m. 1:00 p.m. MRC Pre-Meeting and Informational Session Open October 29, 3:00 p.m. 5:00 p.m. Board of Trustees Conference Call Open November 5, 2:00 p.m. 3:00 p.m. Corporate Governance and Human Resources Committee Call Open November 6, 11:00 a.m. 12:30 p.m. Finance and Audit Committee Call Open Wednesday, November 12, :00 a.m. 9:30 a.m. Room name: TBD 9:45 a.m. 12:00 p.m. Room name: TBD 12:00 p.m. 1:00 p.m. Room Name: TBD 1:00 p.m. 5:00 p.m. Room name: TBD 5:30 p.m. Room name: TBD 8:30 a.m. 12:00 p.m. Room name: TBD Standards Oversight and Technology Committee Meeting Open Compliance Committee Meeting Open Lunch Member Representatives Committee Meeting Open Reception Thursday, November 13, 2014 Board of Trustees Meeting Open

5 Member Representatives Committee (MRC) Pre-Meeting and Informational Webinar October 15, 2014

6 Objectives Pre-Meeting and Informational Session Review preliminary agenda topics for November 12 MRC meeting Review preliminary agenda topics for the Board of Trustees (Board) and associated Board committee meetings (November 12-13, 2014) Receive updates on emerging and informational issues as part of today s informational webinar 2

7 Conference Calls, Prior to Atlanta Board of Trustees, October 29 (3:00 p.m., Eastern) EPA 111(d) initial assumptions assessment and potential reliability aspects 2014 Long-Term Reliability Assessment Corporate Governance and Human Resources Committee, November 5 (1:00 p.m., Eastern) Board and Board Committees self-assessment surveys; MRC annual effectiveness survey of the Board ERO Enterprise and corporate performance metrics Finance and Audit Committee, November 6 (11:00 a.m., Eastern) Third quarter statement of activities Cybersecurity Risk Information Sharing Program 2014 budget update Long term assessment stabilization initiative 2016 business plan and budget schedule 3

8 Standards Oversight and Technology Committee 8:00 a.m. 9:30 a.m., November 12 ERO Enterprise IT application strategy Standards with regulatory deadlines Reliability Standards Development Plan and enhanced periodic review template Standards Committee elections Reliability Standards quarterly status report 4

9 Compliance Committee 9:45 a.m. 12:00 p.m., November 12 Reliability assurance initiative Key compliance and enforcement metrics and trends 5

10 Member Representatives Committee 1:00 p.m. 5:00 p.m., November 12 Elections and nominations Election of MRC officers for 2015 Update on MRC sector nominations and election Update from Board of Trustees Nominating Committee Responses to the Board s request for policy input Reliability assurance initiative Critical infrastructure protection version 5 transition Risk-based registration ERO Enterprise Strategic Plan and 2015 performance metrics Reliability review of proposed environmental regulations Policy discussion of key items from the Board committees Issues discussed during CGHR, FAC, SOTC, and BOTCC 6

11 Member Representatives Committee 1:00 p.m. 5:00 p.m., November 12 CIP-014 physical security implementation update RISC priorities and 2014 Reliability Leadership Summit results Regulatory update 7

12 Board of Trustees 8:30 a.m., November 13 Committee membership and charter changes Standards items for adoption/approval PRC-002-2, PRC-005-X, TPL-007-1, TOP-001-3, TOP-002-4, TOP-003-3, IRO , IRO-002-4, IRO-008-2, IRO-010-2, IRO-014-3, IRO-017-1, PRC-010-1, PRC-006-2, EOP-011-1, VAR-002-WECC-1, VAR-501-WECC-2 Definition of Remedial Action Scheme Applicability for dispersed generation resources standards Critical infrastructure protection standards version 5 revisions Reliability Standard Development Plan SPP Bylaws amendments Risk-based registration Rules of Procedure amendments 8

13 Board of Trustees 8:30 a.m., November ERO Enterprise Strategic Plan and 2015 performance metrics Regional Entity collaboration ERO Operating Model Oversight program Regional Delegation Agreement timeline Cybersecurity Risk Information Sharing Program update Physical Security Reliability Standard update Update on Canadian affairs Committee, forum and group reports Approve Compliance and Certification Committee s 2015 work plan 9

14 October 15 MRC Informational Session Overview of Policy Input Letter items Reliability assurance initiative Critical infrastructure protection version 5 transition Risk-based registration ERO Enterprise Strategic Plan and performance metrics Reliability review of proposed environmental regulations Polar Vortex report update and Winter Reliability Assessment preview Long-Term Reliability Assessment overview ERO Enterprise effectiveness survey 10

15 Upcoming Dates October 15: Policy Input Letter issued October 29: November MRC agenda package posted November 5: Policy Input Letter responses due November 6: November MRC presentations posted 11

