UTILITIES - CNN

INVESTIGATING THE IMPACT OF THE YEAR 2000 PROBLEM

SENATE SPECIAL COMMITTEE ON THE YEAR 2000 TECHNOLOGY PROBLEM17

ELECTRICAL

POWER IS KEY TO

EVERY OTHER

SECTOR: THE

LIGHTS MUST

STAY ON!

UTILITIES

The Committee has taken a broad-based approach to utilities—aggre-gating electrical power, gas and oil,and water (drinking and wastewater)in this sector. Telecommunica-tions—is discussed separately inanother section of this report.

ELECTRIC UTILITIES

One of the most often asked ques-tion concerning Y2K is, “will thelights stay on?” In general, the an-swer is yes. However, progress inassessing, remediating, andtesting is insufficient toanswer this questionabsolutely. As with othersectors, some generalconclusions can be drawn.First, the large corporations,or bulk power producers,are spending vast resourcesto get the Y2K problem under con-trol. However, each of the 3200electric utilities is at a different stageof remediation, and many may expe-rience problems. All of the evidenceseems to indicate that there may beisolated and diverse electrical out-ages across the country. Thequestions now are: Where will theyoccur, how long will they last, andwill they be significant enough to af-fect the overall grid?

The Committee made electric utilitiesits top priority because of its criticalimportance to everything else—with-out electric power little else will work.As a result, the status of electric

power is the number one concern forall other sectors.

Overview

There are about 3,200 independentelectric utilities in the United Statesincluding about

• 250 investor-owned or privateutilities,

• 10 government-owned utilities,• 2,000 other publicly owned utili-

ties, and• 900 cooperatives.

Nearly 80% of the nation’spower generation comesfrom the 250 investor-owned public utilities. Thefederal governmentgenerates another 10% ofthe nation’s power,primarily through large

facilities such as the TennesseeValley Authority and the BonnevillePower Authority. There are another2,000 non-utilities, or privatelyowned entities, that generate powerfor their own use and/or for sale toutilities and others.

Electric power is generated from thefollowing sources:

• 51% by coal• 20% by nuclear energy• 15% by gas,• 10% by hydro, and• 4% by other sources.

The approximately 900 cooperatives



Figure 1: North American “Grids”

generally have limited power-generation capacity and focus pri-marily on distribution systems.

The electric power industry is com-plex and highly automated. It ismade up of an interconnected net-work of generation plants (nuclear,fossil fuel, gas, hydro, etc.), trans-mission lines (commonly referred toas the “grid”), and distribution facili-ties. There are three independentinterconnections or grids that provideelectricity to everyhousehold and companyin North America (See fig-ure 1.)

In its simplest form, eachof these grids operatesas a single machine,constantly makingadjustments to balancethe amount of powerbeing generated with theamount being used.These adjustments arecritical because electricpower cannot be stored.Too much power couldliterally melt transmissionand distribution lines; too little powercould result in brown outs.

It takes a high degree of automationto operate the grid. On one hand, itis this high degree of interconnect-edness that gives the system itsunprecedented reliability and effi-ciency. On the other hand, theinterconnectedness makes the gridfragile and susceptible to Y2K dis-ruptions. An outage in one part ofthe grid can cascade causing rippleeffects on other parts of the grid. Forexample, a generation plant could go

out in Maine, affecting power inFlorida.

The basic structure of an electricpower transmission and distributionsystem consists of a generatingsystem, a transmission system, asub-transmission system, a distribu-tion system, and a control center.Power plant generation systems mayinclude steam turbines, diesel en-gines, or hydraulic turbinesconnected to alternators that gener-

ate AC electricity. This configurationis illustrated in figure 2.

In most respects, the electric indus-try faces the same Y2K challengesas every other industry. Y2Kanomalies could lead to the malfunc-tion of software programs onmainframe computers, servers, PCs,and communications systems. Cor-rupted data could be passed fromone application to another causingerroneous results or shutdowns. Thismeans computer programs used foraccounting, administration, billing,



Figure 2: Electric Power Components

and other important functions couldexperience problems.

