DOE Distributed Power Review

DOE Distributed Power Program
& IEEE Interconnection Working Group

29 Jan ?1 Feb 2002, Arlington, VA.

-Tue/Wed = DOE Distributed Power Program
-Thur/Fri = IEEE SCC21 Working Group [Covered in a separate UFTO Note]
(P1547 Draft Standard For Interconnection)

Distributed Power Program Review

The DPP website has the proceedings (and pdf downloads) for this meeting, and also for the last review meeting held in Golden CO, Oct’01. (box in upper right corner.)

There is a requirement at DOE for “peer review”, so we’re seeing many of these meetings throughout the year. Last fall there was one for Distributed Energy Resources Program (DER), which includes the Distributed Power Program. (This confusing bit of terminology will be cleared up soon with a name change of the latter to something more accurately reflecting the focus on integration of DR in power systems, not DR itself.) OPT is the new entity formed last year to pull together a number of activities from across EREN.

Here is the line-up of these groups on the org chart:
– EREN — Efficiency and Renewable Energy
– OPT — Office of Power Technologies
– DER — Distributed Energy Resources Program
– DPP — Distributed Power Program [name to change]

^^The DER Review was held in DC, 28-30 Nov 2001

^^Proceedings of the 2001 Hydrogen Program Review are posted at:

Other upcoming review meetings:
^^Hydrogen and Fuel Cells — Denver, 6-10 May
(We may try to combine this with an UFTO visit to NREL)
^^Microturbine and Industrial Gas Turbines — Fairfax VA, 12-14 March


Presentations- Introductions and Overviews

Bob Dixon, head of OPT, opened the conference, commenting that September 11 is the main driving force in Washington. Energy security is a high profile part of it, which translates into redoubled interest in DG.

Bill Williams, IEEE-USA government liaison, outlined the many bills in Congress that deal with interconnection at both the bulk and DG level. He also noted that FERC has opened a rule-making for interconnection under 20 MW. (see below).

Richard Brent, Solar Turbines, pleaded the manufacturers’ concerns about there being different policies at every utility, in every state–sometimes different within the same utility. Many of these practices are still based on utility systems and technology of long ago.

Patricia Hoffman, head of DER, commented that just as with any infrastructure, the energy system needs to advance and evolve. One of the roles of DOE is to help bring consistency.

Joe Galdo, who leads the DPP Program, explained DPP’s mission to remove barriers to DG that arise from technology and regulation. The goal is to reduce installation cost, delay and hassle. The strategy is reflected in the array of projects supported, from the IEEE 1547, to system integration, interconnection and control, to institutional and regulatory barriers. A list of subcontracts awarded to date appears at:
See also “Research Activities” for a good overview:

Presentations – Technical Interconnection Standards and Testing

— First up, Dick DeBlasio gave an update on IEEE 1547. See separate UFTO Note on the Working Group meeting.

— Murray Davis of Detroit Edison reported on a study of penetration limits for DG on a distribution feeder. This ranks very high on the list of concerns about widespread deployment of DG. (Davis started with a quick aside that there would be no limit if grids were isolated–he’s submitted a paper to IEEE about this.) They did detailed modeling of two actual feeders using ASPEN and the Distribution WorkStation, and then modeled the impact of various amounts of DG placed at various locations. The striking conclusion, at least for these two particular feeders and for the two variables considered, is that DG penetration (or stiffness ratio, i.e. the amount of the DG compared to the size of the feeder) had no predictive value for when problems (e.g. over/under voltage) would arise. The line length, circuit particulars, and DG device sizes were far more significant. A feeder could accommodate as much as 10 times more total DG if it comes as many small units instead of 1 big one.

— NRECA has an aggressive program to support its members to do fuel cell demonstrations, with training, handbooks, databases, and a users group. Coops view DG as “a solution, not as a problem”. Together coops represent the largest “single” utility in the country, with 34 million customers in 46 states. The handbook will be available on the DOE website in the near future, and many more resources are available only to members of NRECA.
Contact Ed Torrero, 703-907-5518,

— DUIT — Distributed Utility Integration Test – This project is to come up with a plan, including a facility, to do testing of the interaction of DG with the electric system. A key element is the selection of a site or sites for the facility. To that end, a number of sites around the country at utilities and universities were evaluated as candidates. In addition, the Nevada Test Site received particular attention, in view of the extensive inventory of pre-existing buildings and equipment. (The NTS study came up with a conceptual design of a large “pole field” to be used to simulate actual distribution feeders. Rows and rows of utility poles could be patched together to provide everything from a single 30 mile feeder to countless different configurations.) (The DER Test Facility at NREL, which evaluates performance of DG interconnection systems, became operational Dec’01)
Contact Joe Iannucci, Distributed Utility Associates,, 925-447-0604.

— Certification Lab Pilot — EPRI-PEAC’s project is to define a path to “certified grid-compatible DER”. They’re writing an accreditation plan and an interconnection handbook. The effort includes actual testing of interconnection standards. For details, see the pdf download^^^, and:
Contact: Tom Key, 865-218-8082,

— UL Standard for DG – Underwriters Lab is developing a standard for testing DG equipment, combining appropriate safety requirements with interconnection requirements from IEEE 1547, to produce a DG ANSI Standard that can be used to evaluate utility interconnected DG products for both electrical safety and utility interconnection to address the needs of Electrical AHJs and Utility Interconnection Engineers. This document will be UL 1741, The Standard for Inverters, Converters and Controllers for Use In Independent Power. Contact Tim Zgonena, UL, 847-272-8800 ext. 43051,

Presentations – Codes and Regulations

— Regulatory Policy Options for DG — The Regulatory Assistance Project (RAP) is a non profit that educates and helps state regulators with electric utility regulation. With DOE funding they’re developing a series of issue papers and prototype standards documents for states to use as templates or starting points for DG interconnection, emissions, etc. One interesting observation: RAP suggests that restructuring can actually works against DG, when wholesale markets (ISOs) don’t offer payment for demand reduction, and distribution-only companies become more susceptible to revenue loss. The website has a wealth of material. Of particular interest, policy papers on DG and Electric System reliability, cost methodologies, customer value, and “Accomodating DG in Wholesale Markets”. Particularly note the Draft of a “Model DG Emissions Rule” which is getting a lot of comment. DOE is looking for more input from industry.
Contact: Cheryl Harrington, 207-582-1135,

— DG and FERC – Dan Adamson has done a detailed report on FERC’s role in DG, including policy directions and numerous cases that have come up over the last 10 years or more. Expect increasing complexity and litigation. Adamson believes that FERC has the authority to assert jurisdiction over interconnection of DG no matter how small, if it involves wholesale transactions, but not retail or self-generation. Last October, FERC announced an ANOPR on generation interconnection. On 11 January, consensus drafting groups submitted a lengthy filing, with big disagreements between transmission owners and small generators. A new strawman proposal was due Feb 1. Expect a NOPR for comment soon; FERC hopes to issue a final rule later this year. Even if FERC does get jurisdiction, they don’t have the staff expertise or resources to regulate at the distribution level, and will likely look to the new RTOs do handle the details. States will still have a big role in any case. And, many bills are before Congress; how they’d interact with FERC’s efforts needs to be watched closely. (There is a case before the Supreme Court that may decide much of this issue.

A detailed report will be made available soon on the DOE/DPP website. See more information at:
Contact: Dan Adamson, 202-508-6600,
Also, go to the source:
[Sign up for FERC’s “intranet” to see more details. Of note–most utilities’ participants seem to be in transmission or regulatory affairs… is your DG effort in the loop?]

— Local Permitting – This presentation gives a sobering picture of the situation at the local level. There are over 44,000 independent building inspection jursidictions. It can take 10 years or more to get a new technology mentioned in codes, and even then it is up to states which vintage of a code it wants to use. (For example, Nevada still uses the 1978 Electrical Code!?) Most Fire and Building inspectors have little or no experience or understanding of hydrogen, methanol, fuel cells, etc. so developers can have a tough time. DOE is sponsoring an Education and Outreach effort, doing workshops around the country for local inspectors and state officials. Contact Ann Marie Borbely-Bartis, 202-586-5196,

******** Late Breaking News ******
NARUC passed a resolution this week (13 Feb) to support development of a Model DG Rule — See below for particulars. — I can also send the actual text of the resolution on request.

Presentations – System Integration and Control

A series of ongoing projects address implementation and hardware, including demonstrations of whole building systems, enterprise-wide generation management, and aggregation of DG. Others are developing new hardware to increase capabilities, reliablity and cost-effectiveness of interconnection systems. [As this note is getting a bit too long–please see proceedings for the individual presentations, or contact me to discuss.]

Presentations – Industrial DG

This series of projects involve actual installations or market studies of individual industry sectors. Others addressed market potential in NY, CA and Chicago.

– Increasing the Use of DG in the Semiconductor Industry
Barry Cummings, Salt River Project
– Highly Varying Industrial Load
Dr. Robert Kramer, NiSource
– DG Integration with Telecommunications Facility
Doug Peck, Syska & Hennessy
– CHP Integration with Fluid Heating Processes in the Chemical and Refining Sectors
– CHP Installation at 29 Palms Marine Air Ground Combat
Henry Mak, So Cal Gas
– DG Improvements in Industrial Applications
Rich Biljetina, Industrial Center
– Chicago Industrial Energy Plan
John Kelly, Gas Technology Institute
– New York State Industrial DG
Nag Patibandla, NYSERDA
– Industrial DG Market Transformation Tools
Paul Bautista, Onsite Sycom

Naruc Adopts Resolution Endorsing Development of Model Interconnection Agreements and Procedures

Washington, February 13, 2002
The Board of Directors of the National Association of Regulatory Utility Commissioners (NARUC), this week at the NARUC 2002 Winter Meetings in Washington, D.C., endorsed the development of model interconnection agreement and procedures under the direction of its Committees on Electricity, Energy Resources and the Environment and Finance and Technology. Reiterating its support for open access to the nation’s electricity grid, and the importance of distributed energy resources to our energy future, NARUC noted in is resolution (attached) that:

– Coordination among the States could improve the consistency of treatment so important to the efficient integration of distributed energy resources; and

– Increased national consistency would lower entry barriers and enhance business economic efficiency, and,

– The ready availability of NARUC developed model agreements and procedures will aid in balancing those concerns; and the preparation of model interconnection agreement and procedures by NARUC could provide significant support and

– Efficiencies to those States which have yet to address the challenges of distributed energy resources, and the consideration, adaptation or adoption of such models could provide material assistance in achieving the coordination among the states called for by previous resolutions.

