Agenda Compliance Committee Open Session February 6, 2013 10:45 a.m.-noon Pacific Hotel del Coronado 1500 Orange Avenue Coronado, CA 92118 800-468-3533 Introductions and Chair s Remarks NERC Antitrust Compliance Guidelines Agenda 1. Minutes* Approve a. November 6, 2012 Meeting 2. Compliance Committee Self-Assessment Results* Review 3. Reliability Assurance Initiative* Information a. Project Status b. Key Milestones and Deliverables 4. Quarterly Report on Performance Metrics* Information a. Update on Quarterly Performance Metrics to Fulfill the Committee s Mandate Obligations b. Enforcement Metrics Development Update 5. Compliance Enforcement Initiative (Find, Fix, Track, and Report) Filing* Information *Background materials included.
Antitrust Compliance Guidelines I. General It is NERC s policy and practice to obey the antitrust laws and to avoid all conduct that unreasonably restrains competition. This policy requires the avoidance of any conduct that violates, or that might appear to violate, the antitrust laws. Among other things, the antitrust laws forbid any agreement between or among competitors regarding prices, availability of service, product design, terms of sale, division of markets, allocation of customers or any other activity that unreasonably restrains competition. It is the responsibility of every NERC participant and employee who may in any way affect NERC s compliance with the antitrust laws to carry out this commitment. Antitrust laws are complex and subject to court interpretation that can vary over time and from one court to another. The purpose of these guidelines is to alert NERC participants and employees to potential antitrust problems and to set forth policies to be followed with respect to activities that may involve antitrust considerations. In some instances, the NERC policy contained in these guidelines is stricter than the applicable antitrust laws. Any NERC participant or employee who is uncertain about the legal ramifications of a particular course of conduct or who has doubts or concerns about whether NERC s antitrust compliance policy is implicated in any situation should consult NERC s General Counsel immediately. II. Prohibited Activities Participants in NERC activities (including those of its committees and subgroups) should refrain from the following when acting in their capacity as participants in NERC activities (e.g., at NERC meetings, conference calls and in informal discussions): Discussions involving pricing information, especially margin (profit) and internal cost information and participants expectations as to their future prices or internal costs. Discussions of a participant s marketing strategies. Discussions regarding how customers and geographical areas are to be divided among competitors. Discussions concerning the exclusion of competitors from markets. Discussions concerning boycotting or group refusals to deal with competitors, vendors or suppliers.
Any other matters that do not clearly fall within these guidelines should be reviewed with NERC s General Counsel before being discussed. III. Activities That Are Permitted From time to time decisions or actions of NERC (including those of its committees and subgroups) may have a negative impact on particular entities and thus in that sense adversely impact competition. Decisions and actions by NERC (including its committees and subgroups) should only be undertaken for the purpose of promoting and maintaining the reliability and adequacy of the bulk power system. If you do not have a legitimate purpose consistent with this objective for discussing a matter, please refrain from discussing the matter during NERC meetings and in other NERC-related communications. You should also ensure that NERC procedures, including those set forth in NERC s Certificate of Incorporation, Bylaws, and Rules of Procedure are followed in conducting NERC business. In addition, all discussions in NERC meetings and other NERC-related communications should be within the scope of the mandate for or assignment to the particular NERC committee or subgroup, as well as within the scope of the published agenda for the meeting. No decisions should be made nor any actions taken in NERC activities for the purpose of giving an industry participant or group of participants a competitive advantage over other participants. In particular, decisions with respect to setting, revising, or assessing compliance with NERC reliability standards should not be influenced by anti-competitive motivations. Subject to the foregoing restrictions, participants in NERC activities may discuss: Reliability matters relating to the bulk power system, including operation and planning matters such as establishing or revising reliability standards, special operating procedures, operating transfer capabilities, and plans for new facilities. Matters relating to the impact of reliability standards for the bulk power system on electricity markets, and the impact of electricity market operations on the reliability of the bulk power system. Proposed filings or other communications with state or federal regulatory authorities or other governmental entities. Matters relating to the internal governance, management and operation of NERC, such as nominations for vacant committee positions, budgeting and assessments, and employment matters; and procedural matters such as planning and scheduling meetings. NERC Antitrust Compliance Guidelines 2
Agenda Item 1 Compliance Committee Meeting February 6, 2013 Draft Minutes Compliance Committee Open Session November 6, 2012 9:15 a.m. local time JW Marriott New Orleans 614 Canal Street New Orleans, LA 70130 504-525-6500 Chair Bruce Scherr convened a duly noticed open meeting of the Compliance Committee (the Committee) of the North American Electric Reliability Corporation on November 6, 2012 at 9:15 a.m. local time, and a quorum was declared present. The agenda is attached as Exhibit A. Present at the meeting were: All Committee members, being Bruce Scherr, Chair, Vicky Bailey, Ken Peterson, Roy Thilly, Jan Schori and John Q. Anderson; Board members Tom Berry, Janice Case, Paul Barber, Fred Gorbet, Dave Goulding, and Gerry Cauley; and NERC staff members Charlie Berardesco, Earl Shockley, Ken Lotterhos, Rebecca Michael, and Tina Buzzard. NERC Antitrust Compliance Guidelines Mr. Scherr directed the participants attention to the NERC Antitrust Compliance Guidelines. Minutes The Committee approved the August 15, 2012 meeting minutes as presented at the meeting. Compliance Enforcement Initiative Mr. Lotterhos provided an update on the Find, Fix, Track, and Report (FFT) initiative. He noted that since the last Committee meeting, NERC has made three additional filings for both spreadsheet notice of penalties (SNOPs) and FFTs, for an aggregate of 13 filings from September 2011 through September 2012. FERC has issued notices of no further review on the SNOP and NOP filings submitted through the end of September. In addition, Mr. Lotterhos noted that NERC had filed the FFT training materials with FERC in accordance with FERC s directive. Mr. Lotterhos stated that in accordance with FERC s March 15, 2011 Order on the CEI, NERC is required to file a 12-month status report in March 2013. NERC Enforcement will be administering two industry surveys in early November 2012 and early January 2013 to gather registered entity input for the report.
