New England electric fuel security reform filings delayed

Federal electricity regulators have given New England's regional grid operator more time to develop proposed new mechanisms to enhance long-term fuel security, after states and market participants asked for an extension to allow continued stakeholder discussions. At stake are what could be significant reforms to the region's electricity markets, including new opportunities for generators to earn revenue for providing fuel security, as well as the prospect of significant new costs for consumers.

ISO New England Inc. is the regional transmission organization and independent system operator for the electric grid serving nearly all of New England. In this role, it develops and administers markets for electric energy, capacity, and other products. ISO-NE also engages in regional system planning, and manages proposals to retire or close power plants that provide capacity to the region.

In 2018, the owner of the Mystic Generating Station, the largest power station in Massachusetts by nameplate capacity, proposed to retire its units in 2022. But after a study of the remaining electric system, ISO-NE determined that the retirement of Mystic's units 8 and 9 would present "unacceptable fuel security risks" that could lead to rolling blackouts as soon as the winters of 2022 through 2024. In response, ISO-NE asked the Federal Energy Regulatory Commission for waivers to allow the grid operator to retain the Mystic units to meet fuel security needs.

Some stakeholders disagreed that the Mystic units' retirement posed a reliability risk; others argued the costs of retaining them would outweigh any benefits. While the Commission denied ISO-NE's waiver request, it ultimately approved a short-term cost-of-service agreement under which regional ratepayers will pay to keep the Mystic units online. But the Commission also made a preliminary finding that ISO-NE's tariff may be unjust and unreasonable, and directed ISO-NE to file proposed tariff revisions creating a long-term fuel security mechanism by July 1, 2019. At the grid operator's request, the Commission later extended that deadline to November 15, 2019, to allow more time for proposal development and stakeholder discussion.

In the meantime, this spring ISO-NE filed a proposed short-term "inventoried energy program" from December 1 through the end of February during winters 2023/2024 and 2024/2025 as "a bridge to a long-term, market-based solution that more comprehensively addresses the region’s energy security risks" -- but Commission staff identified that filing as "deficient" and requested additional information, which prompted ISO-NE to provide additional information. In the absence of a Commission quorum willing to vote, those revisions became effective by operation of law on August 6, 2019, although parties have sought rehearing regarding the Commission's failure to act.

But even more time may be necessary. On July 31, 2019, the New England States Committee on Electricity (NESCOE) filed a motion requesting an additional six-month extension of time to allow ISO-NE and the region to work through issues related to ISO-NE’s proposed long-term fuel security mechanism. Representing the governors of the six New England states, NESCOE said granting its request would "enable a more complete and holistic filing in response to the directives in the July 2018 Order, allow ISO-NE to address core consumer protection elements that are fundamental to state support, and remove barriers to achieving a greater degree of regional coalescence around a proposal." Several commenters supported the motion.

Ultimately, the Commission granted an extension of time up to and including April 15, 2020 for ISO-NE to file its long-term fuel security mechanism. While New England will soon be forced to address the issue of fuel security for its electric generating portfolio, these short-term and long-term market changes proposed by the grid operator are on hold for now.

FERC official testifies on electromagnetic pulses and geomagnetic disturbances

Electromagnetic pulse and geomagnetic disturbance events "pose a serious threat to the electric grid and its supporting infrastructures that serve our Nation," according to testimony delivered by a federal official to the U.S. Senate Committee on Homeland Security and Governmental Affairs.

Electromagnetic pulse (EMP) and geomagnetic disturbance (GMD) events are two types of events that could affect the nation's electric grid. Generally speaking, GMD events are naturally occurring solar magnetic disturbances which periodically disrupt the earth’s magnetic field. These disruptions can induce currents on the electric grid that may simultaneously damage or destroy key transformers over a large geographic area.

On February 27, 2019, Joseph McClellan, director of the Federal Energy Regulatory Commission's Office of Energy Infrastructure Security, testified before the Senate committee. As described in his testimony, EMP events can be generated by "devices that range from small, portable, easily concealed battery-powered units all the way through missiles equipped with nuclear warheads." High-altitude nuclear detonations can generate three distinct EMP effects: "a short high energy radio-frequency-type burst called E1 that can destroy electronics; a slightly longer burst that is similar to lightning termed E2; and a final effect termed E3 that is similar in character and effect to GMD, with the potential to damage transformers and other electrical equipment."

According to Director McClellan's testimony, any of these effects could lead to "wide-area blackouts." In his testimony, he cited reports by the federal EMP Commission as finding that "a single EMP attack could seriously degrade or shut down a large part of the electric power grid," with the potential that significant parts of electric infrastructure could be “out of service for periods measured in months to a year or more."

He also cited a 2010 study by Oak Ridge National Laboratory as finding that "EMP and GMD events pose substantial risk to equipment and operation of the Nation’s electric grid and under extreme conditions could result in major long-term electrical outages," that "GMD disturbances are inevitable with only the timing and magnitude subject to variability," and that a solar storm such as occurred in 1921 "could damage or destroy over 300 bulk power system transformers interrupting service to 130 million people with some outages lasting for a period of years." Director McClellan clarified that subsequent analysis suggested that in case of such an event, "the power grid may collapse before significant damage was done to transformers; resulting in a potentially wide-spread, but relatively short, power outage."

Director McClellan also spoke to the Federal Energy Regulatory Commission's "dual-fold approach" to address these threats: employing mandatory standards to establish foundational practices while also working collaboratively with industry, the states and federal agencies to identify and promote best practices to mitigate advanced threats. According to a report released in 2018 by the U.S. Government Accountability Office, U.S. and Canadian electricity suppliers have taken steps to prepare for potential electromagnetic disruptions, but more research is needed on both geomagnetic disturbances and high-altitude electromagnetic pulses.

FERC, DOE to hold Security Investments for Energy Infrastructure Technical Conference

The Federal Energy Regulatory Commission and the United States Department of Energy have scheduled a joint technical conference to discuss current cyber and physical security practices used to protect energy infrastructure and possible federal and state incentives for related security investments.

