Agenda Member Representatives Committee November 4, 2015 | 1:00 – 5:00 p.m. Eastern Westin Buckhead Atlanta 3391 Peachtree Road NE Atlanta, GA 30326 Introduction and Chair’s Remarks NERC Antitrust Compliance Guidelines and Public Announcement* Consent Agenda

1. Minutes* - Approve

a. August 12, 2015, Meeting

b. October 7, 2015, Conference Call

2. Future Meetings*

3. Elections and Nominations

a. Election of MRC Officers for 2016*

b. Update on MRC Sector Nominations and Elections*

c. Update from the Board of Trustees Nominating Committee*

d. Schedule for RISC Nominations* Regular Agenda

4. Responses to the Board’s Request for Policy Input*

a. Risk-Based Registration*

b. Compliance Guidance Policy*

c. Clean Power Plan Final Rule: NERC Reliability Assessment Plan (Phase II)*

5. Additional Policy Discussion of Key Items from Board Committee Meetings*

a. Corporate Governance and Human Resources Committee (October 22, 2015)

i. Board of Trustees Effectiveness Survey and Board Committees’ Self-Assessment Surveys

ii. Trustee Compensation Philosophy

b. Finance and Audit Committee (October 28, 2015)

i. 2017 Business Plan and Budget Schedule

c. Standards Oversight and Technology Committee (November 4, 2015)

i. Reliability Standards Development Plan

ii. ERO Enterprise IT Project Update

d. Compliance Committee (November 4, 2015)

i. CIP Version 5 Implementation

ii. CIP-014 Implementation

iii. Risk-based CMEP

iv. Development of Compliance Metrics

6. Strategic Planning*

a. RISC Priorities and 2015 Reliability Leadership Summit Results

b. Evolution of Essential Reliability Services

c. ERO Enterprise Longer-term Strategic Planning Considerations

d. ERO Enterprise Strategic Plan 2016-2019 and 2016 ERO Enterprise and Corporate Metrics

7. FERC Notice of Proposed Rulemaking on Availability of Certain NERC Databases to FERC*

8. ERO Enterprise Effectiveness Survey*

9. Regulatory Update*

*Background materials included.

Agenda – Member Representatives Committee – November 4, 2015 2

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.

NERC Antitrust Compliance Guidelines 2

• 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.

DRAFT Minutes Member Representatives Committee August 12-13, 2015 | 1:15–5:15 p.m. Eastern The Ritz-Carlton, Toronto 181 Wellington Street West Toronto, ON M5V 3G7 (866) 342-6974 Chair Sylvain Clermont, with Vice Chair Nabil Hitti present, called to order the North American Electric Reliability Corporation (NERC) Member Representatives Committee (MRC) meeting on August 12, 2015, at 1:15 p.m., Eastern. The meeting announcement, agenda, and list of attendees are attached as Exhibits A, B and C, respectively. Introduction and Chair’s Remarks Mr. Clermont welcomed MRC members and attendees, including three new members (Anthony Montoya, Cam Matheson, and Greg Ford), and acknowledged the attendance of the NERC Board of Trustees (Board), the Honorable Sergio Marchi, president and CEO of the Canadian Electricity Association, Ken Quesnelle of the Canadian Association of Members of Public Utility Tribunals, FERC staff, Eli Massey of the Department of Energy (DOE), and State Commissioners David Clark and Asim Haque. Mr. Clermont recognized the MRC responses to the July 16, 2015, policy input request from Fred Gorbet, chairman of the Board. He reminded attendees that full presentations were conducted at the committee meetings and will not be repeated during the MRC meeting. NERC Antitrust Compliance Guidelines and Public Announcement Kristin Iwanechko, committee secretary, called attention to the NERC antitrust compliance guidelines and the public meeting notice. Any questions should be addressed to NERC’s general counsel, Charles Berardesco. Ms. Iwanechko declared a quorum present with the following recognized proxies:

• Barry Lawson for Jay Bartlett – Cooperative Utility

• Barry Lawson for Michael Smith – Cooperative Utility

• Ben Engleby for Jason Marshall – Electricity Marketer

• Eli Massey for David Ortiz – U.S. Federal (non-voting) Minutes The MRC approved, on a motion by John Anderson and seconded by Bill Gallagher, the draft minutes of its May 6, 2015, meeting in Arlington and its July 16, 2015, conference call (Exhibits D and E, respectively).

Update from Board of Trustees Nominating Committee Mr. Clermont noted that two Trustees are up for re-election and there is an open position resulting from Doug Jaeger’s resignation. Paul Barber, chair of the Board of Trustees Nominating Committee (BOTNC), reported that the BOTNC is finalizing the list of candidates for the open position and plans to conduct interviews in November. The BOTNC will meet in early December to prepare the slate to be sent to the MRC for review by the end of the year or early in January. The MRC will vote on the slate of candidates at its February 2015 meeting. The BOTNC includes six MRC members:

• Sylvain Clermont – MRC Chair

• Nabil Hitti – MRC Vice Chair

• Jeff Gust – Investor-Owned Utility

• Carol Chinn – State/Municipal Utility

• Michelle D’Antuono – Large End-Use Electricity Customer

• Bruce Campbell – ISO/RTO Schedule for MRC Officer and Sector Elections Mr. Clermont announced the annual nomination and election of the MRC chair, vice chair and member representatives from each sector. The schedule for the 2016 nominations and elections is as follows: MRC Officer Nominations and Elections: Wednesday, September 2 – nomination period opens Friday, October 2 – nomination period closes Wednesday, November 4 – election of officers for following year by current MRC members MRC Member Nominations and Elections: Friday, September 11 – nomination period opens Tuesday, November 10 – nomination period closes Tuesday, December 1 – election begins Friday, December 11 – election ends DOE-Canadian Coordination Eli Massey, director of electricity policy and state assistance at the DOE, provided an overview on the DOE Office of Electricity Delivery and Energy Reliability’s (OE) cross-border regulatory activities. DOE issued a Quadrennial Energy Review report in 2015, which included several cross-border recommendations. Mr. Massey highlighted the following two recommendations from the report: (1) increase the integration of energy data among U.S., Canada, and Mexico; and (2) undertake comparative and joint energy system modeling, planning, and forecasting. He noted that DOE is currently reviewing five applications for Presidential Permits, which allow entities to construct, operate, maintain, and interconnect transmission facilities across the U.S. international border. Mr. Massey also stated that OE funded the National

Minutes – MRC Meeting – August 12, 2015 2

Renewable Energy Laboratory (NREL) work using the Regional Energy Deployment System (ReEDS) model to analyze U.S-Canada electricity integration based on several scenarios. The report was issues in July 2015 and it represents a combined capacity expansion of the U.S. and Canadian electric sectors within the NREL ReEDS model. Further, DOE and Natural Resources Canada (NRCan) developed a regulatory side-by-side of requirements to construct international transmission lines between U.S. and Canada. Ten-Year Anniversary of Bilateral Principles Laura Hussey, director of Canadian affairs at NERC, provided a brief history on the bilateral principles, which were developed by the Bilateral Electric Reliability Oversight Group (Bilateral Group). The Bilateral Group was formed by the United States and Canada after the 2003 Blackout, and has now expanded to a trilateral group with Mexico. The group meets periodically to resolve institutional differences and be true to the principles that were developed. Ms. Hussey explained that the core areas of the bilateral principles address governance of the ERO, membership in the ERO, funding, remand of standards, enforcement and audits, and Regional Entities. Responses to the Board of Trustees’ Request for Policy Input Mr. Clermont acknowledged the MRC’s responses to Fred Gorbet’s July 16, 2015, letter requesting policy input on the critical infrastructure protection version 5 resolution of outstanding issues, input for 2016-2019 ERO Enterprise strategic planning, and the ESCC review of the ES-ISAC. The following comments on the policy input topics are not all inclusive, but provide the general tenor and scope of the discussion: Critical Infrastructure Protection Version 5 Resolution of Outstanding Issues Steve Noess, director of compliance assurance at NERC, noted that based on industry feedback, NERC hosted an executive-focused meeting on July 1, 2015, to discuss the memoranda that were issued in April 2015 and resolve any outstanding issues. As a result of that meeting, NERC withdrew the memoranda, as it was determined that the issues could be resolved through industry-led guidance and additional technical coordination and discussion. He stated that the focus would shift to sharing effective approaches to accomplish compliance with each of the standards and that guidance would be developed using Section 11 of the Standard Processes Manual. Mr. Noess noted that there will continue to be additional technical conversations around two of the topics from the memoranda: (1) transmission owner control centers and (2) notices to Generator Owners from Reliability Coordinators. With respect to the low impact transition, Mr. Noess noted that pending approval from FERC, the requirements would be effective in 2017 and 2018. The ERO Enterprise will work with industry on transition needs and Mr. Noess emphasized that one of the key groups to focus on is those entities that have not previously been subject to compliance with the Critical Infrastructure Protection (CIP) standards.

• An MRC member commended NERC and the Regions on the work on the transition program.

• An MRC member asked what guidance is being provided to the Regions with respect to giving some latitude on minor issues while industry struggles through big changes. Mr. Noess noted that there are opportunities to address minor issues through the risk-based compliance monitoring and enforcement program.

Minutes – MRC Meeting – August 12, 2015 3

• An MRC member noted appreciation for the withdrawal of the memoranda, but stated that there is some concern that the compliance expectations included in the memoranda may still be the expectation.

• Mr. Cauley added that NERC and the Regions are conducting a lot of work ahead of time and are having discussions with entities on what CIP V5 will look like. He stated that it is a very significant, long-term transition and he believes that NERC and the Regions will have an open mind in thinking about whether CIP is effectively being managed.

• A FERC staff member reinforced that once the standards become effective, he expects that the Commission will be interested in what compliance looks like and will want a sense that entities are using the discretion they have under the standards in a good way.

• A Board member suggested that it would be helpful to quickly identify issues requiring changes to the standards, if any, so work can begin as soon as possible.

• An MRC member raised a concern regarding the timing of the notice of proposed rulemaking (NOPR) issued by FERC on the CIP V5 revisions, which remove the “identify, assess, and correct” language. He stated that it appears that CIP V5 may be in effect prior to approval of changes reflected in the NOPR, which was not initially anticipated by industry.

• An MRC member raised a concern about making further changes to the standards prior to the upcoming effective date, stating that there is a need to have a version that industry can work with on a more long-term basis without having a moving compliance target.

• An MRC member noted that entities are spending a lot of money getting ready for the effective date and cautioned that a change in guidance could result in a lot of work needing to be re-done.

• A co-chair of the standard drafting team noted that the existing standard authorization request (SAR) for the CIP V5 revisions accommodates issues that are raised during the transition program and the team is currently working on defining that scope of work.

Input for 2016-2019 ERO Enterprise Strategic Planning Mark Lauby, senior vice president and chief reliability officer at NERC, noted that input was requested through the policy input letter on the three-year strategic plan and longer-term strategic considerations, specifically on the identification of enhancements, including missing strategic elements and risks and those that have become lower priority or well mitigated. He provided a summary of the policy input received, noting the following: (1) there was general agreement that the changing resource mix, being accelerated by the Clean Power Plan creates potential reliability considerations; (2) there is a desire to keep standards stable; (3) some comments suggested resiliency may be duplicative of other existing work, with others supporting additional work by NERC; and (4) NERC should continue to use assessments and system performance information to identify risks and mitigate them with the appropriate tools and partnerships with industry. Mr. Lauby noted that input was requested earlier in the process than in previous years and industry will have an opportunity to provide additional comments when the strategic plan and associated documents are presented to the MRC and Board at the November meetings.

Minutes – MRC Meeting – August 12, 2015 4

• An attendee suggested that there may be emerging technical issues that fall outside of Section 215 of the Federal Power Act that may have some ramifications for how the Bulk Power System is operated and NERC should conduct assessments on those that the ERO Enterprise and registered entities may face.

• An attendee noted that the Electricity Sector Information Sharing and Analysis Center (ES-ISAC) is becoming a larger portion of the NERC budget and it may be appropriate to have a strategic discussion with regards to the amount of effort, the benefit to the membership, and appropriate coordination of information sharing versus operational assessment and operational management.

ESCC Strategic Review of ES-ISAC Marc Sachs, senior vice president and chief security officer at NERC, provided a brief background of the Electricity Sub-sector Coordinating Council (ESCC), which initiated a strategic review of the ES-ISAC in January 2015. He noted that the objectives of the strategic review are to examine how the ES-ISAC is currently being used, identify a future vision and core roles, compare capabilities against other ISACs, and identify challenges and opportunities to strengthen ES-ISAC. Mr. Sachs stated that the end-state vision is to be a leading, trusted source for the analysis and sharing of electricity subsector security information. He also discussed the following four major findings and recommendations from the strategic review: (1) strengthen the governance structure and processes; (2) advance analytical capabilities; (3) improve the quality and value of products; and (4) advance capabilities for the acquisition of security information. With respect to the first finding on governance, a Member Executive Committee (MEC) is being formed and the mission is to provide industry leadership and expertise to guide and support the ES-ISAC. Mr. Sachs provided an overview of the MEC, including activities included in its charter. Mr. Sachs also provided an overview of the physical separation of the ES-ISAC, noting that access is badge-restricted and additional measures and formal policies are currently being worked on. He also noted that ES-ISAC staff was reorganized into four primary groups: (1) customer engagement team; (2) watch operations team; (3) cyber analysis team; and (4) physical analysis team.

• MRC members and attendees were supportive of the findings and recommendations.

• An MRC member asked how members provide the ES-ISAC with real-time information. Mr. Sachs noted that information is currently submitted through the portal. He also noted that the portal is being enhanced and he is working on expanding the ways that information can be submitted in the future.

• An attendee encouraged exhausting all efforts to use existing resources to support the increased priority of the ES-ISAC.

• An attendee suggested clarification on the roles and responsibilities of the MEC to ensure the effort is successful from the beginning, as it appeared that the activities in the charter straddle a fine line between providing strategic guidance and getting into managerial functions.

Additional Policy Discussion from Board Committee Meetings Attendees did not have any additional comments in response to the discussions from the Corporate Governance and Human Resources Committee or the Standards Oversight and Technology Committee.

Minutes – MRC Meeting – August 12, 2015 5

Attendees shared comments in response to the discussions at the Finance and Audit Committee and the Compliance Committee. Finance and Audit Committee

• MRC members noted that the timing and process of the NERC and Regional Entity Proposed 2016 Business Plans and Budgets and Associated Assessments has greatly improved.

Compliance Committee

• An MRC member requested clarification on the qualifications for being a third-party reviewer under CIP-014. NERC responded that third-party reviewers must be unaffiliated, not be a compliance authority, and demonstrate appropriate technical expertise.

• A Board member requested clarification on next steps for the verification of third party reviewers under CIP-014. Mr. Noess stated that NERC will develop a more detailed walk-through of how reviewers will be verified and expects that to be completed by the end of August for stakeholder comment.

Compliance Guidance Valerie Agnew, senior director of compliance assurance at NERC, noted that a draft compliance guidance policy was included in the agenda package and is still a work in progress. She noted that the policy would be posted for industry comment at end of August, and if ready, a final policy will be presented to the MRC and the Board at the November meetings. Ms. Agnew reviewed the principles in the draft proposal and noted that the Compliance Guidance Team(Team) is proposing two forms of guidance: (1) Application Guidance and (2) Compliance Monitoring and Enforcement Program (CMEP) Practice Guides. Application Guidance would typically be led and drafted by industry, and would include examples for implementing a standard that would be endorsed by the Electric Reliability Organization (ERO) Enterprise. Endorsed examples would receive deference during CMEP activities, subject to facts and circumstances. Ms. Agnew noted that the Team is reviewing currently developed documents (i.e., Reliability Standard Audit Worksheets, guidelines and technical basis, lessons learned, etc.) and discussing how those documents fit into Application Guidance. CMEP Practice Guides would provide guidance to ERO Enterprise CMEP staff and be developed by the ERO, although policy discussions would be held with industry as needed. Ms. Agnew also noted that the compliance guidance team is recommending a one-stop shop for Application Guidance, CMEP Practice Guides, and other documents supporting standards. She noted that the compliance guidance team welcomes input on the proposal, specifically on the roles of the currently developed documents, levels of collaboration, and the one-stop shop recommendation.