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17 Agenda Item 4a MRC Informational Session October 15, 2014 Reliability Assurance Initiative Action Information Background The Reliability Assurance Initiative (RAI) is a collaborative, multi-year effort among NERC, the Regional Entities, and industry to identify and implement changes to enhance the effectiveness of the Compliance Monitoring and Enforcement Program (CMEP). The goal of RAI is to implement a more robust risk-based program for compliance monitoring and enforcement of Reliability Standards. It is not practical, effective, or sustainable to monitor all compliance issues to the same degree or treat all noncompliance in the same manner. Compliance monitoring and enforcement must be right-sized based on a number of considerations, including risk factors and registered entity management practices related to the detection, assessment, mitigation, and reporting of noncompliance. A risk-based approach is necessary for a proper allocation of resources. It also encourages registered entities to enhance internal controls, including those focused on the selfidentification of noncompliance. Over the course of , the ERO Enterprise tested a number of concepts, processes, and programs for implementation in By the end of September 2014, NERC will have published guides and program documents related to all of the new and expanded processes and programs to allow for implementation in Implementation will be accompanied by training and outreach efforts directed at ERO Enterprise staff and industry stakeholders. For a more detailed overview of RAI, refer to the Overview of the ERO Enterprise s Risk-Based CMEP posted under Key Resources on the RAI webpage. The Key Resources section also includes a visual overview of the risk-based CMEP, as well as in-depth guides and program documents. Summary Program Design Status Since the last update to the Member Representatives Committee in August 2014, NERC and the Regional Entities finalized two important components of the ERO Enterprise s risk-based CMEP. These components are reflected in two documents, available under the Key Resources section referenced above. The Risk Elements Guide for Development of the 2015 CMEP IP (Risk Elements Guide) identifies and prioritizes continent-wide risks, as well as the related Reliability Standards and Requirements that represent the initial focus for monitoring activities in The 2015 ERO CMEP Implementation Plan (2015 CMEP IP) provides guidance to the Regional

18 Entities in the preparation of their Regional Entity Implementation Plans. The 2015 CMEP IP will be updated in November with the Regional Entity IPs and subsequently, as needed, to reflect any changes in the areas of focus as risks emerge or other circumstances require. While the risk identification and prioritization process described in the Risk Elements Guide occurs on an annual basis, risks are dynamic. Accordingly, periodic reviews and updates may be necessary and appropriate to address increased or emerging risks and to reflect mitigated risks. In addition, the ERO Enterprise is finalizing the second draft of the Inherent Risk Assessment Guide (IRA Guide) and the first draft of the Internal Control Evaluation Guide (ICE Guide). These guides have been shared with a newly formed advisory group, described in more detail below, composed of representatives from industry, the ERO Enterprise and FERC. With feedback from the advisory group, NERC expects to post final versions of these guides in the next several weeks. Finally, as discussed during the August 2014 meetings in Vancouver, the ERO Enterprise is finalizing documents describing the self-logging and compliance exception programs. Those documents will be posted in the next few weeks. With respect to the self-logging program, the ERO Enterprise has determined that the internal control evaluation process outlined in the ICE Guide is not a prerequisite for participation. The ERO Enterprise continues to exercise discretion as to whether to enforce noncompliance posing a minimal risk to the reliability of the Bulk Power System (by resolving such noncompliance as compliance exceptions), and NERC will continue to monitor and report on the utilization of the compliance exception program throughout the ERO Enterprise. Outreach Since August 2014, NERC has intensified its outreach efforts to ensure that the objectives and the design of the risk-based CMEP is clear to all interested parties. As noted above, NERC formed an advisory group to act in a similar fashion as the advisory group assisting with the risk-based registration project. This advisory group will meet regularly to provide input and guidance on finalizing the design and to serve as a conduit to further expand the outreach efforts. The group includes industry and trade association leaders, Regional Entity executives, and representatives from FERC s offices of enforcement, electric reliability, and general counsel. In addition, NERC has scheduled and continues to plan training opportunities for industry, in the form of webinars and in-person workshops, led by NERC and Regional Entities beginning in September (calendar available on the NERC website). Finally, NERC reorganized the RAI webpage with new content and began disseminating information on RAI, including links to newly posted material through the weekly Standards and Compliance Bulletin and monthly NERC News newsletter. Oversight

19 NERC oversight of all components of the risk-based CMEP will be essential to the proper application of the program over the long-term. With the completion of the design, reflected in the various guides published, and the baseline training provided to ERO Enterprise staff, the program is ready to be implemented in Over time, and through NERC s oversight of the program, areas that require additional guidance and training will be identified and addressed (either in the form of revised guides or through other means). In identifying such areas, NERC will consider the feedback from registered entities, Regional Entities, and other stakeholders. This iterative review cycle provides the most effective means of quickly adapting to specific implementation challenges. Additional Information A link to the RAI website is included here for reference: [

20 Reliability Assurance Initiative (RAI) Sonia Mendonca, Senior Director of Enforcement Steven Noess, Director of Compliance Assurance MRC Informational Session October 15, 2014