Compliance Operations Mr. Shockley provided an update on the Compliance Enforcement Initiative (CEI), noting the White Papers introducing the areas of fundamental change to the present compliance and enforcement processes and change state elements have been drafted and deliverables for both the March 2013 FERC filing and the achievement of the endstate developed. Key elements of the White Papers and path forward will be discussed more in-depth during the open Member Representatives Committee meeting. Regional Entity Items Mr. Dan Skaar, CEO of MRO, reviewed the improvements to Regional audit practices, noting the Regional Entities were performing a gap analysis to understand strengths and opportunities to facilitate the development of a more consistent approach to conducting compliance audits. He noted that the results of the assessment will provide valuable insights to training needs as NERC and the Regional Entities move to the next phase of the CEI. Quarterly Statistics Chair Scherr referenced the materials provided in the Agenda package. Committee members suggested enhancements to the Enforcement Metrics to provide further clarity on the status of violations. There being no further business, and upon motion duly made and seconded, the meeting was adjourned at approximately 10:25 a.m. local time. Submitted by, Charles A. Berardesco Secretary Compliance Committee Draft Minutes November 6, 2012
Summary of 2012 Board of Trustees Compliance Committee Survey Compliance Committee Meeting February 6, 2012
Overview NERC engaged TalentQuest to conduct its annual Board of Trustees Compliance Committee survey through an online methodology The Compliance Committee survey was administered from December 3 to December 28, 2012, to a total of six Committee members Five Committee members responded to the survey Response rate of 83% 2 RELIABILITY ACCOUNTABILITY
Rating Scale Respondents were asked to rate items on a 1 to 3 scale to indicate their evaluation for each rated item 1 = Below Expectations (level of performance is clearly unsatisfactory) 2 = Meets Expectations (meets the required standard of performance) 3 = Above Expectations (far exceeds the required standard of performance) For any item rated "1" ("Below Expectations") or No, mandatory comments were required to explain the rationale for the rating or selection 3 RELIABILITY ACCOUNTABILITY
Results Summary The overall Compliance Committee survey average was 2.2, with item averages ranging from 2.8 to 2.0 Given the lowest item average was a 2.0, the Compliance Committee is seen to be operating at expectations or higher Review of cross-committee survey items finds the Compliance Committee rated the highest in all items except: The information provided in support of the agenda is appropriate and available in a timely manner in advance of Board meetings 4 RELIABILITY ACCOUNTABILITY
Committee Comparison The Committee functions without giving undue influence to any single stakeholder or stakeholder Committee members participate as equals and communicate openly. The Committee Chair manages meetings efficiently to allow for sufficient discussion and constructive The information provided in support of the agenda is appropriate and available in a timely manner in The number of Committee meetings is appropriate. 1 2 3 Compliance Committee Standards Oversight and Technology Committee Finance and Audit Nominating Committee Corporate Governance and Human Resources 5 RELIABILITY ACCOUNTABILITY
Reliability Assurance Initiative Agenda Item 3 Compliance Committee Meeting February 6, 2013 Action Discussion Background The Reliability Assurance Initiative (RAI) was formally introduced at the November 2012 Board of Trustees (Board) meeting. The presentation outlined the core initiatives, anticipated timelines, and deliverables. Management will report on actions taken since the Board meeting, provide a project update, and further outline anticipated timelines. Summary Prior to the November Board meeting, NERC released the joint Electric Reliability Organization (ERO) Enterprise White Paper describing the desired end-state of compliance and enforcement as well as the four change state elements. Since the meeting two additional papers, Restyling of Compliance Monitoring and Evaluation of Compliance Data Requirements have been released in connection with the change state elements. In addition to the drafting of the papers, meetings have been held with representatives of the Member Representatives Committee and Trades to discuss the papers and gather comments and observations in consideration of the initiative, as well as the papers released to date. Key elements that will be discussed include: Adjustments to the RAI approach and filing implications Updates on the status of the remaining white papers and related timelines RAI activities update on projects and timelines Outlining future communication and engagements strategies
