MRO s Regulatory Philosophy

Transcription

1 MRO s Regulatory Philosophy Assuring Reliable Operations of the Regional Bulk Power System May 2016 MIDWEST RELIABILITY ORGANIZATION 380 St. Peter Street, Ste.800 Saint Paul, MN P: F:

2 Preface Contents Preface The Shared Reliability Outcome... 5 What is Regulated... 5 Who is Regulated... 6 Principles of Regulation... 6 MRO Vision, Purpose, and Operating Principles... 6 Vision... 6 Purpose... 7 Operating Principles... 7 Principles in Practice: The Regulatory Model... 7 Themes to Guide Our Aspirations - CAR... 8 Relationship Expectations... 9 Conclusion Glossary CLARITY ASSURANCE RESULTS PAGE 1 OF 12

3 Preface Preface Midwest Reliability Organization (MRO) is dedicated to its vision to maintain and improve the quality of life through a highly reliable regional bulk power system. MRO is one of eight Regional Entities with specified delegated duties, including enforcing Reliability Standards on those who own, operate, and use the bulk power system, pursuant to an agreement with the North American Electric Reliability Corporation (NERC) through the authority of the Federal Energy Regulatory Commission (FERC) under the Federal Power Act in the United States and other agreements in Canada. The MRO Region covers roughly one million square miles and spans the provinces of Saskatchewan and Manitoba, the states of North Dakota, Minnesota, and Nebraska, the majority of the territory in the states of South Dakota, Iowa, and Wisconsin, and small parts of Illinois, Michigan, and Montana. MRO regulates Registered Entities including municipal utilities, cooperatives, investor-owned utilities, a federal power marketing agency, Canadian Crown Corporations, and independent power producers involved in the production and delivery of power to more than 20 million people. The regulatory philosophy outlined herein articulates MRO s approach to assuring reliable operations of the bulk power system in the upper Midwest region of North America, which aligns MRO and industry in a mutual understanding of each other s responsibilities with regard to our vision. By articulating the regulatory philosophy, this document provides guidance for expectations and behaviors for industry and MRO staff around the reliable operation of the bulk power system. CLARITY ASSURANCE RESULTS PAGE 2 OF 12

4 An overriding goal of government is to assure a reliable and secure bulk power system a goal embodied in several documents, including the Principles of an Electric Reliability Organization that can function on an International Basis, Section 215 of the Federal Power Act, enacted in the Energy Policy Act of 2005, and various agreements between NERC and/or Regional Entities and the provinces of Canada. North America MRO is recognized as a cross-border Regional Entity by NERC, which has been designated as the Electric Reliability Organization (ERO) for North America by the Federal Energy Regulatory Commission (FERC) and the applicable Canadian and provincial authorities. United States Within the United States, MRO derives its authority through a delegation agreement with NERC, approved by FERC. FERC derives its authority from Section 215 of the Federal Power Act, which is administered through federal regulations. See 18 C.F.R. Parts 39 and 40. Regional Under this delegated authority, MRO assess and enforces compliance with mandatory electric Reliability Standards by the bulk power system owners, users and operators in its region. Additionally, MRO conducts assessments of the regional power grid s ability to meet demand, analyzes regional system events and shares lessons learned, identifies and mitigates regional system risks; and proposes regional Reliability Standards as needed. CLARITY ASSURANCE RESULTS PAGE 3 OF 12