• An MRC member requested that the document include a statement that compliance guidance is not legally binding.

• An MRC member requested clarification on what happens when there is disagreement on what a standard means. Ms. Agnew noted that guidance is not an avenue to resolve this and the standard would need to be revised or an interpretation would need to be developed. Until a standard could be revised, a CMEP Practice Guide could be developed with policy discussions with industry. Mr.

Minutes – MRC Meeting – August 12, 2015 6

Cauley added that the ERO Enterprise would exercise judgement based on facts and circumstances.

• A Board member noted that although guidance is not legally binding, registered entities should be able to rely on the guidance and not be found in violation if that guidance is followed. Ms. Agnew agreed, but added that facts and circumstances must also be considered in compliance determinations.

• An attendee noted that it would be helpful if all guidance was located in one place. Ms. Agnew stated that the team agrees and is recommending a one-stop shop for information related to standards. The attendee also suggested that it would be helpful to clarify the appropriate forms for guidance and limit the number of forms as much as possible

• An MRC member suggested that further explanation is needed in the proposal on ERO Enterprise endorsement.

• An MRC member asked whether any changes to the Rules of Procedure are contemplated as a result of this effort. Ms. Agnew noted that the team may suggest revisions to Section 11 of the Standard Processes Manual, but nothing else at this time.

• An MRC member suggested that there should be specific decision criteria for endorsing Application Guidance.

• An MRC member noted that industry needs to work together during the standards process to develop standards for which everyone has a reasonable expectation about what the standards mean and what it will take to comply. The member also noted that it would be reasonable to ask CMEP staff for their view on the meaning of the standard.

• An attendee encouraged broader consideration around identifying what tools should be used to define compliance expectations.

• An attendee suggested that the team discuss the possibility of removing the guidance and technical basis section from the standards, as there is some confusion in Canada about whether it is officially part of the standards.

Emerging Environmental Regulations Impacting BPS Reliability: Next Steps on NERC Assessments John Moura, director of reliability assessment and system analysis at NERC, noted that the EPA issued its final rule on the Clean Power Plan on August 3, 2015. He stated that NERC is currently reviewing the rule to understand the changes and draft potential assessment plans. He noted that NERC would be meeting with the Planning Committee advisory group, which helped with the phase I assessment, to discuss the path forward to complete the phase II assessment. Mr. Moura noted that NERC anticipates releasing the phase II assessment on the Clean Power Plan between February and April 2016 depending on the scope of the assessment.

• MRC members supported the work NERC is doing on the assessments of the Clean Power Plan.

Minutes – MRC Meeting – August 12, 2015 7

• An MRC member suggested that it would be helpful for NERC to look at the federal implementation plan and assess potential reliability concerns.

• MRC members stated that it would be helpful for NERC to provide some “do’s and don’ts” to assist states in conducting assessments to demonstrate they have adequately evaluated the effects associated with its state implementation plans.

• An MRC member suggested consideration of the ozone rule expected to be issued in October, specifically the implications of the rule and what that will mean for resources.

• Some MRC members voiced concern about the timing of the phase II assessment and encouraged NERC to release the assessment in phases.

• An MRC member suggested that it is important to get ahead of this so industry can get compliance and planning obligations in place

• An MRC member stated that it is critical that the phase II assessment (1) includes the assumptions that NERC believes are realistic; and (2) looks at reliability impacts nationally, regionally, and state by state. If NERC identifies any assumptions it believes to not be reasonable, NERC should raise them as early as possible.

• An MRC member suggested that accelerating work on essential reliability services may be helpful. April 7, 2015, Washington, DC Low Voltage Disturbance Overview Bob Cummings, senior director of engineering and reliability initiatives at NERC, provided an overview of the April 7, 2015, event in Washington, DC which was initiated by the failure of a lightning arrester and resulted in a loss of 532 MW of load and about 1900 MW of generation. Mr. Cummings reported that everything tripped normally after the fault resulting from the arrester failure, but one of the breakers failed to re-trip. The station had fully redundant and separate protection systems, however one failed due to a loose connection to the auxiliary trip relay circuit and the second failed due to intermittent discontinuity in the auxiliary trip relay circuit. Mr. Cummings noted that the affected entities performed individual and joint root cause analyses. NERC will actively collaborate with industry to publish two lessons learned from the event regarding the following: (1) enhancement of the auxiliary trip relay circuit achieved by wiring the breaker auxiliary contacts in parallel rather than series; and (2) enhancement of the design of the breaker failure initiate function by providing an independent signal source to initiate breaker failure scheme. 2014-2015 Winter Performance Review James Merlo, senior director of reliability risk management at NERC, provided an overview of January and February 2015 average and actual daily temperatures, showing deviations from normal temperatures. He noted that many areas set all-time record winter peaks, exceeding those set during the 2014 polar vortex. Overall system performance during the 2015 cold weather events showed improvements over the winter of 2014. In part, the improvements reflected actions taken by stakeholders as a result of analysis, lessons learned, and implementation of recommendations from the 2014 experience. Mr. Merlo also highlighted the observations and recommendations, which include: (1) winter 2015 showed overall reliability improvement; (2) sustain industry winter weather preparedness; (3) share lessons learned in both

Minutes – MRC Meeting – August 12, 2015 8

operations and maintenance; (4) real-time gas-electric coordination continues to mature; and (5) industry and the ERO Enterprise continue to improve measurement and trending of severe weather impacts. Regulatory Update Mr. Berardesco invited questions or comments regarding the regulatory report, which highlights Canadian and Mexican affairs, as well as past and future significant FERC filings. Future Meetings The following are future dates for the MRC Pre-Meeting and Informational Sessions:

• October 7, 2015 The following are future NERC Board and MRC meeting dates and locations:

• November 4-5, 2015 – Atlanta, GA

• February 10-11, 2016 – Sarasota, FL

• May 4-5, 2016 – Chicago, IL

• August 10-11, 2016 – Halifax, Canada

• November 1-2, 2016 – Atlanta, GA Adjournment There being no further business, the meeting terminated at 5:24 p.m., Eastern. Submitted by,

Kristin Iwanechko Secretary

Minutes – MRC Meeting – August 12, 2015 9

Draft Minutes Member Representatives Committee Pre-Meeting Informational Session Conference Call and Webinar October 7, 2015 | 11:00 a.m. – 1:00 p.m. Eastern Introduction and Chair’s Remarks Chair Sylvain Clermont, with Vice Chair Nabil Hitti present, convened a duly-noticed open meeting by conference call and webinar of the NERC Member Representatives Committee (MRC) on October 7, 2015, at 11:03 a.m., Eastern. The meeting provided the MRC and other stakeholders an opportunity to preview proposed agenda topics for the MRC, Board of Trustees (Board) and Board Committee meetings scheduled to be held November 4-5, 2015, in Atlanta, Georgia. The meeting announcement, agenda, and list of attendees are attached as Exhibits A, B, and C, respectively. NERC Antitrust Compliance Guidelines and Public Announcement Kristin Iwanechko, committee secretary, directed the participants’ attention to the NERC Antitrust Compliance Guidelines and the public meeting notice included in the agenda. Schedule of Quarterly NERC Meetings and Conference Calls The draft schedule of events for the upcoming meetings in Toronto was included in the agenda package. Review of Proposed Board and Board Committees Meeting Agenda Items Charlie Berardesco noted that the preliminary agenda items for the Board and Board Committee meetings scheduled for November 4-5, 2015, in Atlanta are identified in the slide presentation included in the informational session agenda package (Exhibit D). Mr. Clermont encouraged MRC members to review all agenda materials for the Board and Board Committee meetings, once posted and available on October 21, 2015, and attend as many of these meetings as possible, in advance of the MRC’s meeting on November 4, 2015. Review of Proposed MRC Agenda Items for August 12 Mr. Clermont noted that the preliminary MRC agenda items for the upcoming November 4, 2015, meeting in Atlanta are identified in the slide presentation included in the informational session agenda package (Exhibit D). Topics include:

• Election of MRC officers for 2016;

• Schedule for MRC sector nominations and elections;

• Schedule for RISC nominations;

• Update from the Board of Trustees Nominating Committee;

• Discussion of the responses submitted to the policy input request from the Board;

• Additional discussion of the issues presented at the Board Committee meetings on October 22, October 28, and November 4;

• Strategic planning:

RISC priorities and 2015 Reliability Leadership Summit results;

Evolution of essential reliability services;

2016-2019 ERO Enterprise Strategic Plan and 2016 ERO Enterprise and Corporate Metrics;

ERO Enterprise Longer-term Strategic Planning Considerations;

• FERC Notice of Proposed Rulemaking on availability of certain NERC databases to FERC;

• ERO Enterprise Effectiveness Survey; and

• Regulatory update. Policy Input Reminder Mr. Clermont announced that the Board’s request for policy input is scheduled to be released on October 7, 2015, and responses are due by Wednesday, October 28, 2015, to Kristin Iwanechko, committee secretary. NERC staff provided updates on the following topics included in the policy input letter:

• Risk-based registration;

• Compliance guidance policy; and

• Clean Power Plan final rule: NERC reliability assessment plan (phase II). Informational Items NERC staff provided updates on the CIP version 5 implementation, physical security Reliability Standard implementation, NERC’s comments on supply chain management, and FERC’s notice of proposed rulemaking on availability of certain NERC databases to FERC. Proxy Reminder Proxy notifications for the November 4, 2015, meeting must be submitted in writing to Kristin Iwanechko, committee secretary. Meeting Adjourned There being no further business, the call was terminated at 12:15 p.m., Eastern. Submitted by,

Kristin Iwanechko Secretary

Minutes – MRC Informational Session – October 7, 2015 2

Agenda Item 2 MRC Meeting November 4, 2015

Future Meetings

Action Information Summary The following are the future meeting dates for 2016 and 2017. The dates for the 2016 pre-meeting and informational webinars are also included below. 2016 Dates January 12 Pre-Meeting and Informational Session

February 10-11 Sarasota, FL

April 6 Pre-Meeting and Informational Session

May 4-5 Chicago, IL

July 13 Pre-Meeting and Informational Session

August 10-11 Halifax, Canada

October 4 Pre-Meeting and Informational Session

November 1-2 Atlanta, GA 2017 Dates February 8-9 TBD

May 10-11 TBD

August 9-10 Ottawa, Canada

November 7-8 New Orleans, LA

Agenda Item 3a MRC Meeting November 4, 2015

Election of MRC Officers for 2016

Action Elect officers for 2016 Background Article VIII, Section 5 of the NERC Bylaws addresses election of the chair and vice chair of the MRC. Article VIII states:

Section 5 – Officers of the Member Representatives Committee (MRC) – At the initial meeting of the MRC, and annually thereafter prior to the annual election of representatives to the MRC, the MRC shall select a chairman and vice chairman from among its voting members by majority vote of the members of the MRC to serve as chairman and vice chairman of the MRC during the upcoming year; provided, that the incumbent chairman and vice chairman shall not vote or otherwise participate in the selection of the incoming chairman and vice-chairman. The newly selected chairman and vice chairman shall not have been representatives of the same sector. Selection of the chairman and vice chairman shall not be subject to approval of the board. The chairman and vice chairman, upon assuming such positions, shall cease to act as representatives of the sectors that elected them as representatives to the MRC and shall thereafter be responsible for acting in the best interests of the members as a whole.

The nomination period for the two officer positions of the MRC for 2016 opened on September 2, 2015, for a 30-day nomination period that closed October 2, 2015. The nominees for the MRC chair and vice chair for 2016 are: Chair – Nabil Hitti Vice Chair – John Twitty

Agenda Item 3b MRC Meeting November 4, 2015

Update on MRC Sector Nominations and Elections

Action Information Background Chair Sylvain Clermont will remind members of the current sector nomination period for those representatives whose terms expire in February 2016. MRC Member Nominations and Elections Friday, September 11, 2015 – nomination period opens Tuesday, November 10, 2015 – nomination period closes Tuesday, December 1, 2015 – election period opens Friday, December 11, 2015 – election period closes Reference Links Membership of the MRC for 2015-2017 NERC Bylaws

Agenda Item 3c MRC Meeting November 4, 2015

Update from the Board of Trustees Nominating Committee

Action Information Background On May 6, 2015, Chair Sylvain Clermont invited Member Representative Committee (MRC) members to volunteer to serve on the Board of Trustees Nominating Committee (BOTNC) and the following MRC members were named by the Board of Trustees to the BOTNC:

1. Sylvain Clermont – MRC Chair

2. Nabil Hitti – MRC Vice Chair

3. Jeff Gust – Investor-Owned Utility

4. Carol Chinn – State/Municipal Utility

5. Michelle D’Antuono – Large End-Use Electricity Customer

6. Bruce Campbell – ISO/RTO Paul Barber, chair of the BOTNC, will provide a status report on the planned activities and schedule for the BOTNC.

Agenda Item 3d MRC Meeting November 4, 2015

Schedule for RISC Nominations

Action Information Summary The Reliability Issues Steering Committee (RISC) will be soliciting nominations to fill open positions for both MRC and at-large members beginning February 2016. The dates of the nomination period will be presented at the November 4, 2015, MRC meeting.

Agenda Item 4 MRC Meeting November 4, 2015

Responses to the Board’s Request for Policy Input

Action Discussion. Background The policy input letter is issued by the Chair of the NERC Board of Trustees (Board) four weeks in advance of the quarterly meetings and includes relevant materials necessary to inform discussion. Written input from the Member Representatives Committee (MRC) and stakeholders is due one week before the meetings and is then revisited during a dedicated discussion time on the MRC’s agenda, in the presence of the Board. Status On November 4, 2015, MRC can expect presentations with additional information on the three policy input items at the MRC meeting: (1) risk-based registration; (2) compliance guidance policy; and (3) NERC’s reliability assessment plan on the Clean Power Plan final rule. The MRC can expect to participate in further discussion of the responses received to the policy input request that was distributed on October 7, 2015, and of the presentations given on the policy input items at the MRC meeting. The items included in the policy input letter were presented at the MRC Pre-Meeting and Informational Session webinar on October 7, 2015. Additional background information on each of the policy input items are included in the agenda package for the webinar. Deadline for submitting policy input responses is October 28, 2015, and should be sent to Kristin.Iwanechko@nerc.net. Attachments

1. October 7, 2015, Board’s Letter Requesting Policy Input (attachments excluded)

Fred W. Gorbet, Chair Board of Trustees

October 7, 2015 Mr. Sylvain Clermont, Chair NERC Member Representatives Committee c/o Hydro-Québec TransÉnergie Commercialisation et Affaires Réglementaires C. P. 10000, succ. pl. Desjardins Tour Est, 19e étage Complexe Desjardins Montréal, Québec H5B 1H7 Canada Dear Sylvain: I invite the Member Representatives Committee (MRC) to provide policy input on three issues of particular interest to the Board of Trustees (Board) as it prepares for the meetings on November 4-5, 2015, in Atlanta, GA. Additional background information is included in the October 7, 2015, MRC Informational Session agenda package to help MRC members solicit inputs from their sectors. As a reminder, please include a summary of your comments in your response (i.e., a bulleted list of key points) for NERC to compile into a single summary document to be provided to the Board for reference.

Item 1: Risk-Based Registration At the August BOTCC meeting, NERC reported that, following considerable research based on low-risk entity profiles conducted during Phase II of the Risk-Based Registration initiative, clearly defined groups of Generator Owners (GO), Generator Operators (GOP), Transmission Owners (TO), or Transmission Operators (TOP) were not identified for alternative compliance obligations. Since the August meeting, NERC has conducted further research by analyzing event and compliance data related to the foregoing functions. This research reaffirmed there are no specific groups of GO/GOPs or TO/TOPs with similar characteristics that support the development of an alternative set of compliance obligations for such groups. NERC’s specific observations and recommendations are described in the Risk-Based Registration Phase II: Data Analysis report included in the MRC Informational Session agenda package (see Item 3a). The recommendations are to:

1. Use the NERC-led review panel to address an individual entity’s facts and circumstances to determine potential reduced compliance obligations.