According to a notice issued on February 4, the Security Investments for Energy Infrastructure Technical Conference will be led by one or more FERC Commissioners and DOE senior officials. Its agenda addresses two high-level topics: types of current and emerging cyber and physical security threats, and how federal and state authorities can facilitate investments to improve the cyber and physical security of energy infrastructure.

In a supplemental notice issued on March 1, the agencies noted that the Commission has adopted a "well-developed set of mandatory and enforceable reliability standards that set baseline protections for both cyber and physical security of the bulk electric system" as well as "policies that allow for the recovery of prudently incurred costs to comply with those mandatory reliability standards." The supplemental notice describes the technical conference as aimed at better understanding:

1. the need for security investments that go beyond those measures already required by mandatory reliability standards, including in infrastructure not subject to those standards (e.g., natural gas pipelines);
2. how the costs of such investments are or could be recovered; and
3. whether additional incentives for making such investments are needed, and if so, how those incentives should be designed.

The supplemental notice describes two panels, the first of which will discuss types of cyber and physical security threats to energy infrastructure, particularly electric transmission, generation, and natural gas pipelines, as well as best practices for cyber and physical security mitigation beyond those measures already required by mandatory reliability standards and industry and government engagement needed to address these matters. The second panel will explore how federal and state authorities can provide incentives and cost recovery for security investments in energy infrastructure, particularly electric transmission, generation, and natural gas pipeline infrastructure

The federal agencies' Security Investments for Energy Infrastructure Technical Conference has been scheduled for on March 28, 2019.

FERC Order 848, cyber security and reliability

U.S. energy regulators have issued an order directing the nation's electric reliability organization to strengthen its standards for the mandatory reporting of cyber security incidents.

Federal law authorizes the Federal Energy Regulatory Commission to regulate significant aspects of the bulk electric system's reliability. The Commission's jurisdiction over reliability covers the nation's electric reliability organization, North American Electric Reliability Corporation (NERC), which is charged with developing and submitting mandatory reliability standards for the Commission for approval.

Following increased concern over cybersecurity and hacking affecting utilities, in 2017 the Commission issued a Notice of Proposed Rulemaking proposing to direct that NERC develop enhanced Cyber Security Incident reporting requirements. At that time, then-current reliability standards generally required responsible entities to report Cyber Security Incidents only if they have “compromised or disrupted one or more reliability tasks. But the Commission expressed a concern that this reporting threshold "may understate the true scope of cyber-related threats facing the Bulk-Power System, particularly given the lack of any reportable incidents in 2015 and 2016." As a result, the Commission proposed requiring NERC to develop and submit modifications to its reliability standards, to require the reporting of cyber security incidents that compromise, or attempt to compromise, certain security infrastructure.

On July 19, 2018, the Federal Energy Regulatory Commission issued its Order No. 848. Through that order, the Commission adopted its own proposal to "improve awareness of existing and future cyber security threats and potential vulnerabilities." As described by the Commission, Order No. 848's directive consists of four elements:

1. responsible entities must report Cyber Security Incidents that compromise, or attempt to compromise, a responsible entity’s Electronic Security Perimeter (ESP) or associated Electronic Access Control or Monitoring Systems (EACMS);
2. required information in Cyber Security Incident reports should include certain minimum information to improve the quality of reporting and allow for ease of comparison by ensuring that each report includes specified fields of information;
3. filing deadlines for Cyber Security Incident reports should be established once a compromise or disruption to reliable BES operation, or an attempted compromise or disruption, is identified by a responsible entity; and
4. Cyber Security Incident reports should continue to be sent to the Electricity Information Sharing and Analysis Center (E-ISAC), rather than the Commission, but the reports should also be sent to the Department of Homeland Security (DHS) Industrial Control Systems Cyber Emergency Response Team (ICS-CERT). Further, NERC must file an annual, public, and anonymized summary of the reports with the Commission.

The Commission directed NERC to submit these modifications to its reliability standards within six months of Order No. 848's effective date.

Report on US electric grid physical security

Since a 2013 rifle attack on a critical electric power substation in California, the U.S. electric power sector has generally moved toward greater physical security for critical assets, according to a report published by the Congressional Research Service. But the report says bulk power security "remains a work in progress," and suggests further investment -- and policy reforms -- may follow.

The report published on March 19, 2018 -- NERC Standards for Bulk Power Physical Security: Is the Grid More Secure? -- begins with the premise that securing the electric power grid is among the nation's highest priorities for critical infrastructure protection. It notes that a 2013 rifle attack on an electric transmission substation in California which caused widespread power outages also broadened policy attention from cybersecurity to encompass the physical security of assets critical to the power grid.

In response, Congress enacted legislation to strengthen power grid physical security and to facilitate its recovery from disruption. Section 1104 of the Fixing America’s Surface Transportation (FAST) Act contains provisions to protect or restore the reliability of critical electric infrastructure or defense of critical electric infrastructure during a grid security emergency. The Federal Energy Regulatory Commission (FERC) and the nation's electric reliability organization NERC also took action to develop new reliability standards for the physical security of bulk power critical infrastructure.

But physical security risks may persist. The report references a September 2016 rifle attack on a Garkane Energy Cooperative transformer substation in Utah as illustrating this persistence. The report notes that while it is probably accurate to conclude that the grid is more physically secure than it was in 2013, "it has not necessarily reached the level of physical security needed based on the sector's own assessments of risk.

The report notes Congress's continued concern about the physical security of the electric grid. It identifies possible areas for further policy focus as including "security implementation oversight, cost recovery, hardening vs. resilience, and the quality of threat information."

Meanwhile, cybersecurity has remained a priority. An October 2017 FERC report describing the results of its audits of regulated companies' cybersecurity protection processes and procedures noted that most met the applicable mandatory standards. But earlier this month, NERC fined an anonymous utility $2.7 million for alleged violations of reliability standards in connection with a data security breach, and the U.S. Department of Homeland Security issued warnings about Russian hackers targeting computer systems controlling energy and other critical infrastructure.

Interest in shoring up the security of energy infrastructure and systems -- both from physical attacks as well as cyber threats -- appears poised to drive continued discussions, regulation, and investment.