5 In the U.S., MRO operates under an agreement with NERC see Amended and Restated Delegation Agreement Between North American Electric Reliability Corporation and Midwest Reliability Organization approved by the FERC, in the following orders: 1. North American Electric Reliability Corp, Order Conditionally Approving Revised Pro Forma Delegation Agreements with Regional Entities, 153 FERC 61,135 (2015). 2. North American Electric Reliability Corp, Letter Order Approving Amendments to MRO Delegation Agreement (Sept. 30, 2015). 3. North American Electric Reliability Corp, Letter Order Accepting Revisions to MRO Delegation Agreement (June 13, 2013). 4. North American Electric Reliability Corp, Letter Order Accepting Revisions to MRO Delegation Agreement (June 25, 2012). 5. North American Electric Reliability Corp., 133 FERC 61,061 (2010), reh g denied, 134 FERC 61,179 (2011). 6. North American Electric Reliability Corp., 119 FERC 61,060, order on reh g, 120 FERC 61,260 (2007). In addition to its U.S. delegation agreement with NERC, MRO operates under the following arrangements in Canada: 1. Within Manitoba, MRO is authorized to monitor compliance with Reliability Standards under the Manitoba Hydro Act and the associated Reliability Regulations. Pursuant to the Public Utilities Board Act, upon application from MRO, the Manitoba Public Utilities Board reviews and confirms MRO s enforcement determinations. 2. Within Saskatchewan, MRO monitors compliance with the Reliability Standards and makes recommendations on enforcement under a Memorandum of Understanding. The Saskatchewan Electric Reliability Authority reviews allegations of noncompliance from MRO and makes a final determination. MRO is governed by a board of directors that includes independent and industry members, and performs the following functions: 1. Assess compliance and enforce mandatory Reliability Standards; 2. Conduct assessments of the industry s ability to meet power demand; 3. Perform technical analysis of system events and share lessons learned; 4. Work with industry to identify and mitigate system risks; and 5. Participate in the development of continent-wide standards and propose Regional Reliability Standards if necessary. MRO s governance structure allows for transparent, effective, and efficient activities across a broad geography. Entities in the MRO Region have a long tradition of managing reliability in a transparent manner within and across multiple complex seams and international borders through cooperation and CLARITY ASSURANCE RESULTS PAGE 4 OF 12

6 innovation. As a non-profit organization, MRO creates an open forum for stakeholders in the region to discuss important matters related to maintaining and improving reliable operations of the bulk power system. MRO serves as a vital link to maintaining and expanding relationships between bulk power system users, owners, operators, and other stakeholders who share common reliability interests. Because of unique power system configurations, such as varying technologies and generation fuel sources, stakeholders in the MRO Region must have the means to represent their own interests for the benefit of the public they serve across the upper Midwest of North America. The Shared Reliability Outcome The bulk power system is reliable and secure when its elements (i.e., generation and transmission) operate within equipment and electric system thermal, voltage, and stability limits so that instability, uncontrolled separation, or cascading failures of such system will not occur as a result of a sudden disturbance or unanticipated failure of system elements. Reliability Standards are drafted to achieve this outcome. When there are questions regarding the application of the Reliability Standards, the shared reliability and security outcomes should guide those decisions. What is Regulated As diagrammed below in Figure 1, the term bulk power system means: 1. Facilities and control systems necessary for operating an interconnected electric generation and transmission network (or any portion thereof); and 2. Electric power needed to maintain transmission system reliability and serve load. The term does not include facilities used in the local distribution of electric energy. Bulk Power System Figure 1: Electric System Diagram. Source: US-Canada Power System Outage Task Force CLARITY ASSURANCE RESULTS PAGE 5 OF 12

7 Who is Regulated All users, owners, and operators of the bulk power system who meet the registration criteria and are material to reliability (registered entities) are subject to Reliability Standards which provide for reliable operation. Registered entities must comply with Reliability Standards, which are requirements approved by FERC (the law) in the United States or approved/adopted by the applicable authority in Canada. Principles of Regulation MRO draws upon High Reliability Organization (HRO) theory to shape its regulatory posture. 1 This theory originated in the study of complex, high risk operations, with analysis of management practices of operations on aircraft carriers, in nuclear power plants, and within the aviation industry. Over time, HRO theory has evolved and provides guidance for modern safety program design and is foundational to many industries seeking high reliability in critical functions. MRO has translated this theory for application to reliable operations of the bulk power system as follows: The hallmark of reliability in complex, real-time, interdependent systems is not that errors won t occur it s that errors and other operating anomalies won t create an uncontrolled cascading event. Registered entities who own and operate the bulk power system should have management practices that reflect the HRO characteristics, which are: 1. Preoccupation with failure. Attention on close calls and near misses (knowing the difference between being lucky vs. being good ); focuses more on failures rather than successes. 2. Reluctance to simplify interpretations. Solid root causes analysis practices around system events. 3. Sensitivity to operations. Situational awareness tools and carefully designed change management processes. 4. Commitment to resiliency. Resources are continually devoted to corrective action plans and training. 5. Deference to expertise. Authorities follows expertise. MRO Vision, Purpose, and Operating Principles Vision Our vision is to maintain and improve the quality of life through a highly reliable regional Bulk Power System. 1 For more information on High Reliability Organization theory and characteristics, see Weick, K., & Sutcliffe, K. Managing the unexpected: Resilient performance in an age of uncertainty (2nd Ed.), San Francisco, California (2007). CLARITY ASSURANCE RESULTS PAGE 6 OF 12