2. Continue to monitor the results of the NERC-led review panel to identify consistent potential groups of entities that qualify for a sub-set of NERC Reliability Standards.

3353 Peachtree Road NE

Suite 600, North Tower Atlanta, GA 30326

404-446-2560 | www.nerc.com

The Board requests feedback on whether the MRC supports these recommendations. Item 2: Compliance Guidance Policy At the May 2015 meetings, the Board, with the MRC, supported the creation of a Compliance Guidance Team (Team) to consider alternative approaches to provide compliance guidance and develop a proposal for the purpose, development, use, and maintenance of compliance guidance in the future. The proposed policy indicates a major shift in the development of compliance guidance, as it is developed and driven by registered entities, rather than NERC or the Regional Entities. The draft policy was posted for industry comment in late August. Most comments received were supportive of the direction of the policy and requested clarification of the following overarching topics: (1) Application Guidance terminology; (2) the vetting process; (3) the meaning of endorsement and deference; (4) process steps for Application Guidance; (5) how the policy relates to other documents or processes; and (6) transitioning existing documents to Application Guidance. The Team considered all comments received and revised the policy (see Attachment A). The Board requests feedback on whether the MRC supports the direction provided in the revised Compliance Guidance Policy. Item 3: Clean Power Plan Final Rule – NERC Reliability Assessment Plan (Phase II) On August 3, 2015, the Environmental Protection Agency (EPA) released a final rule that would reduce carbon dioxide (CO2) emissions from existing power plants (Clean Air Act Section 111(d)). At the October 7, 2015 MRC Informational Session, NERC outlined its approach for evaluating the final rule, as well as providing reliability guidance to States. Two report documents can be expected over the next six months: (1) a guidance document for States, which is expected to be released in January 2016; and (2) a detailed and updated analysis (Phase II), which is slated for the end of the first quarter in 2016. NERC and the Planning Committee’s Advisory Group on the Clean Power Plan (CPP) will develop a guidance document for States particularly aimed at educating the electric utility agencies, state environmental agencies, and policymakers about reliability considerations and risks that should be considered for bulk power system reliability. To help support plan development, the guidance document will concentrate on system and regional aspects of the expected resource mix changes, the potential acceleration of strained essential reliability services (e.g., voltage support, ramping, frequency response), the implications of a changing dispatch (i.e., increased cycling, energy limitations, maintenance planning), and reliability considerations of further concentration of natural gas generation, variable resources, distributed resources, and demand-side management. NERC will also revise its initial Phase I analysis and calibrate it with revised assumptions and requirements set forth in the final rule. The Planning Committee’s Advisory Group on CPP will support the technical input on this assessment. In addition, the Regional Entities are expected to support the NERC assessment and use the results to perform reliability analyses that will assess Region-specific challenges. Several scenarios have been discussed for inclusion, including a high renewable scenario and a nuclear retirement scenario.

The Board would appreciate guidance and insight regarding the approach outlined above. Specifically, the Board requests MRC input on the following questions:

• Do you support the outlined approach to provide a guidance document for the States on reliability considerations to preserve the reliable operation of the bulk power system?

• Is there specific policy guidance NERC should consider in developing the guidance document for the States?

• Do you support the outlined approach for a Phase II assessment and scenario analysis? Are there specific issues for the Planning Committee’s Advisory Group to consider in the assessment design and assumptions?

As a reminder, the full agenda packages for the Board, Board committees and MRC meetings will be available on October 21, 2015. I encourage the MRC to review the agenda materials for the November 2015 Board and MRC meetings, once available, and offer any additional input that is meaningful and timely to industry and stakeholders. Written comments should be sent to Kristin Iwanechko, MRC Secretary (Kristin.Iwanechko@nerc.net) by October 28, 2015, for the Board to review in advance of the meetings scheduled for Atlanta. Sincerely,

Fred W. Gorbet, Chair NERC Board of Trustees cc: NERC Board of Trustees Member Representatives Committee

Agenda Item 4a MRC Meeting November 4, 2015

Risk-Based Registration

Action Information Background In 2014, NERC launched the Risk-Based Registration (RBR) initiative, focused on enhancing the registration program so entities are subject to an appropriate set of applicable NERC Reliability Standards. This will be accomplished by using a consistent registration approach that differentiates entities by different levels of risk to reliability across North America. To provide advice on the RBR policy, design, and implementation plan, NERC organized the RBR advisory group (RBRAG) comprised of United States and Canadian industry representatives, Regional Entities, and NERC. Additionally, the RBR Task Force, comprised of industry subject matter experts, was formed to provide technical support. The RBR initiative has been addressed in two phases. The first phase developed the design framework for risk-based registration, proposed to eliminate Interchange Authority (IA), Purchasing-Selling Entity (PSE) and Load Serving Entity (LSE) functional entities from NERC’s registry, modified the Distribution Provider (DP) functional entity thresholds, and established the NERC-led review panel. Phase II Update As part of phase II, NERC explored options to properly align compliance obligations for Generator Owners (GOs), Generator Operators (GOPs), Transmission Owners (TOs), and Transmission Operators (TOPs). NERC used the phase I collaborative process to explore submissions from registered entities to identify consistent groups of low risk GOs/GOPs and TOs/TOPs, and pre-identified Reliability Standards that may be low risk for TO/TOP and GO/GOP entities. Based on the results of these efforts, a group or groups of lower risk GOs, GOPs, TOs or TOPs with consistent characteristics that would qualify for a reduced set of compliance obligations were not identified. The results of this work was vetted with both the Task Force and RBRAG. As a final step to identify potential groups, NERC staff analyzed event and compliance data for GOs, GOPs, TOs and TOPs. Based on this analysis, NERC identified a limited set of entities that may be eligible for review by the NERC-led panel, but did not identify any sizable lower-risk groups of GOs/GOPs or TOs/TOPs with similar characteristics that supports an alternative set of compliance obligations. Going forward, individual entities can use the NERC-led panel to seek a reduced set of compliance obligations. NERC and this panel will monitor requests to identify any trends and experiences that support the development of groups of lower-risk entities. This recommendation for the path forward, along with reports on the phase II activities and the data analysis, will be presented to the Board of Trustees at its November 5, 2015, meeting. Attachment

1. Whitepaper to the Board of Trustees on Risk-based Registration, November 5, 2015

Risk-Based Registration November 2015 Background In 2014, NERC launched the Risk-Based Registration (RBR) initiative focused on enhancing the registration program so that registered entities are subject to the appropriate set of NERC Reliability Standards based on function and risk, as warranted. The initiative was established to ensure a consistent approach to risk assessment and registration across the Electric Reliability Organization (ERO) Enterprise. This initiative has been addressed in two phases: Phase I As part of this phase, a design framework was developed to support risk-based registration activities. The design framework reflects input from the Risk-Based Registration Advisory Group (RBRAG)1 and the RBRAG Technical Task Force (RBRAG Task Force),2 both of which were established for this initiative. It also reflects input from industry survey responses and comments on various postings, public comments during prior meetings of the NERC Board of Trustees (Board) and its committees, as well as the Member Representatives Committee (MRC) policy input comments, technical committee involvement, and the Regional Entity contributions. Phase I resulted in amendments to the NERC Rules of Procedure (ROP), which were filed with FERC and other applicable governmental authorities to implement certain aspects of the RBR initiative. The reforms included: (1) modifications to the NERC Registry Criteria, including the removal of three functional registration categories (Purchasing-Selling Entities, Interchange Authorities, and Load-Serving Entities), modifications to the threshold for entities registered as Distribution Providers (DP), and alignment of five functional registration categories to the definition of “Bulk Electric System” (Transmission Owners (TOs), Transmission Operators (TOPs), Generator Owners (GOs), Generator Operators (GOPs), and Distribution Providers); (2) the risk-based application of a sub-set list of Reliability Standards for Underfrequency Load Shedding-Only Distribution Providers (UFLS-Only DP); and (3) procedural improvements to the registration process to establish the NERC-led review panel. On March 19, 2015, FERC issued an order approving the majority of NERC’s RBR proposal, and recognized the endeavor to register entities to the appropriate set of NERC Reliability Standards and allow reliability stakeholders to focus more closely on issues with a greater potential to impact reliability. FERC requested additional information on the elimination of the functional registration category for Load-Serving Entities, including how certain reliability data would be obtained. FERC also added PRC-005, NERC’s Protection System Maintenance standard, to the sub-set list of standards for UFLS-Only DPs. These two items, as well as a word change to make clear that the NERC-led review panel shall review individual and aggregate risk

1 The RBRAG, comprised of U.S. and Canadian industry representatives, the Regional Entities, FERC, and NERC staff, was formed to provide input and advice regarding the initiative’s design and implementation.

2 The RBRAG Task Force is an advisory group task force comprised of subject matter experts from industry, the Regional Entities, and NERC staff.

issues, were addressed in a compliance filing, which remains pending at FERC. In addition, FERC requested that NERC submit additional information in one year about the implementation of its proposal, which will be due in March 2016.

*The number of unique entities will differ from the total number of PSEs, DPs, and IAs that were deregistered due to some entities being registered for multiple functions. Phase II Phase II of the RBR initiative focused on determining whether there were groups of lower risk GOs, GOPs, TOs and TOPs that would qualify for a reduced set of compliance obligations through a sub-set list of Reliability Standards. Phase II considered technical and reliability risk factors in an effort to identify eligible entities and develop such sub-set lists. NERC explored various options and approaches throughout Phase II. For example, at the end of 2014, NERC conducted two workshops to address the identification of potential risk-based categories of TO/TOP entities. NERC also conducted two workshops for GO/GOP entities in March 2015. With respect to the GO/GOP functions, the Dispersed Generation Project, which modified NERC Reliability Standards for the applicability of dispersed generation resources, provided a starting point for discussion and informed consideration of sub-set lists of Reliability Standards. NERC also held meetings and conference calls with RBRAG and the RBR Task Force. NERC used a collaborative process to identify and address Phase II issues. NERC explored the use of: (i) submissions from registered entities that could be used to identify consistent groups of low risk GOs/GOPs and TOs/TOPs, (ii) pre-identified Reliability Standards and requirements that may be low risk for GO/GOP and TO/TOP entities; and (iii) detailed analysis of events and enforcement history to evaluate potential low risk TO/TOP and GO/GOP entities.

9

35

236

11

0

208

217

0 50 100 150 200 250

DP

IA

PSE

Deactivations**

DP

IA

PSE

Deregistrations*

Unique Entity Deregistrations

* Function Deactivations Where the Entity Involved is completely Deregistered.**Function Deactivations Where the Entity Involved Remains Registered for Other Functions.

Functional Deregistrations and Deactivations Resulting From

RBR Implementation

Risk-Based Registration | November 2015 2

These efforts did not identify a group or groups of lower risk GOs, GOPs, TOs or TOPs with consistent characteristics that would qualify for a reduced set of compliance obligations. NERC staff’s analysis of event and enforcement information, Risk-Based Registration Phase II: Data Analysis,3 included an evaluation of identified instances of non-compliance that resulted in assessed violations and potential violations (hereinafter, PVs).4 Specifically, NERC staff identified entities within the GO, GOP, TO and TOP functions that: (a) have not contributed5 to a Bulk Electric System (BES) event, and (b) have never had a possible violation of NERC Reliability Standards (PV).6 The two are not synonymous - historical enforcement data has confirmed that not all events are caused by non-compliance with a Reliability Standard, and not all non-compliance causes or contributes to a BES event. However, while this analysis took a conservative approach by excluding any entity that experienced a PV, having received a PV does not preclude an entity from consideration by the NERC-led Review Process discussed below, as compliance history should not be a sole determinant of eligible entities. Taking into account all of the analysis and input, NERC staff has not identified a consistent set of criteria or system characteristics that defines a group or groups of lower risk registered entities within the four referenced functions. Instead, NERC staff has concluded the proper approach at this time is to refer individual potential candidates to the NERC-led review panel. Potential candidates will be considered on a case-by-case basis, accounting for their individual facts and circumstances, until such time as a consistent pattern emerges that warrants a common sub-set list. As noted above, registered entities that have received a PV are not precluded from requesting consideration from the NERC-led Review Panel, as the presence or absence of a PV or involvement in a BES event is not a sole determining factor as to whether an entity is eligible for a sub-set list of Reliability Standards. NERC’s Phase II analysis may be relevant to NERC-led review panel deliberations. In particular, NERC staff has preliminarily identified two sets of smaller groups of entities that may be potential candidates for consideration by the NERC-led review panel for eligibility of a sub-set list of Reliability Standards:

• The first group identified by NERC staff includes approximately 28 registered entities designated by the NERC Generating Availability Data System (GADS) definition as owning and/or operating only gas turbine (GT) units.7 NERC staff determined these entities had not contributed to an event and had not received a PV from 2007 to the present date. NERC staff determined that a Phase II GO/GOP sub-set list is not warranted at this time, because other factors may warrant subjecting these entities to the full set of applicable standards. For example, an entity’s units may be critical for the reliability of the Bulk Power System (BPS) during peak times and emergency situations (e.g., designated black-

3 See NERC Risk-Based Registration Phase II: Data Analysis regarding review of certain event and enforcement data. 4This approach was adopted for this analysis only. It is recognized that registered entities that are finding and reporting instances of non-compliance may pose

less risk to the BES than entities that are not identifying possible non-compliance with NERC Reliability Standards. 5 This included entities that had caused, contributed to, exacerbated or prolonged an event. 6 NERC staff review of the registered entities’ compliance history took into account violations that were identified through compliance monitoring activities as

well as any that were self-identified by registered entities. 7 Currently, there are 922 GOs and 879 GOPs or 1021 uniquely registered entities on the NERC Compliance Registry.

Risk-Based Registration | November 2015 3

start resources). Therefore, each individual entity’s facts and circumstances should be considered by the NERC-led review panel.8

• The second group that was identified by NERC staff included 38 TOs and/or TOPs9 that had not contributed to an event and had not received a PV from 2007 to the present date. At this time, NERC staff has determined there is not sufficient uniformity among the risk characteristics of these registered entities to create a group or groups with Phase II sub-set list of Reliability Standards for these functions. However, as with the GO/GOP functional entities above, an each individual TO/TOP entity’s facts and circumstances should be considered by the NERC-led Review Panel.

If a class emerges as a result of the NERC-led review panel process or otherwise, either within the TO/TOP and GO/GOP functions or other functional registration categories, the Electric Reliability Organization (ERO) Enterprise10 may address such class in accordance within the recently enhanced NERC Rules of Procedure, including Appendices 5A and 5B developed as part of Phase I. Recommendations

1. Use the NERC-led review panel to address an individual entity’s facts and circumstances to determine potential reduced compliance obligations.

2. Continue to monitor the results of the NERC-led review panel to identify consistent potential groups of entities that qualify for a sub-set of NERC Reliability Standards.

8 Reduction in compliance obligations is considered at the registered entity level, not by unit. 9 Currently, there are 323 TOs and 182 TOPs or 340 uniquely registered entities on the NERC Compliance Registry. 10 The ERO Enterprise is comprised of NERC and the eight Regional Entities who have executed Regional Delegation Agreements with NERC.

Risk-Based Registration | November 2015 4

Agenda Item 4b MRC Meeting November 4, 2015

Compliance Guidance Policy

Action Recommend submitting the policy to the Board to accept the policy and endorse the recommendations. Background A key factor in the success of compliance monitoring and enforcement of mandatory standards rests on a common understanding amongst industry and ERO Enterprise Compliance Monitoring and Enforcement Program (CMEP) staff of how compliance can be achieved and demonstrated. For many standards this is straightforward. For others, it remains a concern. Moreover, some standards are written deliberately to allow a variety of approaches to compliance as the nature of the desired end-state does not lend itself to singular or clear cut solutions given the range of system configurations and potential responses to achieving the reliability goal. In May 2015, a Compliance Guidance Team (Team) was formed by the Member Representatives Committee (MRC), with support from the NERC Board of Trustees (Board), to consider approaches useful in providing guidance for implementing standards, and develop a policy proposal for the purpose, development, use, and maintenance of this guidance. Summary A draft policy was posted for industry comment from August 28, 2015, through September 17, 2015, and the Team held a webinar on September 9, 2015. At the October 7, 2015, MRC Informational Session, the Team provided an overview of the Compliance Guidance Policy, including revisions that were made in response to comments received from the comment posting and webinar (see Agenda Item 3b). The revised Compliance Guidance Policy was included in the October 7, 2015, policy input letter. In the Compliance Guidance Policy, the Team recommends the development of the following:

• Implementation Guidance which would provide examples for implementing a standard.