The DOE DPP program has previously support state commissions in their efforts to address the new challenges presented by integrating distributed generation into their energy system, and has been supporting this new initiative. The issue was timely at NARUC because of the FERC’s ongoing inquiry into developing a national rule setting forth interconnection procedures and a standard agreement for FERC jurisdictional interconnections, typically at the transmission level. Some controversy may develop where both state commissions and FERC assert jurisdiction of interconnection issues at the distribution level. For additional information contact Gary Nakarado, DP Program NREL, 303-275-3719 or Gary_Nakarado@NREL.Gov

Comprehensive Electricity Competition Plan

On Wed, DOE announced the Clinton Administration’s plan for the Electric Power Industry. The Summary, complete text, and Q&A, appear on the DOE’s home page (attached) at:

Here is the press release

March 25, 1998

NEWS MEDIA CONTACT: Tom Welch, 202/586-5806

Administration’s Plan Will Bring Competition
To Electricity, Savings to Consumers

$20 Billion a Year in Savings for Consumers

The Clinton Administration today announced a proposal to bring competition and consumer choice to the electricity industry, saving consumers roughly $20 billion a year and improving the environment by reducing pollution and greenhouse gas emissions.

The Administration’s Comprehensive Electricity Competition Plan will provide customer choice by 2003, but will allow states to opt out of competition if they believe that their consumers would be better off under the status quo. Replacing a regulated monopoly system with competition will also encourage efficiency, bring new products and services, strengthen reliability of service and protect consumers.

“This proposal will provide incentives for increased efficiency in the electricity market, saving American consumers $20 billion a year and reducing greenhouse gas emissions. Both the economy and the environment will benefit,” said President William J. Clinton.

“We will bring America’s electric industry into the modern era and save consumers money. A family of four will save $232 a year — about two weeks of groceries. For the average family, this is the equivalent of getting a 5 percent income tax cut,” said Secretary of Energy Federico Pe–a. “Competitive forces will also create a more efficient, leaner and cleaner industry. And the environment will benefit as reduced emissions accompany this increased efficiency.”

“This comprehensive plan is the Clinton Administration’s blueprint to Congress so that together we can design legislation that protects the environment, public health and the economy,” said EPA Administrator Carol Browner. “In addition to bringing competition to the electricity industry, this plan will reduce greenhouse gas emissions in cost-effective ways and march in lockstep with our previous commitments to clean air.”

“Sixteen states have already moved to provide for electricity industry competition. There are, however, issues that only the federal government can deal with,” said Secretary Pe–a. “Federal legislation is needed to enable states to implement retail competition effectively. And only federal legislation can modify or repeal outdated federal laws, cover regional electricity markets, address concerns about market power, ensure that the interstate electricity grid is reliable, and establish uniform standards so that all Americans are receiving the same information about their utility suppliers. We want to work with Congress to get comprehensive legislation that benefits all consumers.”

The Administration’s Comprehensive Electricity Competition Plan:

– Provides for customer choice by January 1, 2003, but allows states to opt out of the competitive market structure if they believe that their consumers would be better off under the status quo system or their own unique restructuring proposal. This will give states the freedom to structure retail competition that works best for their citizens.

– Supports stranded cost recovery for utilities that might not otherwise be able to recover the costs of certain past investments that are no longer economic in the low-cost competitive market. The plan encourages states to provide for recovery of stranded costs, supporting their fundamental authority in these matters.

– Strengthens electric service reliability by requiring that all participants in physical electric transactions on the grid comply with mandatory standards. The plan improves reliability by building on the industry’s tradition of self-regulation and giving the Federal Energy Regulatory Commission (FERC) authority to approve and oversee a private, self regulating organization that develops and enforces mandatory reliability standards.

– Gives FERC authority to require transmitting utilities to turn over operational control of transmission facilities to an independent system operator. The plan also includes a proposal to amend federal law to encourage the development of regional transmission planning and siting groups.

– Requires all utility companies to disclose, in a consistent format, information about the services they offer so customers can comparison shop and know what they are buying. Just as the Food and Drug Administration requires manufacturers to disclose nutrition information on a cereal box, utilities will use a standard consumer label that will include information on prices, terms, conditions, and the environmental impacts of the electric power being sold.

– Establishes a Renewable Portfolio Standard to ensure that at least 5.5 percent of all electricity sales include generation from renewable energy sources by 2010. This would double the projected amount of energy from non hydroelectric renewable sources such as wind, solar and biomass. If companies cannot generate power from their own renewable sources, they can purchase credits from those who exceed their targets. The proposal includes a backup cost cap to limit program costs.

– Cuts pollution and greenhouse gases. When costs start to matter, there will be increased economic incentives to cut the two-thirds of energy currently wasted in fossil fuel electricity generation. Greater power plant efficiency saves fuel, cuts oil imports and reduces greenhouse gas emissions.

– Establishes a Public Benefits Fund to provide matching funds of up to $3 billion to states for low-income assistance, energy-efficiency programs, research and development, and renewable technologies. These costs are currently passed on to consumers by regulated utilities in their rates. For example, many utilities include in their rates the cost of programs that make sure the poor and elderly do not have their heat shut off during the winter months. This funding approach will no longer work under competition because utilities will have to compete with new suppliers who do not have to pay for these costs. Many states that are moving to competition intend to continue funding these programs through a separate distribution fee on all electricity customers. The Public Benefit Fund would encourage and support states to ensure that the current level of funding for these programs, estimated at about $6 billion in 1996, is preserved.

– Gives EPA authority to provide interstate nitrogen oxide trading authority to assure that we achieve NOx reductions as cost-effectively as possible and enhance air quality.

– Modernizes federal electricity law to get the right balance of competition without market abuse, including giving FERC the authority to mitigate market power in the event that some companies begin to acquire excessive control over retail electricity markets and repealing outdated laws like the Public Utility Holding Company Act of 1935 and the “must buy” provision of the Public Utility Regulatory Policies Act.

“The electricity industry is still operating under a regulated, monopoly system — rules, regulations and laws that were first enacted decades ago. Consumers can’t choose their own suppliers and there is little incentive for companies to be cost- and energy-efficient. Why? Because a regulated monopoly supplier doesn’t have to compete and essentially has a guarantee that its costs will be recovered.

“If you’re the only game in town, you set the rules of the game,” Pe–a said. “With competition, we’re going to change this. With competition, the customer will come first.”

– DOE –


[Comprehensive Electricity Competition Plan]

Comprehensive Electricity Competition Plan on-line
Download a copy of the Comprehensive Electricity
Competition Plan (*PDF format)

Summary on-line
Download a copy of the Summary (*PDF format)

Questions and Answers about the Plan 0n-line
Download a copy of the Questions and Answers about
the Plan (*PDF format)

News Release on the Comprehensive Electricity Competition Plan

Fact Sheets

Benefits of Plan
Need for Federal Action
Retail Competition Policy – Flexible Mandate
Stranded Cost Principle
Consumer Information
Strengthen Electric System Reliability
Renewable Portfolio Standard
Public Benefits Fund
Air Quality
Download a copy of all Fact Sheets (*PDF format)
Download a copy of Fact Sheets about Impact of Plan on
Consumers by Identified Regions (*PDF format)


FERC Conf. on ISOs

On Friday, FERC announced it will hold a conference on policies regarding ISOs. Here is the notice in its entirety, as taken from the FERC CIPS online system, at

For future reference, the FERC website is at:



Inquiry Concerning the )
Commission’s Policy on ) Docket No. PL98-5-000
Independent System Operators )

(March 13, 1998)

The Federal Energy Regulatory Commission (Commission) hereby announces that it will convene a public conference to discuss its policies concerning Independent System Operators (ISOs). The conference will be held on April 15-16, 1998. Primarily, the Commission intends to examine the future of ISOs in administering the electric transmission grid on a regional basis. It wishes to examine whether any changes to the Commission’s policies that affect the development of ISOs are appropriate in order to promote competition and reliability in bulk power markets. The Commission expects to address issues pertaining to the formation and responsibilities of ISOs, whether ISOs can serve as an effective vehicle for further industry reform, and the appropriate roles for federal and state regulators in ISO development.

I. Introduction

In Order Nos. 888 and 889 and their progeny (1) , the Commission established the fundamental principles of non- discriminatory open access transmission services. Nevertheless, many issues remain to be addressed if the Nation is to fully realize the benefits of open access and more competitive electric markets. The formation of regional ISOs may facilitate achievement of the Commission’s pro-competitive goals.

(1) See Promoting Wholesale Competition Through Open Access Nondiscriminatory Transmission Services by Public Utilities; and Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, 61 Fed. Reg. 21,540 (1996), FERC Stats. & Regs. 31,036 (1996), order on reh’g, Order No. 888-A, 62 Fed Reg. 12,274 (1997), FERC Stats. & Regs. 31,048 (1997), order on reh’g, Order No. 888-B, 81 FERC 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC 61,046 (1998). Open-Access Same-Time Information System and Standards of Conduct, Order No. 889, 61 Fed. Reg. 21,737 (1996), FERC Stats. & Regs. 31,035 (1996), order on reh’g, Order No. 889-A, 62 Fed. Reg. 12,484 (1997), FERC Stats. & Regs. 31,049 (1997), order on reh’g, Order No. 889-B, 81 FERC 61,253 (1997).

In the wake of the unprecedented restructuring taking place in the electric industry, the Commission has received several proposals for forming ISOs and a number of regions are also in the process of developing ISO proposals. The Commission has approved ISOs in California, the Pennsylvania-New Jersey-Maryland Interconnection (PJM), and for the New England Power Pool (New England). In addition, proposals have been filed for creating ISOs in the Midwest and New York. Utilities and other market participants in the Electric Reliability Council of Texas have also formed an independent system administrator. Members of the Mid Continent Area Power Pool and the Southwest Power Pool are discussing respective ISO proposals. In the Pacific Northwest, utilities have been involved in negotiations intended to lead to the formation of an ISO (Indego). Also, utilities in New Mexico, Arizona, and Nevada have agreed to pursue development of an ISO (Desert Star). In addition, 11 investor-owned utilities from Ohio to the District of Columbia have signed a memorandum of understanding to explore the creation of an independent regional transmission entity.

This activity, and the growing popularity of the ISO concept, presents important and even urgent questions involving the appropriate function and organization of an ISO, whether the Commission should be more active or prescriptive in this area, and whether the pro-competition goals of Commission Order Nos. 888 and 889 can be further advanced with ISOs. We note that 11 state commissions have recently filed a petition in Docket No. PL98-3-000 suggesting that the Commission generically address ISO issues.

Although the Commission has not prescribed a single approach to ISOs, it has provided significant guidance regarding the proper formation and functions of ISOs. Given the dramatic changes taking place in both wholesale and retail electric markets and the many proposals under consideration with respect to the creation of ISOs or other transmission entities, such as transmission-only utilities, it is time for the Commission to take stock of its policies in order to determine whether they appropriately support our dual goals of eliminating undue discrimination and promoting competition in electric power markets. Accordingly, the discussion below provides a description of topic areas that we would like to explore at the conference for purposes of refining our ISO policies.