US warns of Russian Government Cyber Activity Targeting Energy and Other Critical Infrastructure

The U.S. Department of Homeland Security has warned that for at least two years, Russian government cyber actors have targeted government entities and multiple U.S. critical infrastructure sectors, including the energy, nuclear, commercial facilities, water, aviation, and critical manufacturing sectors.

In a joint Technical Alert issued March 15, 2018 by the Department of Homeland Security's U.S. Computer Emergency Readiness Team (US-CERT) and the Federal Bureau of Investigation, the agencies warned of a "multi-stage intrusion campaign by Russian government cyber actors." The report follows an October 2017 alert by computer security firm Symantec of a re-emergence of a sophisticated cyber espionage group known as "Dragonfly."

According to the government agencies' report, the Russian cyber threat actors seem to have deliberately targeted specific organizations, as opposed to pursuing targets of opportunity. In an initial "staging" phase, the campaign used tools like malware, watering holes, and spear phishing to gain access to small commercial facilities' networks -- typically peripheral organizations like trusted third-party suppliers whose networks may be less secure. For example, the threat actors sent emails with malicious attachments appearing to be personnel resumes or contract documents. Clicking on links in the attachments exposed the victims to malware or data harvesting. In a subsequent phase, the threat actors made further use of the staging targets' networks as "pivot points and malware repositories" for use in targeting their final intended victims.

The report says that these Russian government cyber actors used this hacked access for network reconnaissance and collection of information pertaining to Industrial Control Systems (ICS). It describes multiple instances of threat actors accessing workstations and servers on corporate networks that contained data output from control systems within energy generation facilities.

Cyber security is now a significant concern, both domestically and abroad. A February 2018 report by the U.S. intelligence community described the targeting of national security information and proprietary information from US companies and research institutions involved with defense, energy, finance, dual-use technology, and other areas as "a persistent threat to US interests." Last month, U.S. electric grid reliability regulators imposed a $2.7 million penalty on an unidentified utility for its violations of mandatory reliability standards in connection with a data security breach -- the largest fine to date associated with U.S. utility cybersecurity regulation. In that case, a third-party contractor hired by the utility allegedly copied protected data from the utility's network to the contractor's unsecured network -- where it was accessible online without the need to enter a user ID or password, and where it was in fact accessed by one or more unknown outside entities.

In 2014, reports emerged that Russian hackers had found flaws in solar panel monitoring software that, if left unfixed, could allow malicious actors to damage the electric grid. Foreign state-sponsored cyber attacks in 2016 and 2017 against Ukraine and Saudi Arabia targeted multiple sectors across critical infrastructure, government, and commercial networks, causing disruption to Ukrainian energy distribution networks.

NERC fines utility $2.7 million for cyber breach

The electric reliability organization responsible for the grid spanning much of North America has penalized an unidentified utility $2.7 million for its violations of mandatory reliability standards in connection with a data security breach. The penalty may be the largest fine to date associated with U.S. utility cybersecurity regulation.

NERC, or the North American Electric Reliability Corporation, is charged by U.S. law with ensuring the reliability of the nation's bulk power system. NERC establishes reliability standards for the bulk electric system, which are approved by the Federal Energy Regulatory Commission, and takes action to monitor and enforce compliance with its reliability standards.

On February 28, 2018, NERC filed with the Commission a Notice of Penalty regarding what it described as noncompliance by an "Unidentified Registered Entity (URE)", following a settlement between the anonymous utility and regional reliability group Western Electricity Coordinating Council (WECC).

Some of the details of the underlying fact pattern are protected from public disclosure as Critical Energy Infrastructure Information or CEII. But NERC's public filing says the settlement arose from WECC's determination and findings that the anonymous utility violated two of NERC's Critical Infrastructure Protection or CIP cybersecurity standards. According to NERC's report, the utility received a report that an outside "white hat security researcher" had found data publicly available online which appeared to be protected information associated with the utility.

Following this tipoff, an investigation by the utility and regional reliability group WECC revealed that a third-party contractor hired by the utility had copied data from the utility's network environment to the contractor's network environment, where it was no longer subject to the utility's visibility or control -- in violation of the contractor's authority. While the data was on the contractor's network, a subset of live utility data including over 30,000 records was accessible online without the need to enter a user ID or password for a period of 70 days. These records included some associated with the utility's Critical Cyber Assets, such as servers storing user data, systems controlling physical access within the utility's control centers and substations, and supervisory control and data acquisition or SCADA systems. System logs showed unauthorized access to this data set by both the white hat researcher and unidentified IP addresses.

According to the Settlement Agreement, the anonymous utility neither admitted nor denied the violations, but agreed to pay a $2,700,000 penalty and take other compliance actions. This may represent the largest fine to date for violations of NERC's CIP standards. While federal penalty policy encourages self-reporting of violations and having an internal compliance program in place -- as the anonymous utility did -- the settlement notes that the utility "was not fully transparent and forthcoming with all pertinent information detailing the data exposed in the incident." In particular, the settlement says the utility did not initially provide WECC with all the data fields exposed in the incident. These factors, combined with a finding that the violations posed a serious and substantial risk to the reliability of the bulk power system, led WECC to set the penalty amount at $2.7 million, which NERC subsequently approved.

By federal rule, the penalty will be effective upon expiration of the 30-day period following the penalty notice's filing with the Federal Energy Regulatory Commission or, if FERC decides to review the penalty, upon final determination by FERC.

New England Operational Fuel-Security Analysis released

The risk that power plants will run out of fuel is the foremost challenge to a reliable power grid in New England, according to the region's grid operator, and the region is vulnerable to the season-long outage of any of several major energy facilities.

While the ability to count on a portfolio of power plants to generate power is considered the cornerstone of reliable electricity supply, ISO New England has noted several factors that make fuel security a growing concern for the region. These factors include the inadequacy of the region’s natural gas infrastructure to meet winter needs for both heating and power, and the retirement of many of the region’s coal, oil, and nuclear power plants due to economic and environmental pressures.

