Nominating Committee Report

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2 Julie Simon, Director of Policy, Electric Power Supply Association, for Lynne Church (EPSA Observer) Chairman Nye excused Mr. Vann Prater and Mr. Sonny Popowsky from the meeting so the Members could conduct a Meeting of the Members and the election of new Trustees. Chairman Nye called to order a Meeting of the Members, indicating the Members are the Regional Councils, to make proposed changes to the NERC Bylaws. The minutes of the Meeting of Members are attached Exhibit D Chairman Nye adjourned the Meeting of the Members at 4:20 p.m. Nominating Committee Report Mike Greene, Executive Vice President, TU Electric, on behalf of the Nominating Committee, moved to elect Vann E. Prater, Director, Electricity Affairs & Procurement, Amoco Exploration and Production Sector, and Sonny Popowsky, Pennsylvania Consumer Advocate and President, National Association of State Utility Consumer Advocates as new Trustees representing the customer sector. The Nominating Committee further recommended that the Board invite the Electricity Consumers Resource Council (ELCON) and the National Association of State Utility Consumer Advocates (NASUCA) to each designate an individual to observe meetings of the Board. The Board unanimously approved the election of the new customer Trustees and the recommendation to invite two new Observers to the Board meetings. Chairman Nye invited Mr. Prater and Mr. Popowsky back into the Board meeting, and congratulated them on their elections. Mr. Prater commented that he was honored to serve on the Board as one of its first customer representatives and looks forward to fulfilling that responsibility to ensure the lights stay on. Mr. Popowsky thanked the members of NERC for inviting a representative for residential customers to join the Board. He emphasized that there was nothing more important than maintaining the reliability of the electric systems, and he looked forward to working with the Board. Chairman Nye remarked that this was a historic occasion for NERC and that NERC will benefit by having participation from the customer sector of the industry. Consent Agenda The Board unanimously: C Approved the May 5 6, 1997 Board of Trustees minutes as distributed. C Accepted the Treasurer s Report for January 1, 1997 to July 31, 1997 Exhibit E C Accepted the Engineering Committee Report Exhibit F C Accepted the Operating Committee Report Exhibit G Committee Organization Organizational Structure of the Engineering Committee Document Garey C. Rozier, Chairman of the NERC Engineering Committee, reviewed the changes made to the Organizational Structure of the Engineering Committee document to accommodate an expanded membership that includes two end-use customer representatives, changes in terminology for consistency with the Board, and reference to the new Electric Power

3 Supply Association of independent power producers. The Board unanimously approved the revised Engineering Committee document Exhibit H Operating Committee Organization and Procedures Document Gregory A. Cucchi, NERC Operating Committee Chairman, echoed Garey Rozier s comments, indicating that the Operating Committee had made the same types of changes to its Operating Committee Organization and Procedures document (with the exception that no terminology changes were needed). The Board also unanimously approved the revised Operating Committee document Exhibit I Operating Committee Compliance Subcommittee Operating Committee Chairman Cucchi reported that the Operating Committee had asked a small task force to develop a straw man scope for the formation of a proposed Compliance Subcommittee and requested Board approval to form this Subcommittee. The Board approved the creation of a Compliance Subcommittee of the Operating Committee to develop and administer a compliance review process, develop penalties for noncompliance, provide an appeals procedure, and recommend changes to NERC Policies and Standards. It also directed the Committee to submit a complete Subcommittee scope for approval by the Board in January In approving the creation of this Subcommittee, the Board recognized that enforcement capability remains an open question and is still an issue on the table. Comments by Regional Chairmen and Other Board Members Comments from the Regional Chairmen and other Board members are attached Exhibit J Comments by Observers Comments by Observers are attached Exhibit K Future Role of NERC Task Force II Gary Neale, NERC Vice Chairman and Chairman of the Future Role of NERC Task Force II, brought the Board up to date on the activities of the Task Force and the Electric Reliability Panel s interview progress and the ten reliability issues framework questions being addressed by the Panel. He told the Board he was proud of what the Task Force has done to date, and believes they are moving in the right direction. Electric Reliability Panel Vice Chairman Neale called on Stu Langton of the Florida Conflict Resolution Consortium to update the Board on the progress of the Electric Reliability Panel. Mr. Langton gave the Board background information on the Consortium, explaining that it helps organizations build consensus on critical issues. The Consortium has put together a team to work with the Electric Reliability Panel, formed to study the future of NERC. Mr. Langton explained the interview process that is in progress, the Consortium s plans to develop a report for the Electric Reliability Panel, and the issues framework the Panel is using as a template for gathering information and perspectives and for its analysis and deliberations. The Consortium is providing technical assistance. The Panel will participate in the report development. Mr. Langton welcomed the Board s input and advice any time during the review process.