II. Panels

The Commission will organize the conference according to the following panel discussions. Appended to this notice is an extensive list of questions and topics assembled by Commission staff for each panel discussion. Participants will find it a general indication of the scope of the Commission’s interest in relation to each panel. The Commission also invites interested parties to address their written comments to the questions listed as well as to any related ISO matters of generic interest.


Panel 1 Basic Structure and Role

What will be the significance of the ISO’s role in the evolution of wholesale and retail electric markets? Should the ISO control some or all aspects of grid operations in order to promote competition in wholesale and retail power markets? Must the ISO be a control area operator?

Panel 2 Regulation, Governance, and Independence

How should ISOs be formed, governed, and regulated, given the current and foreseeable restructuring of the electric industry?


Panel 3 Role of States

What is the appropriate role for states in the oversight of single-state and multi-state ISOs?

Panel 4 ISOs and Reliability

Can the formation of regional ISOs promote or enhance the reliability or security of the regional grid?

Panel 5 ISOs and Transmission Pricing

How might ISOs facilitate transmission pricing reform?

Panel 6 ISOs and Market Monitoring

Should ISOs have monitoring and sanctioning functions and, if so, can they be sufficiently independent to enable the Commission to rely upon their processes?

Panel 7 ISOs and FERC Regulation

Should the Commission require, to the extent it has the authority to require, transmission owners to form or join an ISO in the interest of preventing undue discrimination, mitigating market power, completing a nascent regional ISO, or achieving any other benefits?

III. Participation In Conference

The Commission believes that it would be beneficial at this juncture to further explore our transmission policies. To that end, we announce today a conference, as discussed above, to examine our current policies on ISOs and any appropriate changes to those policies to further our pro-competitive goals. The conference will take place on April 15-16, 1998, at the offices of the Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426. The conference will commence at 1:30 p.m. on April 15 and at 9:30 a.m. on April 16, and will be open to all interested persons.

Persons wishing to speak at the conference must submit a request to make a statement in Docket No. PL98-5-000. The request should clearly specify the name of the person desiring to speak and the party or parties the speaker represents. The request must also include a brief synopsis (not to exceed three pages) of the issue or issues the speaker wishes to address. All requests must be filed with the Office of the Secretary, Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C. 20426, on or before March 31, 1998. The Commission may also contact industry experts to participate in the conference. The Commission will issue a further notice listing the speakers and panels for the conference.
In addition, all interested persons are invited to submit written comments (not to exceed 10 pages) addressing topics to be discussed at the conference. Comments must also be filed on or before March 31, 1998, in Docket No. PL98-5-000. After the conference, interested persons may also submit written comments, with all such comments due on or before May 1, 1998. All comments will be placed in the Commission’s public files and will be available for inspection or copying in the Commission’s Public Reference Room during normal business hours. Comments are also accessible via the Commission’s Records Information Management System (RIMS).

If there is sufficient interest, the Capitol Connection will broadcast the technical conference on April 15-16, 1998, to interested persons. Persons interested in receiving the broadcast for a fee should contact Shirley Al-Jarani at the Capitol Connection (703)993-3100 no later than April 3, 1998.

In addition, National Narrowcast Network’s Hearings-On-the Line service covers all FERC meetings live by telephone so that anyone can listen at their desk, from their homes, or from any phone without special equipment. Call (202) 966-2211 for details. Billing is based on time on-line.



Panel 1 Basic Structure and Role

What is the optimal size of an ISO? What factors (e.g., transmission technology, legal/jurisdictional distinctions, reliability councils) should affect the size of an ISO?

What are appropriate ISO operational responsibilities? Should the ISO operate SCADA (supervisory control and data acquisition) systems, switches, reactive power devices, transformer switching, phase shifters, and other transmission control equipment? Should the ISO control transmission facility maintenance schedules? Should the ISO control generation facilities that provide ancillary services, such as reactive power from generation, regulation and operating reserves? Should the ISO be able to direct the generation dispatch decisions of control area operators if the ISO itself is not a control area operator? Should the Commission further define the operational features of an ISO (i.e., should the Commission specify additional standards that define what is meant by an effective system operation and control), or should we allow substantial regional variation? What is the appropriate role for an ISO with regard to grid planning and expansion?
To ensure non-discriminatory transmission access, must an ISO be a control area operator? If there is a requirement that an ISO be a single control area operator and that is not feasible or cost-effective over a large area, would the result be an ISO that is too small to achieve other efficiencies like the elimination of pancaked transmission rates? Would a requirement that an ISO be a control area operator enhance competition and lower barriers to entry in the generation market? Does an ISO member that is also a control area operator have access to information that gives it an unfair advantage if it is also a market participant?

Some industry participants question whether ISOs will be permanent institutions or whether they are only transitional. Are ISOs merely part of a transitional phase for the electric industry or will ISOs be a permanent fixture in the industry structure for the foreseeable future? Is an ISO a stepping-stone to the independent regional transmission grid company? Should ISOs be designed consistent with the possible evolution to a regional gridco (i.e., a company that both owns and operates the high voltage grid)? Are there features of ISOs (e.g., stakeholder boards, not-for-profit status, ISOs serving as the operator of the PX) that will either enhance or inhibit their possible evolution into gridcos? What changes in ISO structure would be necessary to enable an ISO to more easily evolve into a gridco? Is a gridco (either for-profit or non-profit) preferable to a non-profit ISO that does not own transmission facilities?

Should the Commission encourage the formation of other transmission entities, i.e., private for-profit or government owned transmission entities? Would other types of transmission entities be better suited to sustain competition?

Panel 2 Regulation, Governance, and Independence

The Commission has not mandated a specific form of ISO governance, although it has emphasized that independence of the ISO “is the bedrock upon which the ISO must be built if stakeholders are to have confidence that it will function in a manner consistent with this Commission’s pro-competitive goals.” (2) In addition, the Commission has stressed that expertise is also critical, since transmission owners would be understandably reluctant to turn over control of their transmission assets to an operator that lacks the necessary operational expertise.

(2) Atlantic City Electric Company, et al., 77 FERC 61,148 at 61,574 (1996).

The recent trend has been toward a two-tiered form of governance: an independent non-stakeholder board, whose members are not affiliated with market participants, advised by committees of stakeholders. Within the ISO, the independent non- stakeholder board has the ultimate decision-making authority. Some have suggested that the two-tiered approach seems to have the advantage of combining independence with expertise. The two- tiered approach has been adopted in New England and PJM.

Should the Commission encourage or define a particular form of ISO governance beyond the independence principle? Should the Commission establish additional standards in the area of governance, but allow reasonable variations on a regional basis? Because transmission system owners do not have a controlling vote in an ISO, should the owners be allowed to establish any ISO rules that cannot be changed by vote of the ISO Board, as a condition for the owners to join the ISO? Should the ISO have the authority to modify transmission tariffs and operating rules without seeking the approval of the transmission owners? Should the Commission require more specificity on the division of liability between the transmission owners and the ISO? If the Commission is satisfied that an ISO’s governance arrangements ensure independence (i.e., are neutral relative to the economic interests of different classes of market participants and to different states), should the Commission give more deference to the decisions made by the ISO governing board? The experience in other countries suggests that ISOs need to make many adjustments in their early stages of development. The ability of ISOs to make necessary changes in their rules may be slowed down if the Commission employs the same review processes that have historically been applied to the rate filings of traditional vertically integrated public utilities and to power pools with governance structures dominated by transmission owners. Are there streamlined or light-handed regulatory processes that would allow independently governed ISOs to make needed rule changes while still ensuring that the Commission can function as a “backstop” to protect the public interest?

The relationship between an ISO and any power exchange (PX) is also an important issue to consider pertaining to ISO formation. The relationship between an ISO and PX can take on different forms: in California, the ISO will be the control area operator and the PX mandated by State restructuring legislation will be operated independently of the ISO as one of several possible exchanges; in PJM, the ISO operates the PX; and the Midwest ISO does not propose to be either a control area operator or to administer any centralized power exchange. Do the operational features of power systems require that the ISO and PX be one and the same in order for the marketplace to operate efficiently, or can efficiencies be maximized if such institutions operate independently? Should we require that an ISO be associated with a PX? If so, under what conditions?


Panel 3 Role of States

Panel 4 ISOs and Reliability

One purpose of an ISO that is a control area operator is to make an independent party, the ISO, responsible for at least short-term reliability. Increased competition in wholesale electricity markets has resulted in many new market participants, and has fostered a great increase in the number and variety of wholesale transmission and power sale arrangements, including ancillary services needed to accomplish transmission service. As the number of power sales continues to increase, the Nation’s high voltage transmission system is being used more extensively and in ways that differ from its original design. Recent experience indicates that line loading is increasingly problematic. As usage grows, it is increasingly important for regional stability that transmission providers have access to greater information in order to maintain the reliability of the grid.

The Commission is committed to ensuring that the rules and practices for reliable operation of the grid are compatible with open, non-discriminatory use of transmission systems. Regional ISOs would be aware of power flows over a broader geographic region and would be independent of the competitive pressures affecting market participants engaged in power sales and purchases. Are there opportunities for regional ISOs to address reliability concerns and thereby maintain, and even enhance, the reliability of the transmission grid in an open access environment? Should an ISO have a special relationship with regional reliability authorities or should it establish its own mandatory reliability rules? If so, should the rules be determined on a regional or national basis? What is necessary to ensure that regional ISOs will have access to all information required for them to determine power flows in their region? Should the ISO be responsible for both calculating and posting regional ATC values, along with the method and data used to determine these values? Should the ISO be allowed to implement voluntary redispatching of resources for transmission loading relief, before pro-rata curtailment? Would a regional ISO, as compared to an individual transmission owner, be able to manage congested interfaces and loop flow issues in a more efficient and non-discriminatory manner?

The North American Electric Reliability Council has encouraged the development of security coordinators. What rules should apply so that the ISOs’ responsibilities for maintaining reliability appropriately complement utilities’ obligations to maintain reliability at the retail level? Would it be preferable for the ISO to be the security coordinator in its region?

Would other entities through entrepreneurial efforts provide better reliability?