On January 17, 2018, ISO New England released its Operational Fuel-Security Analysis, a 56-page report studying the possible fuel security risks facing region's power plants under a wide range of hypothetical future scenarios. Prepared following about two years of study, the report found that maintaining the electric grid's reliability "is likely to become more challenging, especially if current power system trends continue."

The report considered a 23 possible range of possible future power resource combinations that could materialize for the winter period from December 1, 2024 through February 28, 2025, to examine whether enough fuel would be available to meet demand and to quantify the operational risks. Each scenario assumed no new natural gas pipeline capacity would be added to serve generators, but considered variation in five other key factors for power system reliability: resource retirements, LNG availability, oil tank inventories, imported electricity, and renewable resources.

ISO-NE chart of Hours of Emergency Actions under Modeled Scenarios, Ordered Least to Most, Operational Fuel-Security Analysis (2018)

The study identified six major conclusions:

1. Outages: The region is vulnerable to the season-long outage of any of several major energy facilities.

2. Stored fuels: Power system reliability is heavily dependent on LNG and electricity imports; more dual-fuel capability is also a key reliability factor, but permitting for construction and emissions is difficult.

3. Logistics: The timely availability of fuel is critical, highlighting the importance of fuel-delivery logistics.

4. Risk trends: All but four scenarios result in fuel shortages requiring load shedding, indicating the trends affecting New England’s power system may intensify the region’s fuel-security risk.

5. Renewables: More renewable resources can help lessen the region’s fuel-security risk but are likely to drive coal- and oil-fired generation retirements, requiring high LNG imports to counteract the loss of stored fuels.

6. Positive outcomes: Higher levels of LNG, imports, and renewables can minimize system stress and maintain reliability; to attain these higher levels, delivery assurances for LNG and electricity imports, as well as transmission expansion, will be needed.

According to ISO-NE, quantifying the level of risk over a wide range of possible combinations provides information the region can use to consider approaches to ensuring power system reliability. The grid operator has said it plans to engage with stakeholders, regulators, and policymakers through 2018 to discuss the operational fuel-security analysis -- and how much risk the ISO and region would be willing to tolerate.

Energy dept adopts grid emergency order rule

U.S. energy regulators have issued a final rule governing the procedures through which the Secretary of Energy may issue an emergency order under the Federal Power Act to respond to an electric grid security emergency.

Under the Fixing America's Surface Transportation Act of 2015, Congress authorized the Secretary of Energy to order emergency measures after the President declares a grid security emergency. Such an emergency could occur as the result of a physical attack, a cyber-attack using electronic communication, an electromagnetic pulse (EMP), or a geomagnetic storm event. The FAST Act added these powers to the Federal Power Act, which contained additional language authorizing the Secretary to order temporary emergency measures as needed to serve the public interest.

On January 10, the U.S. Department of Energy published its final rule governing grid security emergency orders.  According to the Department, the procedures established by this final rule "will ensure the expeditious issuance of emergency orders under the Federal Power Act." It says the final rule establishes a "consistent yet flexible set of procedures" for regulatory engagement with impacted parties as the Department issues emergency orders. The Department says it "expects that these emergency orders would be issued rarely," but emphasized its need for flexibility in tailoring a response to the particular circumstances of any grid disruption.

The new final rule is codified in 18 C.F.R. section 205.380 et seq.

Report links US nuclear industry to national security

The U.S. nuclear energy enterprise is a key national security enabler, according to a report released this week by a new non-profit.  The Energy Futures Initiative's report describes the domestic nuclear energy industry as playing important roles in both electricity supply and "maintaining a robust supply chain (equipment, services, and skilled personnel) that is necessary for U.S. leadership in global nuclear nonproliferation policy."

According to its website, Energy Futures Initiative, Inc. (EFI) is "a new not-for-profit dedicated to driving innovation in energy technology, policy and business models."  EFI's principals include fomer U.S. Secretary of Energy Dr. Ernest Moniz.

EFI's August 2017 report, "The U.S. Nuclear Energy Enterprise: A Key National Security Enabler," analyzes the domestic nuclear energy sector's role in meeting national security imperatives, including:

• maintaining U.S. leadership in ensuring nuclear non-proliferation;
• supporting the U.S. nuclear Navy; and
• supporting the global strategic stability and deterrence value of nuclear weapons.

It notes that in addition to supplying electricity, nuclear power provides values including climate change risk mitigation, fuel price risk management, and national security -- some of which are not addressed in electricity rate-making policy.  The report notes:

The analysis suggests that the imperatives of global climate change, collective energy security, balance of trade and U.S. national security require a viable domestic commercial nuclear power industry, including a robust supply chain of technology, services and human resources. Recent events and future trends point in the opposite direction: commercial reactors are shutting down, new builds are struggling, the supply chain is at risk, and it is likely that the educational pipeline will negatively respond to these challenges.

To ensure that the federal government addresses the relationship between a robust nuclear energy enterprise and goals including nonproliferation, Navy fleet modernization, and "the global strategic stability and deterrence value of nuclear weapons," the report suggests steps the U.S. could take.  These include making "maximum flexible use of its existing resources and capabilities, including credit support, tax incentives and federal siting and/or purchase power agreements, to bolster support for current new builds and to encourage additional new builds," as well as directing the Federal Energy Regulatory Commission to "place greater emphasis on the national security importance of nuclear power and its associated supply chain."  It also suggests that Congress allocate $2 billion per year for the next five years to fund research and development into new reactor designs.

FERC's approach to EMP and GMD threats

Federal energy regulators have used both regulatory and more informal collaborative approaches to address the threat to the electric grid posed by electromagnetic pulses and geomagnetic disturbances, according to testimony delivered on May 4, 2017, to the U.S. Senate Committee on Energy and Natural Resources.

Last month, Federal Energy Regulatory Commission acting chairman Cheryl LaFleur spoke to the Senate committee on the Commission's work in protecting the reliability of the U.S. grid against naturally-occurring and manmade threats.  In her testimony, she noted the Commission's role in approving mandatory reliability standards developed by the North American Electric Reliability Corporation (NERC), as well as its support for grid security through voluntary and collaborative efforts like sharing best practices, participating in grid reliability exercises, and briefing state policymakers.