21 RAI Compliance Activities Overview Risk-based Compliance Oversight Framework (Framework) 2

22 Enforcement Process Flow Risk and Control Assessment Input Audit, Spot Check, Etc. Log, Self- Report, Self- Certification Triage Record Compliance Exception Enforce Feedback to Risk and Controls Assessment 3

23 Continued Outreach Finalize and release IRA and ICE guides using input from advisory group Host RAI 101 webinar in October Conduct industry workshops in November Host industry webinar on RAI implementation and progress in January 4

24 *NEW* RAI website ( Weekly Standards and Compliance Bulletins Program news announcements on RAI page Resources 5

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26 Critical Infrastructure Protection (CIP) Version 5 Transition Agenda Item 4b MRC Informational Session October 15, 2014 Action Information Background Since October 2013, NERC has been actively collaborating with Regional Entities and industry to support transition from version 3 of the Critical Infrastructure Reliability Standards (CIP Version 3) to implementing version 5 of the Critical Infrastructure Reliability Standards (CIP Version 5) in a manner that is timely, effective, and efficient. NERC s transition program has the following goals and key elements: Periodic Guidance. To keep industry informed of various implementation and transition matters throughout the transition period. Implementation Study. To work closely with a small number of Responsible Entities to implement aspects of CIP Version 5 in an accelerated timeframe, and share lessons learned. Compliance and Enforcement. To further develop approaches that demonstrate compliance consistent with the Reliability Assurance Initiative (RAI) 1. Outreach and Communications. To keep all stakeholders informed of developments related to the implementation of CIP Version 5 and invite input throughout the transition period. Training. To provide timely training to Regional Entities and industry on CIP Version 5 implementation. As part of NERC s CIP Version 5 transition program, NERC staff posted a final Cyber Security Standards Transition Guidance (Transition Guidance) for industry and Regional Entities on August 12, The primary objective of the Transition Guidance is to address questions related to compliance preparation activities for industry and Regional Entities as they transition from CIP Version 3 to CIP Version 5. The final guidance provides a flexible approach that supports early implementation of CIP Version 5 during the transition period. This final update includes the following general updates resulting from industry feedback: Overall enhancements describing the compliance and enforcement approach For entities already using CIP Version 4 s bright line criteria, the option to continue its use as a valid CIP Version 3 risk-based assessment methodology during the transition period 1 Ref. NERC website

27 Increased clarity regarding the status of newly identified systems and facilities during the transition period Updates to technical feasibility exceptions considerations during the transition period Corrected mappings in the compatibility tables The Implementation Study, 2 another important component of the transition program, provided an opportunity for NERC, Regional Entities, and certain Responsible Entities to experience what is required to implement the CIP Version 5 standards in operational environments. The field work ended on June 26, 2014, and NERC, with input from Regional Entities and stakeholder participants, drafted an Implementation Study report to summarize lessons learned, highlight certain implementation processes, and discuss CIP Version 5 resource impacts. In addition, the Implementation Study report identifies areas for guidance and reference materials. NERC anticipates posting the Implementation Study report for industry review prior to the October 15, 2014 MRC Informational Session. In response to directives in FERC Order No. 791, NERC initiated Project : CIP Version 5 Revisions to focus on specific revisions to the CIP Version 5 standards. NERC and the Regions, with stakeholder input, also developed draft Reliability Standard Audit Worksheets (RSAWs), which cover the approved CIP Version 5 standards and the proposed modifications to those standards developed as part of the CIP Version 5 revisions project. The draft RSAWs were posted concurrently with the CIP Version 5 revisions for comment through October 17, In order to increase industry engagement in the transition program, NERC developed the CIP Version 5 advisory group (Advisory Group). The Advisory Group consists of representatives of Implementation Study participants, Regional Entities, the CIP Version 5 Revisions standard drafting team, and NERC staff. The Advisory Group provides key follow up to the areas identified in the Implementation Study for guidance and reference and identifies areas to enhance stakeholder understanding and implementation of CIP Version 5. The Advisory Group met September 11, 2014 at Midwest Reliability Organization in St. Paul, Minnesota. Key accomplishments of this meeting included prioritization of lessons learned topics, development of the Frequently Asked Questions (FAQ) document to address topics on an expedited basis, and identification of methods to provide greater transparency and confidence to industry. The Advisory Group will continue to meet every 4 to 7 weeks to enhance stakeholder understanding and implementation of CIP Version 5. Next Steps in Managing Transition to CIP Version 5 NERC has made progress in ensuring a smooth transition to CIP Version 5, but it also understands that continued focus is necessary. To that end, NERC developed a coordination plan to ensure that each CIP Version 5 transition guidance topic issued as a lessons learned or FAQ has received an open, inclusive, and technical review from stakeholders. This coordination involves the discussion of the Advisory Group to determine whether a topic should be a lessons 2