Panel 5 ISOs and Transmission Pricing
Regional ISOs can serve as a vehicle for making transmission pricing more efficient and thereby promote competition in electric markets. Pancaked transmission rates are a barrier to efficient trading because they add an embedded cost charge every time a transaction crosses a corporate boundary. A non-pancaked rate gives buyers and sellers of electricity greater access over a broader geographic market and thereby can remove one of the greatest barriers to trade. Further, regional ISOs may be able to take account of loop flows and price transmission congestion efficiently. Should the Commission establish a uniform method for transmission pricing in regional ISOs, or should transmission pricing be considered on a region-by-region basis? Is it more appropriate for a customer to pay an access charge based on the costs of the transmission owner where the load is located? Or, should the Commission require that access charges be set using a single, uniform rate? Should the Commission consider providing for incentive rates of return to the ISO or transmission owners? If so, how should such incentives be structured? Should they be designed to maximize throughput on the grid or more general measures of efficiency? Should the Commission encourage a uniform model for pricing transmission congestion? Could other transmission entities provide adequate pricing alternatives?

Panel 6 ISOs and Market Monitoring

An ISO is a regulated public utility. However, it is not a traditional public utility because it is typically a non-profit organization that provides services to all market participants and is not directly controlled by any single participant or class of participants. Because the ISO will be involved in the day-to- day operation of the grid, it will know more about the grid and perhaps market operations than any other regional organization. While the Commission cannot abdicate its responsibilities to ensure just and reasonable rates and non-discriminatory terms and conditions of jurisdictional services, ISOs have the potential to monitor the competitiveness of regional bulk power markets and assess the availability of non-discriminatory access to transmission and ancillary services. In orders issued in the California and PJM restructuring proceedings, the Commission (3) required the ISOs to develop market monitoring plans.
(3) See Pacific Gas and Electric Company, et al., 77 FERC 61,265 at 62,087 (1996); Pacific Gas and Electric Company, et al., 81 FERC 61,122 at 61,548-54 (1997); Pennsylvania-New Jersey-Maryland Interconnection, et al., 81 FERC 61,257 at 62,282 (1997).

As explained in PJM, a market monitoring function must be conducted in an independent and objective manner. Should the Commission require every ISO to have a market monitoring plan? Should a market monitoring plan allow the ISO to detect and report market power abuses (vertical and horizontal), assess undue discrimination in the provision of transmission and ancillary services, and assure compliance with the ISO’s rules? Would it be appropriate to include enforcement mechanisms (e.g., sanctions and mitigation actions) with a monitoring function? Must the Commission review any ISO-imposed sanction or would it be appropriate to act only upon complaint? Are there any limitations on the Commission’s authority to permit initial market monitoring to be conducted by ISOs? Should the Commission rely in the first instance on the ISO to monitor discriminatory behavior?

Is it necessary and feasible for ISOs to monitor bilateral markets? Are the potential remedies available to ISOs (e.g., price caps, bidding caps, loss of bidding privileges) likely to be effective if the underlying problem is structural? Should there be different market monitoring requirements for ISOs that do not operate centralized energy markets?

Panel 7 ISOs and FERC Regulation

In Order Nos. 888 and 888-A, the Commission elected not to mandate the formation of ISOs. We stated, however, that if it becomes apparent that functional unbundling is inadequate or unworkable in assuring non-discriminatory open access transmission, we would reevaluate our position and decide whether other mechanisms, such as ISOs, should be required. In Order No. 888-A, we recognized that it would be appropriate to allow some time to confirm whether the functional unbundling mandated by Order Nos. 888 and 889 will remedy undue discrimination before reconsidering our decision that ISO formation should be (4) voluntary. Given that the industry has now operated under the Order No. 888 open access regime for almost two years, the question now before us is whether we should go beyond our current policy of merely encouraging regional ISOs.

(4) Order No. 888-A at 30,249.

The Commission would also like to consider the related issue of whether all public utilities in a region should be required to participate in an ISO when an ISO proposal is geographically fractured. Should the Commission be concerned if some public utility transmission owners in a region refuse to join the ISO? Will a patchwork ISO within a region raise issues of undue discrimination? What should the Commission’s response be to a proposal that has so many geographic holes that it does not permit effective regional competition and may hinder assurance of reliability? Should the Commission define appropriate geographic boundaries for ISOs?

Should the Commission require membership in an ISO in order to remedy undue discrimination under Sections 205 and 206 of the Federal Power Act (FPA)? Would our authority to remedy undue discrimination be broader if an ISO proposal is geographically incomplete (e.g., if similarly situated customers were paying different transmission service rates — one pancaked and one not)? What is the Commission’s authority in these matters over transmitting utilities that are not public utilities?

The Commission has strongly encouraged merger applicants to join an appropriate ISO. Would it be appropriate for the Commission to generically find that a merger applicant’s participation in an appropriately structured ISO is necessary to find that a merger of jurisdictional facilities is consistent 5 with the public interest under FPA Section 203? Should the Commission continue considering whether ISO membership is necessary in individual merger proceedings?

FPA Section 202(a) provides that “the Commission is empowered and directed to divide the country into regional districts for the voluntary interconnection and coordination of facilities for the generation, transmission, and sale of electric energy.” This authority currently resides with the Department of Energy (DOE). If DOE were to use its authority, or delegate that authority to the Commission, should Section 202(a) be used to enhance the development of ISOs in a rational, comprehensive manner? Would Section 202(a) empower DOE or the Commission to define appropriate geographic boundaries for ISOs?

Ancillary Services – new ORNL report

In a continuing series on utility industry restructuring, Oak Ridge has just released a new report on Ancillary Services:

“Creating Competitive Markets for Ancillary Services,” ORNL/CON-448,
Eric Hirst and Brendan Kirby, October 1997

FERC has recognized the importance of ancillary services for bulk-power reliability and support of commercial transactions on interconnected transmission systems, and Order 888 includes a pro forma tariff for six key ancillary services. To date most tariffs that have been filed have prices these services on the basis of traditional cost-of-service (embedded) costs. Because most of these services are provided by generating units, however, it should be possible to create competitive markets for them. Recent proposals for ISOs call for such markets, but lack the details on how these markets would be structured and operated.

This report describes a spreadsheet model that simulates markets for sevsen services: losses, regulation, spinning reserve, supplemental reserve, load following, energy imbalance, and voltage support. The work demonstrates the likely complexity of markets for energy and ancillary services, arising because the markets are highly interdependent. Costs and prices will vary considerably as functions of system load and current spot price of energy. Also, embedded cost prices bear little relationship to costs and prices that would actually occur in competitive markets. (Capital costs which figure so prominently in embedded costs would be largely irrelevant, and opportunity costs ignored in cost of service analysis can dominate the prices of some ancillary services at times.)

Copies of this report and others listed below can be obtained from Ethel Schorn, Oak Ridge National Laboratory, PO Box 2008, Oak Ridge, TN 37831-6206, e-mail, or fax 423-576-8745.
Eric Hirst, who is always interested in discussing industry issues, can be reached at 423-574-6304,

Here is a partial list of recent ORNL publications, including several earlier ones on Ancillary Services:

L. Baxter, E. Hirst, and S. Hadley 1997, Transition-Cost Issues for a Restructuring U.S. Electricity Industry, ORNL/CON-440, March.

E. Hirst, and B. Kirby 1997, Ancillary-Service Details: Dynamic Scheduling, ORNL/CON-438, January.

E. Hirst 1996, “Bulk-Power Reliability: More Than Apple Pie and Motherhood,” The Electricity Journal 9(10), December.

E. Hirst 1996, Ancillary-Service Details: Regulation, Load Following, and Generator Response, ORNL/CON-433, September.

E. Hirst, S. Hadley, and L. Baxter 1996, Factors that Affect Electric-Utility Stranded Commitments, ORNL/CON-432, July.

L. Baxter, S. Hadley, and E. Hirst 1996, Strategies to Address Transition Costs in the Electricity Industry, ORNL/CON-431, July.

B. Kirby and E. Hirst 1996, Ancillary-Service Costs for 12 U.S. Electric Utilities, ORNL/CON-427, March.

B. Tonn and M. Schweitzer 1996, Public Policy Responsibilities in a Restructured Electric Industry: Analysis of Values, Objectives, and Approaches, ORNL/CON-428, March.

S. W. Hadley 1996, ORFIN: An Electric Utility Financial and Production Simulator, ORNL/CON-430, March.

E. Hirst and B. Kirby 1996, Electric-Power Ancillary Services, ORNL/CON-426, February.

DOE Reliability TF PAPER

Just received from Paul Carrier, Task Force Staff Director:

Attached is a copy of the Paper on “Maintaining Bulk-Power Reliability Through Use of a Self-Regulating Reliability Organization” approved by the Secretary’s Task Force on Electric System Reliability at it November 6 meeting. Also attached is a letter from Dr. Philip Sharp, Task Force Chairman, transmitting the Paper to the Chair of the Secretary of Energy Advisory Board.

(Also available in Word format on request)

Dr. Walter Massey
Chairman, Secretary of Energy Advisory Board
c/o Morehouse College
830 Westview Drive, S.W.
Atlanta Georgia 30314

Dear Dr. Massey:

The Task Force on Electric System Reliability of the Secretary of Energy Advisory Board is writing to provide you with our Task Force Paper entitled Maintaining Bulk-Power Reliability Through Use of a Self-Regulating Organization. This Paper was approved by the Task Force members at our November 6, 1997 meeting.

This Paper expands on the recommendation in our earlier Interim Report that federal legislation clarify the Federal Energy Regulatory Commission’s authority to approve and oversee the operations of a private standard-setting, electric-reliability organization.

The Task Force anticipates preparing additional papers on a variety of electric-reliability topics over the next nine months, leading to a final report.

The Task Force appreciates the opportunity to provide the Department with this Paper and respectfully submits the recommendations therein.


Dr. Philip Sharp
Task Force on Electric System Reliability


cc: Federico Peña
Elizabeth Moler
Secretary of Energy Advisory Board
Task Force on Electric-System Reliability


November 6, 1997

In its Interim Report, the Task Force recommended that federal legislation clarify the Federal Energy Regulatory Commission’s (FERC) authority to approve and oversee the operations of an electric-reliability organization. This paper provides Task Force recommendations concerning the relationship between the FERC and a single, international, self-regulating reliability organization (SRRO) , such as a significantly reformed North American Electric Reliability Council (NERC) with a representative membership and governance system, to assure reliability of the bulk-power system.


Historically, NERC, the regional reliability councils, and individual utilities have managed reliability through a system of peer-reviewed standards coupled with voluntary cooperation and adherence to reliability rules. In that system, costs associated with maintaining reliability could be recovered through rates, and peer pressure and reciprocal treatment of costs were generally sufficient to keep utilities in compliance. Also, NERC, as an international organization, includes members from all countries sharing use of the interconnected transmission grid. Under this system, a set of effective reliability rules was developed and implemented.

The Task Force believes the system is clearly unsustainable in the increasingly decentralized and competitive U.S. electricity industry. Voluntary cooperation is unlikely to be sufficient because of the dramatic increase in the number of bulk-power transactions, the increased diversity of interests among participants, the growing unbundling (deintegration) of the electricity industry, the focus on price, and the lack of appropriate incentives for those entities contributing to reliability.