4 Mandatory Compliance Initiatives Vice Chairman Neale discussed the wide range of comments received on the draft Industry Compact. The Future Role of NERC Task Force II is still digesting the comments and will report back to the Board in January 1998 with recommendations. The Board unanimously approved the Task Force s recommendation to request each Region to submit a written report to the Board by January 1998 explaining what the Region is doing (or planning to do) to implement mandatory compliance with NERC Policies and Standards as required in the NERC Bylaws. Steve Kean of ENRON commented that ENRON supports mandatory compliance reliability standards, but stated that the issue is how NERC is governed. He also asked whether the reports from the Regions will address interregional compliance issues. Alternate Funding Approach for NERC Vice Chairman Neale told the Board that the Future Role of NERC Task Force II had considered a number of new ideas for funding, developed by its Compliance Team. The Team reached consensus on a funding approach that would allocate 75% of the costs of funding NERC based on end-use energy and the other 25% shared equally among NERC s Members, whomever they turn out to be. Mr. Neale report that the Task Force agrees with the supporting principles developed by the Compliance Team, but is not ready to recommend a change in funding for NERC. The Task Force asked the Team to coordinate with WSCC and ERCOT to come up with a more equitable way to share costs. The Task Force will make a specific funding recommendation to the Board in January Chairman Nye commended the Future Role of NERC Task Force on their ongoing efforts. Several Board members raised questions about the short timetable to review the Electric Reliability Panel s final report. Vice Chairman Neale explained that the Task Force was struggling with the timetable, and expects to see the report in early December. Mr. Neale further explained that the Board s instructions to the Task Force were to present a report at the January 1998 Board meeting. It will then be the Board s decision what the next steps should be. Chairman Nye assured the Board that he wouldn t ask for approval of a report that the Board didn t have enough time to review. It was recommended that, if necessary, the Board could schedule a special meeting in February. Chairman Nye announced that the Board would reconvene the following day at 8 a.m. He then adjourned the meeting at 6 p.m. Tuesday, September 16, a.m. Chairman Nye reconvened the Board of Trustees meeting at 8:10 a.m. Strategic Initiatives for NERC NERC President Michehl R. Gent reviewed the history of NERC s Strategic Initiatives as approved by the Board in October He then called on Garey C. Rozier, Engineering Committee Chairman, to review the progress of the Available Transfer Capability and Standards Initiatives. Available Transfer Capability Garey Rozier brought the Board up to date on the activities of the Available Transfer Capability Working Group. After lengthy discussion about the effectiveness of ATC values and the varying ways in which they are calculated, Chairman Nye encouraged the Engineering Committee to expedite its

5 efforts to ensure that coordinated, reliable, and consistent values for ATC and Total Transfer Capability are determined and posted on the OASIS. President Gent commented that the NERC staff would follow up on the Board s concerns. Standards Garey Rozier presented the Interim NERC Planning Standards for Board approval. Issues raised by various Board members included: C Authority of NERC vs. FERC C Need to accelerate the process and fix the governance C If the Standards are approved as final, contractually everything that comes out of Standards is mandatory C The Standards have not been out for public review Chairman Nye expressed his appreciation for the Board s concerns, but said NERC s governance is changing, it changed yesterday, it changed at the last meeting, and will likely continue to change. NERC is trying to move as fast as it can on reliability issues and its organizational structure is more pure than it was. The Board can t wait, it has to move forward. If the Standards need to be changed, they can be. He emphasized that we can t freeze everything in place until governance is perfect. Vice Chairman Neale added that we can wait a long time when it comes to government and if NERC did not continue to apply standards, it would be doing a disservice to end users. Chairman Nye stressed that the industry is looking to NERC to provide leadership and NERC has to prove itself capable of breaking away from past traditions of being unduly deliberate. With that, the Board unanimously approved the Planning Standards, proposed by the Engineering Committee as final NERC Planning Standards (the Introduction is included as Exhibit L), and directed the Engineering Committee to come back to the Board in January with suggested implementation dates for the Standards. On behalf of the Board, Chairman Nye praised the work of the Engineering Committee s Reliability Criteria Subcommittee and the Committee s other subgroups in developing the Planning Standards in such an expedient manner. Procedures for Developing NERC Standards Donald M. Benjamin of the NERC staff presented for approval the Process for Developing and Approving NERC Standards. This Initiative also received a considerable amount of discussion. Some concerns mentioned include: C The Standards need broader forms of public notice C A mechanism needs to be in place for appealing to FERC C Need further clarification on the due process appeals committee and possibly wider sector representation The Board approved (with two negative votes) the Process for Developing and Approving NERC Standards Exhibit M as proposed by the Engineering and Operating Committees with the addition of a footnote to be included in the Process which indicates that further appeals may be made as the law provides. Chairman Nye agreed to take under advisement the creation of a small task force to examine those instances where regulatory review of NERC Standards might be required. Mr. Hawks indicated that we should study this offline rather than discussing it at a Board meeting. The following were volunteered to serve on such a task force: President Gent, Julie Simon of EPSA, Steve Kean of ENRON, and a person from Canada that would be suggested by CEA.

