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Board of Trustees MeetingMay 7, 2014 | 8:30 a.m. - Noon EasternHyatt Regency Philadelphia at Penn’s Landing201 S. Columbus Blvd.Philadelphia, PA 19106

Consent Agenda

Regular Agenda

Opening Remarks by Board Chair

Remarks by FERC Commissioner Cheryl LaFleur

Remarks by FERC Commissioner Tony Clark

Remarks by Mr. Denis O’Brien CEO, Exelon Utilities

President’s Report

Standards

Mark Lauby, Senior Vice President and Chief Reliability OfficerBoard of Trustees MeetingMay 7, 2014

RELIABILITY | ACCOUNTABILITY10

Demand Data (MOD C) – MOD-031-1

• Reliability benefits Establishes consistency in data requirements and reporting procedures  Provides the authority to collect data necessary for reliability Identifies responsible entities

• Action Adopt MOD‐031‐1 Demand and Energy Data and associated documents

RELIABILITY | ACCOUNTABILITY11

Voltage and Reactive Control – VAR-002-3

• Reliability benefits Ensures Generator Operators (GOPs) provide reactive and voltage support Enable GOPs to operate in controlling voltage or other mode as instructed by the Transmission Operator (TOP)

Requires GOPs to follow notification requirements established by the TOPs

• Action Adopt VAR‐002‐3‐Generator Operation for Maintaining Network Voltage Schedules and associated documents

RELIABILITY | ACCOUNTABILITY12

• Reliability Benefits Reliability‐related information for Emergency and non‐Emergency Operating Instructions is conveyed effectively, accurately, and consistently, in a timely manner towards mutual understanding by all key parties

• Action Adopt COM‐002‐4—Operating Personnel Communication Protocols and associated documents

Rescind approval of Interpretation of COM‐002‐2, effective upon implementation of COM‐002‐4 in substantially the form adopted by the Board

Communication Protocols COM-002-4

RELIABILITY | ACCOUNTABILITY13

• Background FERC directed modification of Violation Risk Factors (VRFs) and Violation Severity Levels (VSLs) in 11 Reliability Standards

• Action Adopt Violation Risk Factor/Violation Severity Level Revisions:

o TPL‐001‐4o CIP Version 5 (CIP‐003‐5, CIP‐004‐5.1, CIP‐006‐5, CIP‐008‐5, CIP‐009‐5)o MOD‐026‐1 and MOD‐027‐1o PRC‐005‐2 and PRC‐005‐3o BAL‐003‐1

Modify VRFs and VSLs as directed by FERC

RELIABILITY | ACCOUNTABILITY14

• Background FERC order issued on March 7, 2014, directed NERC to submit Reliability Standard(s) that require steps to address physical security risks and vulnerabilities within 90 days

• Final ballot update

Physical Security Standard

RELIABILITY | ACCOUNTABILITY15

Amendments to SERC Bylaws

State of Reliability Report

Howard Gugel, Director, Performance AnalysisBoard of TrusteesMay 7, 2014

RELIABILITY | ACCOUNTABILITY18

• Purpose – independent view of performance• Identify trends and risks to reliability• Provide recommendations• Serve as risk‐informed input to: Reliability Issues Steering Committee (RISC) project prioritization Standards projects Reliability assurance initiatives  Event analysis reliability assessment, and critical infrastructure protection

State of Reliability

RELIABILITY | ACCOUNTABILITY19

Sustained High BPS Performance

RELIABILITY | ACCOUNTABILITY20

Frequency Response Remains Stable

RELIABILITY | ACCOUNTABILITY21

Protection System Misoperations and Failed AC Substation Equipment

‐0.06

‐0.04

‐0.02

0

0.02

0.04

0.06

0.08

RELIABILITY | ACCOUNTABILITY22

Transmission Outage Severity Correlation

Lightning

Weather, Excluding Lightning

Misoperation

Failed AC Substation Equipment

Power System Condition

0.12

0.13

0.14

0.15

0.16

0.17

0.18

0.19

0.2

‐0.06 ‐0.04 ‐0.02 0 0.02 0.04 0.06 0.08

Expe

cted

 TADS

 Event Se

verity

Correlation of Transmission Severity

RELIABILITY | ACCOUNTABILITY23

Use of EEA Level 3 Declines

2006 2007 2008 2009 2010 2011 2012 2013NERC 7 23 12 41 11 23 15 7FRCC 0 0 0 0 0 0 0 1MRO 0 0 0 0 0 0 0 0NPCC 0 0 1 1 0 0 0 0RFC 0 3 1 0 2 0 1 0SERC 4 14 2 3 4 2 7 0SPP 1 5 3 35 4 15 6 2TRE 0 0 0 0 0 1 0 0WECC 2 1 5 2 1 5 1 4

YearNumber of Events

RELIABILITY | ACCOUNTABILITY24

• Integrate RISC control projects• Physical and cyber security  Develop security performance metrics