Most participants in and observers of the electricity industry agree that the voluntary system must be replaced with one that requires compliance with enforceable, non-discriminatory reliability rules applicable to all entities participating in the electricity market. This requires federal legislative authority.

NERC’s Board of Trustees agreed in principle in January 1997 to require adherence to NERC rules and procedures. This new system attempts to feature: measurable performance standards, the requirement that all participants in bulk-power systems meet these standards, enforcement of these standards, and penalties for failure to comply with these standards. The detailed refinement of the standards and implementation of these principles is a work in progress.

Questions remain whether NERC has the authority to require industry participants to abide by the new rules and procedures in the absence of legislation. It is not clear whether the FERC has sufficient statutory authority to enforce NERC rules. The FERC has issued several orders requiring parties to abide by the NERC standards and parties have assented to the requirements. However, the use of FERC’s conditioning authority to enforce NERC standards has not yet been challenged. Others question whether the FERC should enforce these rules in light of concerns over NERC’s governance and decision-making procedures.

In response to these concerns, the Task Force suggests that the U.S. Congress adopt legislation to clarify such authorities and enable the FERC to approve a national self-regulating organization to establish electric reliability standards similar to the National Association of Security Dealers (NASD) in the securities industry. Under federal law, the Securities and Exchange Commission (SEC) has authority to delegate significant regulatory authority to a number of private, member-owned and operated organizations in the securities industry. The SEC has authorized several self regulating organizations (SROs) under the statutory framework.

The experience in the securities industry has been relatively successful in this regard. Self regulation under a legal framework established by Congress, and administered and enforced by a duly appointed federal agency, has certain advantages over government regulation in terms of lower costs to the taxpayer, administrative efficiency and technical expertise in developing and enforcing technical standards, and greater compliance by the regulated firms (because they helped develop the regulations). On the other hand, without careful oversight from the government, SROs might not fully consider the perspectives of the general public and focus too narrowly on the interests of the industry being regulated, especially on issues that involve policy elements rather than technical issues.

SROs have been challenged in the courts and have been found to be legal, but only if properly structured. For example, the SEC Act was found to be a constitutional delegation because:
– The SEC has the power, according to reasonably fixed statutory standards, to approve or disapprove rules; and
– The SEC must make an independent decision on violations and penalties.


Federal legislation should grant more explicit statutory authority to the FERC to approve and oversee an electric industry SRRO having responsibility for bulk-power reliability standards.

As the industry organization currently responsible for electric reliability, most of the members of the Task Force believe that the NERC and its regional reliability councils will evolve into an entity that could fill the role of the SRRO. Most believe the NERC has already initiated many of the changes that will be required for it to be the SRRO. However, we note that this will not occur automatically. In order to qualify as the SRRO, a reformed NERC will have to meet all of the requirements of legislation and the FERC with respect to governance and processes.

The SRRO would provide the technical expertise on how best to maintain high levels of bulk-power reliability. The FERC would have regulatory oversight to ensure compliance with and ultimately resolve disputes over any SRRO mandatory reliability standards. The SRRO would produce mandatory standards applicable to all participants in the domestic and international bulk-power system. The FERC would either confirm SRRO mandatory standards or deny them and refer them back to the SRRO with comments requesting revision and resubmittal of the standards.

The SRRO would develop measurable performance standards. These mandatory standards would replace the voluntary requirements that NERC has previously relied on. Importantly, however, NERC must expedite the development and implementation of measurable standards in an open process that includes full and fair representation of all stakeholders and market participants. The Task Force recognizes that many non-utility participants have significant concerns about membership and representation and believe that NERC and the regional reliability councils must immediately open their membership to balanced representation of all stakeholders and market participants.

Legislation should provide for the following:
FERC review and approval of a proposal for an electric industry SRRO;
FERC implementation of mandatory reliability standards for the nation through rulemakings in accordance with the Administrative Procedures Act;
FERC jurisdiction for reliability over the bulk-power system including those portions owned or operated by federal, cooperative, and municipal utilities and all other entities participating in the electricity market;
FERC review and approval of all SRRO mandatory standards including specified incentives and penalties for compliance;
FERC ability to require the SRRO to develop, modify, or replace standards when necessary;
Mandatory application of reliability standards to all entities using or operating the bulk-power system;
SRRO enforcement of mandatory standards, including imposition of penalties or fines, subject to FERC review;
FERC authority to expedite or temporarily waive procedures when necessary to address an ongoing or imminent reliability problem;
When requested by the SRRO or on its own initiative (e.g., in an emergency situation or stemming from a complaint), FERC review of any SRRO governance or process issues, standards, or SRRO enforcement action; and
Sufficient resources for the FERC to administer its new responsibilities including the authority to levy necessary fees on the industry and access industry computer models, data and transmission experts.

When considering an application for the SRRO, the FERC would give notice of the application and provide an opportunity for public comment in accordance with the Administrative Procedures Act. Particular consideration would be given to SRRO governance, processes, and funding. The SRRO must assure a fair governance process that cannot be dominated by any single industry sector. The FERC would review the application to ensure that the SRRO would function in a manner consistent with the public interest and national reliability policy.

Likewise, when reviewing SRRO mandatory reliability standards, the FERC would issue a notice of proposed rulemaking based on the standard and provide an opportunity for public comment. FERC approval of a standard would require a finding that the standard was fairly developed, is cost effective, and is consistent with the public interest and national reliability policy.

In recognition of the international nature of the interconnected transmission grid, the Task Force has taken the position that mandatory electric reliability standards must be developed by the SRRO and approved by the FERC in accordance with the Administrative Procedures Act. Standard development needs to be done by a single entity that can represent all countries using the interconnected transmission grid. Also, SRRO development of the mandatory standards would avoid the imposition of federally developed standards on those portions of the interconnected transmission grid located in Canada and Mexico. Currently, the Canadian government and electric industry is represented in NERC and it will be necessary to include both Canadian and Mexican representation in the SRRO. The interests of the United States would be protected by enabling the FERC to require the SRRO to develop or modify standards as necessary. It would be incumbent upon the SRRO to develop mandatory standards that are acceptable to all three countries.

Reliability TF draft Interim Report

Subject: UFTO Note – Reliability TF draft Interim Report
Date: Fri, 11 Jul 1997 11:12:59 -0700
From: Ed Beardsworth

— advance copy just received from contacts at DOE —

| ** UFTO ** Edward Beardsworth ** Consultant
| 951 Lincoln Ave. tel 415-328-5670
| Palo Alto CA 94301-3041 fax 415-328-5675


The attached file contains a draft Interim Report that will be discussed and marked up at the July 23 – 24 meeting of the Secretary’s Electric System Reliability Task Force.

Please note that this draft has not yet been reviewed by the Task Force members.


Dr. Walter Massey
Chairman, Secretary of Energy Advisory Board
c/o Morehouse College
830 Westview Drive, SW
Atlanta, Georgia 30314

Dear Dr. Massey:

The Task Force on Electric System Reliability of the Secretary of Energy’s Advisory Board is writing to provide you interim comments on several issues important to the maintenance of reliability. Although the Task Force has not yet completed its deliberations under the Secretary of Energy Advisory Board’s Terms of Reference, its members are aware that the Department and the Administration may be making decisions on these issues and we want to be as helpful as possible.

As you know, the 24-member Task Force is a diverse group representing, for example, electricity producers, marketers, state agencies, consumers, environmental advocates, reliability organizations and academia. Not surprisingly, with such differing perspectives on changing and complex issues, it is not easy for the group to rapidly reach a consensus. Naturally, not every member agrees with every detail of this report.

We certainly all do agree, however, that the maintenance of system reliability must be a high priority and that the mechanisms for ensuring reliability must be changed to accommodate the changing electric market.

Since its establishment in January, 1997, the Task Force has convened in four open meetings. Thus far, we have focused primarily on issues relating to the bulk power transmission grid and in particular security issues—that is, questions about the operation and maintenance of that system–rather than the adequacy of supply or generation. We will be assessing a number of additional issues at future meetings.

The Task Force appreciates the opportunity to provide the Department with this Interim Report and respectfully submits the preliminary findings and recommendations contained therein.


cc: Federico Peña
Elizabeth Moler

Secretary of Energy Advisory Board
Task Force on Electric System Reliability

Interim Report

July 24, 1997


This report makes recommendations regarding the security of the Nation’s bulk power system consisting of generation, transmission, and control facilities.

Electric reliability can be divided into two areas: reliability of the distribution system and reliability of the bulk power system. Bulk power system outages affect large areas and can have significant regional and national implications. Further, the rules for assuring reliable operation of the bulk power system can have an effect on the transactions occurring on the system. Federal regulators have responsibility for economic regulation of electricity in interstate commerce, including wholesale transactions involving most of the nation’s generation and transmission facilities, within and across state borders. An issue introduced by competition in bulk power markets is the need to assure reliable system operations in a competitively neutral way. While everyone agrees that system reliability must be maintained as a feature of a competitive electric industry and must be under the direction of experienced expert operators, not everyone agrees about how to resolve reliability issues in a manner that does not discriminate for or against certain participants in competitive bulk power markets.

While states have an interest in the performance of the bulk power system, state regulation has tended to focus on distribution system outages, that generally have only localized effects and are frequently characterized as being related to end-user customer service, which is an area of state jurisdiction. States have traditionally also had regulatory responsibility for economic and planning approval for certain generation facilities and recovery of their costs and siting approval of both generation and transmission facilities within the state.

Bulk power system reliability has two components: adequacy and security. Adequacy implies that there are sufficient generation and transmission resources available to meet projected needs at all times, including peak conditions, plus reserves for contingencies. Security implies that the system will remain intact even after planned and unplanned outages or other equipment failures occur. Most view transmission adequacy and system security as “public goods” that benefit all buyers and sellers of electricity, and which exhibit monopoly characteristics. While the market will likely play a role in providing certain services that are needed for transmission adequacy and system security, these are the areas of greatest national interest from a reliability point of view and the primary focus of this report.

Bulk power system reliability has historically been the responsibility of the electricity industry, as opposed to the government which has only indirect jurisdiction primarily through economic regulation of wholesale electricity sales by the Federal Energy Regulatory Commission (FERC). The Department of Energy and the FERC also have some limited authority under certain circumstances to order transmission, require interconnections, make reliability recommendations and collect information. The industry, through the North American Electric Reliability Council (NERC), a self-regulating organization traditionally made up of electric utilities, and the ten regional reliability councils establish reliability standards and monitor compliance. While these organizations have been effective in a world of vertically integrated electric utilities, there is concern today about the voluntary nature of their membership, their dominance by utilities, and the inability to mandate and enforce compliance among their members and other industry participants.