6 Security Process Donald M. Benjamin gave a presentation to the Board on the evolution and basis of NERC s Transaction Information System and the preliminary implementation problems. Chairman Nye acknowledged that the early efforts of this Initiative have been cumbersome, and commented that as the process is perfected, everyone will benefit from its use. Chairman Nye apologized for not keeping the meeting on schedule, and in light of the time remaining, asked Messrs. Cummings and Cauley to make their presentations on Transaction Management, Operator Certification, and Interconnected Operations Services, respectively, at the January 1998 Board meeting. SECRETARY S NOTE: Mr. Cummings and Mr. Cauley s overhead presentations are attached for the Board s information as Exhibits N, O, and P respectively. Reliability Assessment Subcommittee Frank J. Koza, Jr., Vice Chairman of NERC s Reliability Assessment Subcommittee, reviewed the Subcommittee s revised scope, which added the responsibility of the seasonal assessments to the Subcommittee. The Board unanimously approved the revised scope Exhibit Q). The Board also approved (with two negative votes) for publication the Reliability Assessment report. Because of concerns about how the report addressed the impact of competition in the industry, the Subcommittee would entertain comments from the Board until Friday, September 19. The Executive Committee was asked to review the final version of the report before publication Budget James J. Jura, NERC Secretary-Treasurer and Chairman of the Budget Committee, presented the proposed 1998 Budget and Regional Assessments and made a motion to approve a 1998 NERC Budget of $4,046,851 and Regional Assessments of $4,046,851, using the New Assessment method proposed by the Budget Committee. This new method allocates a small portion of the Budget to only the eight Regions in the Eastern Interconnection and the remainder to all ten Regions. The Board was divided on whether they prefer having a Budget that includes possible activities included in the Budget up front, or if they prefer a wait and see approach, which causes the Regions to be reassessed in mid-year. After hearing all the comments, the Board approved a 1998 NERC Budget and Regional Assessments of $4,046,851 and a contingency fund of 10% of the Budget ($404,685) to be assessed only if and when the Board or Executive Committee determines it is needed. Mr. Jura acknowledged that the issue of funding was an important issue that needs to be discussed in the proper forum with the Future Role of NERC Task Force. Mr. Neale said the Task Force will come back to the Board in January with its recommendation on a new funding approach. Chairman Nye concluded the discussion by adding that the new method used for the 1998 Assessments would not set a precedent for future Budget consideration nor future action, and called on the Future Role of NERC Task Force to come back to the Board with its recommendation in January A summary of the approved 1998 Budget and Assessments is attached Exhibit R

7 Future Meetings The Board agreed to change the location of the September 14 15, 1998 meeting from Ottawa to Montreal and approved Dallas, Texas as the location for the May 10 11, 1999 meeting. The next regularly scheduled meeting of the Board is January 5 6, 1998 in Scottsdale, Arizona. The following dates and locations have now been approved by the Board: Adjournment January 5 6, 1998 (M-T) Scottsdale, Arizona Scottsdale Princess May 4 5, 1998 (M-T) New Orleans, Louisiana Hotel Inter Continental September 14 15, 1998 (M-T) Montreal, Québec January 4 5, 1999 (M-T) Scottsdale, Arizona May 10 11, 1999 (M-T) Dallas, Texas There being no further business to be brought before the Board, Chairman Nye adjourned the meeting at 12 noon. Michehl R. Gent Assistant Secretary-Treasurer

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