1. NERC as the ERO Craig Lawrence Manager of Organization Registration, Certification, and Compliance Monitoring

2. U.S. Energy Policy Act of 2005 Reliability Legislation ● One industry self-regulatory ERO ● FERC oversight  Delegates authority to set and enforce mandatory standards to ERO  ERO delegates authority to regional entities ● Standards apply to all owners, operators, and users of bulk power system ● Independent governance and Compliance Program

3. Electric Reliability Organization Overview United States Federal Energy Regulatory Commission Mexico Comision Reguladora de Energia Canada NEB, Alberta, British Columbia, Manitoba, Ontario, New Brunswick, Nova Scotia, Quebec, and Saskatchewan Electric Reliability Organization Regional Entities Other ERO Members Bulk Power System Owners, Operators, Users Reliability Standards Compliance Enforcement Reliability Assessment Government Oversight

4. ERO Implementation ● Aug. 2005: Energy Policy Act ● Feb. 2006: FERC Implementing Rule ● April 2006: NERC ERO Application Filing NERC Standards Filing ● July 2006: ERO Certification Order ● Oct. 2006: NERC Compliance Filing FERC Standards NOPR Budget Approval Order ● Nov. 2006Uniform Compliance Program Filing Regional Delegation Agreements Filed ● Jan. 2007Standards NOPR Comments Filings NERC Non-Governance Order ● Mar. 2007Order on Standards Response to January 18 FERC Order ● Apr. 2007Order on Compliance Program and Delegation Agreements ● Summer 2007 – Mandatory Compliance

5. NERC Organization President & CEO President & CEO Members’ Forums Compliance & Organization Certification Compliance & Organization Certification Situation Awareness & Infrastructure Security Standards Reliability Readiness & Improvement Reliability Readiness & Improvement Training, Education & Personnel Certification Information Technology Legal & Regulatory Finance & Accounting Reliability Assessment & Performance Analysis Human Resources

6. Regional Entities

7. Regional Delegation Agreements ● Delegated functions  Compliance  Standards  Organization registration  Reliability assessment  Reliability readiness and improvement ● Regional consistency is key  Transparency  Predictability  Uniform outcomes

8. ERO Program Areas ● Standards ● Compliance ● Reliability Performance ● Reliability Readiness and Improvement ● Training and Education ● Situation Awareness & Infrastructure Security ● Members Forums

9. Funding ● Funding for ERO and regional delegated functions allocated to load-serving entities  Bulk power system users  Based on Net Energy for Load (NEL) ● ERO will fund regions for delegated functions ● Penalties offset costs  Funded regardless of penalty collections

10. Questions

11. NERC Standards Development Process and Standards Work Plan

12. Standards Establish the Basis Elected Standards Committee Standards Requestors Standards Process Manager SAR & Standard Drafting Teams Ballot Pools Established by the Industry ANSI-accredited process

13. ERO Standards Process ● ANSI-accredited open process ● Registered ballot body of stakeholders vote on standards ● Elected standards committee ● Participation is encouraged:  It’s free  Provide comments and vote remotely online  Go to www.nerc.com and click on Standardswww.nerc.com

14. Standards Work Plan: Overview ● Work plan filed December 1, 2006 ● Dynamic management tool  Communicate vision  Coordinate work  Measure progress ● 31 projects grouped by subject matter ● Aggressive but achievable schedule ● Detailed project descriptions listing ‘to dos’ ● More efficient use of drafting teams ● Integrates ‘fill-in-the-blank’ plan

15. Standards Work Plan: Inputs ● FERC NOPR on reliability standards ● FERC staff assessment of standards ● Version 0 comments ● Comments on other standards projects ● Comments from missing compliance elements and risk factor teams ● Blackout report ● Other reports and references

16. Projects Started in 2006 ● 2006-01 System Personnel Training ● 2006-02 Transmission Assessments & Plans ● 2006-03 System Restoration and Blackstart ● 2006-04 Backup Facilities ● 2006-05 Phase III & IV Field Tests ● 2006-06 Reliability Coordination ● 2006-07 ATC, TTC, CBM, and TRM ● 2006-08 Transmission Loading Relief ● 2006-09 Facility Ratings

17. Projects Starting in 2007 ● 2007-01 Underfrequency Load Shedding ● 2007-02 Operating Personnel Communications ● 2007-03 TOP and BA Operations ● 2007-04 Certifying System Operators ● 2007-05 Balancing Authority Controls ● 2007-06 System Protection ● 2007-07 Vegetation Management ● 2007-08 Emergency Operations ● 2007-09 Generator Verification ● 2007-10 Modeling Data ● 2007-11 Disturbance Monitoring