• CMEP Practice Guides which would provide direction to ERO Enterprise CMEP staff on approaches to carry out compliance and enforcement activities.

Implementation Guidance is developed by industry and vetted through pre-qualified organizations, as identified in the policy. Vetted examples can then be submitted to the ERO Enterprise for endorsement, and if endorsed, the ERO Enteprise would give the example deference during CMEP activities with consideration of facts and circumstances. Implementation Guidance would not prescribe the only approach to implementing a standard and entities may choose alternative approaches that better fit their situation. CMEP Practice Guides are developed solely by the ERO Enterprise to reflect the independent, objective professional judgment of ERO Enterprise CMEP staff, and, at times, may be initiated

following policy discussions with industry stakeholders. Following development, they are posted for transparency on the NERC website. Recommendations In addition to the development of Implementation Guidance and CMEP Practice Guides, as described in the policy, the team recommends the following:

• The Compliance & Certification Committee (CCC) will lead, with Standards Committee (SC) support, a joint review of existing documents to submit for ERO Enterprise endorsement;

• An SC review of Section 11 of the Standard Processes Manual to determine whether revisions should be considered;

• The CCC and SC, with ERO Enterprise CMEP staff, conduct a joint review of measures and Reliability Standard Audit Worksheets;

• Developing a CMEP Practice Guide on providing deference to endorsed Implementation Guidance; and

• Developing a “one-stop shop” on the NERC website. The Team believes the proposed policy will bring multiple benefits to industry, including the development of Implementation Guidance driven by registered entities, a simple process for sharing endorsed implementation methods, collaboration with other registered entities and the ERO Enterprise, and transparency of Implementation Guidance and CMEP Practice Guides. Attachment

1. Compliance Guidance Policy, October 7, 2015

Compliance Guidance Policy

October 21, 2015

NERC | Report Title | Report Date I

Table of Contents

Executive Summary ................................................................................................................................................... iii

Introduction ............................................................................................................................................................... iv

Purpose .................................................................................................................................................................. iv

Principles for Compliance Guidance ...................................................................................................................... iv

Implementation Guidance ..........................................................................................................................................1

Purpose ...................................................................................................................................................................1

Description ..............................................................................................................................................................1

Development ..........................................................................................................................................................1

Recommendations for Existing Documents ............................................................................................................2

CMEP Practice Guides ................................................................................................................................................4

Purpose ...................................................................................................................................................................4

Description ..............................................................................................................................................................4

Development ..........................................................................................................................................................4

One-Stop Shop for All Standards Related Information ..............................................................................................5

Conclusion ..................................................................................................................................................................6

Appendix A - Members Representatives Committee Compliance Guidance Team Mandate, June 2015 .................7

Appendix B - Pre-Qualified Organizations for Submitting Implementation Guidance ............................................ 10

NERC | Compliance Guidance Policy | October 21, 2015 ii

Executive Summary A key factor in the success of compliance monitoring and enforcement of mandatory standards rests on a common understanding between industry and Regional Entities and NERC (ERO Enterprise) Compliance Monitoring and Enforcement Program (CMEP) staff on how compliance can be achieved and demonstrated. For many of NERC’s Reliability Standards (standards), this is straightforward. For others, it remains a concern. In May 2015, a Compliance Guidance Team (Team) was formed by the Member Representatives Committee (MRC), with support from the NERC Board of Trustees (Board), to consider approaches useful in providing guidance for implementing standards, and develop a policy proposal for the purpose, development, use, and maintenance of this guidance. The Team identified two purposes for guidance: (1) to assist registered entities with the implementation of standards and (2) for the ERO Enterprise to provide direction to ERO Enterprise CMEP staff. The Team also established a set of principles for the development of guidance and is recommending the development of the following:

• Implementation Guidance

• CMEP Practice Guides Implementation Guidance provides a means for registered entities to develop examples or approaches to illustrate how registered entities could comply with a standard1 that are vetted by industry and endorsed by the ERO Enterprise. The examples provided in the Implementation Guidance are not exclusive, as there are likely other methods for implementing a standard. The ERO Enterprise’s endorsement of an example means the ERO Enterprise CMEP staff will give these examples deference when conducting compliance monitoring activities. Registered entities can rely upon the example and be reasonably assured that compliance requirements will be met with the understanding that compliance determinations depend on facts, circumstances, and system configurations. CMEP Practice Guides differ from Implementation Guidance in that they address how ERO Enterprise CMEP staff executes compliance monitoring and enforcement activities, rather than examples of how to implement the standard. They are developed and maintained by the ERO Enterprise, although in some cases, the ERO will hold policy discussions with industry stakeholders. CMEP Practice Guides will be posted on the NERC website for transparency. In order to ensure that all Implementation Guidance and other information related to a standard are easily accessible, the Team is proposing a “one-stop shop” on the NERC website where all guidance and information on a particular standard would be located. The Team believes the proposed policy will bring multiple benefits to industry, including the development of Implementation Guidance by registered entities, a simple process for sharing endorsed implementation methods, collaboration with other registered entities and the ERO Enterprise, and transparency of Implementation Guidance and CMEP Practice Guides.

1 Although the term standard is used, Implementation Guidance could also apply to a specific requirement or requirements within the standard.

NERC | Compliance Guidance Policy | October 21, 2015 iii

Introduction Purpose A key factor in the success of compliance monitoring and enforcement of mandatory standards rests on a common understanding between industry and ERO Enterprise CMEP staff on how compliance can be achieved and demonstrated. For many standards, this is straightforward. For others, it remains a concern. Moreover, some standards are written deliberately to enable a variety of approaches to compliance as the nature of the desired end-state does not lend itself to singular or clear cut solutions given the range of system configurations and potential responses to achieving the reliability goal. Since the inception of NERC’s CMEP, the ERO Enterprise and registered entities have strived to bring clarity and certainty to all parties through a variety of means, some more successful than others. The starting point for understanding the standard is the plain language of the standard and all of the supporting materials developed in the process leading to the approval of the standard (i.e., technical papers, webinars with drafting team members, FAQs, and Reliability Standard Audit Worksheets (RSAWs)). To the extent that the accompanying documentation answered all participants’ questions, nothing further was needed. However, disputes have arisen about the meaning of the words in some standards, leading to requests for clarification or revisions to the standard. To help fill the gap, the ERO has issued a number of supplementary documents over time, including Compliance Application Notices (CANs) and Compliance Application Reports (CARs). However, at times, these documents were perceived by some in industry to change the scope of the standard or provide interpretations to audit staff in areas of ambiguity. More recently, with the addition of more results-based standards, which inherently allow for greater flexibility by entities in responding to standards and requirements, industry has stepped up with informal best practice guides and other work products to address compliance uncertainty. These range from “good ideas” from one or a few entities, to full-blown collaborative development of guides based on the work of committees of experts under the sponsorship of an organized group, e.g., the North American Transmission Forum (NATF). The role and status of these efforts have been unclear in relation to meeting compliance with standards and CMEP practices. Also, with the controversy surrounding guidance memorandums issued in relation to CIP Version 5, which were later withdrawn, the ERO proposed developing a policy on compliance guidance to bring order and clarity to these disparate elements. Under the sponsorship of the MRC with support from the Board, the Team was formed and charged with bringing a policy paper to the Board of Trustees by its November 2015 meeting regarding the purpose, development, use, and maintenance of compliance guidance. The mandate for the Team, including its members, is included in Appendix A. Given the above, the Team focused on how to reduce controversial approaches and provide the industry and the ERO Enterprise with additional clarity on implementing standards. Principles for Compliance Guidance As a starting point, the Team considered and built upon the principles provided in the April 2, 2015 MRC Informational Session agenda package2, and established the following principles:

• Guidance documents cannot change the scope or purpose of the requirements of a standard.

• The contents of guidance are not the only way to comply with a standard.

2 http://www.nerc.com/gov/bot/MRC/Agenda%20Highlights%20nad%20Minutes%202013/MRC_Info_Session_Agenda_Pkg_042015.pdf (see Agenda Item 4d)

NERC | Compliance Guidance Policy | October 21, 2015 iv

Introduction

• Compliance expectations should be made as clear as possible through the standards development process which should minimize the need for guidance after final ballot approval of a standard.

• Forms of guidance should not conflict.

• Guidance should be developed collaboratively and posted on the NERC website for transparency. Furthermore, the Team agreed upon the following:

• There should be a finite and limited set of guidance tools that are well understood and are organized to facilitate the use and implementation of the guidance.

• All forms of guidance related to the same standard should be coordinated and collected in one location.

• To the extent that guidance does not address all of the issues that arise, consideration should be given to revising the standard in question.

• NERC and the Regional Entities will exercise professional judgement3 in an objective manner when evaluating all methods or approaches to comply with a standard and maintain processes to ensure its independence with regards to the development of guidance by registered entities.

• As guidance cannot expand the scope or purpose of a standard, there are other methods outside the CMEP process (i.e., feedback loops to the Standards Committee and NERC standards department, discussions with the entity) for addressing risks that are not subject to the standard.

Based on the above principles, the Team identified two purposes for guidance: (1) to assist registered entities with the implementation of standards and (2) for the ERO Enterprise to provide direction to its CMEP staff, and is recommending the development of the following:

• Implementation Guidance

• CMEP Practice Guides Implementation Guidance provides examples for implementing a standard, while CMEP Practice Guides provide direction to ERO Enterprise CMEP staff on executing compliance and enforcement activities.

3 For example, ERO Enterprise CMEP staff playing a role in determining whether there was any non-compliance with a standard may have prior experience with the subject matter and specific ways in which compliance was achieved. The ERO Enterprise should have practices which prevent bias, preserve objectivity, in final determinations of scope or compliance within its CMEP activities.

NERC | Compliance Guidance Policy | October 21, 2015 v

Implementation Guidance Purpose Implementation Guidance provides a means for registered entities to develop examples or approaches for ERO Enterprise endorsement to illustrate how registered entities could comply with a standard. Description Implementation Guidance is defined as “providing examples or approaches within the range of compliance solutions developed in a transparent and collaborative manner for registered entities to comply with standard requirements. Additionally, documents considered to be Implementation Guidance have gone through a vetting process and are endorsed by the ERO Enterprise.”4 Implementation Guidance does not prescribe the only approach, but is intended to highlight one or more approaches that would be effective ways to be compliant with the standard. As Implementation Guidance is only meant to provide examples, entities may choose alternative approaches that better fit their situation. The ERO Enterprise’s endorsement means that the ERO Enterprise recognizes the guidance as appropriate for deference during CMEP activities. Deference means that registered entities can rely on the guidance and be reasonably assured that compliance requirements will be met with the understanding that compliance determinations depend on facts, circumstances and system configurations which vary across the interconnections. The ERO Enterprise must respectfully consider applicable guidance in compliance determinations. In the instance that a registered entity, in good faith, relied on guidance, but was found non-compliant with the applicable requirements, the reliance on the guidance will be considered as a significant mitigating factor in any enforcement action by the ERO Enterprise.5 ERO Enterprise CMEP staff will be informed of Implementation Guidance and ERO Enterprise will direct CMEP staff to consider such guidance as a method to achieve compliance in any applicable compliance determinations. As a registered entity may use other approaches to comply with a standard, ERO Enterprise CMEP staff will be objective when assessing other compliance solutions. This policy is not intended to apply to operating and reliability guidelines developed by the NERC technical committees (Operating Committee (OC)/Planning Committee (PC)/Critical Infrastructure Protection Committee (CIPC)) outside of Section 11 of the Standard Processes Manual (SPM), unless the operating or reliability guidelines provide examples of how to comply with a standard, in which case the examples must be submitted for endorsement if the technical committee would like them to receive deference. Development Implementation Guidance can be initiated and vetted in two different ways:

1. During standards development,6 the drafting team may identify example(s) of how to comply with a standard7

a. Example(s) posted for industry comment for vetting

4 Implementation Guidance does not conflict with the interpretation process, as the interpretation process is not intended to address compliance approaches. The Standard Processes Manual states that interpretation requests may be rejected where they request approval of a particular compliance approach. 5 In the event a registered entity believes that an ERO Enterprise CMEP staff did not appropriately consider Implementation Guidance and thus the registered entity should contact its Regional Entity for further discussion. 6 The standards development process includes coordination with the ERO Enterprise. 7 The drafting team can and should reach out to industry for assistance, as needed.

NERC | Compliance Guidance Policy | October 21, 2015 1

Implementation Guidance

b. Project Management and Oversight Subcommittee (PMOS)8 liaison and NERC standards developer determine whether to elevate to Implementation Guidance and request ERO Enterprise endorsement

2. After a standard is approved in a final ballot, registered entities may develop examples or approaches and vet them through a pre-qualified organization. Pre-qualified organizations are included in Appendix B.

After an example has been vetted9 through the standards development process or a pre-qualified organization the following general steps are envisioned:

1. Example(s) are submitted via email to NERC10 with acknowledgement of receipt to submitter

2. Example(s) and contact information for the submitter are posted on the NERC website as submitted within seven days of receipt for transparency

3. Example(s) are submitted to the ERO Enterprise for an endorsement within 45-90 days, unless a reason is provided otherwise. Endorsement is subject to technical soundness and compatibility with the standard language, and the ERO Enterprise leadership will ensure consensus among the Regional Entities. The ERO Enterprise will collaborate with submitter to resolve any questions.

4. Endorsed example(s) are moved from initial posting location to the one-stop shop on the NERC website; example(s) will be removed from the initial posting location on the NERC website if not endorsed

5. Once posted on the NERC website as an endorsed example, leadership at each of the Regional Entities will ensure that the example is given deference during CMEP activities.

When a new version of a standard is drafted, the standard drafting team will review existing Implementation Guidance for the previous version and contact the submitter to verify applicability to the new version. Recommendations for Existing Documents The compliance guidance policy is not intended to automatically modify the status of any existing document. The Team recommends a series of actions to reconcile Implementation Guidance with existing documents. Transition of Existing Documents Upon Board acceptance of the Compliance Guidance Policy, the Team recommends that the following documents be submitted for ERO Enterprise endorsement:

• Lessons Learned and FAQs developed through the CIP Version 5 transition advisory group

• NATF CIP-014-1 Requirement R1 Guideline

• Determination and Application of Practical Relaying Loadability Ratings, Version 1.0, June 2008 for PRC-023

After Board acceptance of the Compliance Guidance Policy, the Team recommends that the Compliance and Certification Committee (CCC) as the lead, with support from the Standards Committee (SC), jointly review other existing documents to recommend which should transition and be submitted for ERO Enterprise-endorsement for Implementation Guidance. The CCC should submit its initial recommendations to NERC by the end of the first quarter of 2016.

8 The PMOS is a subcommittee of the Standards Committee that advises and supports standard drafting teams to achieve standard goals specified in the Reliability Standards Development Plan. 9 Example(s) must be vetted with registered entities that would be affected by the approach. 10 NERC will establish an email address for the submittal of vetted Implementation Guidance.

