A Greater Role for Government in the North American Power System: A Step too far?

In this article Sarah Greenall questions proposed political intervention in the activities of the North American Electricity Reliability Corporation, a non-profit organisation that efficiently manages bulk power grid reliability across the USA and parts of Canada and Mexico.

The importance of protecting the United States’ critical infrastructure and key assets was brought into the spotlight on the 16th of April 2013, when gunshots were fired at the Pacific Gas & Electric Company Metcalf Transmission Substation, near San Jose California causing extensive damage. According to media reports, the incident remains subject to an ongoing investigation by the FBI, whose spokesman Peter Lee has stated, “We do not believe it is related to terrorism,” but has declined to comment further.

At present, North American Electric Reliability Corporation “NERC” is tasked with ensuring the reliability of the Bulk-Power System (electricity power generation facilities combined with the high-voltage transmission system) in North America. NERC’s area of responsibility spans the continental United States, Canada, and the northern portion of Baja California, Mexico.  NERC considers reliability in two categories (i) adequacy: having sufficient resources to provide customers with a continuous supply of electricity at proper voltage and frequency, virtually all of the time and (ii) security: the ability of the Bulk-Power System to withstand sudden, unexpected disturbances such as short circuits, as well as man-made physical or cyber attacks.

NERC is a not-for-profit corporation, funded by the owners, operators and users of the Bulk-Power System. The Federal Energy Regulatory Commission “FERC” and Canadian Provincial Governments retain the power of review and audit of NERC. FERC has delegated authority to NERC to create and enforce compliance with reliability standards and to write those rules and standards with expertise from the industry.

NERC was founded in 1968 by representatives of the electric utility industry, since then its role and structure have been refined and enhanced. In 2006 it was designated as Electric Reliability Organisation for the United States and in 2007, its Reliability Standards became mandatory. NERC is a highly regarded and effective organisation, which, if replicated, would probably provide the best arrangement for maintaining the reliability of a future Southern African Development Community (SADC) wide integrated bulk-power system.

Unfortunately, potential changes are afoot with the introduction of the Grid Reliability and Infrastructure Defense (GRID) Act, by Rep. Henry Waxman and Sen. Edward Markey in the House and Senate. The provisions of the Act include the authority for FERC to issue emergency orders in the event of an imminent grid security threat and to issue an order to address a grid security vulnerability, where it determines that it has not been reliably addressed by the NERC. It is not up for debate that all efforts should be made to ensure the security of the Bulk-Power System, as well as all other critical infrastructure. However, the proposed changes under the GRID Act are a backwards step in several ways. Firstly, they may interfere with the work that NERC is already undertaking to protect the security of the Bulk-Power System. Secondly, it is NERC, not FERC, which is best positioned to determine how to go about protecting the Bulk-Power System due to its detailed knowledge of the technical and operational aspects of the power industry. Thirdly, the proposed changes risk compromising the political independence and neutrality of NERC, and in so doing could also potentially threaten the participation of Canada and Mexico in efforts to maintain the reliability and security of the North American Bulk-Power System.

Taking my first point in more detail, NERC is already doing a great deal to maintain and improve the security of the Bulk-Power System. In his testimony before the Senate Energy and Natural Resources Committee in April 2014, Gerry Cauley, NERC President and CEO, highlighted the ongoing efforts of his organisation in maintaining the security of the system. These include, but are not limited to: issuing alerts related to cyber and physical security concerns and ongoing information sharing through the Electricity Sector Information Sharing and Analysis Centre, facilitating a Grid Security Exercise with more than 2,000 participants and planning and participating in a 13 city outreach effort in response to the attack in San Jose. NERC has also developed a mandatory Physical Security Standard as directed by FERC, evidencing the pre-existing and continuing ability of FERC to order NERC to address vulnerabilities, where it believes it to be necessary.

NERC, not FERC, is best placed to play the leading role in the defence of the Bulk-Power System. The reason for this is its unique membership base, which includes investor, state and municipally owned utilities, merchant electricity generators, electricity marketers, large and small end-use electricity customers amongst others. Unlike FERC, these entities are directly involved in the operation of the Bulk-Power System and have detailed knowledge of the technical and operational aspects of the industry. Rather than interfering in the existing arrangements, government should play an important supporting role. This is most obvious in the area of intelligence gathering, identification and elimination of threats. In addition, government can facilitate information sharing, provide training and assist with the development of best practice. Through these efforts and working in partnership, the effectiveness of NERC (and organisations like it) can be enhanced, without the need for FERC to dominate.

Finally, the proposed additional powers for FERC under the Grid Act risk compromising the political independence and neutrality of NERC, as the Commissioners of FERC are appointed by the President of the United States with the advice and consent of the Senate. Attempts by the United States to control NERC are likely to be unpopular in Canada and Mexico and risk their participation in reliability and security initiatives, which span across the interconnected North American grid. 

Some support for enhancing FERC power under the GRID Act comes from those who believe that NERC and other industry participants will pursue profits ahead of national security. To assume that business is unable, or unwilling to make national security a priority is unfair. NERC is governed by a Board of Trustees comprising 10 to12 independent trustees and the President and CEO of NERC. Trustees are independent of the industry and must commit to serving the public interest and representing the reliability concerns of the entire North American electricity system. Industry is already incentivised to prioritise the security of the Bulk-Power System, as for example, an incident of scale could bring down a business, or businesses. Furthermore, scrutiny by regulators, investors, the media and the public is as intense as it has ever been and the consequences for Boards of corporate mismanagement and failings are at their most severe.

Author Sarah Greenall is a volunteer researcher with the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

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