8 Purpose Our purpose is to strive to assure each Bulk Power System owner and operator within our region is a Highly Effective Reliability Organization. Operating Principles We are accountable for results, namely to provide and maintain clarity and assurance of procedures, processes, and controls to improve the reliability of the bulk power system. In addition, we deliver meaningful outcomes to those we serve and use our funding wisely, embrace our public trust obligation to be independent and transparent, and are collaborative in approach and seek constructive solutions. To those ends, we are: Principled. We do the right thing, the right way. We earn trust each day by treating every person with respect, fairness, and integrity. Responsive. We have a sense of urgency to act on the basis of facts, risks, and the needs of others. Rigorous. We are accurate, exacting, and demanding to improve the reliability of the bulk power system. Objective. We are intellectually honest, truthful, candid, and act without bias. Innovative. We embrace new ideas and lead change to improve the future. Effective. We create value for those we serve. Principles in Practice: The Regulatory Model Our regulatory model is implemented through experts with the technical intelligence and experience to identify key risks and potential vulnerabilities necessary to develop proportionate and appropriate responses to assure reliable operations of the bulk power system. To implement these principles, a clear understanding of the risk environment and its implications is crucial for how we perform our role. Our regulatory model guides how we perform our functions to achieve the shared outcome with industry reliable operations of the bulk power system. In order to conduct our work, we are led by analytics related to system events (i.e., disturbances on the bulk power system), operational information (i.e., performance indicators), and identification of emerging risks (i.e., security threats), that will impact reliable operations. Armed with this intelligence, MRO, in coordination with industry and government, use the information to determine the best manner to address risks to reliable operations. As a result, risks may be addressed through a Reliability Standard subject to mandatory compliance, an Alert to industry about the risk, or other tools within our oversight jurisdiction. If a Reliability Standard is proposed and approved to address the risk, it is incorporated into MRO s compliance oversight through Appendix 4C of the NERC Rules of Procedure, the Compliance Enforcement and Monitoring Program (CMEP). Effective oversight begins with this risk-based approach. Based on the analysis of risks, the appropriate oversight plan is established for each owner and operator. The oversight plan adapts to address the risks through the development of Reliability Standards and/or other tools. CLARITY ASSURANCE RESULTS PAGE 7 OF 12

9 Through the regulatory model, MRO seeks proportional responses ranging from actions to maintain awareness to enforcement with penalties up to one million dollars per day (in the United States), depending upon the industry s commitment and demonstrated behavior towards reliable operations. Themes to Guide Our Aspirations - CAR As a regulator, MRO pursues three overarching themes to guide our aspirations around our shared outcome the reliable operations of the bulk power system: Clarity a shared understanding of requirements between MRO and industry; and Assurance intelligence-led, risk-based approach which encourages strong self-monitoring; and Results responsiveness to risks with comprehensive, preventive, and timely approaches for reliable operations. CLARITY ASSURANCE RESULTS PAGE 8 OF 12