Acting chairman LaFleur's testimony focused on the threats posed by man-made electromagnetic pulses (EMP) and naturally-occurring geomagnetic disturbances (GMD).  As she categorized it, EMP are bursts of energy designed to disrupt, damage or destroy electronics such as those found in control systems on the electric grid.  GMD are naturally occurring solar magnetic disturbances which periodically disrupt the earth’s magnetic field; these disturbances can induce currents on the electric grid that may simultaneously damage or destroy key transformers over a large geographic area.  According to Commissioner LaFleur, a severe EMP or GMD event "has the potential to cause voltage problems and instability on the electric grid, which could lead to wide-area blackouts."

She next noted FERC's actions to address EMP threats, including both regulatory and informal approaches.  Regulatory actions include FERC's direction and approval of NERC's two-stage GMD reliability standards, which require responsible entities to develop and implement operational procedures to mitigate the effects of GMDs and to conduct initial and on-going assessments of the potential impact of a benchmark GMD event on bulk-power system equipment and the bulk-power system as a whole and to mitigate any assessed vulnerabilities.

She also pointed to FERC's approval of NERC's physical reliability standard, which requires responsible entities to mitigate assessed vulnerabilities to critical transmission facilities through resiliency or security measures designed collectively to deter, detect, delay, assess, communicate, and respond to potential physical threats and vulnerabilities, as helping to address the use of small, portable EMP devices that require close proximity to their intended target.  However, as she noted, "FERC has not directed NERC to develop a standard specifically targeting EMP."

Acting chair LaFleur also noted collaborative efforts, including coordination and information-sharing with the Department of Energy, Department of Homeland Security, Department of Defense, interagency task forces, and foreign governments.

US, Canada grid security and resilience strategy

The governments of the United States and Canada have released a joint strategy for ensuring the security and resilience of their electric grid.  In recognition of the interconnected nature of the North American electric grid, the document, "Joint United States-Canada Electric Grid Security and Resilience Strategy," describes the nations' shared goals and objectives.  An action plan released alongside the strategy presents U.S. steps and milestones toward achieving the strategy's desired outcomes.

The joint strategy centers on a vision of "a secure and resilient electric grid that is able to withstand hazards and recover efficiently from disruptions."  Recognizing that this grid is made up of a variety of interconnected entities -- including federal, territorial, municipal, co-operative, and investor-owned and operated utilities -- the strategy identifies three overarching goals:

• Protect Today’s Electric Grid and Enhance Preparedness: A secure and resilient electric grid that protects system assets and critical functions and is able to withstand and recover rapidly from disruptions is a priority for the governments of both the United States and Canada.
• Manage Contingencies and Enhance Response and Recovery Efforts: The Strategy sets out a shared approach for enhancing continuity and response capabilities, supporting mutual aid arrangements such as cyber mutual assistance across a diverse set of stakeholders, understanding interdependencies, and expanding available tools for recovery and rebuilding. 
• Build a More Secure and Resilient Future Electric Grid: The United States and Canada are working to build a more secure and resilient electric grid that is responsive to a variety of threats, hazards, and vulnerabilities, including increased threats from climate change. To achieve this, the electric grid will need to be more flexible and agile, with an architecture into which new technologies may be readily incorporated.

Beyond the joint strategy, each participating country has also developed its own individual action plan describing steps and milestones toward the strategic goals.  The U.S. National Electric Grid Security and Resilience Action Plan was released concurrently with the Strategy.

The action plan is generally non-binding on the U.S., and it is unclear whether the incoming Trump administration would adopt the plan, as opposed to revising or scrapping it.  Nevertheless the joint U.S.-Canada grid security and resilience strategy and the U.S. action plan may inform future efforts to strengthen the North American electric grid against risk and disturbance.

Substation security and the Garkane shooting

As the U.S. strengthens protections for its electricity grid, much of the discussion focuses on cybersecurity -- but physical security is also important, as shown by an attack on a Utah utility's substation.  On September 25, an unknown gunman fired at least 3 shots into a distribution system substation, damaging a transformer and causing power outages.  The incident may place renewed pressure on utilities to secure their infrastructure against vandalism and terrorism.

As reported by the Deseret News, the damage occurred at a substation owned by Garkane Energy Cooperative.  An assailant reportedly shot the main transformer's oil-cooled radiator system, causing the transformer to overheat and fail.  About 13,000 customers lost power across most of Kane and Garfield counties.  A spokesman for the cooperative said damage to the transformer could reach $1 million; repairs could take 6 to 12 months.  The utility has offered an unusually high reward -- $50,000 -- for information leading to the arrest of the shooter.

This is not the first time someone has used firearms to damage utility infrastructure.  Some incidents, such as the 2012 shotgunning of 167 insulating discs on Vermont's transmission system, may be considered vandalism.  Others, like the 2013 sniper shooting of a PG&E substation in San Jose, California, are considered terrorism.  That attack led the Federal Energy Regulatory Commission to implement new physical security protections for utility infrastructure known as CIP-014, through its Order No. 802.

The Garkane incident remains under investigation.  More broadly, it may strengthen calls for further hardening of the utility system against physical attack.  Meanwhile, efforts continue to strengthen cybersecurity protections for the grid.

FERC proposes FAST Act CEII rules

The Federal Energy Regulatory Commission has proposed amending its regulations designed to protect critical information about utility infrastructure.  If adopted, the new regulations would govern the treatment of Critical Energy/Electric Infrastructure Information (CEII) whose disclosure and misuse could put the electric grid at risk.

In the wake of the September 11, 2011 terrorist attacks, the Commission took steps to identify and protect sensitive information it considered "Critical Energy Infrastructure Information," or CEII.  In general, FERC defined CEII as specific engineering, vulnerability, or detailed design information about proposed or existing critical infrastructure (physical or virtual) that:

1. Relates details about the production, generation, transmission, or distribution of energy;
2. Could be useful to a person planning an attack on critical infrastructure;
3. Is exempt from mandatory disclosure under the Freedom of Information Act; and
4. Gives strategic information beyond the location of the critical infrastructure.