Of greater concern to the electricpower industry are embedded com-puters—small electronic chips orcontrol devices. These chips areused extensively in all parts of theelectric power industry includinggenerating plants, transmission lines,distribution systems, and powercontrol systems. Even though only asmall number of these embeddeddevices will have a Y2K problem, it isimpossible to tell which ones untileach chip has been checked andtested—a time consuming venture.

Making matters worse, electronicchips are generally mass-produced

without knowing the ultimate appli-cation of the chip. A single circuitboard can have 20–50 of these chipsfrom various manufacturers. Be-cause of the diversity of chipsuppliers, one vendor may use adifferent mix of chips even within de-vices labeled with the same name,model number, and year. Many ofthese chips have built-in clocks thatmay experience date changeanomalies associated with Y2K

There are numerous mission criticalsystems essential to the production,transmission, and delivery of electricpower. Y2K risks in electric powercan be grouped into five areas.



1. Power Production Systems

Generating units must be able to op-erate through critical Y2K periodswithout disruption. Units that arescheduled to operate must be able tostart up and deliver electricity asplanned. The threat is most severe inpower plants with Digital ControlSystems (DCSs). Many older plantsoperating with analog controls maybe less problematic. Numerouscontrol and protection systems withinthe DCS use time-dependent algo-rithms, which may result ingenerating unit trips when encoun-tering a Y2K anomaly. Digitalcontrollers that have been built intostation equipment, protection relays,and communications may also poserisks.

2. Energy Management Systems

There are approximately 200 bulkelectric control centers in NorthAmerica. From these control cen-ters, system operators monitor andcontrol the backbone of the electricalsystems and dispatch generation tomeet demand. Computer systemswithin these control centers usecomplex algorithms to manage theoperations of transmission facilitiesand to dispatch generating units. Atany moment in time, a percentage(usually 10–20%) of generating unitsmay be on automatic control for thepurpose of following load and regu-lating interconnection frequency.Many of the control center softwareapplications contain built-in timeclocks used to run various powersystem monitoring, dispatch, andcontrol functions. Some energymanagement systems are depend-

ent on time signal emissions fromGlobal Positioning Satellites. Be-yond the 200 operating centers,there are hundreds of additionalcontrol centers used to manage sub-transmission and distribution sys-tems. These systems are typicallyoperated using a subset of an en-ergy management system, calledSupervisory Control and Data Acqui-sition (SCADA).

3. Telecommunications Systems

Electric power systems are highlydependent on microwave, telephone,VHF radio, and satellite communica-tions. If the control centers are the“brains” of the electrical grids, com-munications systems are the“nervous system.” Telecommunica-tions is the single most importantarea in which the electric systemsdepend on another industry. Manyof the telephone, microwave, andnetwork services used for communi-cations in the electric industry areprovided by telephone companiesand other communications and net-work service providers. Thedependency of electric supply anddelivery systems on external serviceproviders is a crucial factor in suc-cessful performance during Y2Ktransition periods.

4. Substation Control Systems

Throughout electric transmission anddistribution systems there are sub-stations that contain controlequipment such as circuit breakers,disconnect switches, and transform-ers. Remote terminal units (RTUs)in substations serve as the commu-nications hubs for the substations,



allowing them to communicate withthe control centers. Substations alsocontain most of the transmission anddistribution system protection relays,which serve to operate circuit break-ers to quickly isolate equipmentshould an electrical fault occur on aline, transformer, or other piece ofequipment.

5. Distribution Systems

Distribution systems deliver electric-ity from the transmission network tocustomers. There is a lot of com-monality in the types of substationequipment in distribution comparedto transmission. Distribution sys-tems have additional equipmentoutside substations (for example,along a distribution feeder) that mayhave electronic controls. Examplesinclude reclosers (relays that openand close a feeder in rapid succes-sion to allow a fault to clear),capacitors, voltage regulators, andspecial monitoring devices.

Although the five areas outlinedabove focus directly on the produc-tion and delivery of electricity, othersupport systems are essential tosustained operations of the electricalservice provider. These systemshave been grouped under the head-ing “Business Information Systems”in this report. They include amongothers customer service call centers,supply and inventory systems, andaccounting systems.