10 Gaining the traction by understanding requirements Complying with requirements and always steering towards reliable operations Relationship Expectations MRO undertakes to: Be true to its Vision, Mission, and Principles; Engage industry in timely dialogue and consultation; Share the criteria on which we rely to form judgments; Seek to understand industry concerns and emerging risks; Be open about our processes; Continually learn from experience and provide timely feedback; and Recognize the commercial and legal frameworks within which industry operates. Industry undertakes to: Operationalize High Reliability Organizational characteristics into its management practices around reliable operations of the bulk power system; Recognize and support the mission of MRO and its reliability responsibilities; Promote a strong reliability culture through sound management practices; Be open to and consider MRO s advice and recommendations; and Identify and correct deficiencies effectively in a timely way. CLARITY ASSURANCE RESULTS PAGE 9 OF 12

11 Conclusion Conclusion Through MRO s Regulatory Philosophy: Assuring Reliable Operations of the Bulk Power System, MRO and industry will work together towards the shared outcome reliable operations of the regional bulk power system. Thus, those we serve, including the public, should be confident in the regulation governing the reliable operation of this critical industry. CLARITY ASSURANCE RESULTS PAGE 10 OF 12

12 Glossary Glossary Compliance Bulk Power System CMEP Eastern Interconnection Highly Reliable Organizations Compliance by industry is conforming to Reliability Standards. Strategies by MRO to achieve industry compliance range from education to enforcement and/or sanctions. Facilities and control systems necessary for operating an interconnected electric generation and transmission network (or any portion thereof); and electric power needed to maintain transmission system reliability and serve load. The term does not include facilities used in the local distribution of electric energy. The rules governing compliance and enforcement oversight are included in the Compliance Monitoring and Enforcement Program. The Eastern Interconnection is a major bulk power system grid in North America. All of the electric utilities in the Eastern Interconnection are electrically tied together during normal system conditions and operate at a synchronized frequency that averages 60 Hz. The Eastern Interconnection reaches from central Canada eastward to the Atlantic coast (excluding Quebec) south to Florida and back west to the foot of the Rockies (excluding most of Texas). An organization that avoids sudden, uncontrolled cascading events despite operating in a highly complex environment by adopting a constant state of vigilance resulting in the fewest number of operating errors. These organization have the following characteristics: 1. Preoccupation with failure Attention on close calls and near misses 2. Reluctance to simplify interpretations Solid root cause analysis practices 3. Sensitivity to operations Situational awareness and carefully designed change management processes 4. Commitment to resilience Resources are continually devoted to corrective action plans and training 5. Deference to expertise Listens to experts on the front lines (ex. authorities follows expertise) Refer to Managing the Unexpected-Assuring High Performance in an Age of Complexity by Karl E. Weick and Kathleen M. Sutcliffe Industry Those regulated by MRO include: Investor owned utilities CLARITY ASSURANCE RESULTS PAGE 11 OF 12

13 Glossary Cooperative and municipal utilities Canadian utilities Transmission operators Generator operators U.S. federal power agencies Other users. owners, and operators, of the bulk power system For more information, please refer to the MRO registry (known as Registered Entities ) Industry Stakeholders Intelligence-Led Registered Entity Reliable Operations Responsive regulation Risk Risk-based A person, group or organization that has interest or concern in the industry and MRO. Using intelligence products based on analytics, root cause analysis, and other mechanisms to inform program areas, such as compliance, around risks. An owner, user, or operator who has a material impact on the bulk power system and is on the registry. Operating the elements of the bulk power system within equipment and electric system thermal, voltage, and stability limits so that instability, uncontrolled separation, or cascading failures of such system will not occur as a result of a sudden disturbance, including a cybersecurity incident, or unanticipated failure of system elements. Responsive regulation is an approach that varies the compliance oversight and enforcement response depending on the registered entity s individual circumstances. Circumstances that are considered include the participant s compliance history, function, location, cooperation, and other factors. The aim of the responsive regulators is to return the registered entity to full voluntary compliance. The response is therefore proportional to the risks and consistent for the same type of registered entity in similar circumstances. The chance of something happening that has the potential to have an adverse impact on bulk power system reliability. All risks are considered in the context of the potential adverse outcome. An evidence-based management process focused on prioritizing resources through an assessment of the nature and level of threats, vulnerabilities, likelihood, consequences and benefit. CLARITY ASSURANCE RESULTS PAGE 12 OF 12