Some previously public material was designated as CEII, and going forward newly filed or issued documents had to be screened for CEII.  FERC also created a process to allow individuals with a valid or legitimate need to access CEII, while protecting it from other disclosure.

But last year, Congress weighed in on the protection of certain sensitive information about infrastructure.  The Fixing America's Surface Transportation (FAST) Act, signed into law on December 4, 2015, included provisions designed to improve the security and resilience of energy infrastructure in the face of emergencies.  In particular, the FAST Act added section 215A to the Federal Power Act, directing the Commission to issue regulations covering the security and sharing of "Critical Electric Infrastructure Information."

Federal Power Act section 215A(a)(3) defines the new term Critical Electric Infrastructure Information as:

information related to critical electric infrastructure, or proposed critical electrical infrastructure, generated by or provided to the Commission or other Federal agency, other than classified national security information... Such term includes information that qualifies as critical energy infrastructure information under the Commission’s regulations.

As interpreted by the Commission, this encompasses "not only information regarding the Bulk-Power System but also information regarding other energy infrastructure (i.e., gas pipelines, LNG, oil, and hydroelectric infrastructure) to the extent such information qualifies as Critical Energy Infrastructure Information under the Commission’s current regulations. "

On June 16, 2016, the Commission issued a Notice of Proposed Rulemaking, proposing to amend its regulations to implement the provisions of the FAST Act pertaining to the designation, protection and sharing of critical electric infrastructure information, and also proposing to amend its existing regulations pertaining to CEII. The proposed changes include criteria and procedures for designating information as CEII, a specific prohibition on unauthorized disclosure of that information, and sanctions for knowing and willful wrongful disclosure of CEII by federal personnel.

Comments on the Notice of Proposed Rulemaking are due 45 days after its publication in the Federal Register.

FERC enforcement report cites screenshots, keylogger

The Federal Energy Regulatory Commission has issued an Order to Show Cause and Notice of Proposed Penalty against Coaltrain Energy, L.P. and six individuals relating to alleged fraudulent transactions in PJM Interconnection L.L.C.'s energy markets.  The Order, and a supporting Enforcement Staff Report, also includes allegations that Coaltrain made false and misleading statements and material omissions during the investigation.  Notably, the report describes FERC Enforcement staff's discovery of troves of documents allegedly covered up by the respondents, including keystroke logs and computer screenshots recorded by the company's software.  This e-discovery aspect gives FERC's Coaltrain enforcement case a unique character.

Fundamentally, the Coaltrain case presents FERC Enforcement staff's allegations that the respondents violated of the Commission’s Prohibition of Energy Market Manipulation, and that Coaltrain violated a Commission market behavior rule about accurate communications.  At issue is an alleged scheme involving trades from June 15 until September 2, 2010.  Traders allegedly engaged in a large volume of marginally profitable Up To Congestion (UTC) trades -- not to make money on those UTC trades, but with the intent to earn outsize payments from PJM's Marginal Loss Surplus Allocation (MLSA) program. FERC Enforcement staff's report describes its view of these trades as similar to those at issue in other recent enforcement cases, and different from normal arbitrage or "spread" trades.

The FERC Enforcement staff report in the Coaltrain case sheds light on another aspect of enforcement activity: how did Enforcement staff conduct its investigation of Coaltrain and the other respondents?  In this case, the company’s computer security monitoring software, called Spector 360, played a key role.  According to the report, Spector 360 "recorded every keystroke on employees’ computers (other than co-owners Peter Jones and Sheehan) and took screen shots of every employee monitor every twenty seconds all day long".

As staff noted in a footnote:

A large portion of the evidence in this matter is derived from the documents and other materials recorded by Spector 360. While the keystroke text data is not much different from ordinary documents, the screen shots taken by Spector 360 are very different, and create a visual record of what Respondents were working on, what they were looking for, how they conducted their analyses, and what they actually saw—as if standing over their shoulders while they work. This evidence will be reproduced as images taken from the screen shots.

Indeed, the Enforcement staff report includes a series of screenshots allegedly captured by Coaltrain's software.  According to the report, the evidence captured by Spector 360 shows how the respondents developed, implemented, and communicated about their scheme.

Not only does the FERC Enforcement staff report allege that this evidence exists, but moreover it alleges respondents made false and misleading statements about Spector 360 and the data it logged, including claims that they "forgot" about it.  According to the report, the Spector 360 data included material responsive to data requests issued as part of the investigation - but Coaltrain allegedly only provided it to Enforcement after a former employee told Enforcement that the Spector 360 data existed:

Enforcement sent several data requests to Coaltrain beginning in August 2010. In June 2012, Enforcement discovered from a former Coaltrain employee that Respondents had failed to produce an enormous set of documents that were highly relevant to the matters under investigation and responsive to Enforcement’s prior data requests. As it turned out, for nearly two years Respondents had failed to tell Enforcement that before, during, and after the summer of 2010, Coaltrain had deployed computer monitoring software, called Spector 360, that had recorded every keystroke (saved as text files) and made screenshots every twenty seconds of every monitor (saved as image files) on the work and home computers of every employee other than the co-owners, Peter Jones and Sheehan. Enforcement then asked Respondents to produce the missing materials. Respondents admitted that they still retained the data, but they at first refused to produce it by falsely denying that they could access the Spector 360 materials. Respondents belatedly produced the materials only after Enforcement arranged with the software manufacturer to give Respondents a new license at no cost. Once produced, the Spector 360 documents proved to be an enormous trove of responsive and relevant materials—about 10 gigabytes per employee during the summer of 2010.

FERC has docketed the case as IN16-4-000.  In its show cause order, the Commission directs Coaltrain and its co-owners to show cause why they should not be jointly and severally required to disgorge unjust profits of $4,121,894, and directs all Respondents to show cause why they should not be assessed civil penalties in the following amounts:

• Coaltrain: $26,000,000
• Peter Jones: $5,000,000
• Shawn Sheehan: $5,000,000
• Robert Jones: $1,000,000
• Jeff Miller: $500,000
• Jack Wells: $500,000
• Adam Hughes: $250,000

House subcommittee holds hearing on FERC oversight

Members of the Federal Energy Regulatory Commission testify today before the House Energy & Commerce Committee, Subcommittee on Energy and Power, as that committee considers its oversight of the FERC.