Further complicating reliability issues is incomplete jurisdictional authority. As mentioned above, the NERC and the regional reliability councils have jurisdiction only over their members. There are also thousands of municipal, cooperative, and power marketing utilities that are not subject to FERC or state jurisdiction.

Similarly, we recognize that the bulk power system is an international system. We recognize that the NERC, as a body that includes U.S., Canadian, and Mexican members, has a unique role in setting and monitoring international reliability standards and that close cooperation will be required between national, state, and provincial regulatory agencies that may be given authority for reliability oversight.

Reliability Institutions

The electric utility industry traditionally has been vertically integrated, fully regulated and composed of a limited number of entities. These entities were similar in makeup, in their investments in the bulk power system, and in their expectations for grid operation and use.

In this environment, three institutions evolved that are the focus of this report.

NERC – In 1968, the North American Electric Reliability Council was formed in response to the 1965 power outage that blacked out the northeastern United States and Ontario, Canada. For over two decades, NERC’s mission has been to promote electrical system reliability and thereby prevent further such occurrences. The NERC has been a voluntary, industry-constituted governing body that develops standards, guidelines and criteria for assuring system security and evaluating system adequacy. The NERC has been funded by regional reliability councils which adapt the rules to meet the needs of their regions. Through the work of its ten regional councils and one affiliate council, the NERC has largely succeeded in maintaining a high degree of transmission grid reliability throughout the country. Historically, the NERC has functioned without external enforcement powers, depending on voluntary compliance with standards and peer pressure.

System operators – Today the country is served by approximately 150 separate control areas, each with its own system operator. The operators of these systems rely on communications with each other, access to essential system information, and real time monitoring and control of certain facilities to maintain system reliability. When an emergency occurs on the system, the control area operator takes action — both through communication and direct physical action — to ensure the integrity and security of the system. These people take and direct others to take the actions necessary to “keep the lights on” and to protect against damage to the entire system in the event of emergencies.

FERC — The Federal Energy Regulatory Commission is the federal agency with jurisdiction over the bulk power market, including interstate transmission systems. As part of these responsibilities, the FERC is implementing policies to assure that the owners and operators of bulk power transmission facilities under the agency’s jurisdiction provide non-discriminatory service to all power suppliers in wholesale power markets. Historically, the FERC has not had to involve itself with regulating reliability functions. Increasingly, some parties are calling upon the FERC to begin to exercise its current authorities by addressing reliability issues that intersect with the commercial needs of the industry.

At the onset, we note that the electric industry is changing and, indeed, has already changed in several respects: wholesale electric markets are opening to competition under open access transmission tariffs; several states containing more than one-third of the nation’s population have decided to permit retail consumers to choose their suppliers (nearly all of the remaining states are studying retail competition); energy companies are merging and establishing innovative joint ventures; new competitors are entering markets, and new institutions are forming (e.g., independent system operators; power exchanges; spot markets).

These trends indicate that in the future, market forces will determine when, where and what type of generation sources will be built and which energy trades will be transacted. Also, it is apparent that the nation’s transmission grid will be used by a larger number of entities for many more transactions. There are challenges regarding maintenance of traditional reliability levels in this new environment.

While the traditional reliability institutions and processes have served us well in the past, these institutions and processes need to be modified to assure that reliability occurs in a competitively neutral fashion, without favoring one or another set of market participants. To attempt to accommodate these new reliability issues that arise with competitive markets, today’s existing reliably institutions, and most notably the NERC, have undertaken a number of new initiatives including expanding their membership to include new market participants in addition to those long-standing members drawn from the electric industry. The Task Force welcomes these changes.

Task Force Findings

The Task Force has reached consensus on several key points:
1) Restructuring of the electric industry offers economic benefits to the nation and may result in a more efficient electric industry

2) While the changes brought about by restructuring are complex, the reliability of the system need not be compromised provided appropriate steps are taken. Transmission grid reliability and an open, competitive market can be compatible.

3) The viability and vigor of the commercial market must not be unnecessarily restricted. The market forces being introduced now depend on fair and open access to the transmission grid.

4) Commercial markets should develop economic practices consistent with the ingenuity and mutual interest of the participants. However, grid reliability must be maintained through disciplined technical standards and practices.

5) Reliability standards must be clear, transparent, nondiscriminatory, enforceable and enforced. Compliance must be mandatory for all entities using the bulk power system.
6) Regulatory oversight is necessary to ensure compliance with reliability policies and standards and to resolve disputes.

7) It is reasonable and practical to build on the experience and reliability standards developed by the NERC over the past 28 years. However, these standards as well as NERC’s own system of governance must be modified to accommodate the complexities of the competitive market.

8) Grid reliability depends heavily on system operators who monitor and control the transmission grid in real-time. In order to assure competitive use of the grid, system operators must be independent from owners of generation and transmission; they should have no commercial interests in electricity markets.

9) Bulk power systems are regional in nature and can and should be operated more reliability and efficiently when operators are coordinated over large areas.

10) The reasonable and necessary costs for maintaining the reliability system should be fully recoverable and equitably distributed.

11) Transmission grid reliability is a North American issue; the reliability relationships with Canada and Mexico must be preserved.

Task Force Recommendations

The Task Force recommends that:

1) The NERC expedite — to the fullest extent possible and consistent with assuring sound results — the modification of its governance structure to assure fairness and lack of domination by any single industry sector.

2) The FERC undertake a review of existing NERC policies and standards that affect the operation of an open wholesale market and undertake a review of NERC’s organizational structure and governance. This proposed role for the FERC is important in order to make reliability standards enforceable and to assure that reliability standards and practices are not misused in ways that would be discriminatory in the competitive market. Given the considerable demands currently faced by the FERC, additional resources may be required by the agency in order to undertake this role.

3) Federal legislation may be useful to clarify FERC’s authority and responsibility for overseeing and setting and enforcement of reliability standards.

Conf. on Buying and Selling Generation Assets

Subject: UFTO NOTE — Conf. on Buying and Selling Generation Assets
Date: Tue, 18 Mar 1997
From: Ed Beardsworth

| ** UFTO ** Edward Beardsworth ** Consultant
| 951 Lincoln Ave. tel 415-328-5670
| Palo Alto CA 94301-3041 fax 415-328-5675

This is a follow up to a note I sent you several weeks ago. The conference location has been changed from NYC to San Francisco (I’m told there wasn’t a hotel available in NY!)

NOTE Special arrangement–UFTO Members Discount.

TO: Clients and Colleagues of Ed Beardsworth
FROM: Jim Naphas, Conference Manager, Infocast, Inc.
DATE: March 18, 1997

RE: Special 25% discount invitation FOR UFTO MEMEBERS
to attend an upcoming Infocast conference

San Francisco Marriott, San Francisco, California, April 14-15, 1997

The era of deregulation brings with it much uncertainty, and one of the leading questions is the status of generation. A wave of generating asset transfers on an unprecedented scale is expected in the near future as a result of industry restructuring. This shuffling is creating a potentially monumental opportunity for today’s power industry players to buy, sell, or spin-off generation assets to improve competitiveness, or to enter this highly competitive market.

Infocast has assembled a group of experts from across the nation to address future market conditions, estimation of the value of generation assets in the new competitive era, the ever-changing regulatory waters, and financing of these deals. Enclosed is a descriptive brochure on this informative program for your review.

By special arrangement, Infocast is extending this special invitation allowing UFTO Member company personnel to register for this program at a 25% discount off the regular tuition. (Please note: if you are a government employee you qualify for the government discount of 40% only.) To receive the reduced tuition, just mention this email offer to the registrar when enrolling.

If you have any questions about the conferences, please feel free to contact Jim at (818) 902-5400.

We look forward to seeing you this spring!
An Up-to-the-Minute Review of Today’s Hottest Issues in Generation Portfolio Management with Practical Discussion Based on Today’s Transactions

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Official Publication: COMPETITIVE UTILITY

APRIL 14-15, 1997

As a result of the ongoing restructuring of the U.S. power industry, we are seeing the beginning of a wave of generating asset transfers. It seems clear that this trend will continue on an unprecedented scale. This titanic shuffling of assets is creating a critical opportunity for today’s power industry players to buy/sell/spin-off generation assets in order to meet their goals-whether those goals are growth, rationalization of a generating portfolio to improve competitiveness, or even to seize the opportunity to enter or exit this highly competitive market. As large as the opportunities are, however, this will not be an easy game to play. Players must deal with great uncertainty about future market conditions, estimate the value of generation assets under those market conditions, navigate uncharted regulatory waters, arrange financing and/or obtain the approval of their debt and equity investors while negotiating the best possible deals. Only those who are aware of the latest approaches and industry thinking on these subjects will be able to emerge from the process with their winnings in hand.
Infocast has brought together a group of experts from Wall Street to Washington to provide a briefing on the critical issues in generating asset management. Case studies will serve as a practical example providing helpful do’s and don’ts when negotiating your own deal. Register today and learn how to seize the opportunity to improve your company’s generation portfolio.

Monday April 14, 1997

Welcome and Introduction from Conference Chairman
Jeffrey C. Bodington, President, Bodington & Co.

Generation Portfolios and the New Environment
Why divestiture makes sense in some cases
– Reduced regional market power, both vertical and horizontal
– Handling stranded costs
– Making assets more efficient, inside or outside the electric industry
– Why purchases make sense in other cases
– More efficient operation means lower prices, higher profits
– The value of national generating companies
– Consolidating niche markets and functions
– FERC market power policies and their impact on asset transfers
Charles Whitmore, Senior Economist,
Assistant Director of Economic Policy, Federal Energy Regulatory Commission

Regulator’s policy objectives
Linkage between federal and state authority
Decisions regulators must make
Practical issues affecting schedules for divestiture
Forecast of what will happen and when
P. Gregory Conlon, President, California Public Utilities Commission

Understanding the regulatory framework
Understanding the commercial process
Understanding stockholder interests
Reconciling regulatory, commercial and stakeholder interests
Finding a regulatory strategy that works
Joseph M. Malkin, Partner, O’Melveny & Myers LLP; outside counsel to Pacific Gas & Electric

NRC policies and regulations on asset transfers prior to the emergence of restructuring
NRC policy questions raised by restructuring
Integrating NRC policy on restructuring with policies of other agencies (FERC, SEC, State Commissions) ~ Impact on asset transfers of current NRC initiatives
George A. Avery, Partner, Shaw, Pittman, Potts & Trowbridge

Dimensions of stranded costs: size, timing and rate of payment
Generation divestiture and stranded cost recovery
Asset sales as a method for estimating stranded costs
Risks and risk allocation measures
– for vertically integrated utilities
– between Gencos and regulated companies
– between regulated companies and customers
Theresa Flaim, Ph.D., Vice President, Corporate Strategic Planning, Niagara Mohawk Power Corp.