28 learned or a FAQ, an industry comment period on each document, and, in some cases, consideration of the document by the Standards Committee under Section 11 of the Standard Processes Manual (SPM). Section 11 of the SPM addresses certain supporting documents that may be developed to enhance stakeholder understanding or implementation of a Reliability Standard. The Standards Committee may authorize the posting of a document as a supporting reference linked to a Reliability Standard if it verifies the document has had stakeholder review to assess the accuracy of the technical content. There will also be continuing training and outreach sessions planned for industry and Regional Entity staff, which will include industry readiness reviews by regional staff, webinars, and other opportunities to discuss technical questions. As these are developed, they will be announced and posted on the NERC calendar. Extensive auditor training occurred in September 2014, and as RAI concepts are finalized, NERC will ensure continued outreach and education to support continued alignment between industry and NERC s CIP compliance monitoring approaches. Additional Information A link to the CIP Version 5 Transition Program website is included here for reference: [

29 CIP Version 5 Transition Steven Noess, Director of Compliance Assurance MRC Informational Session October 15, 2014

30 Purpose of the Transition Program Transitioning entities confident in implementation Vision 2016: smooth transition to CIP Version 5 Support all entities in the timely, effective, and efficient transition to CIP Version 5 2

31 Goals of the Transition Program Confidence in transition Compliance on effective date Transparency and guidance 3

32 CIP Version 5 Transition Advisory Group NERC, Regions, and stakeholder group Topics to support confidence in implementing CIP Version 5 Partner with regions and stakeholders Meets approximately monthly Team composition Implementation study participants Standard drafting team representation NERC and Regional Entity staff Role Prioritizes and supports unity of approach on references to enhance stakeholder understanding and implementation of the standards Additional topics for enhanced training/guidance 4

33 Lessons Learned Status Far-end relay Programmable devices Generation segmentation Virtualization (networks and servers) Serial devices that are accessed remotely Control centers operated by Transmission Owners and nonregistered Balancing Authorities Interactive remote access Generation interconnection (definition) Shared substations Mixed trust Electronic Access Control or Monitoring Systems General FAQs 5

34 Key Next Steps Implementation Study report (October 2014) CIP program management level feedback Identification of lessons learned Monthly lessons learned comment posting period Far-end relay (October) Generation segmentation (October) CIP Version 5 FAQs 5-10 posted per month Final Version 5 RSAWs (Q4) Reliability Assurance Initiative CIP Version 5 program document (Q4) 6

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36 Agenda Item 4c MRC Informational Session October 15, 2014 Risk-Based Registration Initiative Action Information Background NERC launched the risk-based registration (RBR) initiative in The ultimate end-state vision for the registration program is to ensure the right entities are subject to the right set of applicable NERC Reliability Standards, using a consistent registration approach that differentiates entities with different levels of risk across the Electric Reliability Organization (ERO) Enterprise. The RBR advisory group (RBRAG), comprised of representatives from NERC staff, Regional Entity staff, and Federal Energy Regulatory Commission (FERC) staff, along with United States and Canadian industry representatives, has continued to provide valuable input and advice on the RBR design and implementation plan. Additionally, a RBRAG technical task force has made significant contributions and is continuing to work on technical support for the RBR design framework. Status Update On August 26, 2014, a draft design and implementation plan, and draft NERC Rules of Procedure (ROP) Appendix 5A and Appendix 5B, were posted for a 45-day public comment period. The draft documents take into account the comments received to date, as part of the Member Representatives Committee (MRC) policy input package and MRC meetings, along with input from a 30-day posting requesting industry comment. The draft design includes the following highlights: Elimination of functions that are commercial in nature from NERC Compliance Registry Refinement of Distribution Provider threshold criteria Synchronization of thresholds and criteria to the new Bulk Electric System definition Establishment of a NERC-led review process to ensure consistency Implementation of a one-time attestation process Clarification of materiality Determinations and application of a properly tailored set of NERC Reliability Standard requirements for certain functional categories The draft design also includes an implementation plan supporting phase 1 and phase 2 activities, along with business practice and IT requirements. Existing flexibility in the application of threshold criteria, the Functional Model categories, and scaled sets of applicable Reliability Standards provide opportunities for accelerated reform within the existing ROP. The reforms

37 result in preserving reliability of the Bulk Power System, while ensuring the right entities are subject to the right set of standards, properly focusing resources and reducing regulatory burdens. The final versions of registration criteria, implementation plan, and necessary ROP changes will be presented to the MRC and Board of Trustees in November with an anticipated filing date at the end of that month. Additional Information A link to the RBR website is included here for reference: [

38 Risk-Based Registration Initiative Earl Shockley, Senior Director, Compliance Analysis and Certification MRC Informational Webinar October 15, 2014

39 Proposed Risk-Based Registration Design Highlights Remove functions with little impact on reliability Enhance Distribution Provider (DP) threshold criteria Synchronize thresholds and criteria to the new Bulk Electric System (BES) definition Establish NERC-led review process to ensure consistency Implement a one-time attestation process Increase clarity on materiality 2

40 Technical Basis Highlights Functions removed have little or no risk to BES reliability Other entities responsible for reliability impacts from transactions Low number of violations attributed to functions removed All survey respondents indicated no reliability gaps created by raising DP threshold from 25 MW to 75 MW Approximately 60 DPs will be deactivated (3500 MW) 3

