On December 11, 2014, the North American Electric Reliability Corporation (“NERC”) submitted proposed revisions to its Rules of Procedure in order to implement the Risk-Based Registration (“RBR”) Initiative. If approved, the revisions would significantly modify how NERC assigns responsibility to entities for compliance with mandatory Reliability Standards. Among the proposed changes, NERC would eliminate some functional registration categories entirely, and adopt a risk-based approach that would permit some entities to limit the number of Reliability Standards that apply to them within a particular functional registration category. In its filing, NERC estimated that that proposed revisions would, if approved by the Commission, “reduce the regulatory burden of approximately 700 organizations, and allow such organizations to focus on issues that impact reliability.”
Pursuant to the currently-effective NERC Rules of Procedure, registration for compliance with Reliability Standards is based on the NERC “Functional Model”—a framework by which entities are registered on the NERC Compliance Registry according to “function” (e.g. Transmission Operator (“TOP”), Generator Owner (“GO”), Reliability Coordinator (“RC”), etc.). Each Reliability Standard has an “Applicability” section that lists the corresponding functional categories it applies to. The currently-effective Rules of Procedure specify that entities that are registered for a specific function are responsible for compliance with all Reliability Standards that are applicable to that corresponding function.
In its December 11, 2014 filing, NERC stated that the RBR initiative seeks “to ensure that the right entities are subject to the right set of applicable Reliability Standards, using a consistent approach to risk assessment and registration.” NERC proposed three primary reforms to its registration process.
First, NERC proposed modifications to the NERC Registry Criteria. These modifications include the removal of three functional registration categories: Purchasing-Selling Entity (“PSE”), Interchange Authority (“IA”), and Load-Serving Entity (“LSE”). NERC stated that, according to historic enforcement data, these entities had not caused or exacerbated events or system disturbances that jeopardized reliability of the grid, and nearly all violations committed by these categories posed a minimal actual risk to reliability. NERC also proposed modifications to the threshold for registering entities as Distribution Providers (“DP”), and an alignment of five functional registration categories to the newly-implemented definition of “Bulk Electric System” (Transmission Owner (“TO”), Generator Operator (“GOP”), TOP, GO, and DP).
Second, NERC proposed the risk-based application of “sub-set” lists of Reliability Standards within specific functions—a contrast with the current Rules of Procedure, which require an entity registered for a function to comply with all of the Reliability Standards applicable to that function. NERC stated that these sub-set lists could apply to either individual entities, or to a class of entities, based on specific facts and circumstances.
Third, NERC proposed various procedural improvements to the registration process. Among these improvements, NERC proposed: 1) the establishment of a “materiality test” for registration, with associated procedures and criteria for evaluating whether an entity has a “material impact” on reliability; 2) an enhanced process for review by a NERC-led, multi-regional panel of certain registration, deactivation, and deregistration decisions, as well as certain requests for sub-set lists of Reliability Standards; 3) the development of a common registration form to bring uniformity to Regional Entity collections of information from registration candidates; and 4) a one-time attestation mechanism that allows entities to record that a specific Reliability Standard requirement is “Not Applicable.”
In assessing the potential impact of the RBR initiative, NERC estimated that, of the 1,603 unique organizations currently listed on the NERC Compliance Registry (registered for 4,311 reliability functions), about 700 organizations would be impacted by the proposed deactivations and deregistrations. According to NERC, approximately 200 organizations would be deregistered from the NERC Compliance Registry entirely, and approximately 500 organizations would be impacted by the proposed deactivations.
A copy of NERC’s petition may be found here. The proceeding in listed in Docket No. RR15-4-000, and the associated deadline for comments is January 12, 2015.