The best of times, the worst of times-opportunities and threats in the restructured wholesale and retail power markets
New wine in old skins-reconfiguring existing portfolios to take advantage of new strategies
Historic relics-dealing with assets and arrangements “inherited” from the regulated monopoly era
To hedge or not to hedge-role of risk management strategies in meeting new challenges of operating a “genco” in an unbundled marketplace
Calpine’s rationale for pursuing a merchant power strategy
Rod Boucher, President, Calpine Power Services Co.

Group Luncheon & Address

Edward J. Walsh, Group President, Power & Government Americas & India, Stone & Webster

Valuation of Generation Portfolios

Critical new fuel issues
Evaluating fuel issues for merchant plants ‘ Predicting future fuel markets ‘ Understanding the future link between fuel and power markets ~ Fuel management for a competitive market
Jeffrey P. Price, President, Resource Dynamics Corp.

Forecasts of demand
Existing and future sources of supply
Fuel price uncertainties
Balancing supply and demand
Charles Mann, Director, Fieldstone Co.

Valuing plants within transmission constrained areas
Getting paid for providing system support and ancillary services
Understanding reliability contracts with the independent system operator
Assessing competitors’ barriers to entry
Glen Davis, Vice President, AES Transpower

The goal…to promote the most efficient operations
Defining the efficiency/competency curve for operators
Looking at the variability among operators
Meeting the need to have the most efficient operators
Craig A. Mataczynski, Vice President, US Business Development, NRG Energy, Inc.

Describing each option’s structure
‘ Summarizing each options key benefits and costs
The roles of regulators
What has been done to date and why?
New structures to consider
Alan Levande, Vice President, Goldman Sachs & Company

Glen Davis, AES Transpower
Alan Levande, Goldman Sachs & Company
Charles Mann, Fieldstone Co.
Craig A. Mataczynski, NRG Energy, Inc.
Jeffrey P. Price, Resource Dynamics Corp.

Cocktail Reception: There will be a cocktail reception at the conclusion of day one giving you an opportunity to meet speakers and your fellow attendees.


Tuesday April 15. 1997

Welcome and Introduction from Conference Chair
Jeffrey C. Bodington, President, Bodington & Co.

Financing Issues
Bond indentures
Rating the pieces of a once-integrated utility
Merchant plant risks
Peter N. Rigby, Director, Project Finance Ratings, Standard & Poor’s

Market “price” risk: impact of supply and demand
Market “access” risk: market infrastructure and business risk in being able to dispose of power output
Increased use of commodity and financial hedging instruments
Effectiveness of risk allocation and mitigation strategies
How much risk will the financial markets be willing to accept: profile of an acceptable financing package for generating assets
Lewis J. Hart, Jr., Managing Director, CIBC Wood Gundy Securities Corp.

Requirements for Transferring Assets
Examining the auction process in terms of legal due diligence, regulatory and contract issues
Fraudulent conveyance issues
Using indenture provisions to maximize the available consideration
Balancing the interests of the various parties involved
J. Michael Parish, Senior Partner, Reid & Priest, LLP

The spirit vs. the letter of indenture
Refinancing and defeasance strategies – Stranded costs securitization issues
Inter-company transfers and property release funding options
David P. Falck, Partner, Winthrop, Stimson, Putnam & Roberts

Types of sales structures
Financial reporting and the accounting issues involved
Regulatory matters and its impact on accounting
David Etheridge, Partner, Arthur Andersen

How can different project acquisition structures affect environmental liabilities?
Types and methods of due diligence necessary to identify environmental liabilities
Anticipating changes that affect project permitting and raise compliance costs
Andrew A. Gracie, Esq., Partner, Chadbourne & Parke

Utility plants that have already sold and their valuation
Key factors determining value
Timing for new sales
Regulatory issues
Assessing closing risk
Jeffrey C. Bodington, President, Bodington & Co.

Marketing Generation Assets
The positioning of assets
Approaching the market-auction v. negotiation
Calculating fair value in a deregulated market
Identifying a qualified buyer
Categorizing types of buyers-financial v. strategic, public v. private
Jeff Miller, Partner, The Beacon Group

Obtaining bid protections to lessen the risks for the lead bidder
Maintaining flexibility to ensure the leading bid remains viable
Strategies used by the non-lead bidders to come from behind and successfully acquire assets
Ronald L. Rencher, Partner, LeBouef, Lamb, Greene & MacRae

Strategy for marketing of nuclear power
Data requirements for assessment of nuclear power acquisition
Financial considerations and economic analysis
Anis D. Sherali, P.E., Vice President Power Supply, Economic, Regulatory and Financial Planning, Southern Engineering Co.

Telephone: (818) 902-5400
Fax form to: (818) 902-5401
Mail form to: Infocast, Inc.
13715 Burbank Blvd.
Sherman Oaks, CA 91401

E-mail form to:

Tuition: $995.00 The full tuition is payable in advance and includes program instruction, continental breakfasts, luncheon and reception, complete conference documentation and refreshments. * 40% Discount for U.S. Federal, State and Local Government Employees: $597.00
Program Schedule: Registration will take place from 7:00 a.m. to 8:00 a.m. on Monday, April 14. The conference will take place from 8:00 a.m. to 5:00 p.m., followed by a cocktail reception from 5:00 p.m. to 6:30 p.m. The conference will resume on Tuesday, April 15 at 8:00 a.m. and adjourn at 3:15 p.m.
Accommodations: Infocast has secured a limited number of rooms at the San Francisco Marriott, which will be held at a special rate of $177.00 until March 14,1997. To receive the special rate, call the hotel directly at (415) 442-6755 and mention that you are an Infocast registrant. The hotel is located at 55 Fourth Street, San Francisco, CA 94103.
Air Transportation: For discounted airline fares, please call Uniglobe Executive Travel at (800) 676-3932 and mention your participation in the Infocast conference.
Cancellation, Refund & Credit: If your written cancellation is received prior to March 31, 1997, a full refund will be made. Written cancellations received on or after March 31,1997, will create a credit of the tuition good toward any other Infocast conference or publication. In the event that a program is canceled, Infocast does not assume responsibility for any expense other than the tuition fee.
MCLE Credits: Infocast certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 13 hours.

Registration Form:
Enclosed is a check payable to “Infocast” to register the following individual in:

Buying and Selling Utility Generation Assets
San Francisco Marriott – San Francisco, CA
April 14-15, 1997 (415) 442-6755

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Tracking Code A B C

DOE Electric Reliability TF Meeting Minutes

Subject: UFTO Note – DOE Electric Reliability TF Meeting Minutes
Date: Thu, 27 Feb 1997 09:16:14 -0800
From: Ed Beardsworth

| ** UFTO ** Edward Beardsworth ** Consultant
| 951 Lincoln Ave. tel 415-328-5670
| Palo Alto CA 94301-3041 fax 415-328-5675

Attached are the approved minutes of the first meeting of the Electric System Reliability Task Force. The minutes were approved by Chairman Phil Sharp on February 24, 1997.

The second meeting of the Task Force will be held in Washington DC on March 25th at the Madison Hotel. The meeting will tentatively start at 8:00 AM and last until 4:00 PM.

The meeting will tentatively include:

1) A discussion of “Assumptions Regarding the Future Electricity Industry”, based on a paper by Theresa Flaim entitled “A Vision of the Competitive Electricity Market – What’s Clear, What Isn’t”.

2) A discussion of the “Basic Concepts and Operating Requirements for Electric System Reliability”, based on a staff paper.

3) A discussion of “Policy and Institutional Issues”, where staff from NERC, DOE and a Power Marketer will present their views on how policy and institutional reliability issues should be addressed.

4) Planning and Scheduling of Future Meetings.

A Federal Register Notice will be published at least 2 weeks before the meeting. It will include the agenda and principal speakers.


Secretary of Energy Advisory Board Task Force on Electric System Reliability Minutes of First Task Force Meeting January 16, 1997

J.W. Marriott Hotel Washington, D.C.

1.0 Opening Remarks and Perspectives

The first meeting of the Secretary’s Task Force on Electric System Reliability was held on January 16, 1997, in the J.W. Marriott hotel, Washington, D.C. Robert Hanfling, Chairman, Secretary of Energy Advisory Board (SEAB) opened the meeting at 8:30 am with a brief welcome to the members and an introduction of the Task Force Chairman, Philip Sharp (the Chairman).

The Chairman thanked the members for agreeing to participate on the Task Force and expressed his respect for the work they do in “keeping the lights on.” He recalled the major electrical outages in the West last summer as painful reminders of what happens when the lights do go out. He called attention to the great changes taking place now in the electric power industry (e.g., participants, demands, economic incentives) and stressed that one of the main goals of this Task Force was to make sure that reliability did not get lost in the transition. He then introduced Deputy Secretary of Energy Charles B. Curtis.

Deputy Secretary Curtis thanked the members for interrupting busy schedules and expressed his hope that the work of this panel will be useful for present and future generations. He observed that the industry is irreversibly committed to restructuring and stressed the need to assure that reliability is afforded its proper place for consideration in the evolving change. He commented that with the continued economic growth and development in our country, blackouts are debilitating to our economy and becoming even more so. The Deputy Secretary offered seven specific challenges to the Task Force:

-Although the bulk electric power system has functioned well under a sense of voluntarism, thanks largely to the North American Electric Reliability Council (NERC) and its regional councils, will voluntarism be sufficient to assure reliability under the new paradigm?

-Are federal authorities adequate and are they properly lodged in the right agencies (e.g., DOE, FERC)?

-Given the advances which have taken place in industry technology, operational procedures and training, which permit the system to be operated closer to the margins, are we asking operators to do more than is reliably possible?

-Given the evolving changes in economic incentives which underpin the industry, is the industry likely to continue to invest wisely and adequately in R&D?

-Given that the concept of an independent system operator, in one form or another, is under strong consideration in many states, is that concept necessary and sufficient for maintaining a secure and reliable system?

-Is the balance between federal/state regulations proper, and is it possible that the states could do more to assure reliability?

-Given that the 105th Congress intends to focus sharply on electricity restructuring during this session and that the Administration will likely submit legislation this year, what are the recommendations of this Task Force?

2.0 Task Force Member Introductions

Following these remarks, the Chairman asked each of the 18 present and three telecommunicating members of the Task Force to introduce themselves, briefly describe their background and describe any areas in which they felt their expertise might be especially helpful to the group.