The FERC is an independent administrative agency within the Department of Energy.  Its mandate includes regulating the transmission, reliability, and wholesale sale of electricity in interstate commerce pursuant to the Federal Power Act; the transmission and sale of natural gas for resale in interstate commerce pursuant to the Natural Gas Act; the transportation of oil by pipeline in interstate commerce pursuant to the Interstate Commerce Act; and evaluating proposals to build liquefied natural gas (LNG) terminals and interstate natural gas pipelines, as well as the licensing of non - federal hydropower projects.

As described in a committee background memorandum for today's hearing, the Subcommittee on Energy and Power is exploring whether FERC’s statutory authorities require modernization to reflect current energy realities.  Chief among those statutory authorities are the Federal Power Act and the Natural Gas Act.  The committee memorandum also notes an interest in evaluating "whether FERC is overstepping its existing statutory boundaries to pursue policy goals not intended by Congress."

Specific issues expected to be examined at the hearing include:

• Potential impacts of the U.S. EPA's Clean Power Plan rule on electricity markets, fuel diversity, and electric reliability;
• Commission oversight of organized wholesale electricity markets and their operation
• Risks to the security of the electric grid, including physical and cyber security, geomagnetic disturbances, electromagnetic pulse, and severe weather;
• How to integrate renewable, intermittent resources and distributed generation;
• The role of demand response and other demand-side management technologies in wholesale markets, at issue in the EPSA v. FERC case pending before the U.S. Supreme Court; 
• Electric transmission operations and planning, including implementation of Order No. 1000;
• Natural gas pipeline permitting, LNG siting, and hydropower licensing;
• FERC market manipulation authorities and enforcement practices; and
• FERC’s implementation of the mandatory purchase obligation from qualifying facilities (QFs) under section 210 of the Public Utility Regulatory Policies Act of 1978.

Based on prefiled documents, today's hearing features:

• testimony by FERC Chairman Norman Bay
• testimony by Commissioner Cheryl LaFleur
• testimony by Commissioner Tony Clark
• testimony by Commissioner Colette Honorable

More information about today's hearing can be found on the committee's webpage.

Navy signs solar energy deal

The U.S. Department of the Navy has announced an agreement for the development of a 210 megawatt (DC) solar project to supply electricity to Navy and Marine Corps facilities in California.  The Navy described the deal as the largest purchase of renewable energy by a federal entity to date.

Solar photovoltaic panels in Utah - much smaller project than the Navy project.

The Navy has expressed interest in renewable and alternative energy for some time, buying biofuels and renewable electricity.  According to the website for Deputy Assistant Secretary of the Navy - Energy, Joseph Bryan:

The Navy's energy strategy takes the "long view" necessary to keep our Navy and our nation strong. Bottom line: incorporating energy initiatives now will allow us to more effectively carry out our mission in the future.

In 2009, Congress mandated that 25 percent of the energy used in Department of Defense facilities come from renewable sources by 2025.  Secretary of the Navy Ray Mabus then set an accelerated goal for his branch of the military: 1 gigawatt of renewable energy procurement by the end of 2015.  In the Navy's view, resources like solar power can help diversify its shore energy portfolio and provide long-term cost stability, which ultimately contributes to the Navy's overall energy security priorities.

In furtherance of this goal, last year the Western Area Power Administration issued a request for proposals for renewable energy projects to supply power to Navy facilities in California.  Through a competitive process, Sempra U.S. Gas & Power LLC was selected to develop the Mesquite 3 Solar project.  Sempra is a subsidiary of San Diego-based Sempra Energy, a major energy services holding company. It has developed a variety of solar and wind energy generation projects, including the existing Mesquite 1 Solar project about 60 miles west of Phoenix, Arizona.

The Navy announced that it had signed the agreement on August 20, at a ceremony co-hosted by Western Area Power Administration and Sempra.  Under the Navy deal, Sempra will develop the Mesquite 3 project as an expansion of the existing Mesquite site.  Mesquite 3 will feature over 650,000 photovoltaic panels on ground-mounted, horizontal single-axis trackers.  Construction is scheduled to begin in August, with completion expected by the end of 2016.  While pricing terms have not been disclosed, the Navy reports that it will save at least $90 million over the life of the project.

Will other units of federal government follow the Navy's model in contracting for renewable energy in this manner?  How will solar project business structures change if federal entities start playing a larger role as buyers?

House subcommittee considers reliability draft

A congressional committee is considering legislation to assure reliability and security of the U.S. electricity grid.  The House Subcommittee on Energy and Power's discussion draft includes a series of provisions designed to harden the grid against disturbance.

To understand the discussion draft, you must first understand its context.  2015 is a time of great change for the U.S. electricity system.  The grid continues to shift away from coal-fired generation and towards use of natural gas and renewable energy sources.  New environmental regulations affecting power plants are taking effect.  Smart grid technology now enables real-time communication and coordination between supply and demand for electricity, but creates millions of potential access points for hackers to target the grid.  Meanwhile utilities plan to invest more than $60 billion in transmission infrastructure over the next decade. 

Faced with these shifts, the House Subcommittee on Energy and Power held a hearing today on a "discussion draft" of proposed measures to strengthen grid reliability, security and readiness to survive disturbance.  The discussion draft includes measures that would:

• Resolve conflicts between choosing whether to comply with an emergency order from the Department of Energy or violate environmental obligations;
• Require the Federal Energy Regulatory Commission to complete an independent reliability analysis of any proposed or final major federal rule that affects electric generating units;
• Direct the Secretary of Energy to develop and adopt procedures to enhance communication and coordination between governmental entities and the private sector to improve emergency response and recovery;
• Give the Secretary of Energy powers to address grid security emergencies, and facilitate information sharing;
• Require the Energy Department to submit a plan to Congress evaluating the feasibility of establishing a Strategic Transformer Reserve for the storage, in strategically-located facilities, of spare large power transformers in sufficient numbers to temporarily replace critically damaged large power transformers;
• Direct DOE to create a voluntary Cyber Sense program to identify cyber-secure products and technologies intended for use in the bulk-power system, like controls and SCADA systems;
• Directs state public utility commissions and utilities to improve grid resilience and promote investments in energy analytics technology to increase efficiencies and lower costs for ratepayers while strengthening reliability and security; and
• Require FERC to work with each regional transmission organization to encourage a diverse generation portfolio, long-term reliability and price certainty for customers, and enhanced performance assurance during peak period.