NERC | Compliance Guidance Policy | October 21, 2015 2

Implementation Guidance

Section 11 of the Standard Processes Manual The high-level processes proposed in this document were developed in the context of the Standard Processes Manual and do not overlap or supersede any of the processes therein, including the development of supporting documents under Section 11. Section 11 documents do not include or require the ERO Enterprise endorsement as described herein, and, therefore, do not carry the deference provided to Implementation Guidance. However, Section 11 remains a viable vehicle for posting supporting documents that do not require ERO endorsement for industry comment. Under Section 11, the SC verifies that a supporting document was reviewed by stakeholders to verify the accuracy of the technical content, but it is not a technical committee. Therefore, the SC is not included on the pre-qualified list of organizations that may develop examples and submit them to the ERO Enterprise for endorsement. However, the Team believes that Section 11, with slight modification to the language, could serve as a vetting vehicle for Implementation Guidance, in addition to the vetting vehicles described herein, prior to submittal to the ERO for endorsement. Thus, the team recommends that the SC consider whether to modify Section 11 and any associated procedures so it can serve as an additional vetting option for submitting Implementation Guidance, and report to the Board on the SC’s decision no later than the May 2016 Board and MRC meetings. RSAWs and Measures The Team suggests the CCC and SC, with ERO Enterprise CMEP staff, jointly review measures and RSAWs, specifically whether both are needed or could be condensed into a single document or location.

NERC | Compliance Guidance Policy | October 21, 2015 3

CMEP Practice Guides Purpose CMEP Practice Guides address how CMEP staff executes compliance monitoring and enforcement activities and are not compliance approaches to comply with standards. Description CMEP Practice Guides will provide:

• direction to ERO Enterprise CMEP staff on approaches to carry out compliance and enforcement activities, including discretion to be applied, auditing practices, risk assessment techniques, policies to be implemented, particular areas of focus for CMEP activities, and to foster consistency in compliance and enforcement;

• a uniform approach used by ERO Enterprise CMEP staff; and

• transparency to registered entities by being publicly posted. In the event a CMEP Practice Guide will be used to inform ERO Enterprise staff on how to conduct compliance monitoring and enforcement activities as an interim solution until a standard could be revised, the ERO will hold policy discussions with industry prior to developing the CMEP Practice Guide. Development CMEP Practice Guides are developed solely by the ERO Enterprise to reflect the independent, objective professional judgment of ERO Enterprise CMEP staff, and, at times, may be initiated following policy discussions with industry stakeholders. Following development, they are posted for transparency on the NERC website. The Team recommends that the ERO Enterprise develops a CMEP Practice Guide on providing deference to endorsed Implementation Guidance.

NERC | Compliance Guidance Policy | October 21, 2015 4

One-Stop Shop for All Standards Related Information The Team recognized the importance of having all information related to a standard, including Implementation Guidance and CMEP Practice Guides, readily available to industry stakeholders and ERO Enterprise staff. Therefore, the Team is recommending housing all information related to a standard in one location on the NERC website. The Team recommends investigating the current ‘Related Information’ webpages as the location for this information. The Team suggests that NERC staff discuss the organization of these pages to ensure consistency and update the pages to include links to all related information. The pages should include relevant documents from the Compliance, Standards, Reliability Assessment and Performance Analysis, Critical Infrastructure, and Reliability Risk Management webpages. Further, NERC staff will regularly maintain these web pages to ensure that current documents are included in a reasonable timeframe.

NERC | Compliance Guidance Policy | October 21, 2015 5

Conclusion The Team recommends the development of Implementation Guidance and CMEP Practice Guides, as described herein, to promote a common understanding amongst industry and ERO Enterprise CMEP staff of how compliance can be achieved and demonstrated. As designed, these tools fulfill the principles identified by the Team, and differentiate between guidance to industry and instruction to ERO Enterprise CMEP staff. The Implementation Guidance will provide industry confidence in compliance approaches, as the examples are developed by registered entities and will receive deference during CMEP activities. Therefore, industry can rely upon these examples for compliance, provided they are appropriate for the entity’s facts and circumstances and implemented in a quality manner. The CMEP Practice Guides provide confidence by giving industry visibility into CMEP activities and building consistency across the ERO Enterprise in conducting CMEP activities. Additionally, where these are used to provide specific instruction on the use of discretion until a standard can be revised, the ERO Enterprise will consult with industry in policy discussions prior to their development. Additionally, the Team recommends:

• The CCC will lead with SC support a joint review of existing documents to submit for ERO Enterprise endorsement;

• An SC review of Section 11 of the SPM to determine whether revisions should be considered;

• The CCC and SC, with ERO Enterprise CMEP staff, conduct a joint review of measures and RSAWs;

• Developing a CMEP Practice Guide on providing deference to endorsed Implementation Guidance; and

• Developing a “one-stop shop” on the NERC website. The Team believes the proposed policy will bring multiple benefits to industry, including the development of Implementation Guidance driven by registered entities, a simple process for sharing endorsed implementation methods, collaboration with other registered entities and the ERO Enterprise, and transparency of Implementation Guidance and CMEP Practice Guides.

NERC | Compliance Guidance Policy | October 21, 2015 6

Appendix A - Members Representatives Committee Compliance Guidance Team Mandate, June 2015 Purpose The purpose of this team is to present a proposal to the Members Representatives Committee (MRC) for the purpose, development, use, and maintenance of compliance guidance. When endorsed by the MRC, the proposal will be presented to the Board for approval and implementation. Background Since the inception of the ERO, compliance guidance has been a topic of many discussions. Transparency of guidance documents for compliance has gone from having little information released to industry to being transparent to ensure that compliance monitoring is “open-book.” Currently guidance may come from several sources, including “Guidelines and Technical Basis” sections that are part of Reliability Standards, the use of Reliability Standards Audit Worksheets (RSAWs), Lessons Learned and FAQs that support implementation, and through other NERC or industry-led outreach or materials. Other communications have also been tested, such as Bulletins, Compliance Application Notices (CANs) and Compliance Analysis Reports (CARs). To improve the purpose, development, use and maintenance of compliance guidance and align industry and the ERO Enterprise, the NERC Board of Trustees (Board) sought input regarding the use and format of guidance for implementing standards through the April Policy Input Letter and a discussion led by a panel of industry and ERO Enterprise representatives at the May 2015 MRC meeting. These inputs as well as additional outreach that will be conducted, will inform this proposal. Industry was asked to consider the following principles when responding to the Policy Input Letter and during the discussion at the May meeting. These principles will also be used as a starting point for the team to discuss and build upon as appropriate.

• Compliance expectations should be transparent to industry.

• Guidance documents cannot expand upon the requirements of the Reliability Standard.

• Guidance documents issued by the ERO for auditors must reflect the independent, professional judgment of ERO Compliance and Enforcement staff.

• NERC and the Regional Entities must have the flexibility to apply professional judgement in making compliance and enforcement determinations. In applying professional judgement, NERC and the Regional Entities use professional standards (such as professional auditing standards).

NERC | Compliance Guidance Policy | October 21, 2015 7

Appendix A - Members Representatives Committee Compliance Guidance Team Mandate, June 2015

Team Composition The team is comprised of the following representatives who will conduct outreach to other industry, trade, regional and committee representatives:

ERO Enterprise Executives and Board Members*:

1. Ken Peterson, NERC Board Member and SOTC Chair

2. Douglas Jaeger, NERC Board Vice Chair

3. Mark Lauby, Senior Vice President and Chief Reliability Officer, NERC

4. Dan Skaar, President and CEO, MRO

*Additional support from Janice Case, NERC Board Member and BOTCC Chair Leadership:

1. Sylvain Clermont, MRC Chair

2. Valerie Agnew, Sr. Director of Reliability Assurance, NERC

3. Kristin Iwanechko, MRC Secretary, NERC

Team Members:

1. Nabil Hitti, MRC Vice Chair

2. Tony Montoya, COO, WAPA

3. Tom Bowe, Executive Director of Reliability and Compliance, PJM

4. Nelson Peeler, VP Transmission System Operations, Duke (Sector 1, IOU)

5. Carol Chinn, Regulatory Compliance Officer, FMPA (Sector 2, State/Municipal Utility)

6. Jason Marshall, Vice President of Corporate and Regulatory Affairs, ACES (Sector 7, Electricity Marketer)

7. Brian Murphy, Standards Committee (SC) Chair

8. Patti Metro, Compliance and Certification Committee (CCC) Chair

9. Steven Noess, Director of Compliance Assurance, NERC

10. Sonia Mendonca, Deputy General Counsel, Vice President of Enforcement, NERC

Deliverables The team will provide a progress report to the MRC at its August 12, 2015 MRC meeting. The team will present a final proposal to the MRC at the November 4, 2015 meeting and, if endorsed, will present it to the NERC Board at its meeting on November 5, 2015. The final proposal will make recommendations on the purpose, development, use, and maintenance of compliance guidance in respect of the principles. Below is a draft timeline. August By August, the team will have developed the basis for the proposal. The team will present a status report at the August MRC meeting.

May 29 Establish team June 1-June 10 Develop strawman for team meeting June 12 First team meeting – discuss strawman and basis for proposal

NERC | Compliance Guidance Policy | October 21, 2015 8

Appendix A - Members Representatives Committee Compliance Guidance Team Mandate, June 2015

June 15-30 Begin draft proposal July 8-9 Team meeting to discuss and refine draft proposal July 11-15 NERC staff finalizes documents for August MRC meeting July 16 Policy Input Letter issued August 12 August MRC meeting

November By November, the team will have received industry comments and will present the final recommendations to the MRC and the NERC Board for endorsement.

August 17-19 Team meeting to consider MRC and Board input August 20 Post for 21-day comment period (ends September 10) and conduct outreach Week of September 14 Team meeting to consider comments and modify proposal September 16-23 Conduct additional outreach as needed September 23-25 Team finalizes proposal (no meeting; a call if necessary) September 28- October 5 NERC staff finalizes documents for November MRC/Board meeting (no meeting; a call

if necessary) November 4 November MRC meeting November 5 November Board meeting

NERC | Compliance Guidance Policy | October 21, 2015 9

Appendix B - Pre-Qualified Organizations for Submitting Implementation Guidance Examples proposed for Implementation Guidance must be vetted through one of the following pre-qualified organizations11 prior to being submitted to the ERO Enterprise for endorsement. In order to be pre-qualified to be added to this list as a potential submitter of Implementation Guidance, an organization must submit a request to the CCC. The list of pre-qualified organizations will be posted and maintained on the NERC website.

1. American Public Power Association (APPA)

2. Canadian Electricity Association (CEA)

3. Edison Electric Institute (EEI)

4. Electricity Consumers Resource Council (ELCON)

5. Electric Power Supply Association (EPSA)

6. ISO/RTO Council

7. Large Public Power Council (LPPC)

8. National Association of Regulatory Utility Commissioners (NARUC)

9. National Rural Electric Cooperative Association (NRECA)

10. North American Generator Forum (NAGF)

11. North American Transmission Forum (NATF)

12. Transmission Access Policy Study Group (TAPS)

13. Western Interconnection Compliance Forum (WICF)

14. NERC Planning Committee (PC)

15. NERC Operating Committee (OC)

16. NERC Critical Infrastructure Protection Committee (CIPC)

17. Regional Entity Stakeholder Committees

11 The Team included organizations that are comprised of stakeholders, have methods to assure technical rigor in the development process, and the ability to vet content through its members.

NERC | Compliance Guidance Policy | October 21, 2015 10

Agenda Item 4c MRC Meeting November 4, 2015

Clean Power Plan Final Rule: NERC Reliability Assessment Plan (Phase II)

Action Information Background In its Initial Reliability Review and Phase I Special Reliability Assessment, NERC highlighted its objective of publishing assessments on the Clean Power Plan (CPP) as the Environmental Protection Agency (EPA) prepared to issue its final rule. On August 3, 2015, the EPA released a final rule that reduces CO2 emissions from existing power plants (Clean Air Act Section 111(d)). NERC’s phased approach for evaluating the final rule as well as providing information about reliability risks to help support states was proposed at the August 12, 2015, MRC meeting in Toronto. NERC intends to release a document for states particularly aimed at informing the electric utility agencies, state environmental agencies, and policymakers about reliability considerations and risks that should be considered for Bulk Power System reliability. To help support plan development, NERC and the Planning Committee’s Advisory Group on CPP will author this document, concentrating on system and regional aspects of the expected resource mix changes, the potential acceleration of strained essential reliability services (e.g., voltage support, ramping, frequency response), the implications of a changing dispatch (i.e., increased cycling, energy limitations, maintenance planning), and reliability considerations of further concentration of natural gas generation, variable resources, distributed resources, and demand-side management. Additionally, NERC will revise its initial Phase I analysis and calibrate it with revised assumptions and requirements set forth in the final rule. The Planning Committee’s Advisory Group on CPP will support the technical input on this assessment. In addition, the Regional Entities are expected to support the NERC assessment and use the results to perform reliability analysis that will assess any Region-specific challenges. Several scenarios have already been discussed for analysis, including:

• potential renewable and natural gas generation levels and the effects on resource adequacy;

• the effects of potential leakage around new resources that fall under 111(b), and the subsequent effects on compliance with 111(d);

• the effects of potential nuclear retirements on resource adequacy; and

• the effects that trading could have on both retirements and addition of resources. NERC will continue to conduct its long- and short-term reliability assessments, which will incorporate state, regional, or federal CPP plans as they are integrated into existing planning processes. Key Dates for NERC’s Continuing Reliability Assessments

• The document for states, expected January 2016

• An updated scenario analysis (Phase II), slated for the end of the first quarter in 2016

Agenda Item 5 MRC Meeting November 4, 2015

Additional Policy Discussion of Key Items from Board Committee Meetings

Action Discussion of specific items presented at the Board committee meetings. Staff presentations made at the Board committee meetings will not be duplicated at the Member Representative Committee (MRC) meeting. Background On November 4, 2015, the MRC can expect to continue its increased participation and dialogue during the Board committee meetings in Atlanta. The MRC will have additional time for policy discussion, as part of its own agenda, to respond to the information that is presented during the committee meetings. The Corporate Governance and Human Resources Committee and Finance and Audit Committee will hold meetings via conference call on October 22, 2015, and October 28, 2015, respectively, instead of meeting in-person in Atlanta. The agendas and associated background materials are posted approximately one week in advance of the meetings on the following webpages: Corporate Governance and Human Resources Committee Finance and Audit Committee The November 4, 2015, Board committee agendas and associated background materials are posted on the following webpages: Standards Oversight and Technology Committee Compliance Committee

Agenda Item 6 MRC Meeting November 4, 2015

Strategic Planning

Action Information RISC Priorities and 2015 Reliability Leadership Summit Results The Reliability Issues Steering Committee (RISC) is an advisory committee that reports directly to the NERC Board of Trustees (Board), and assists the Board, NERC standing committees, NERC staff, regulators, Regional Entities, and industry stakeholders in establishing a common understanding of the scope, priority, and goals for the development of solutions to address risks to the Bulk-Power System. The RISC held its annual Reliability Leadership Summit on August 25, 2015, in Washington, DC. This summit provided a forum for industry leaders to identify and discuss the top ERO reliability risks. The RISC then updated the 2014 risk profiles, which were used to draft the 2015 ERO Reliability Risk Priorities: RISC Recommendations to the NERC Board of Trustees (ERO Reliability Risk Priorities report) and technical supplement. The ERO Reliability Risk Priorities report includes actions and recommendations that can be taken to manage multiple ERO risks. The report is being presented for acceptance to the NERC Board at its November 5, 2015, meeting and for use by interested industry stakeholders for business planning, budgeting, and strategic planning. Evolution of Essential Reliability Services The mission of the Essential Reliability Services Task Force (ERSTF) is to provide a roadmap and assessment framework that supports the evaluation of reliability associated with the transition of a generation mix. Currently observed trends identify high penetration of renewables and reduced conventional and synchronous and controllable generation. Conventional generation (e.g., steam, hydro, and combustion turbine technologies) inherently provides essential reliability services (ERS) needed to reliably operate the North American bulk electric system due to the physics of their design. With the significant increases in inverter-based and distributed resources, an enhanced framework for assessment is required—one that requires analysis of inertia, controllability, and a more critical evaluation of off-peak shoulder periods. The ERSTF has developed a total of nine measures that track and trend various aspects of reliability that includes frequency support, voltage support and ramping. The establishment of the ERS measures leads to the ability to identify the sufficient levels (i.e., how much) of each ERS needed to maintain the reliability of the Bulk Power System. The ERSTF Measures Framework Report is scheduled to be presented to the Board in December 2015 for approval. The ERSTF is also developing an “Abstract” document for policy makers and regulators summarizing the measures and findings of the task force’s work. ERO Enterprise Longer-term Strategic Planning Considerations The ERO Enterprise Longer-term Strategic Planning Considerations visions beyond the horizon of the three-year Strategic Plan. This document is based on numerous inputs, including the Reliability Leadership Summit, the ERO Reliability Risk Priorities report, the ERO EMG, and the

MRC. Initially drafted by the ERO EMG in late 2014, this document has been updated and refined, continuing to examine significant emerging trends in addition to identifying issues in reliability assessments, recovery and restoration, and situational assessments and system control. The ERO Enterprise Longer-term Strategic Planning Considerations has been submitted to the Board for information at its November 5, 2015, meeting. ERO Enterprise Strategic Plan 2016–2019 and 2016 ERO Enterprise and Corporate Metrics The ERO Enterprise Executive Management Group (EMG), comprised of the Chief Executive Officers of NERC and the eight Regional Entities, has revised the strategic plan for the 2016–2019 period and adjusted the metrics to assess effectiveness in 2016. These enhancements are included in two documents:

1. The ERO Enterprise Strategic Plan 2016–2019 identifies the mission, vision, core values, guiding principles, and four pillars of success for the ERO Enterprise. It also details the objectives and valued outcomes, along with key deliverables, for five identified goals.