3.0 Institutional Reliability Issues

The Chairman then introduced Mr. Michehl Gent, President, North American Electric Reliability Council (NERC), to discuss institutional reliability issues. Mr. Gent briefly described the three interconnections and noted that the regions, now numbered at ten, initially were formed by the people in each region to address the unique needs of that region. There was no intent then to make them similar since there was no thought of sending power from Minneapolis to Florida. As a result of changes, both those which have taken place already and those anticipated, the regions are becoming more alike in terms of their electric power planning and operations. He recalled events leading to the formation of NERC in 1968 after the northeast blackout of Nov. 9, 1965, and described its three primary objectives; to establish standards, measure performance, and ensure compliance. Of special note, he thought, were actions taken by NERC to adapt to evolving changes in ownership and access. By way of example, he noted that membership on the Board of Trustees had increased to 34 with representation by all segments of the industry, and also that the number of organizations with observer status had increased. Mr. Gent then introduced Don Benjamin, NERC’s Director of Operations, to discuss some of the specific activities underway within the industry to assure reliable operations in the new environment.

Mr. Benjamin highlighted a number of current initiatives, in areas of: operational security; transmission use; operating standards, interconnected operations services; and, actions to address major outages in the West last summer. He concluded with a summary statement of goals for a reliable electric system which can accommodate the marketplace by:

-operators having the “big picture” at all times; -analyzing transactions before they are consummated; -ensuring compliance with NERC policies; -establishing a program of system operator certification; and, -defining requirements for interconnected operations services.

Mr. Benjamin described in some detail NERC’s previous approach to operational security in which interconnected but nearly autonomous systems have operated through about 150 control areas established so as to be able to operate so that problems are contained within the area and do not pass beyond the boundaries. He indicated that goal is becoming more difficult to achieve on a control area basis with the increased role of market entities and open access. To supplement the control centers, the industry is moving toward security coordinators, fewer in number at twenty-two, with responsibilities to perform security analysis based on interchange schedules, coordinate emergency operations (e.g., transmission overload relief, load reductions), manage the interregional security network, and develop operating policies as may be needed. In terms of status, he advised that regional security plans are in place, coordinators exist and will have their first meeting in February, and that necessary databases are known and in preparation.

In response to a question (Cavanagh) of whether the new security system can handle tens of thousands of transactions/hour, Mr. Benjamin noted that: “We’ll have to. We probably can’t today…but we’re closer today than we were 5 years ago. With computer technology…it should be possible. Multi-regional models handle the flows and will be updated continuously. They will be able to reflect, ideally, what is really happening in the system.” Mr. Budhraja stressed the big difference between physical and financial transaction systems noting that the number of generators and points of consumption will not change, while financial transactions can number in the thousands.

The Chairman asked the status of the models NERC uses to monitor security and was informed by Mr. Benjamin that they have existed and been kept current for years. What is not in place yet is the ability of the operators to access those models in real-time. That capability is undergoing development right now. Once real-time access is possible by all operators, they can test a transaction real-time and, if it is feasible, conclude it.

4.0 Technical Reliability Issues

The Chairman then introduced Dr. Karl Stahlkopf, Vice President, Power Delivery, Electric Power Research Institute (EPRI), to discuss technical reliability issues. After a brief review of differences between design objectives for the system and the way it is being operated today, Dr. Stahlkopf moved on to discuss the causes of and lessons from last year’s major outages in the West.

After a brief background review of the record heat and unusual power flows which preceded the August 10 outage, Dr. Stahlkopf described its chronology. He then summarized the basic causes of the outage as follows:

-systems were stressed; -not enough reactive support/control in the area; -initiating conditions not studied before; -operators did not know system was insecure; -no one had the “big picture”; and, -reliability impact of maintenance not understood.

As far as lessons learned, Dr. Stahlkopf said he did not believe restructuring was a factor in the outage; rather, the system simply was stressed due to hot weather. On the other hand, he did believe that financial incentives were a factor (i.e., cheap hydro-power in Northwest); they caused flow patterns which were unusual for that time of year and, coincidently, had not been studied. Regarding lack of reactive support in the Western System Coordinating Council (WSCC) at that time, Dr. Stahlkopf noted ongoing studies by NERC and EPRI aimed at determining whether this is a chronic problem.

On the subject on maintenance impacts on reliability, Dr. Stahlkopf noted that BPA had increased their vegetation maintainance budget because of a wetter and hotter than normal growing season but questioned whether, in a competitive market, financial disincentives would exist to cause utilities to try and limit their expenditures on maintainance. Members of the Task Force agreed that this aspect must be addressed.

Dr. Stahlkopf moved on to a discussion of technology improvements that might help avoid such an occurrence in the future. He mentioned three major improvements as being Flow Actuated Control Thyristors (FACTS), Static Compensator (STATCOM), and Unified Power Flow Controller and summarized the likely contributions to reliability of each. One member of the Task Force (Budhraja) commented that all of these devices contribute to getting more out of the installed system and observed the obvious reliability implications. He questioned whether the industry should also be thinking about adding to transmission systems so they don’t have to be operated so close to their limit.

After brief discussions of the Wide Area Measuring System (WAMS), an operations data system, and several EPRI initiatives targeted on maintenance, Dr. Stahlkopf concluded that near-term technologies may improve reliability in four areas: operating tools; transmission system “agility”; monitoring and communications; and, reducing maintenance costs reliably.

5.0 State Reliability Issues

The subject of state reliability issues was addressed by the Honorable Duncan Kincheloe, Commissioner, Missouri Public Service Commission. Mr. Kincheloe said that, while states have historically engaged in regulating the power industry, can establish standards for voltage regulation, govern service priorities for restoration and curtailment, and can set standards for reserve margins, they now face prospects of diminished success in regulatory actions and need new mechanisms to look at reliability. In this regard, he suggested several areas which may warrant further consideration.

-in the area of generation and supply, he acknowledged that: past assurance of rate-based adjustments (by states) to cover investments in capacity may have undergirded utilities’ willingness to invest; and, whereas local distribution companies had responsibilities to restore service in past emergencies as a consequence of franchised territories, this may no longer apply in a competitive future.

-in the area of Federal regulation, he said: if Congress legislates retail competition, states must have authority to demand evidence of experience at providing service/reliability for new market entrants; and, if Congress legislates a (minimum) reliability standard, states would want the responsibility to assure compliance-according to historical roles- and the authority to tighten the standard, if desired.

He concluded with his opinion that states are very much in the transmission regulation business but have major concerns (with the Federal Energy Regulatory Commission (FERC)) with the issue of jurisdiction over unbundled retail power.

After the lunch break, the Chairman announced his intention to open the floor for public comment, followed by a return to member discussions on Mr. Kincheloe’s presentation.

During the public comment period, one observer rose to discuss the use of direct current on the bulk power system and noted that it is on the increase. His consulting company has been advising customers to “move away from the grid” toward more reliance on direct current and he hoped that the Task Force would consider this evolving trend in the industry.

There being no further comment by the public, the Chairman returned to discussions on Mr. Kincheloe’s presentation. During the discussion that followed, a question was raised (Holden) regarding the status of the federal/state transaction “debate. Mr. Kincheloe answered that FERC has asserted jurisdiction over certain unbundled components which heretofore had been within the purview of the states (e.g., retail transactions involving some component of the transmission system). Under the unbundling, FERC has now asserted jurisdiction.

In another area, a question was raised (Dragoumis) as to whether there have been any attempts to establish state compacts (i.e., agreements between two or more states) to set reliability rules and standards. The Chairman noted that states may propose to Congress the approval of compacts, and Congress usually approves them. The problem is that it is unlikely for states to propose compacts on very complex issues because it is so difficult for them to agree on the details.

One member (Meyer) questioned how states would be likely to handle suppliers who have, say, only one generator and whether they would require 100% reserve. While this was considered unlikely, it was also the case that the state probably wouldn’t want to impose very stringent requirements either because the suppliers would be likely to withdraw from doing business in their state….and that would affect the level of competition.

Another member (Flaim) stressed the likely need for different levels of reliability in different places but acknowledged that state-wide, regional or national reserve margins is a problem.

The experience of four years ago with the shutdown of the District of Columbia, including the Secretary of Energy’s call for industry change to avoid such events in the future for the nation’s capital, was cited by one member (Dragoumis) as an example of an action that easily might have required physical changes to the electric system outside the District. This was posed as a clear question of oversight responsibilities and a need for proper incentives.

6.0 Task Force Work Plan Development

In response to the Chairman’s request for specific suggestions of issues to be considered by the Task Force, the members identified and discussed the following:

-Vikram Budhraja noted that, while the system is comprised of generation, transmission and distribution components, 80-90% of the disruptions take place on distribution systems but 70-90% of the expenses are directed to the transmission system. He said that problems on the interconnected grid are simply unacceptable but acknowledged that those issues involve jurisdictional questions.

-Rich Sedano said he believed that generation may need to be parsed into the ancillary services expected with that generation.

-Earl Nye urged the Task Force not to ignore either distribution or generation but to focus instead on the integrated, interconnected grid. He expressed his belief that the market will provide…over time but that, unfortunately this is an instantaneous business. No one expects 100% reliable power everywhere all the time.

-Jose Delgado noted that there is a definite time dimension to the issue of reliability and questioned whether an ISO will have to balance generation and load…instantaneously. Load management, he thought, will be done as a result of market decisions.

-In response to a question by Mark Bonsall as to whether the ISO will be able to accomplish the load/generation balances, Vikram Budhraja stressed that a system cannot be run without doing that. The real question, he thought, involves both who will pay for the service and the consequences when the ISO does have to take action to balance the system.

-Theresa Flaim questioned whether a scoping document was needed to focus the deliberations, possibly grounded in the physical system, possibly on the basis of time. She felt the need to do a basic scoping before attempting to address issues like “what legislation is needed.” She suggested an initial attempt to define the dimensions of reliability.

-Matthew Holden questioned the group’s assumptions regarding the composition of the electric system 10 or 20 years out. That is, whether we expect to be operating under a new gee-whiz electric system, better but in many ways similar to the present system, or that we don’t know what the system of the future will look like.

-In addition to the components of generation, transmission, and distribution, Jose Delgado advised the group not to lose sight of load and institutional issues as possible factors of reliability.

-Alden Meyer suggested the use of scenario analysis to better frame the issues. He thought it would be extremely helpful to be able to advise policy-makers on the likely consequences to reliability of moves in one direction or another.

-Vikram Budhraja cautioned against the use of structural models (e.g., California, Niagara) citing a fundamental change in paradigms. Under the present system, customers have no choice. In the new environment, customers do have a choice. That is a fundamental and powerful distinction. He thought that producers will have more freedom to enter and leave the marketplace and that the electric grid is a unified network; it does not recognize individual ownership.

There being no further comments by the Task Force, the Chairman briefly summarized the accomplishments of the meeting, thanked the members for their attendance and active participation, and adjourned the meeting.