As noted in the opening statements of Chairmen Ed Whitfield and Fred Upton, elements from this discussion draft may be included in a bipartisan energy bill expected to emerge from the House committee later this session.

FERC adopts grid physical security reliability standard

As expected, federal regulators have approved a new physical security standard for the high-voltage electricity grid.

On November 20, the Federal Energy Regulatory Commission approved Reliability Standard CIP-014-1 (Physical Security).  The standard, proposed by Commission-certified Electric Reliability Organization North American Electric Reliability Corporation (NERC), is designed to enhance physical security measures for the most critical parts of the nation's "bulk-power system," the high-voltage backbone of the nation's electric grid.

In the wake of a 2013 California incident in which a major substation was damaged by gunfire, in March 2014 the FERC directed NERC to prepare a draft standard to protect the physical security of the grid.  In response, NERC proposed a standard requiring owners and operators of transmission facilities toidentify and protect critical transmission stations, substations, and control centers whose damage through physical attack could result in spreading outages or other reliability problems.

On November 20, 2014, the FERC issued its Order No. 802 approving the physical grid reliability standards.  In a press release, the Commission described Order No. 802 as enhancing the physical security for the most-critical Bulk-Power System facilities and reducing the overall vulnerability of the grid to attacks.

As described by the FERC in Order No. 802, Reliability Standard CIP-014-1 has six requirements:

• Requirement R1 requires applicable transmission owners to perform risk assessments on a periodic basis to identify their transmission stations and substations that, if rendered inoperable or damaged, could result in widespread instability, uncontrolled separation , or cascading within an Interconnection. Requirement R1 also requires transmission owners to identify the primary control center that operationally controls each of the identified transmission stations or substations.
• Requirement R2 requires that each applicable transmission owner have an unaffiliated third party with appropriate experience verify the risk assessment performed under Requirement R1. Requirement R2 states that the transmission owner must either modify its identification of facilities consistent with the verifier’s recomme ndation or document the technical basis for not doing so. In addition, Requirement R2 requires each transmission o wner to implement procedures for protecting sensitive or confidential info rmation made available to third - party verifier s or developed under the Reliability Standard from public disclosure.
• Requirement R3 requires the transmission owner to notify a transmission operator that operationally controls a primary control center identified under Requirement R1 of such identification to ensure that the transmission operator has notice of the identification so that it may timely fulfill its obligations under Requirements R4 and R5 to protect the primary control center.
• Requirement R4 requires each applicable transmission owner and transmission operator to conduct an evaluation of the potential threats and vulnera bilities of a physical attack on each of its respective transmission stations, transmission substations, and primary control centers identified as critical in Requirement R1.
• Requirement R5 requires each transmission owner and transmission operator to develop and implement documented physical security plans that cover each of their respective transmission stations, transmission substations, and primary control centers identified as critical in Requirement R1.
• Requirement R6 requires that each transmission owner and transmission operator subject to Requirements R4 and R5 have an unaffiliated third party with appropriate experience review its Requirement R4 evaluation and Requirement R5 security plan. Requirement R6 states that the transmission owner or transmission operator must either modify its evaluation and security plan consistent with the recommendation, if any, of the reviewer or document its reasons for not doing so. Requirement R6 also requires each transmission owner to implement procedures for protecting sensitive or confidential information made available to third-party reviewers or developed under the Reliability Standard from public disclosure

While the Commission adopted the standard, it directed NERC to submit an informational filing within 2 years that addresses whether the physical security reliability standard should be applicable to additional control centers.  It also gave NERC 6 months to propose modifications to clarify the use of the phrase "widespread" instability in Requirement R1.

The FERC's rule will become effective 60 days after its publication in the Federal Register.

FERC considers Physical Security Reliability Standard

Federal energy regulators are considering a new national standard for protecting the physical security of the U.S. electric grid.  Given the importance of electric reliability and concern over terrorist attacks and sabotage, electric reliability organization NERC has proposed a Physical Security Reliability Standard known as CIP-014-1.  If adopted by the Federal Energy Regulatory Commission (FERC), the standard would become enforceable against transmission owners and operators.

Under U.S. law, the FERC has jurisdiction over the network of wires and transformers that make up the nation's bulk transmission system.  The Energy Policy Act of 2005 expanded the Commission's authority to impose mandatory reliability standards on the bulk transmission system.  Working with the nation's chief electric reliability organization (North American Electric Reliability Corporation, or NERC), the Commission has adopted a series of reliability standards covering matters including communications among utilities, cybersecurity, and interconnections.

On July 17, 2014, the FERC issued a notice of proposed rulemaking proposing to approve NERC’s proposed Physical Security Reliability Standard (CIP-014-1).  NERC has described this standard as designed to enhance physical security measures for the most critical Bulk-Power System facilities and thereby to lessen the overall vulnerability of the Bulk-Power System to physical attacks.  The standard requires owners and operators of transmission facilities to identify and protect critical transmission stations, substations, and control centers whose damage through physical attack could result in spreading outages or other reliability problems.

The proposed physical security reliability standard also includes provisions protecting sensitive or confidential information from public disclosure, calling for third party verification and periodic reevaluation of critical facility identification, threats assessment, and security plans.

The FERC solicited public comment on the proposed physical security reliability standard through September 8, 2014.  Over 30 parties filed comments, with additional reply comments filed by September 22.

With the proposed Physical Security Reliability Standard now pending before the FERC, we may soon see its adoption.  The FERC has scheduled the matter for its November 20 deliberations.  Assuming CIP-014-1 is adopted, owners and operators of regulated facilities will need to comply with the new standard, and to plan for further tightening up of the physical security of the electric grid in the coming years.