1. NERC Reliability Readiness The Next Steps Mitch Needham NERC Readiness Evaluator September 24, 2007

2. About the Speaker BSEE from the University of Tennessee, Knoxville, 1978 MS Engineering from the University of Tennessee, Chattanooga, 1985 28½ Years with the Tennessee Valley Authority Energy Research Protective Relaying Event Analysis Performance Benchmarking Regulatory Compliance Joined NERC as a Readiness Evaluator 10/2006

3. Readiness - Brief History Reliability coordinator audits conducted since 2001 February 10, 2004 - NERC Board of Trustees approved Recommendation 3 Jointly establish a program to audit the reliability readiness of reliability coordinators and control areas on a three-year cycle Establish a set of baseline audit criteria U.S. Canada Power System Outage Task Force Report – August 14, 2003 Blackout Recommendation 18 Supported NERC Board recommendations Added public posting of audit reports

4. Basis for Readiness Evaluations Standards cannot prescribe every aspect of reliable operations. Standards set minimum thresholds, not targets for performance. Readiness Operational Excellence BA RC TOP

5. Original Program Application Establish the Readiness Audit Program for reliability coordinators, transmission operators, and balancing authorities Program organizationally aligned with compliance and enforcement program Make recommendations to audited entities that address deficiencies and promote compliance Publicly post audit reports

6. Presentation Focus Findings from the first cycle of audits (Round 1) Changes made to the readiness program (Round 2) Steps to be taken in the future (initiatives)

7. NERC Reliability Readiness Findings from Round 1

8. Audits by Function

9. Recommendations by Function

10. Recommendations By Function(s) *** This data has been normalized by the number of recommendations made per function and the number of evaluations completed per function

11. Recommendations By Region *** This data has been normalized by the number of recommendations made per region and the number of evaluations completed per region

12. 20 Areas Evaluated Agreements Operator Authority Delegation of Authority Staff Certification Training Operating Policies and Operating Procedures Planning Outage Coordination and Communication Plans for Loss of Control Facilities Tools Load Shedding Plans Real-Time Monitoring System Restoration Capacity and Energy Emergency Plan Equipment Maintenance and Testing Vegetation Management Nuclear Power Plant Requirements Physical Security Cyber Security Infrastructure

13. Recommendations Data 163 Audits/Evaluations completed 2727 Total Recommendations 426 Open (15.6 %) 677 In Progress (24.8 %) 1540 Completed (56.5 %) 84 No Action (3.1 %)

14. Recommendation Status By Year

15. Grouping of Recommendations

16. Areas Evaluated 48% of the 2727 recommendations found in 3 areas Training Real-Time Monitoring Operating Policies and Procedures

17. Areas of Interest – Top 3

18. Training By Category

19. NERC Reliability Readiness Changes Made for Round 2

20. Response to Industry Feedback Increased consistency (NERC staffing and contractors) Reduction of preparation time by focusing on demonstration and observation Review the link to compliance Changed from audit to evaluation Re-aligning NERC Reduce on-site evaluation time – (under investigation) Increased flexibility of on-site schedule – (under investigation) Limit the evaluation scope Higher degree of focus on targeted topics Size of entities should be considered – (under investigation)

21. Shifted to a framework used in the nuclear industry Developed by a self-regulatory organization Uses an evaluation process refined over nearly 25 years Consists of cycled evaluations of many nuclear power plants Based on a documented set of principles, objectives, and criteria that support operational excellence of plant operations Revamped Readiness Evaluation Program

22. Operational Excellence/Readiness Performance Objectives Criteria Readiness Topics Auditor Guides Core Principles Readiness Topics Not Documented 2004-2007 Framework

23. Five Major Program Groupings Culture Corporate support of reliability Fundamentals of Operations System operators, operations management, operator tools, infrastructure Fundamentals of Training Approach adopted, provision, tracking Fundamentals of Maintenance Focusing on the control center environment Fundamentals of Operational Planning Near term planning and interface with operations

24. Physical Security Policy and reality Cyber Security Status of compliance to upcoming standards Loss of Facilities Plans and procedures, interim activities and notifications Computer Systems and Support Focusing on the control center environment Power Supply for Control Facilities Backup generators, uninterruptible power supplies, testing and adequacy Secondary Program Groupings Non published, critical infrastructure information.

25. Ensure and improve reliability Provide an independent review of registered RC/BA/TOP operations Share noteworthy practices Provide constructive feedback Raise the bar in order to help achieve excellence Current Program Application

26. The NERC Readiness Evaluation is not a Compliance Audit. The Regions are responsible for Compliance Audits. There will be a single NERC Readiness Report issued. Current Program Application

27. Any possible non-compliance issue observed during the evaluation will be sent to the NERC Vice President – Compliance. The NERC VP - Compliance will refer the matter to the regional compliance manager. Possible noncompliance with a NERC standard will not be identified in the final readiness report but a recommendation may be reported. [Paraphrased from the NERC Rules of Procedure, Appendix 7.] Compliance Caveat

28. Reliability Readiness Products Potential Examples of Excellence Above and Beyond Industry Leaders Final Determination by NERC Readiness Developed with Entity and Shared with Industry Notation of Positive Observations (in posted report) Improvement Possibilities Recommendations from the Team Perspective (Expert Consultants) Key Recommendations Identified by Entity Tracked by the Region(s) Notation of additional things to consider (not a separate list, not tracked by regions)

29. NERC Reliability Readiness Additional Initiatives

30. Procedure development for Examples of Excellence (pilot phase) Teams nominate Potential Examples of Excellence NERC team and industry representatives develop and implement criteria Operating Reliability Subcommittee Identify mentoring opportunities within the industry (under development) Match recommendations with Examples of Excellence Additional Initiatives

31. Questions