2. The 2016 ERO Enterprise and Corporate Metrics assesses the overall effectiveness of the enterprise in addressing risk to the Bulk Electric System, achieving reliability results, assuring standards and compliance effectiveness, and improving risk mitigation and program execution.

As in years prior, the Reliability Leadership Summit and ERO Reliability Risk Priorities report informed considerations for these revisions. Changes to the strategic planning process and current documents are summarized as follows:

1. MRC policy input on the rolling three-year strategic plan was requested earlier in the year. This input, along with the results from the 2014 ERO Enterprise Effectiveness Survey, were considered during the development of the revisions to the 2016–2019 strategic plan and 2016 metrics.

2. The ERO Enterprise Strategic Plan 2016–2019 is a result of refinements to the 2015–2018 plan:

• Goal 1 remains focused on Reliability Standards, and introduces the concept of feedback loops to provide information from other program areas in the development of Reliability Standards.

• Goal 2 was combined with the previous version’s goal 3 to address risk-based registration, organization certification, compliance monitoring, and enforcement.

• Goal 3 retains the previous version’s focus on identification and mitigation of risks, and now references Electricity Information Sharing and Analysis Center (E-ISAC) and Cybersecurity Risk Information Sharing Program (CRISP) activities.

• A new goal 4 was created to address emerging risks and essential reliability services.

• Goal 5 remains focused on a coordinated and efficient enterprise and collaboration with stakeholders.

3. The 2015 ERO Enterprise and Corporate Metrics was updated; the four overarching metrics remain unchanged, while the measurements, sub-metrics, thresholds, and targets have been adjusted for 2016. There is continued emphasis on physical and cyber

security, model building, misoperations, and equipment performance. The metrics associated with right-of-way clearances are not included in the 2016 metrics as this risk has been satisfactorily addressed in 2015.

The ERO Enterprise Strategic Plan 2016–2019 and 2016 ERO Enterprise and Corporate Metrics have been submitted to the Board for approval at its November 5, 2015, meeting. Attachments

1. ERO Enterprise Longer-term Strategic Planning Considerations – November 2015 [attached] | [redline to prior version]

2. ERO Enterprise Strategic Plan 2016–2019 [attached] | [redline to prior version]

3. 2016 ERO Enterprise and Corporate Metrics [attached] | [redline to prior version]

ERO Enterprise Longer-term Strategic Planning Considerations November 2015 Background The ERO Enterprise strategic planning process provides a three-year outlook for developing NERC and Regional Entity annual business plans and performance metrics. Strategic planning integrates priority reliability risks identified by the Reliability Issues Steering Committee (RISC), deliberations by government and industry leaders at NERC’s annual Reliability Leadership Summit, NERC’s annual State of Reliability Report, and other risk analysis results. A recurring theme in the 5 to 15 year horizon is that the electric power industry is entering a period of profound change that could affect the reliable operation of the Bulk Electric System (BES). The ERO Enterprise must anticipate these changes, identify and address risks to reliability, as well as mitigate them during this transformation. This paper is used as input to the ERO Enterprise’s development of its three-year strategic planning activities and the annual business plan and budget, once the concepts have been sufficiently vetted. Significant Emerging Trends The resource mix comprising on-peak capacity has recently shifted to be predominately gas-fired: now 40 percent, compared to 28 percent just five years ago. This trend is expected to continue, as retiring coal, petroleum, nuclear, and other conventional generation is largely being replaced by gas-fired capacity and variable energy resources (VERs), both on the BES and integrated into the distribution system. The fundamental transformation of the resource mix is being driven by fuel and resource economics, environmental regulations, and legislation as well as state and provincial incentives and mandates for adding renewable VERs (e.g., wind and solar). Sustaining a reliable interconnected BES is critical during this period of innovation and integration of new resources and technologies onto the grid. These technologies include integration both on the bulk power and distribution systems of large amounts of VERs, increased use of gas-fired generation, high voltage and distributed network system technologies, and end-use applications (such as plug-in vehicles and distributed energy resources). Additionally, the grid will face a host of cross-jurisdictional challenges, such as gas-electric and telecommunications-electric interdependencies and the addition of distribution-centric resources. As energy resources increasingly transition to the distribution system and distributed networks emerge, their reliability characteristics and contributions to grid reliability may not be the same as those resources they replace. For example, essential reliability services (ERS) as well as the provision of a sufficient amount of control (ability to observe and dispatch) of resources will need to be addressed for the continued reliable operation

of the BES. ERS and sufficient operational control is needed not only to balance resources with demand, but also to provide support to recover from severe events and restore the BES enabling reliable operation. Alongside traditional analysis and assessment approaches, addressing cyber and physical security will play an increasingly prominent role in the design, construction, and deployment of new resources and technologies. Resource transformation provides opportunities for the industry to design a more secure system, along with the construction of more responsive resources that can deliver flexibility that ensures sufficient balance of ERS and overall resource control. Further, detailed assessments are required of energy-limited VERs, such as wind and solar resources to ensure that sufficient resources are available to maintain the reliable operation of the BES. Similarly, the application of energy storage and Demand-Side Management (DSM) technologies has the potential to offer more options for balancing resources to meet demand with greater efficiency. New technologies (e.g., smart grid devices and applications, phasor measurement units (PMUs), remedial action schemes, new forecasting capabilities, greater system awareness, etc.) can also advance the industry’s ability to dynamically control grid facilities and improve coordination among system operators, grid resources, and consumers. However, these considerations must be part of the design, construction integration, and interconnection of these new technologies. At the same time, the industry is facing historically flat load and revenue growth with low prices for production driven by a strong domestic supply of natural gas and, in some cases, by renewable energy supply standards or subsidies. These influences are resulting in low capacity prices as well as strained opportunities for earnings growth and capital investment in many regions. Projected future capacity margins in multiple regions have begun to show these effects, declining below targeted margins as documented in recent NERC and regional reliability assessments. The benefits of fuel diversity and the inherent reliability characteristics of various types of supply resources should be sufficiently valued to assure future reliability of the grid. NERC has completed studies defining ERS, such as frequency response and voltage support, as well as studies highlighting the issues of eroding fuel diversity and natural gas interdependencies. Significant work is required to fully understand how the interconnection of new resource technologies, along with substantial amounts of distribution-centric resources, can be planned and operated in concert with traditional resources to ensure reliable operations in the future. While resource mix and technologies are rapidly changing, customer and regulator expectations are also changing. Industry is expected to minimize customer disruptions and harms resulting from severe conditions, such as storms, extreme heat and cold, drought, geomagnetic disturbances, and physical and cyber security attacks. An increased focus on the industry’s ability to recover and restore reliable operation of the BES is referenced frequently as one approach to optimize preparations for extreme conditions and events for which prevention alone would be prohibitively expensive. There is an increasing awareness of the need to understand, analyze, and prepare for risks from extreme conditions and balance reliability investments between normal design-based conditions and more extreme events.

ERO Enterprise Long-term Strategic Planning Considerations | November 2015 2

With the changing landscape outlined above, the current approach to reliability may not adequately address risks associated with severe conditions, such as the extreme cold seen during the 2014 winter “polar vortex.” Coordinated efforts between electric and gas sectors are needed in order to meet future infrastructure needs to supply and transport fuel. Certain areas (with high levels of natural gas-fired resources) should examine system reliability needs to determine if more firm fuel transportation or units with dual-fuel capability are needed. Dependency on natural gas infrastructure storage and delivery may not be adequately addressed with current planning and reliability assessment tools. Therefore, the risks associated with loss of fuel diversity must be understood, and preparations made to quickly recover and restore after unexpected extreme temperatures. Considerations for Assuring Reliability on a Longer-term Horizon Reliability Assessment: Resource and Planning Adequacy Historically, reliability assessments have focused on measuring reserve margins comparing forecasted electricity demand to projected available resources, with weight given to the projected resources based on their level of certainty of availability. This assessment approach uses normalized weather conditions at daily peak load conditions and, in most cases, relies on an adequacy criterion of loss of load of one-day-in-ten years. A target capacity reserve margin is determined to address uncertainties, and assessment results are compared to these targets. This capacity-driven approach is necessary, but may not be a sufficient way to assess resource adequacy going forward. The resource transformation will have reliability implications on industry planning and operations, as well as how NERC assesses reliability. Increasing the sophistication of NERC’s reliability assessments will include measurement of ERS and system security. As part of its assessment of long-term reliability with the existing Reserve Margin metrics, NERC will need to use new approaches to evaluate the changing behavior of the BES and potential impacts from physical and cyber attacks. For example, these enhanced approaches should consider the requirements for ERS, the amount of control (ability to observe and dispatch), which includes both grid and distribution-centric resources, as well as design assessment and operational mitigation for security robustness. Reliability assessments may need to evaluate the impacts on recovery and restoration plans from integration of distribution-centric resources, including mitigation of risks from physical and cyber attacks. Further, incorporation of probabilistic, scenario analysis, and transmission adequacy assessment techniques will be needed to measure the full effects on reliability from the variable, energy-limited resources, security, and the evolving system characteristics resulting from the new fleet of generation. Based on previous assessments and analyses, as the level of VERs increases, more flexibility will be needed from the system. In the past decade, manufacturers have made significant advancements in control methods that can make VER power output more responsive to grid-level controls, including frequency response and demand response. NERC and the industry should support the development and integration of standardized models for VER, energy-only resources, asynchronous resources, distributed generation resources, and composite load behavior models for stability and power-flow studies. An effective NERC oversight approach must be put in place to validate the reliability characteristics and event performance of these models.

ERO Enterprise Long-term Strategic Planning Considerations | November 2015 3

In the face of resource uncertainty, enhancement of the framework and tools historically used for assessing future reliability will be needed to address asymmetrical risks (physical and cyber security), integration of new kinds of resources and technologies, and severe conditions (adequacy factors in addition to one-day-in-ten-year loss of load). Potential areas of focus and development:

• Be a source of credible, independent information that can frame the complex problems and communications to assess the reliability of energy-limited and distribution-centric resources.

• Use tools for assessing reliability risks associated with natural gas infrastructure, including gas storage and pipeline delivery:

This assessment should include a study of pipeline capacity and contingencies. Fuel availability and deliverability should be specifically considered and integrated into

resource adequacy and other planning assessments.

• Add probabilistic, scenario analysis, and transmission adequacy assessment techniques into NERC’s traditional reserve margin metric approach to measure the effects on reliability from the both grid and distribution integrated variable, energy-limited resources, distributed energy resources, and the associated evolving system characteristics.

• Incorporate the availability and control of distribution-centric distributed resources and demand response into the assessment of reliability risk. This includes measurement of the amount of operator control available compared to the amount needed for the reliable operation of the BES.

• Document reliability considerations and requirements from the reliability value of fuel and resource diversity, sufficient amount of control with the addition of distribution-centric resources, and VERs capability to contribute to replenishment of ERS.

Recovery and Restoration The electrical sector provides an indispensable service and historically high reliability, even in the face of extreme conditions and severe events. However, government, regulators, and consumers have increasing expectations for system performance as well as the ability to quickly recover and restore from severe conditions or events. As the structure and characteristics of the grid change, recovery and restoration plans will need to include an all-hazards approach to address existing and emerging risks. Potential areas of focus and development:

• Foster the development of risk-based approaches to evaluate extreme conditions and the incremental value as well as the potential benefits from either addressing or not addressing these risks, including discussions with the insurance industry to understand valuation of severe risks.

• Promote an all-hazards approach to grid restoration and recovery plans. Include scenarios for centralized and decentralized resource control, along with physical and cyber security mitigation.

ERO Enterprise Long-term Strategic Planning Considerations | November 2015 4

• Acquire a deeper understanding of the consequences from extreme events on interdependent infrastructures, such as natural gas, telecommunications, and transportation, as well as potential risk mitigation options.

• Develop an improved understanding of supply chain cyber security issues and the potential impact on BES reliability.

Situational Awareness and System Control (with the Integration of New Technologies) The changing resource mix, gas dependency, and resource adequacy challenges outlined above require greater understanding of the individual technologies and how they can be integrated into overall grid operations and control. The changing nature of the load combined with potential increases in micro grids, distributed generation, DSM programs, and rooftop solar will impact grid operations. Some of these technologies may result in less visibility for the system operators and less controllability for the dispatchers. Additionally, the sophistication of the operator’s tools with increased information and greater data delivery speeds will place burdens on system operators. This complexity of the individual technologies and their inter-relationships is driving a perception of increased vulnerability. Leveraging technology, while attempting to achieve simplicity in operations and planning, is a critical task. Potential areas of focus and development:

• Be the guardian of reliability, assessing the impact of changing technologies and their potential impacts on reliable operations.

• Consider the impacts of ERS on interconnection-wide reliable operations by:

Completing the development and deployment of the ERS framework and tools Studying the development of technology-neutral Reliability Standards for ERS

• Ensure the visibility, situational awareness, and dispatch or control of a sufficient amount of distributed and non-traditional resources as needed by system operators to ensure BES reliability.

• Foster system operator training and situation awareness that focuses on simplifying operations for users in an environment rapidly becoming too complex.

• Develop tools to evaluate the reliability impacts of the changing composition of load, to include electric vehicles.

• Engage equipment vendors in developing built-in solutions to address security vulnerabilities, resilience, failure prevention, and adequate controls.

• Engage the Institute of Electrical and Electronics Engineers (IEEE) and the International Electrotechnical Commission (IEC) in producing timely technical standards for grid reliability, resource interconnection, and security.

• Work with government and other regulators to develop resource interconnection requirements that ensure system operators can continue to maintain ERS and provide sufficient amount of control of grid and distribution connected resources to ensure the reliable operation of the BES.

ERO Enterprise Long-term Strategic Planning Considerations | November 2015 5

Electric Reliability Organization Enterprise Strategic Plan 2016–2019 The Electric Reliability Organization (ERO) Enterprise is a collaborative, international network comprised of the North American Electric Reliability Corporation (NERC) and the eight Regional Entities that brings together collective leadership, experience, judgment, skills, and technologies for assuring the reliable operation of the North American Bulk Electric System (BES). This plan summarizes the ERO Enterprise’s mission, vision, values, and goals and provides strategic direction and priorities for 2016 and beyond. Mission To assure the reliable operation of the North American Bulk Electric System. Vision To be the trusted leadership that assures the reliable operation of the North American BES by promoting effective collaboration, cooperation, and communication around important risks to reliability; implementing relevant standards; and using expertise from the industry to produce outcomes and manage risks to reliability in a cost-effective manner. Core Values and Guiding Principles The following core values and guiding principles serve as guidelines for the conduct and behavior of all involved in the ERO Enterprise. Accountability and Independence – The ERO Enterprise will:

• Be accountable for the public responsibilities delegated to it (a public trust obligation).

• Be impartial, independent of special interests, and impervious to improper influence.

• Balance its own independent regulatory judgment with the need to involve those with expert knowledge and experience in BES reliability matters.