41 Technical Basis Highlights continued Reliability Coordinator studies indicate not receiving operational data from the proposed deactivated DPs has no adverse BES impacts DPs <75 MW who contribute to UFLS programs are small compared to the total UFLS-armed load (38 out of 485) Analysis of the effects of UFLS DPs not providing their load shedding obligation is statistically insignificant (.78% to.65 %) 4

42 Phases Phase 1 Board approval and FERC filing targeted for November 2014 Phase 2 starts in Q4 Sub-set lists of Reliability Standards for TO/TOP and GO/GOP Phase 2 technical reviews ongoing 5

43 Upcoming Dates October 10, day comment period closes October 14, Final draft design, Rules of Procedure (ROP) changes, implementation plan and technical justification presented to risk-based registration advisory group (RBRAG) November Final design, ROP changes, implementation plan and technical justification presented to Board of Trustees December File ROP changes with FERC Phase II dates: October 2 and October 15, Phase 2 workshops (TOs and TOPs) 6

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45 Agenda Item 4d MRC Informational Session October 15, ERO Enterprise Strategic Plan and 2015 Performance Metrics Action Information Background The ERO Enterprise Strategic Plan and 2015 ERO Enterprise Performance Metrics will be presented to the NERC Board for approval at the NERC Board of Trustees meeting on November 13, This timing of the annual Board consideration of the ERO s rolling threeyear Enterprise Strategic Plan and related Performance Metrics has been moved up in order to better align strategic and operational processes. Earlier approval of the ERO Enterprise strategy should better inform the development of the common assumptions and priorities for the ERO s 2016 business plans and budgets. In addition, approval of the 2015 ERO Enterprise Performance Metrics ahead of the 2015 calendar year provides for more effective and efficient resource reallocation as necessary, compared to previous approvals after the start of the year in February. The ERO Enterprise Executive Management Group (ERO EMG), comprised of the chief executive officers of NERC and the eight Regional Entities, met in Austin for a day and a half to review and update the strategic plan and metrics. Summary After a four-year maturation process, the strategic plan and metrics have only minor adjustments. The four main ERO Enterprise metrics will remain intact, with the sub-metrics refined as necessary.

46 ERO Enterprise Strategic Plan and 2015 Performance Metrics Michael Moon, Senior Director of Regional Entity Coordination MRC Informational Session October 15, 2014

47 Background Alignment of strategic and operational documents Previously Realignment Strategic Plan Q4 / Q1 Strategic Plan Q3 / Q4 Metrics Q4 / Q1 Metrics Q3 / Q4 Common Assumptions Q1 Common Assumptions Q4 Business Plan And Budget Q1-2 Business Plan And Budget Q1-2 2

48 ERO Enterprise Strategic Plan Four years of maturation Earlier in the process Better support business plan and budget development Minor changes: Operationalize RAI: transforming from concept to implementation Addition of a longer range view 3

49 2015 ERO Enterprise Metrics Three years of maturation Earlier in the process No major changes to main metrics Refinement of sub metrics 4

50 2015 ERO Enterprise Metrics 1. Reliability Results 2. Assurance Effectiveness 3. Risk Mitigation Effectiveness 4. Program Execution Effectiveness 5

51 Summary Both ERO Enterprise; strategic plan and metrics Continued maturation Developed earlier Realigned to business plan and budget development Refined; no major changes 6

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53 Reliability Review of Proposed Environmental Regulations Agenda Item 4e MRC Informational Session October 15, 2014 Action Information Background In 2009, the U.S. Environmental Protection Agency (EPA) determined that greenhouse gas pollution threatens Americans' health and welfare by leading to long lasting changes in our climate that can have a range of negative effects on human health and the environment. On June 2, 2014, under President Obama s Climate Action Plan, the EPA proposed draft regulations that would cut carbon CO2 pollution from existing power plants in order to address risks posed by climate change to health and the economy. These proposed regulations are intended to maintain an affordable, reliable energy system, while cutting pollution and protecting health and the environment now and for future generations. These regulations follow on the previous release of regulations governing CO2 emissions for new sources of generation, and for the first time cut carbon pollution from existing power plants in the United States. The EPA regulations propose implementation through a state-federal partnership under which states identify plans to meet the emission reduction goals. The states are provided guidelines to develop state implementation plans (SIP) to meet state-specific goals to reduce carbon pollution and gives them the flexibility to design requirements suited to their unique situation. These plans may include generation mix changes using diverse fuels, energy efficiency and demand-side management, and allow them to work alone or to work together to develop multi-state plans. There is a flexible timeline for states to follow for submitting plans to the EPA plans are due in June 2016, with some further time permitted as needed or if multi-state approaches are proposed. EPA is expected to finalize the regulations in June Summary This year s Long-Term Reliability Assessment (LTRA) includes a focused section on grid reliability challenges created by EPA s proposed Clean Power Plan. The section provides a high-level perspective of the reliability challenges for the broader Bulk Power System (BPS). This initial report will provide a deeper review of the EPA assumptions and potential reliability implications. As an initial approach to responding to the EPA s proposed CO2 regulations, NERC considered a range of factors and concluded the following key points:

