SYSTEM RELIABILITY
The compliance clock is ticking
Now that the Federal Energy Regulatory Commission (FERC) has approved 82 of the initial set of 87 mandatory system reliability standards developed by the North American Electric Reliability Council (NERC) as America's first electric reliability organization, it is urgent that company compliance offers get their programs in place and in gear.
The Energy Policy Act of 2005 empowered FERC to enforce the standards by financial penalties or other "mitigations." All indications are that enforcement will begin on or around June 1, 2007. In its comments to FERC's October 30, 2006, Notice of Proposed Rulemaking on the subject, NERC proposed a "validation period" of six months to follow the onset of enforcement. During this period, regional reliability organizations (RROs) would be free to show lenience in assessing fines, except in cases of egregious or negligent behavior. That makes sense, because fines may not be a big enough reliability stick: for many compliance officers, financial penalties are far less troubling than being publicly identified as rule violators.
Time to wake up
Over the next few months, it is critical for everyone responsible for reliability to prepare for the bright light of assessment that's about to shine on them. For power companies, there are both risks and opportunities inherent in standards compliance. The risks are financial loss, public scrutiny, and bad publicity for noncompliance. The opportunities are to demonstrate operational and organizational readiness to meet mandatory reliability standards, to actually comply with them, and to demonstrate that their generating assets are no threat to the integrity of the grid to which they are attached.
For compliance officers of bulk power system users, the point of engagement for reliability compliance will be their RRO. The vehicles of engagement will be self-certifications, data reporting, demonstrated procedures, self-reporting, audits, and investigations of "trigger events." It will take considerable effort by the companies' legal, regulatory, engineering, and operations groups to set up and manage ongoing reporting mechanisms.
Much has been said about the potential "million dollars per day" penalty for a substantial violation. Not all entities will be exposed to such risks. However, although the prospects of maximum fines may seem remote on paper, they may not be as rare as anticipated if companies fail to take mandatory reliability seriously and step up to the plate unprepared. Be aware that punitive mitigations could include bans on participating in wholesale markets for a certain period of time. Accordingly, a company sent to this penalty box could stand to lose several million dollars per day in revenues—in addition to fines—were prices to peak while it is sidelined.
Alarming consequences
It is not too late to begin preparations for compliance activities, but it is getting close to being too late for some—and you know who you are. Some organizations have been ready for months, or even years, to comply with mandatory reliability rules. Others seem to have heard nothing about them, despite widespread media coverage and regulatory notifications. As always, ignorance of the law is no excuse for violating it. And ignoring reliability standards is particularly risky because they carry the weight of federal law. Indeed, violating reliability standards might be considered criminal activity.
—By Jim Stanton, POWER contributing editor and project manager at ICF International. He can be reached at 713-445-2000 or jstanton@icfi.com.
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