Responsiveness – The ERO Enterprise will act in a timely manner on the basis of unfolding events, emerging reliability risks, and the needs of industry and other stakeholders. Fairness and Inclusiveness – The ERO Enterprise will:

• Be open and transparent.

• Provide access for clear communication with stakeholders.

• Ensure the legitimate interests of all parties, including costs imposed on registered entities, are duly considered and balanced in the development of policies and reliability standards, and in its programs and operations.

• Conduct compliance and enforcement actions judiciously and in proportion to risk, paying regard to both potential and actual (realized) risks.

Adaption and Innovation – The ERO Enterprise will:

• Continuously assess and prioritize its goals.

• Embrace change and encourage new ideas that contribute to effective action.

• Recognize the complex relationships and potential tensions between reliability objectives and business imperatives (including cost control).

• Be nimble and artful in development of tools and dissemination of lessons learned and other information to respond to novel, unfamiliar, and emerging challenges.

Excellence – The ERO Enterprise will:

• Promote and rely upon the active participation of the best technical leaders from industry.

• Strive for excellence and efficiency in all aspects of Enterprise activities. Efficiency – The ERO Enterprise will make informed decisions regarding efficient use of its resources and resources shared by industry, with due consideration of cost. Integrity – The ERO Enterprise will:

• Maintain the highest levels of professional and ethical conduct.

• Be independent, impartial, fair, intellectually honest, truthful, and candid.

• Be rigorous and thorough in all it does, doing the right things the right way.

• Earn trust by treating every person with fairness and respect.

• Work to meet or exceed expectations of stakeholders. Four Pillars of Success In order to succeed, the ERO Enterprise will emphasize:

• Reliability – to address events and identifiable risks, thereby ensuring the reliability of the BES through proper mitigation and remediation.

• Assurance – to provide assurance to the public, industry, and government for the reliable performance of the BES.

ERO Enterprise Strategic Plan 2016–2019 2 Approved by the Board of Trustees [Date]

• Learning – to promote learning and continuous improvement of operations and adapt to lessons learned for BES reliability.

• Risk-Based Approach – to focus attention, resources, and actions on issues most important to BES reliability.

Strategic Goals 2016–2019 The ERO Enterprise has identified five goals in the following strategic areas: standards; compliance monitoring, enforcement, registration, and certification; risks to reliability; and coordination and collaboration. Standards Goal 1. Develop clear, reasonable, and technically sound mandatory Reliability Standards in a timely

and efficient manner. These standards establish threshold requirements for assuring the BES is planned, operated, and maintained to minimize risks of cascading failures, avoid damage to major equipment, or limit interruptions of bulk electric supply.

Objectives and valued outcomes include:

a. Reliability Standards are clear, responsive to reliability and security risks, practical to implement, and cost-effective.

Key deliverables include:

• Include in periodic reviews an assessment of whether the Reliability Standard is properly structured for emerging risks.

• Evaluate significant BES events (Category 3 and above) to identify and address any gaps in Reliability Standards.

• Assess Reliability Standards compared to the BES risk profile; address the most important unmitigated risks, including applicable high-impact, low-frequency risks.

• Develop and use ERO Enterprise feedback loops to provide information from compliance and other program areas to assist in development of Reliability Standard improvement projects.

• Address all high-priority risks that are designated for mitigation through a Reliability Standard within one year, or two years if technical study is required.

• Address all new directives from applicable governmental authorities within one year, or two years if technical study is required.

• Facilitate smooth transition to new Reliability Standards, including providing Reliability Standards implementation guidance when needed in collaboration with industry.

• Develop and implement procedures for assessing the cost impact of Reliability Standards, as needed.

ERO Enterprise Strategic Plan 2016–2019 3 Approved by the Board of Trustees [Date]

Compliance Monitoring, Enforcement, Registration, and Certification Goal 2. Be a strong enforcement authority that is independent, without conflict of interest, objective,

and fair, and promote a culture of reliability excellence through risk-informed compliance monitoring and enforcement. The ERO Enterprise retains and refines its ability to use Reliability Standards enforcement when warranted and imposes penalties and sanctions commensurate with risk.

Objectives and valued outcomes include:

a. The ERO Enterprise registers and deregisters entities commensurate with risk to the BES and ensures all key reliability entities are certified to have essential capabilities.

Key deliverables include:

• Consistently register entities based on risk to the BES and the BES definition.

• The certification program is effective and implemented consistently across the ERO Enterprise.

b. The ERO Enterprise holds industry accountable for violations commensurate with risk to the BES;

resulting actions are timely and transparent to industry.

Key deliverables include:

• Compliance Oversight Plans developed for registered entities address the relevant risks.

• ERO Enterprise compliance monitoring is focused on the most significant risks to the BES.

• Non-compliance is processed using the appropriate method, considering the risk to the BES.

• The ERO Enterprise conducts outreach, training, and education as necessary to support the smooth implementation of new Reliability Standards.

Risks to Reliability Goal 3. Identify the most significant risks to reliability, provide assurance for mitigating reliability risks,

and promote a culture of reliability excellence. The ERO Enterprise identifies and prioritizes reliability risks, facilitates effective solutions and interventions, and monitors results. The ERO Enterprise works with industry stakeholders and experts to ensure the mitigation of known risks to reliability and facilitates a learning environment by analyzing events, communicating lessons learned, tracking recommendations, and sharing good industry practices.

Objectives and valued outcomes include:

a. Risks are identified and prioritized based on reliability impacts, cost and practicality of assessments, and projected resources.

ERO Enterprise Strategic Plan 2016–2019 4 Approved by the Board of Trustees [Date]

Key deliverables include:

• Expand development of reliability data-grounded analyses and sustain independent, technical assessments of proposed regulatory rules or proposed statutes (state, provincial, or federal) as well as significant market rules to determine potential impacts to reliability.

• Prepare an annual long-term reliability assessment, special reliability assessments, State of Reliability Report, and associated reliability metrics.

• Maintain a BES risk profile to prioritize and rank reliability risks.

• Develop project plans and business case assessments for high-priority risks; implement or facilitate initiatives to address high-priority risks.

b. Events and system performance are consistently analyzed for sequence, cause, and remediation

to identify and reduce reliability risks, trends, and lessons learned to promote BES reliability.

Key deliverables include:

• Analyze significant events (e.g., sampling of Category 2 events in addition to assessing Category 3 and above) to identify gaps in Reliability Standards, compliance effectiveness, registration, and risk controls effectiveness, as well as the development of lessons learned or other information sharing activities that promote BES reliability.

• Continue to promote the use of the event analysis secure portal to enable industry to share their event reports with others to increase the sharing of the technical details and engineering specifics of events.

• Continue relay misoperation performance analysis to reduce misoperations, inform industry on relay misoperations trends, and share good industry practices more widely.

• Enhance risk analysis capabilities by integrating risk data sources, such as event analysis, Transmission Availability Data System (TADS), Generating Availability Data System (GADS), and relay misoperations as well as other occurrences (e.g., AC equipment failures) to expand the ability of the ERO Enterprise to provide lessons learned and recommendations from events and identified risks and their mitigation to promote reliability.

c. The ERO Enterprise supports the Electricity Information Sharing and Analysis Center (E-ISAC),

Cybersecurity Risk Information Sharing Program (CRISP), critical infrastructure, situational awareness, physical security, and cybersecurity preparedness and provides independent reliability information to policy makers.

Key deliverables include:

• Develop an E-ISAC implementation strategy plan from the Electricity Sector Coordinating Council (ESCC) Strategic Review recommendations.

ERO Enterprise Strategic Plan 2016–2019 5 Approved by the Board of Trustees [Date]

• Expand communications among the E-ISAC, the Telecommunications ISAC, and Natural Gas ISAC.

• Continue to facilitate deployment of CRISP technology and enhanced actionable communication among participants.

• Expand security maturity model assessments to be widely accessible across industry.

• Complete the implementation of the GMD Reliability Standards across industry.

• Oversee the implementation of the Physical Security Reliability Standard.

• Issue and track physical security and cybersecurity recommendations to protect the BES.

• Expand the use and value of physical security and cybersecurity threat and vulnerability information sharing, analytics, and analysis.

• Implement periodic wide-area security exercises (e.g., GridEx).

• Support industry acquisition of security clearances and facilitate access to secured briefings through local fusion and law enforcement centers.

• Make available to industry anonymized, timely, and actionable information regarding threats to the BES.

d. Reliability models and data accurately represent system behavior and are shared among

stakeholders.

Key deliverables include:

• Assess data and modeling needs and develop recommendations to ensure quality planning and operating data and models are available to registered entities across each interconnection.

• Evaluate event disturbances using phasor measurements and other methods to assess sufficiency of data and models.

Goal 4. ERO Enterprise identifies, evaluates, studies, and independently assesses emerging risks to reliability. The ERO Enterprise supports the development of comprehensive reliability assessments that provide a technical platform for important policy discussions on challenges facing the interconnected North American BES, including assessment of essential reliability services (ERS).

Objectives and valued outcomes include:

a. Increase the sophistication of reliability assessments to include measurement of ERS, the amount of control (ability to observe and dispatch), and system robustness for cyber and physical security to evaluate changing behavior of the BES.

Key deliverables include:

ERO Enterprise Strategic Plan 2016–2019 6 Approved by the Board of Trustees [Date]

• Conduct a reliability validation assessment of EPA final rule 111(d) considering the potential range of implementation strategies among states, including sub-regional reliability evaluation as state plans begin to emerge, to provide a sound data/analysis framework to validate and advise relevant entities of the reliability aspects of the proposed plans, including highlighting issues, risks, and education.

• Develop sufficiency/adequacy guidelines for ERS including emerging risks. Expand the considerations to encompass the comprehensive range of reliability attributes under more diverse resource mix and load behavior, such as ramping, fast regulation, reserve services, and interdependent sector performance.

• Expand the guidelines for both short-term and long-term horizons to simulate and consider fuel and other related upstream risks in reliability assessments and capacity impacts due to extreme cold weather, interstate pipeline failure, most severe single contingency, capacity shortfalls, and other assumptions.

• Enhance reliability assessments to reflect changing resource mix behavior, including distributed energy resources and ERS, with probabilistic approaches, considering the variable and energy-limited nature of the resource shifts.

• Evaluate the impacts on recovery and restoration plans including consideration of distributed resources and mitigation of risks from physical and cyber-attacks along with supply-chain considerations.

Coordination and Collaboration Goal 5. Improve transparency, consistency, quality, and timeliness of results; operate as a collaborative

enterprise; and improve efficiencies and cost-effectiveness. The ERO accomplishes this by working with the Regional Entities and registered entities to ensure effective coordination, collaboration, and process improvements. The ERO Enterprise is an efficient steward of resources and leverages information systems to create efficiencies and process controls.

Objectives and valued outcomes include: a. The ERO Enterprise acts in a coordinated and collaborative manner with stakeholders.

Key deliverables include:

• As the international ERO, NERC and the Regions articulate a shared vision of reliability excellence and support and inspire stakeholders continent-wide, including in international jurisdictions, in working to attain that vision.

• Maintain a list of suggestions and recommendations made by stakeholders (e.g., through policy input) and ERO Enterprise responses to each.

• Engage the support and expertise of stakeholders in prioritizing and resourcing reliability initiatives.

• Communicate expectations clearly and foster collaboration to deliver important results in advancing system reliability.

ERO Enterprise Strategic Plan 2016–2019 7 Approved by the Board of Trustees [Date]

b. The ERO Enterprise acquires, engages, and retains highly qualified talent suited to the mission.

Key deliverables include:

• Develop qualification requirements for attracting, engaging, and retaining key technical and leadership staff across the ERO Enterprise and implement training as needed.

• Leverage expertise across the enterprise to support the strategic plan and goals.

c. The ERO Enterprise internal risks are understood and managed; ERO Enterprise processes are effective, efficient, and continuously improved.

Key deliverables include:

• Implement an ERO Enterprise internal risk management program.

• Continue the ERO Enterprise IT application and “Rigid Core / Flexible Edges” architecture strategy.

• Clearly delineate ERO Enterprise roles and responsibilities using the ERO Enterprise Operating Model action items to mature the collaborative processes.

ERO Enterprise Strategic Plan 2016–2019 8 Approved by the Board of Trustees [Date]

2016 ERO Enterprise and Corporate Metrics

ERO Enterprise Metric 1: Reliability Results

Measure of success Threshold Target

Determine the frequency and severity of BES events, excluding weather, flood, or earthquake. The target is fewer, less severe events during 2016; no Category 4 and 5 events, and Category 1–3 events are trending favorably.

• No Category 4 or 5 events.

• The slope of the cumulative trend line in the composite daily “event Severity Risk Index” (eSRI) for Category 1–3 events remains flat or negative.

o Measured for the period beginning 1/1/2011 to-date, includes days with zero events and excludes Category 4 and 5 events, events caused by terrestrial weather, AESO islanding.

ERO Enterprise Metric 2: Assurance Effectiveness Measure of success Threshold Target

Assess all Category 3 and above events. The target is to reach zero gaps in Reliability Standards and compliance monitoring by 2017.

Following any Category 3 or above event, a documented gap analysis that reviews Reliability Standards and compliance monitoring is completed and recommendations identified within 90 days of completion of event analysis(es) and compliance self-assessment(s) from Registered Entity(ies).

Target is zero gaps. If there are gaps identified in existing Reliability Standards or compliance monitoring, an alternative acceptable target is that gaps are closed within one year of the gap analysis report being released, two years if a technical study is needed first.

ERO Enterprise Metric 3: Risk Mitigation Effectiveness Measure of success Threshold Target

Review the BES risk profile each year to determine actual and potential risks.

Stated threshold results achieved for each risk. Stated target results achieved for each risk. The target is to identify, select, and mitigate the high priority risks (with specific metrics for each established project).

1. Changing Resource Mix

• Develop a Reliability Guideline for primary frequency control.

• Publish a reliability guidance document for states to assure reliability is maintained as they develop their plans to address the Clean Power Plan rule.

• Incorporate an evaluation of fuel dependency in the LTRA.

• Develop a whitepaper on planning and operating expectations for adequate amounts of essential reliability services (ERS) to maintain reliability.

• Conduct a short term reliability assessment that addresses emerging and rapid transitions and resources focused on high risk areas (e.g., DER penetration and solar eclipse in WECC, potential impacts of retirements of vulnerable nuclear generation).

• Conduct outreach with states using the NERC assessments as a foundation to support policy

1

2016 ERO Enterprise and Corporate Metrics

decisions. This outreach includes webinars, state visits, and state energy-related forums.

• Conduct a short term reliability assessment on natural gas interdependency that focuses on at least two high-risk NERC assessment areas.

2. Extreme Physical Events

• In collaboration with the Regional Entities, develop a compliance monitoring plan for the remaining CIP-014 requirements prior to their initial enforcement period.

• NERC will conduct oversight of the Regional Entities’ implementation of the CIP-014 compliance monitoring plan.

• Continue to conduct industry and stakeholder training or outreach for CIP-014 as necessary.

• Continue to conduct industry and stakeholder training or outreach for GMD standards as necessary.

• Evaluate potential noncompliance of CIP-014 to inform the need for additional training or outreach.

• Evaluate potential noncompliance of GMD standards to inform the need for additional training or outreach.

• No Category 4 or 5 events resulting from a physical attack or GMD event.

3. Cybersecurity Preparedness

• In collaboration with the Regional Entities, implement a compliance monitoring plan for the initial enforcement period of CIP V5.

• NERC will conduct oversight of the Regional Entities’ implementation of the CIP V5 compliance monitoring plan.

• Continue to conduct industry and stakeholder training or outreach for CIP V5 as necessary.

• Implement ESCC recommendations to the E-ISAC in accordance with guidance received from the NERC Board.

• Evaluate potential noncompliance of CIP V5 to inform the need for additional training or outreach.

• Develop and begin to implement a training or outreach program to improve industry readiness for and successful implementation of low impact requirements for CIP V5.

• In collaboration with the Regional Entities, develop an initial compliance monitoring plan for the initial enforcement period of low impact requirements for CIP V5.