54 NERC maintains a reliability-centered focus on potential implications of environmental rules and other shifts in the composition of the BPS. This focus has resulted in a wide ranging series of technical reliability reports which inform decision makers and help position the industry. As the rules and their implementation impacts become more clearly known, NERC will continue to monitor and assess the reliability consequences. Based on the initial reliability assessment, NERC is concerned with the following: a considerable amount of generation retirement, insufficient time to address transmission constraints and resource reliability, significant reliance on energy efficiency to displace demand growth, significant reliance on variable energy resources and gas-fired generation (noncontrollable and/or constrained resources), cumulative impact of resource mix change, and the rapid pace of the proposed rules targeted to begin in The preliminary reliability overview observes that while state flexibility is desirable, the changing dispatch and transmission needs reveal certain reliability issues that need to be evaluated. Particularly, the timing available to address these rules, the anticipated significant shifts in resources (i.e., both fuel, geographically, and network relative to load centers), and consequent changes in the network ability to manage reliable operation (e.g., much larger transfers and power swings) are significant aspects of these regulations that potentially impact reliability. Accordingly, the focus of any technical reliability assessment would likely not focus on the amount of affected generation (MWs), rather the system and regional aspects of the resource mix changes as a whole, the potential acceleration of essential reliability services being strained (e.g., voltage support, ramping, frequency response), and further concentration of natural gas, variable resources, distributed resources, and demand-side management. Key Dates for Publication of NERC s Initial Reliability Review Board of Trustees will consider report for approval - October 29, 2014 Target release - prior to the November MRC, Board, and Board committee meetings

55 Reliability Review of Proposed Environmental Regulations John Moura, Director Reliability Assessment MRC Informational Session October 15, 2014

56 Overview The Environmental Protection Agency (EPA) proposed regulations that would cut CO 2 by 30% of 2005 levels by 2030 Implementation through state plans are due in June 2016, or 2018 for regional plans (an additional year for EPA to approve) Plans may include generation mix changes, use of diverse fuels, energy efficiency and demand-side management Material CO 2 reductions targeted to begin in

57 NERC Perspective and Approach Proposed regulations are very extensive Inform decision makers and help position the industry Continuous Reliability Assessment Evaluate the reliability impacts that manifest from the proposed rule Monitor regulations and state plans as they firm up Monitor complex interdependencies Assess reliability impacts of industry strategies 3

58 NERC Preliminary Reliability Review Considerable amount of generation retirements Strained resource adequacy and essential reliability services Insufficient time to address transmission reliability and resource constraints Significant reliance on energy efficiency to displace demand growth Significant reliance on variable energy resources and gas-fired generation (non-controllable and/or constrained resources) Cumulative impact of resource mix changes Rapid pace of proposed rules targeted to begin in

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60 Agenda Item 5a MRC Informational Session October 15, 2014 Polar Vortex Report Update and Winter Reliability Assessment Preview Action Information Background In early January of 2014, the Midwest, South Central and East Coast regions of North America experienced a weather condition known as a Polar Vortex, where extreme cold weather conditions were experienced in lower than normal latitudes, resulting in temperatures 20 to 30 degrees below the average normally experienced. On September 30, 2014, NERC released a full report describing what happened during the Polar Vortex, why some of the conditions occurred, and presenting lessons learned and recommendations for future actions. Highlights of the report include: Extreme conditions that tested the resiliency of the Bulk Power System (BPS) The lower than normal temperatures resulted in record high winter electrical demand with eight Reliability Coordinators breaking their winter peak demand records Gas electric interdependencies exacerbated cold weather related generator outages While 40 percent of the generation mix was natural gas, about 55% of all generation forced outages were natural gas related. Status of Winter Reliability Assessment The Winter Reliability Assessment provides an independent assessment of the reliability of the bulk electricity supply and demand in North America from December 2014 through February The report specifically provides a high level reliability assessment of 2014 winter resource adequacy and operating reliability, an overview of projected electricity demand and supply changes, and focused area assessments. While development of the report is still in progress, preliminary data shows all areas exceed their respective Reference Margin Levels (targets) for the winter peak. Increasing reliance on natural gas for electric power continues to be an issue in focus for NERC and the electric industry with over 40 percent natural gas capacity committed for the upcoming winter. NERC is developing scenarios based on the observations from the 2014 Polar Vortex in order to identify resource adequacy sensitivities and test extreme scenarios for the winter assessment.

61 Schedule for NERC s Winter Reliability Assessment The NERC Planning Committee endorsement of the report is scheduled for November 4, The NERC Board of Trustees will consider the assessment report for approval on November 20, Target Release Date November 24, 2014.

