NERC

Low-carbon and “green” strategies have begun delivering returns for utility shareholders. Whether a company ultimately wins or loses depends on how markets are pricing the risks of possible carbon-control regimes.

As proposed by the North American Electric Reliability Corp., the new critical infrastructure protection (CIP) standards charge utilities with identifying their own critical assets and related cyber systems. This approach allows great flexibility for utilities to apply the CIP standards to their particular situations. This will help ensure that their efforts focus on securing critical assets, rather than on complying with an overly prescriptive set of mandates that might or might not yield a secure grid.

The NERC CIP standards represent an historic achievement. They include the first mandatory cyber security requirements of their kind to be imposed on a U.S. private-sector industry. Considering the scope and sensitivity of the grid-security issue, developing a set of enforceable standards inevitably would entail a complex and contentious process. From that perspective, NERC, FERC and the industry have made remarkable progress, and their efforts deserve accolades.

Utilities are gearing up for compliance with the new CIP standards. NERC, however, has taken a flexible approach to implementation that leaves some companies confused. Can utilities comply by 2009, and will their measures be effective in securing the grid?

Liam Baker, vice president for regulatory affairs at US Power Generating, questions whether his company’s power plants and control systems in New York and Massachusetts must comply with the electric industry’s new mandatory standards for cyber security. Baker voiced his doubts in written comments he filed in October with FERC.

Before the hearings started, I felt the number of critical cyber assets for a medium size utility would be on the order of several thousand, not 20 as some major utilities are identifying under the CIP standards. This should be a red flag for the industry.

The word “security” no longer means what it used to mean. Now, “security” means gates, guards and guns. It means protecting critical assets with a multi-layered cyber and physical perimeter. It means exercising vigilance and caution, and accepting inconvenience as a matter of routine.

The evidence is overwhelming: After a decade of relatively stable, or even declining, construction costs, the industry is now facing a prolonged period of elevated construction price tags. What are the causes behind this trend, and how might the cost increases translate into higher rates?

We’ve heard it all before, but the issue isn’t going away: Reliability of power, from generation to distribution, remains a primary concern of the utility industry. But the current verdict is mixed, depending upon which experts you talk to. Aging equipment is a ticking time bomb—except when it isn’t. NERC CIP standards are driving reliability improvements—except when they aren’t. Maintenance is key—except where monitoring and automation are more important. And regulators should stand aside and let the market drive reliability improvements—but economic incentives wouldn’t hurt.

The Northeast energy markets are working hard to establish new levels of regional coordination and cooperation. The region’s concerted effort is essential to resolving some of the industry’s toughest issues since the individual markets evolved. These issues include the elimination, reduction, or bridging of seams issues that prevent the economic transfer of capacity and energy between neighboring wholesale electricity markets, or control areas, as a result of incompatible market rules or designs.