18. Projects Starting in 2008 ● 2008-01 Voltage and Reactive Control ● 2008-02 Undervoltage Load Shedding ● 2008-03 Demand Data ● 2008-04 Protection Systems ● 2008-05 Cyber Security ● 2008-06 Phasor Measurement Units ● 2008-07 Resource Adequacy Assessments

19. Projects Starting in 2009/10 ● 2009-01 Disturbance/Sabotage Reporting ● 2009-02 Facility Connections ● 2009-03 Interchange Information ● 2010-01 Support Personnel Training

20. Representative Changes to Standards ● Concise title/purpose with a reliability value ● Applicability  More specific with regard to entity, facilities, and responsibilities  Changes from Functional Model  Remove RRO (RE remains compliance monitor) ● Compliance elements  Measures, violation severity levels, risk factors, time horizons, etc.

21. Other Improvements ● Review technical adequacy and performance metrics ● Address fill-in-the-blank standards ● Reorganize, streamline standards ● Merge in organization certification standards ● References ● Variances

22. Violation Severity Levels ● Level 1: mostly compliant with minor exceptions ● Level 2: mostly compliant with significant exceptions ● Level 3: marginal performance or results ● Level 4: poor performance or results

23. Questions

24. NERC Organization Registration Program

25. Organization Registration Who Must Comply? ● Any entity responsible for any part of bulk power system reliability  Historically defined as control areas and reliability coordinators ● Functional entities  Aligns reliability requirements with functional unbundling

26. Functional Responsibilities Reliability Coordinator Transmission Operator Generation Operator Balancing Authority Transmission Owner Generation Owner Distribution Provider Load Serving Entity Planning Authority Purchasing Selling Entity Regional Reliability Organization Reserve Sharing Group Transmission Planner Transmission Service Provider Resource Planner Registered In 2005

27. Owners, Operators, and Users ● Energy Policy Act:  All users, owners, and operators of the bulk-power system shall comply with reliability standards ● FERC Rule  All entities subject to the Commission’s reliability jurisdiction… (users, owners, and operators of the bulk- power system) shall comply with applicable Reliability Standards … ● Who are they?

28. Organization Registration ● Creates a Compliance Registry  Identifies owners, operators, and users of the bulk power system  Separate from funding or membership ● Establishes scope of Compliance Monitoring Program  Notice of compliance responsibility  Opportunity to appeal

29. Bulk Power System Owner, Operator, or User Minimum Size Criteria Functional Entities Identified in Reliability Standards Joint Registration Org. Registration Selection Criteria

30. ERO Organization Registration ● Registration process  Entities may register directly  Regions or NERC may add to the registration list  Others may nominate those with material impact for registration  Entity may challenge placement in the compliance registry ● Challenge process  Entities must demonstrate they are not a bulk power system owner, operator, or user

31. Current Regional Registration Data Region Number of EntitiesTotal Functions ERCOT166215 FRCC82253 MRO97402 NPCC239516 RFC365701 SERC223616 SPP126402 WECC5251337 18234442

32. Questions

33. NERC Compliance Monitoring

34. Compliance Monitoring Methods Compliance Monitoring ● Periodic reporting ● Self-certification ● Exception reporting ● Investigations ● Random spot-checking or audits ● Compliance audits ● Self Reporting

35. Compliance Program – Requirements FERC Order 672 ● Single audit program for rigorous audit activities ● Prompt reporting ● Confidentiality provisions ● ERO files summary reports to FERC ● ERO or region imposes fair penalties and sanctions ● Single appeals process

36. NERC Sanction Guidelines ERO Sanction Guidelines ● Comparable to levels of threat to reliability ● Promotes compliance with standards ● Rewards self-reporting & voluntary corrective actions ● Flexible to adapt to all relevant facts surrounding the violation ● Consistent application of guidelines ● Meets FERC policy statement

37. Application of Penalties ● Penalties will be applied by the Regional Entity  Staff will determine initial penalty or sanction  Regions may reach a settlement – must be filed with FERC  Penalties may be appealed ● Once finalized NERC files “notice of penalty”  Penalties may be adjusted by FERC  Penalties become effective 31 days after filing  Remedial actions may be applied immediately to preserve reliability

38. Questions