62 Polar Vortex Report Update and Winter Reliability Assessment Preview John Moura, Director Reliability Assessments MRC Informational Session October 15, 2014

63 2014 Polar Vortex Report Highlights Extreme conditions in January 2014 tested the resiliency of the Bulk Power System (BPS) Lower than normal temperatures resulted in record high winter electricity demand with eight reliability coordinators establishing new records Gas-electric interdependencies were exacerbated by extended periods of low temperatures, resulting in generator outages While 40 percent of the generation mix was natural gas, about 55 percent of all generation forced outages were natural gas related 2

64 2014 Polar Vortex - Generator Impacts Fuel Natural gas interruptions: supply injection, compressor outages, and one pipeline explosion Fuel oil delivery problems Inability to procure gas Fuel oil gelling Cold Weather Effects Wind turbine low temperature limits Hydro icing Failed auxiliary equipment Stress of extended run times Frozen instrumentation Drum level sensors Control valves Flow and pressure sensors 3

65 Winter Reliability Assessment Preliminary Data Findings All Assessment Areas above Reference Margin Level for the Winter 4 Preliminary Data

66 Winter Reliability Assessment Preliminary Key Reliability Findings Fuel Availability During the Winter NERC-wide natural gas during the winter peak: 41% Natural gas storage inventories: deficit continues to narrow Injection season has exceeded average (lower gas prices) Strong domestic production Mild summer Coal stockpile inventories: expected to rebuild Scenario assessment considers repeat of 2014 Polar Vortex 5

67 Remaining Milestones 2014 Polar Vortex Report September 30, 2014: Released 2014/15 Winter Reliability Assessment November 4, 2014: NERC Planning Committee endorsement November 20, 2014: NERC Board of Trustees approval vote November 24, 2014: Target release 6

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69 2014 Long-Term Reliability Assessment Overview Agenda Item 5b MRC Informational Session October 15, 2014 Action Information Background The 2014 Long-Term Reliability Assessment (LTRA) is a foundation for industry to provide their plans to maintain reliability over the next 10 years. NERC s primary objective in this effort is to independently assess the reliability of the North American Bulk Power System (BPS). NERC s assessment highlights reliability concerns, and identifies areas where additional resources may be required to maintain reliability. This assessment introduces a wide-area perspective on the adequacy of the generation, demand-side resources (DSM), and transmission systems necessary to meet reliability needs over the next 10 years. The assessment also includes NERC s independent identification of issues that may impact the reliability of the North American BPS documenting current industry plans to maintain reliability during the next decade, alerting regulators, policy makers, and the general public of existing and potential challenges, complexities, and interdependencies. Over the next 10 years, the electric industry will face a number of significant emerging reliability issues such as: Declining planning reserve margins in several areas Increased impact of environmental regulations on electric industry NERC will release a companion reliability assessment that reviews the reliability challenges associated with the U.S. Environmental Protection Agency s (EPA) Clean Power Plan Dramatically different resource mix with greater reliance on natural gas Rapid integration of variable generation that changes fundamental system behavior Summary NERC has evaluated the electric industry plans for the 2015 through 2024 assessment period in an effort to provide reliable electric service across North America. Some areas or regions may be more vulnerable to certain issues that could affect the implementation of these plans. Highlights of the assessment include: Resource adequacy reveals decline in reserve margins in several assessment areas Decline in NERC-wide capacity additions and demand growth rates

70 Anticipated reserve margins for TRE-ERCOT, MISO, and NPCC-New York are below the reference margin level in the near future (1-5 years) Rapid change in resource mix Significant loss of fossil-fired generation 75 GW retirements ( ) Increased dependence on natural gas addition of 46 GW by 2024 with total contribution of 42% of on-peak demand Ongoing growth in renewable capacity projected growth of 5% per year Requirements for more system flexibility and new planning approaches to assess reliability Greater reliance on DSM to offset peak demand Uncertainties in planning requirements introduced by environmental regulations Existing and proposed environmental regulations result in significant fossil-fired retirements 35 GW retirements ( ), an additional 35 GW fossil-fired projected to retire between 2014 and 2024 based on current regulations. Continuing uncertainty in regulatory landscape adds to resource adequacy challenges A focused section of BPS reliability challenges associated with the EPA s proposed Clean Power Plan. This section will contain a high level view of key issues based on the EPA rule assumptions during the 10-year horizon of the LTRA. This section lays the groundwork for a detailed assessment targeted for February The section will complement NERC s detailed review of EPA assumptions presented in a companion report. Additional long-term reliability issues include: Load forecasting uncertainties o o Energy efficiency Economic considerations System behavior impacts due to changing system load compositions o o o o Smart grid Potential operational risks associated with special protection systems/remedial action schemes interaction Region/Interconnection wide modeling Transmission adequacy assessment Workforce transformation Aging infrastructure Global supply chain and fuel reliability