• Integrating variable resources Solar Wind

• Changes in historical resource mix Gas/coal  Demand as a resource

• Validate analyses using Events Analysis insights

Focus on Reliability Risks

RELIABILITY | ACCOUNTABILITY25

2014 Summer Reliability Assessment

John Moura, Director of Reliability AssessmentsBoard of TrusteesMay 7, 2014

RELIABILITY | ACCOUNTABILITY27

1. All Regions Meet Summer Reference Margin  ERCOT: sufficient margins dependent on in‐service dates of new generation MISO: retirements, derates, mothballing

2. Gas‐Electric Interdependencies – Considerations for Summer Year‐on‐year increasing dependence on gas‐fired generation Pipeline maintenance Natural gas storage

3. Continued Impacts of Baseload Retirements Contribute to tighter reserve margins Ontario retired last coal plant in April Localized reliability issues identified in operational planning

Key Findings - Summary

RELIABILITY | ACCOUNTABILITY28

• MISO‐South integration North‐south transmission constraints

• California drought impacts Conditions have improved since March  “Extreme Drought” for most of California; some parts “Exceptional" 

• Rail shipments of coal in the Midwest Generation impacts unlikely for summer peak Further evaluations warranted for longer‐term challenge

Other Summer Season Highlights

RELIABILITY | ACCOUNTABILITY29

• August in‐service date for needed capacity• Growth in Demand Response programs• Slower load growth projected, based on modified forecasting methodology

New Capacity in ERCOT Strengthening Reserve Margins

2,112 MW of new capacity by August

Slowed growth in load forecast

RELIABILITY | ACCOUNTABILITY30

• Retirements: 43 GW of capacity since 2011• Significant capacity reductions in Ontario and MISO• Continue to track long‐term impacts in the Long‐Term Reliability Assessment

Generator Retirements On-Pace with NERC Projections

RELIABILITY | ACCOUNTABILITY31

An Evolving Resource Mix

Natural Gas

Coal

Nuclear

Wind and Solar

RELIABILITY | ACCOUNTABILITY32

Substantial Growth in Solar Resources

On-Peak Solar Discounted

Solar Energy in WECC (primarily California)

Not counted to meet on‐peak capacity needs; potential operational 

challenges

RELIABILITY | ACCOUNTABILITY33

Date Deliverables

Tuesday, April 29 Report Sent to PC, OC, and MRC for Review

Monday, May 5 Planning Committee Review & Vote to Approve Report

Tuesday, May 6 Send Report to Board of Trustees for Review

Tuesday, May 13 BOT Teleconference and Vote to Approve Report

Thursday, May 15 Target Release 

Approval and Publishing Schedule

RELIABILITY | ACCOUNTABILITY34

ERO Strategic Plan Metrics

Canadian Affairs

Canadian Affairs Update

Jim BurpeePresident & CEO, Canadian Electricity AssociationNERC Board Meeting – Philadelphia, PennsylvaniaMay 7, 2014

Overview1. The Evolving Bilateral Electricity Relationship – Recent Events

• 2013 data on Canada-U.S. electricity trade

• New Minnesota-Manitoba transmission interconnection

2. CEA Policy Initiatives & Engagements – Recent Highlights• Vision 2050: The Future of Canada’s Electricity System

• EPA GHG Guidelines, Quadrennial Energy Review

• Bipartisan Policy Center Electric Grid Cybersecurity Initiative

3. Comments on Major NERC Projects & Initiatives• Physical security standard

• Risk-based registration

Page 38

1. Evolving Bilateral Electricity Relationship – Recent Events

Page 39

• Feb. 2014 – publication of 2013 NEB data on cross-border trade.

Data displayed are in gigawatt‐hours. Source: National Energy Board, Electricity Exports and Imports, 2013.

Page 40

• Key take-aways:o Exports from Canada rose 8% over 2012. U.S. exports remained even.

o 2013 continued the recent trend of increased exports from Canada.

o Most trading is transacted through the spot market (in 2013, 75%+). Long-term contracts represent <25% (and continue to decline).

o Historically, Canada has been a net exporter (exports = 5-10% of generation).

Great Northern Transmission Line• Apr. 16, 2014 – Minnesota Power applies for state and federal permits

for U.S. segment of new interconnection with Manitoba.

• Project being developed in partnership with Manitoba Hydro.

• 500 kV line from border to Iron Range; 750 MW transfer capacity.

• “Hydro by wire” from Manitoba enables “wind by wire” from North Dakota.

• Further diversifies Minnesota Power’s energy mix.

• Hydropower’s “load-following” capability and the unique “wind storage” provision add value to both wind and water assets.

• Overall project (energy + transmission line) enhances regional reliability and provides energy market benefits.

• Public engagement is ongoing for Manitoba’s segment of the line.