Quarterly Report on Performance Metrics Agenda Item 4 Compliance Committee Meeting February 6, 2013 Action Informational Background NERC staff will present its regular quarterly report to the Committee and stakeholders on compliance statistics to fulfill the Committee s mandate obligations. Summary NERC has been working closely with the Regional Entities to develop a more consistent set of enforcement metrics. These metrics measure the performance (efficiency, quality and effectiveness) of key Compliance Enforcement Authority monitoring and enforcement activities that can be produced regularly, consistently, accurately, and with minimal resources for the individual Regional Entities and Electric Reliability Organization (ERO) Enterprise. The final metrics selected are: Overall caseload index that quantifies the time it would take to clear violations in inventory based upon historical processing rates; Violations in inventory trending over time; Violation aging chart that identifies violations in the ERO inventory based upon discovery year; Completed mitigation duration chart; and Violation aging by disposition method (FFT/SNOP/NOP). Future initiatives may discuss enhancements or additions to this initial set of metrics. Once the final metrics were agreed upon, a set of common parameters was developed to ensure that metric measurements by NERC and the Regional Entities remained consistent. Parameters requiring common agreement included violation start date, dismissal date, and violations active and in inventory among the Regional Entities and NERC. From these common parameters and using current compliance data, NERC and the Regional Entities are in the process of developing metric examples and presentation format. NERC staff expects that this process will be completed in the second quarter of 2013. Once the presentation format and examples have been agreed upon by NERC Enforcement staff and the Regional Entities, the newly proposed metrics will be presented to the Committee for approval. Once approved by the Committee, the metrics will be computed and updated going forward.
Agenda Item 5 Compliance Committee Meeting February 6, 2013 Compliance Enforcement Initiative (Find, Fix, Track, and Report) Filing Action Informational Background On September 30, 2011, North American Electric Reliability Corporation (NERC) made its initial Compliance Enforcement Initiative (CEI) filing, which introduced changes to its compliance and enforcement program. The Federal Energy Regulatory Commission (FERC or Commission) issued an order on March 15, 2012 accepting, with conditions, NERC s proposal to make informational filings in a Find, Fix, Track and Report (FFT) spreadsheet format of lesser-risk, remediated possible violations of Reliability Standards (March 15 Order). NERC made its sixmonth status report in May 2012, accompanied by a compliance filing explaining how NERC considered compliance history in its FFT determinations and its plans for future improvements to the FFT processes. In October 2012, NERC filed the associated training materials. NERC is currently working on an additional informational report to be filed with FERC in March 2013. The report will address specific items of interest raised by FERC in the March 15 Order and may include proposed enhancements to the program. The report will be shared with the Committee prior to the filing. Summary NERC continues to process violations through the streamlined Spreadsheet Notice of Penalty (SNOP) and the FFT informational filing. NERC has made monthly SNOP filings and FFT filings with FERC since September 2011. The Commission has issued orders of no further review on the SNOP and Notice of Penalty (NOP) filings submitted through the end of December 2012. 1 Through the end of December 2012, NERC has filed a total of 989 possible violations as FFT remediated issues. The March 15 Order requires NERC to file a 12-month status report in March 2013. NERC is working with the Regions and Trade Associations to collect the information required for the 12- month status report. The Commission will be evaluating the consistency and application of the FFT initiative and will review the effectiveness of the FFT program with regard to such matters as: 1. The effect of the program on improving Bulk Power System (BPS) reliability; 2. The effect of the program on addressing NERC s compliance and enforcement program, including its caseload; 3. The effect of the program on NERC and the Regional Entities better focusing resources on addressing more serious violations; 4. How NERC s evaluation of risk in identifying candidate Possible Violations for FFT treatment has evolved during the implementation of the FFT initiative, including but not limited to how the violation risk factors have been considered in the evaluation; 1 Action on the January 31, 2013 filing is expected by March 2, 2013.
5. Manners in which the FFT mechanism can be improved based on experience to date; 6. The results of any audits, spot checks or random samplings that NERC or the Regional Entities may have performed during the year with regard to implementation of the FFT proposal; and 7. The impact, if any, the implementation of the FFT mechanism has had on the number of self-reports submitted. In the 12-month status report, NERC will also report on results of its evaluation of the consistency and application of the FFT initiative. NERC Enforcement has administered an industry survey to gather registered entity input on the topics of which the Commission seeks information in the 12-month status report filing. NERC Enforcement has reached out to the Trades and Industry Forums requesting registered entity feedback on their experiences in the areas of which FERC is seeking information in the 12-month status report. Upon review of this 12-month status report, the Commission may consider any necessary changes going forward, including expanding the scope and parameters of possible violations to be processed by FFT informational filings.