71 Coordinated cyber or physical attacks on electricity infrastructure Overview of Development of NERC s 2014 Long-Term Reliability Assessment The development of the LTRA begins with the aggregation of data from Regions and entities beginning late in the calendar year, leading to the analytic assessment of the information starting around June, followed by peer review session among the Reliability Assessment Subcommittee, and embargoed consideration by the Planning Committee (PC) in September. This is followed by an embargoed release for the Board of Trustees consideration for approval at the same time as the MRC. NERC acknowledged the need to provide earlier opportunities for policy input in the development of the LTRA. A briefing was provided at the May Board/MRC sessions indicating the approximate schedule for development and the planned release of a survey among MRC and others for policy input in May/June. This policy input provides the ability to address any relevant topics in the development stages for the LTRA. A second briefing was provided at the August Board/MRC meetings to provide some further feedback on an overview of the policy input survey results as well as brief indications of the preliminary results of the LTRA. The MRC Informational Webinar planned for October 15, 2014, will provide an overview of the final LTRA findings and the PC endorsement of the report. The embargoed version of the LTRA is planned to be released to the Board of Trustees and the MRC approximately 8-10 days in advance of the Board s consideration of the assessment report for approval on October 29, Key Dates for Publication of NERC s 2014 Long-Term Reliability Assessment NERC PC report endorsement October 6, 2014 Board of Trustees/MRC embargoed version release approximately October 20, 2014 Board of Trustees will consider report approval October 29, 2014 Target report release mid-november 2014

72 2014 Long-Term Reliability Assessment Overview John Moura, Director Reliability Assessment MRC Informational Session October 15, 2014

73 Overview of LTRA Development May 2014: Briefing at Board/MRC meetings and survey issued to MRC Provides ability to address relevant topics during LTRA development Change in process to create earlier opportunity for policy input June/July 2014: Analytic assessment, peer review session RAS August 2014: Briefing at Board/MRC meetings Overview of the policy survey results, brief indications of LTRA results September 2014: Embargoed consideration by Planning Committee October 6, 2014: NERC PC endorsement 2

74 Overview of LTRA Development Approximately October 20, 2014: NERC Board of Trustees/MRC embargoed version release October 29, 2014: NERC Board of Trustees approval Mid-November 2014: Target release 3

75 Key Findings Key Finding #1: Reserve Margin Projections Are Declining in Several Assessment Areas across North America NERC-wide Trends Tight margins, despite demand growth rates of only 1% Low levels of capacity additions amidst ongoing retirements NERC-Wide 10-Year Projected Nameplate Capacity Additions 4

76 Key Findings Key Finding #1: Reserve Margin Projections Are Declining TRE-ERCOT (2018) Recent capacity additions (2 GW) Load forecasting methodology changes result in lower demand growth rate MISO (2016) Ongoing unit retirements and suspensions Removal of low-certainty resources identified in generator survey Resource procurement (insufficient Tier 1 capacity additions) MISO-South transfer limitations NPCC-New York Ongoing unit retirements with limited Tier 1 capacity additions 5

77 Key Findings Key Finding #2: Environmental Regulations Pose New Uncertainties for System Planners and Require Further Assessment Total retirements of 39 GW since 2011 with an additional 44 GW projected by 2024 Actual and Projected Fossil-Fired and Nuclear Retirements ( ) Current environmental regulations, baseline; does not include potential impacts of proposed EPA 111(d). 6

78 Key Findings Key Finding #2: Environmental Regulations Pose New Uncertainties EPA Proposed Clean Power Plan 111(d) Assumptions Large energy efficiency growth: 10 times more than NERC s 2014 reference case Substantial coal reductions by 2016: GW beyond NERC s 2014 reference case 2014 LTRA Reference Case & EPA Proposed Clean Power Plan Assumptions 7

79 Key Findings Key Finding #3: Rapidly Changing Resource Mix Highlights the Need for New Approaches to Assess Reliability Increased dependence on natural gas Higher reliance on natural gas can further expose reliability risk to impacts from fuel and transportation disruptions Ongoing decline in coal generation accelerates dependence on natural gas Ongoing growth in wind and solar resources will require more system flexibility Additional considerations for ramping capability, inertia, dynamic stability, and other essential reliability services This transformation will require new approaches for conduct of reliability assessments Introduction of ERS metrics and integration of fuel risks in planning Changing reliability behavior of resource mix 8

80 Other Reliability Issues Load Forecasting Uncertainties Energy efficiency Economic considerations System behavior impacts due to changing system load compositions Distributed generation Smart Grid Potential operational risks associated with SPS/RAS interaction Region/Interconnection wide modeling Transmission adequacy assessment Workforce transformation and knowledge transfer Aging infrastructure Global supply chains and fuel reliability Coordinated cyber or physical attacks on electricity infrastructure 9

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82 Supplemental Slide 10-Year Nameplate Capacity Additions Tier 1 capacity additions includes capacity that are either under-construction or have received approved planning requirements. Tier 2 capacity additions includes capacity that have requested, but not received approval for planning requirements. 11

83 Supplemental Slide Planning Reserve Margins

84 Supplemental Slide Planning Reserve Margins

85 Supplemental Slide Planning Reserve Margins

86 Supplemental Slide NERC 2014 Assessment Areas 15