Page 41

Hydropower + Windpower: A Perfect MarriageManitoba Hydropower Facilitates North Dakota Windpower

Winnipeg

HVDC Line +/- 500kV(600 miles)

HVDC Line +/- 500kV(850 miles)

ManitobaHydro

Minnesota Power

New Line

Existing Line

Canada-U.S. Transmission Interconnections (Existing)

Source: National Energy Board

Page 43

2. CEA Policy Initiatives & Engagements – Recent Highlights

Page 44

Vision 2050: The Future of Canada’s Electricity System• Sheds light on the urgent need for informed decision-making –

in policy development and infrastructure investment – if Canada is to maintain a reliable, sustainable and affordable system.

• Frames context for decisions about electricity, including drivers of change, in next 5-10 years.

• Offers recommendations in areas most likely to produce the greatest transformations:o Accelerating innovation and customer management.

o Implementing financial instruments for CO2 reduction.

o Enabling electric vehicles.

o Expanding collaboration across borders.

• Serves as basis for all CEA work going forward.

Page 45

EPA GHG Guidelines, Quadrennial Energy Review• CEA is engaging in both initiatives. Similar key messages:

o Both should recognize & seek to expand benefits of U.S.-Canada integration:

Enhanced reliability and affordability; and

Reduced emissions (thru access to & support for low-carbon resources).

o More integration will help maximize North America’s clean energy potential.

• CEA appreciates the N. American scope to NERC’s QER comments.

Bipartisan Policy Center Cyber Security Report• Offers recommendations in four areas:

o Standards and best practices; info sharing; respondingto a cyber attack; and paying for cybersecurity.

• CEA participated in advisory board.

• Report’s ideas are thoughtful; a few, contentious.

3. Comments on Major NERC Projects & Initiatives

Page 46

Physical Security Standard• CEA was concerned about language in FERC Order signaling an

active role for regulatory authorities wrt to critical facilities lists.

• Draft standard has addressed this well and alleviated concerns.

• However, challenges look set to arise with 3rd-party verification:o What exactly does “verification” mean? How will verification be audited?

o How can or should compliance be linked to activities or recommendations of a 3rd-party, which falls outside of NERC and governmental oversight?

Risk-based Registration• Registration varies across Canada. Approaches build upon/are

modelled upon NERC’s program. (See CEA policy input).

• Different approaches; same goals, focus (w/positive outcomes).

Page 47

Questions?

For more information:

• Jim BurpeePresident and Chief Executive Officer(613) 230-4762Burpee@electricity.ca

• Patrick BrownDirector, U.S. Affairs(613) 627-4124Brown@electricity.ca

Committee Reports

Operating Committee

Planning Committee

Critical Infrastructure Protection Committee

Member Representatives Committee

Personnel Certification Governance Committee

Standards Committee

Reliability Issues Steering Committee UpdateBob Schaffeld, Chair, NERC Reliability Issues Steering CommitteeNERC Board of Trustees MeetingMay 7, 2014

RELIABILITY | ACCOUNTABILITY56

• Process‐oriented Activities Completed Charter Changes and Triage Process  Committee Interactions and ERO Planning Process Integration 

• Membership Adjustments RISC Nominating Committee Process Extensions to Support Staggering and Continuity New Members

• Risk Management Activities Underway Execution in 2014 Business Planning and Budgeting for 2015 Analysis and Planning for the Future

RISC Update

RELIABILITY | ACCOUNTABILITY57

• Consistency Reviewed Standards Process Input Group (SPIG) recommendations and ensured alignment with original intent of committee creation

• Formatting Transfers charter to common NERC template

• Streamlining Moves “how” elements to member handbook, keeps “what” elements in charter

Clarifies how members are appointed to the RISC Removes MRC obligation to review charter every three years

Charter Changes

RELIABILITY | ACCOUNTABILITY58

• Execution in 2014 Triage and other process clarifications underway Reliability Leadership Summit scheduled Risk and action prioritization on schedule

• 2015 Business Plan and Budget Preparation BP&B in development, with discussion of activities linked to Reliability Risk Management

Goal: Ensure 2015 activities are aligned with Reliability Risk priorities

• Longer‐Term Detailed Risk Analyses and Strategic Planning underway Goal: Sustainable process, provides strategy and BP&B influence

Reliability Risk Management Process Status

RELIABILITY | ACCOUNTABILITY59

• Approve new Charter• Approve membership adjustments

Requested Actions

RELIABILITY | ACCOUNTABILITY60

Compliance and Certification Committee

Electricity Sub-Sector Coordinating Council

Forum and Group Reports

North American Energy Standards Board

Regional Entity Management Group

North American Transmission Forum

North American Generator Forum

Board Committee Reports

Corporate Governance and Human Resources Committee

Compliance Committee

Finance and Audit Committee

Enterprise-Wide Risk Committee

Standards Oversight and Technology Committee

RELIABILITY | ACCOUNTABILITY74