• No uncontrolled cascading outages resulting from a cyberattack.

• Expand E-ISAC membership and coverage to include additional regions, entities, utilities, and strategic partners in the electricity industry.

4. Protection System Misoperations

• Build and deploy an IT process for registered entity relay misoperations submissions that enables NERC and the Regional Entities to collaboratively collect, analyze, and

• NERC and the Regional Entities develop and implement collaborative strategies to improve relay misoperation rates, specifically targeting the top three contributing factors to relay misoperations.

2

2016 ERO Enterprise and Corporate Metrics

understand those factors that are contributing to relay misoperations.

• Reduce the number of relay misoperations of the top three contributing factors by a statistically significant amount (80 percent confidence) in 2016 as compared to the base-line of 2014 (see 2015 State of Reliability report).

5. Resource Availability Due to Extreme Conditions

• Perform analysis, including the use of GADS, TADS, and DADs data, to evaluate BES performance during 2012–2016 extreme weather events and identify any trends or recommendations as appropriate.

• Continue to monitor for severe weather performance of the BES during 2016 and use appropriate intervention strategies, e.g., lessons learned, event analysis report recommendations, webinars, training or outreach.

• Produce an annual extreme weather preparedness webinar and formal feedback to support short term and special reliability assessments.

6. Model Building

• Complete the transition of all model building designees and ensure all criteria of the model building designees are being performed (or a plan is in place to address criteria satisfactory to NERC).

• Calculate model quality and validation metrics for the model building designee to integrate into the interconnection models. Provide recommendations to the model building designees.

7. Equipment Performance

• Identify the top three most impactful AC substation equipment failure modes (see NERC’s whitepaper on AC Equipment Failures).

• Develop a strategy that includes an achievable goal for reduction of the top three most impactful AC substation equipment failure modes.

• Begin implementation of this strategy for the top three most impactful AC substation equipment failure modes. This could include a webinar, industry outreach, and vendor collaboration.

3

2016 ERO Enterprise and Corporate Metrics

ERO Enterprise Metric 4: Program Execution Effectiveness

Sum of the weighted sub-metrics.

Sub-metrics

Measure of success Threshold Target

Sub-metric A

Reliability Standards address risk and projects consider cost effectiveness/impact

• Initiate all high-risk projects identified in the 2016 RSDP by the end of 2016.

• Develop a method for determining cost effectiveness/impact of Reliability Standards during standards development.

• Initiate at least two enhanced periodic reviews in 2016, ensuring that the projects are structured sufficiently to address emerging risks.

• Pilot one application of cost effectiveness/impact.

• Develop a risk-based input mechanism to identify the most pressing need for enhanced periodic reviews.

Measure of success Threshold Target

Sub-metric B

Guidance and training or outreach is provided to industry to support the smooth implementation of Reliability Standards

• Provide ERO Enterprise CMEP staff training or outreach for every Reliability Standard approved by FERC in 2016 within 90 days of the date of the order.

• Provide industry training or outreach for every Reliability Standard approved by FERC in 2016 within 90 days of the date of the order.

• Implement guidance protocols.

• Develop a documented process to provide feedback to the Reliability Standards development process on gaps or ambiguities identified within currently enforceable Reliability Standards.

Measure of success Threshold Target

Sub-metric C

The registration program is evaluated for structure and consistency

• NERC-led panel is in place to conduct reviews according to established criteria.

• Complete a documented review, with an ERO Enterprise staff team, regarding the structure and consistency of the registration program.

• Evaluate the need for a training program to support consistent execution of the registration program.

• Develop a plan and begin implementing recommendations from the review of the registration program.

• If a training program is needed, begin program design.

Measure of success Threshold Target

Sub-metric D

Risk-based CMEP implementation is complete and is being measured for effectiveness

• By the end of Q2, develop a plan in collaboration with Regional Entities for completion of initial IRAs for all registered entities.

• Regional Entities will document IRAs of all RCs, BAs, and TOPs by the end of 2016 and NERC will perform oversight.

4

2016 ERO Enterprise and Corporate Metrics

• In collaboration with the Regional Entities, enhance the procedures for the ERO Enterprise’s implementation of IRAs and how this is translated into a compliance oversight plan (COP).

• In collaboration with the Regional Entities, enhance the procedures for the ERO Enterprise’s integration of ICE and how it factors into COPs.

• Review of compliance exceptions and FFTs conducted; 90% of compliance exceptions and FFTs sampled are appropriately categorized.

• 70% of all non-compliance is self-identified.

• 90% of Notices of Penalty approved by FERC.

• Mitigation completion rates are as follows:

Noncompliance discovery year

Threshold

2011 and older 98%

2012 95%

2013 90%

2014 75%

2015 75%

• Compliance monitoring activities performed during 2016 cover the most significant risks to the BES.

• Minimal risk noncompliance continues to be evaluated to look for trends or other relevant information and results are disseminated to Regional Entities and registered entities as appropriate.

• Review of compliance exceptions and FFTs conducted; 100% of compliance exceptions and FFTs sampled are appropriately categorized.

• 75% of all non-compliance is self-identified.

• 100% of Notices of Penalty approved by FERC.

• Mitigation completion rates are as follows:

Noncompliance discovery year

Target

2011 and older 100%

2012 98%

2013 95%

2014 80%

2015 80%

Measure of success Threshold Target

Sub-metric E The transition laid out in the operating model continues to be achieved regarding more predictable, consistent, and timely results and methods across the enterprise, as well as ensuring efficiencies and minimizing duplication and any activities not affecting reliability outcomes

• In collaboration with the Regional Entities, finalize the documented oversight plans for compliance monitoring, registration, and enforcement in accordance with the NERC Oversight Program Framework.

• In collaboration with the Regional Entities, develop documented oversight plans for event analysis, situational awareness, and performance analysis in accordance with the NERC Oversight Program Framework.

5

2016 ERO Enterprise and Corporate Metrics

• Begin implementation of the oversight plans for compliance monitoring, registration, and enforcement.

• Complete all ERO Enterprise tool projects in accordance with ERO EMG approved schedule, without material project overrun or setback. This includes user management registration and Enterprise Reporting Phase 3.

Measure of success Threshold Target

Sub-metric F

The ERO Enterprise stakeholder survey measures stakeholders’ perceptions of the ERO Enterprise’s execution of its work in an effective and consistent manner to achieve operational excellence and to reduce the risk to the reliable operations of the BES

• Conduct survey in Q1 and present initial results to the NERC Board by end of Q2 with high-level focus areas for improvement identified.

• Present final results report and action plans for each area identified for improvement to the NERC Board.

Measure of success Threshold Target

Sub-metric G

Recommendations and lessons learned from GridEx III are developed

• Provide a report on lessons learned and recommendations for improvement from GridEx III to the NERC Board and ESCC.

• Integrate lessons learned into national strategic playbooks, plans, and cross-sector coordination documents.

6

Agenda Item 7 MRC Meeting November 4, 2015

Overview of FERC Notice of Proposed Rulemaking on

Availability of Certain NERC Databases to FERC (Docket No. RM15-25-000) Action Information Background On September 17, 2015, FERC issued a Notice of Proposed Rulemaking proposing to require NERC to make three databases available for review by FERC and its staff (Database NOPR). FERC proposes to revise its regulations to formally require NERC to provide FERC access to view and download data, on a non-public and ongoing basis, to NERC’s Transmission Availability Data System (TADS), which includes data on transmission outages, Generating Availability Data System (GADS), which includes data on generation outages, and protection system misoperations databases. FERC describes its proposal as limited to data on U.S. facilities. Overview of Key Elements of the Database NOPR and Next Steps In issuing the Database NOPR, FERC states that it relies on its authority pursuant to 18 C.F.R. §39.2(d) to seek information necessary to implement section 215 of the Federal Power Act (FPA). The Database NOPR states that FERC believes access to the databases is necessary to carry out its obligations under the FPA, by providing FERC with information necessary for FERC to determine the need for new or modified Reliability Standards and better understand NERC’s reliability and adequacy assessments. FERC recognizes that its proposal may raise concerns regarding confidentiality, and states that it will take appropriate steps under FERC’s governing statutes and regulations in handling confidential information. The Database NOPR clarifies that FERC’s proposal would not require the ERO to collect new information, compile information into any kind of report, or reformulate the raw data. Potential issues under the Database NOPR include, for example:

• The scope of FERC’s proposal; and

• Data vulnerability and confidentiality. NERC is continuing to evaluate the Database NOPR, and plans to submit comments at FERC. Comments on the Database NOPR are due November 30, 2015.

Agenda Item 8 MRC Meeting November 4, 2015

ERO Enterprise Effectiveness Survey

Action Information Background In 2014, an ad hoc group, consisting of ERO Enterprise staff and stakeholders, developed a survey to measure stakeholder’s perceptions of the ERO Enterprise’s execution of its work in an effective and consistent manner to achieve operational excellence and to reduce the risk to the reliable operations of the bulk electric system. The survey results are expected to help continuously improve the ERO Enterprise’s execution of its work. 2014 Survey The survey for the 2014 calendar year was issued in January 2015. At the May 2015 MRC meeting, NERC staff presented seven areas identified for improvement based on the results of that survey and highlighted actions being taken to improve those seven areas. At the August 2015 CGHRC meeting, NERC staff presented a final report on the survey results, which included analyses by topic area, analyses by Regional Entities and NERC, highest and lowest rated items, and limited favorability analyses. After the August 2015 meetings, the ad hoc group obtained a favorability analysis for each of the questions included in the survey and identified an additional four areas for improvement, having over a 6% unfavorable rating and under a 60% favorable rating. They include:

1. The ERO Enterprise ensures efficiencies and minimizes duplication and any activities not affecting reliability outcomes

2. The ERO Enterprise achieves results and methods across the enterprise that are predictable, consistent, and timely

3. The ERO Enterprise avoids undue burden, discrimination, or capriciousness

4. The penalty process and penalties are transparent, consistently applied, and clearly communicated

The first two items are addressed in the 2016 ERO Enterprise and Corporate Metrics as part of sub-metric E, which states that “the transition laid out in the operating model continues to be achieved regarding more predictable, consistent, and timely results and methods across the enterprise, as well as ensuring efficiencies and minimizing duplication and any activities not affecting reliability outcomes.” For the third item, the comments received are generally around reducing administrative and regulatory burden, as well as burden on smaller entities. Through the implementation of the risk-based compliance monitoring and enforcement program and risk-based registration, this area should improve. For the last item, the penalty process is governed by the Rules of Procedure, in particular the Sanction Guidelines. The Sanction Guidelines outline, in a transparent manner, how various

factors may affect the final penalty. Most violations are resolved by settlement and the penalties reflected in such settlements result from the individual facts and circumstances of each case. Under the Rules of Procedure, NERC reviews each penalty imposed for (a) sufficiency of the record, (b) consistency with the Sanction Guidelines and other rules, and (c) consistency with penalties in similar cases. All penalties are further subject to FERC review and publicly filed. These safeguards ensure that the process and penalties are transparent, consistently applied, and clearly communicated. 2015 Survey The next survey will be issued in January 2016 for the 2015 calendar year. The ad-hoc survey group, consisting of ERO Enterprise staff and industry representatives, has met to discuss improvements to the survey. Some of these improvements include:

• Frequency of future surveys – after the upcoming survey for 2015 to be issued in January 2016, the survey will be issued every two years instead of every year

• Clarity of questions – the group is reviewing each question to ensure that the intent is clear and they are asked in a way that elicits information meaningful to the integral area of interest

• Analysis of data – future reports will include more favorability analyses to provide a deeper understanding of the data and less averages

• Distribution – the group is still discussing the distribution of the survey and is considering issuing the survey to a broader audience

• Demographics – the group will review how demographics are collected to ensure the they are collected in a meaningful manner

• User-friendliness of survey tool – the group will work with the vendor to improve the user interface of the online survey tool

Agenda Item 9 MRC Meeting November 4, 2015

Update on Regulatory Matters

(As of October 21, 2015) Action Information Background NERC staff introduces a new and improved format for this update, which makes conforming changes to the U.S and Canadian sections. Links to relevant material are provided for ease of reference. FERC Orders Issued Since the Last Update FERC orders are available on the NERC website FERC Orders page. NERC Filings to FERC Since the Last Update NERC filings to FERC are available on the NERC website FERC Filings page. NERC Filings in Canadian Jurisdictions NERC filings to Canadian applicable governmental authorities are available on the NERC website Canadian Filings and Orders page. This page also contains links to the websites of each of the Canadian applicable governmental authorities, where orders, consultation records, and other records related to NERC matters may be found. Processes for making standards enforceable and monitoring and enforcing compliance are specific to each jurisdiction in Canada. The Federal, Provincial, and Territorial Monitoring and Enforcement Sub-group (MESG) has developed provincial summaries of each province’s electric reliability standard-making and enforcement functions, with U.S. comparators. The Canada page of the NERC website contains these summaries, as well as a link to the Canadian MOU page. Anticipated NERC Filings Highlights of NERC filings that will be submitted to other applicable governmental authorities in the U.S. and Canada, as warranted, appear below:

1. October 30, 2015 – NERC will submit a Rules of Procedure Section 1600 data informational filing regarding TPL single point of failure, per Order No. 754. Docket No. RR10-6-000

2. November 9, 2015 – NERC must submit Reliability Standard PRC-005-6, per Order No. 803, and Reliability Standard PRC-005-5 (Protection System, Automatic Reclosing, and Sudden Pressure Relaying Maintenance). Pending Board approval

3. November 16, 2015 – Within 45 days of the end of each quarter, NERC must submit the unaudited report of the NERC budget-to-actual spending variances during the preceding quarter. Docket No. FA11-21-000. Pending Board approval

4. November 19, 2015 – NERC must submit a compliance filing regarding the amended Compliance and Certification Committee Charter. Docket No. RR15-11-000. Pending Board approval

5. November 20, 2015 – NERC must submit an informational filing describing its progress in increasing consistency and promoting coordination across the ERO Enterprise, and other action items, within one year of the Commission’s order on the Five-Year ERO Performance Assessment Report. Docket No. RR14-5-000

6. November 23, 2015 – NERC will submit comments in response to FERC’s Notice of Proposed Rulemaking (NOPR) proposing to approve Reliability Standard PRC-026-1 (Relay Performance During Stable Power Swings). Docket No. RM15-8-000

7. November 25, 2015 – NERC will submit a quarterly filing in Nova Scotia of FERC-approved Reliability Standards

8. November 30, 2015 – NERC will submit comments in response to FERC’s NOPR proposing to revise its regulations to provide its staff with access, on a non-public and ongoing basis, to three databases maintained by NERC: (i) the Transmission Availability Data System (TADS); (ii) the Generating Availability Data System (GADS); and (iii) the protection system misoperations database. Docket No. RM15-25-000

9. December 7, 2015 – NERC will submit Rules of Procedure revisions regarding (i) Section 317; (ii) CIP Version 5 (Section 1003, Appendix 2, and Appendix 4D); and (iii) the alignment of terms in to the NERC Glossary (Appendix 2). Pending Board approval

10. December 7, 2015 – NERC will submit NERC Glossary revisions to align with terms in the Rules of Procedure. Pending Board approval

11. December 7, 2015 – NERC must submit Reliability Standard MOD-031-2 (Demand and Energy Data), per Order No. 804. Pending Board approval

12. December 7, 2015 – NERC must submit Reliability Standard BAL-002-2 (Disturbance Control Standard – Contingency Reserve for Recovery from a Balancing Contingency Event). Pending Board approval

13. December 7, 2015 – NERC must submit its Annual Reliability Standards Development Plan (RSDP) informational filing, per Section 310 of the NERC Rules of Procedure. Docket Nos. RM05-17-000, RM05-25-000, RM06-16-000. Pending Board approval

14. December 15, 2015 – NERC must submit its Frequency Response Annual Analysis (FRAA) report informational filing, per Order No. 794 P4. Docket No. RM13-11-000. Pending Operating Committee approval

Mexican Energy Reforms Update Mexico continues to implement changes as a result of its significant energy reform efforts. As Mexican governmental entities implement these reforms, WECC and NERC will serve as resources.