Major Players

Several federal organizations are in-volved in various aspects of theelectric power industry. Primary are

the Department of Energy’s (DOE)whose mission is to formulate acomprehensive energy policy en-compassing all national energyresources, including electricity; andthe Federal Energy RegulatoryCommission (FERC), an independ-ent agency overseeing the naturalgas industry, the electric utilities,non-federal hydroelectric projects,and oil pipeline transport. Other fed-eral agencies that oversee theelectric power transmission and dis-tribution industry include

• the Nuclear Regulatory Commis-sion (NRC),

• the Rural Utility Service (RUS),• the Environmental Protection

Agency (EPA), and• the Securities and Exchange

Commission (SEC).

At the request of DOE, the NorthAmerican Electric Reliability Council(NERC)—a non-federal entity—hasassumed the primary role in moni-toring the overall Y2K preparednessof the electric power industry. NERCis a logical choice for this role be-cause it is the organization mostinvolved in keeping the lights on inNorth America.Formed in 1968 in response to acascading blackout that left almost30 million people without electricity,members are drawn from all owner-ship segments of the industry—investor-owned, federal, state,municipal, rural, and provincial.NERC is a nonprofit corporationcomposed of ten regional councils.

The members of the regional coun-cils are electric utilities, independentpower producers and electricity



marketers that account for most ofthe electricity supplied in the UnitedStates, Canada, and Mexico.

State public utility commissions(PUCs) play the most significant roleregulating the electric power indus-try. PUCs control the rate structurefor all municipal utilities, investor-owned utilities, and rural electric co-operatives that own, maintain, oroperate an electric generation,transmission, or distribution systemwithin a state. By controlling whatconstitutes an allowable charge,classifying accounts, and structuringrates, the PUCs can exert significantinfluence over utilities. The PUCsalso regulate reliability for both op-erational and emergency purposes,oversee territorial agreements, andresolve territorial disputes betweenutilities.

Other significant Y2K players in theelectrical power industry include the:

• American Public Power Associa-tion (APPA)

• Electric Power Research Institute(EPRI)

• National Rural Electric Coopera-tive Association (NRECA)

• Edison Electric Institute (EEI)• Nuclear Energy Institute (NEI)• Canadian Electric Association

(CEA)

Major Initiatives

The Senate Year 2000 Committeeheld its first hearing on energy utili-ties on June 12, 1998. We receivedtestimony from Administration offi-cials and key players in the electricalpower industry including John Koski-

nen, Chairman, President’s Councilon Year 2000 Conversion; ElizabethMoler, Deputy Secretary DOE;Shirley Ann Jackson, Chairman,NRC; Michehl Gent, President,NERC; and Dr. Charles Siebenthal,Manager Y2K Programs, EPRI. Inaddition, because of the lack of dataon the overall status of the electricpower industry, the Committee con-ducted a survey of large electric andgas and oil utilities.

The Committee’s survey resultsclearly indicated that electric utilitiesdid not have an accurate picture oftheir current state of Y2K readiness.Most utilities had just begun to as-sess their systems and embeddeddevices

John Koskinen outlined the structureof the President’s Y2K Council andreported that DOE would head theelectric power sector.

DOE testified that it lacked theregulatory authority to force industrycompliance. DOE asked NERC forhelp in building an understanding ofY2K efforts in the electric power in-dustry. NERC also assumedresponsibility for surveying the in-dustry.

APPA, where members includemany state and local municipal elec-tricity providers, is coordinatinginformation sharing and surveys ofits members, as well as smaller non-member public power utilities. APPAis assisting NERC in the industry-wide readiness review of electricdistribution systems.



EPRI is focusing its Y2K program onembedded systems and the associ-ated Y2K technical and projectmanagement issues. Over one hun-dred companies are participating inthe EPRI information-sharing pro-gram, representing over 74 percentof the electric power consumed inNorth America.

EEI represents investor-owned utili-ties. It has established a program toaddress Y2K technical, regulatory,and liability issues. EEI is also as-sisting in the readiness review ofelectric distribution systems.

NRECA is coordinating Y2K readi-ness assessments and informationsharing among its membership,which includes nearly 1,000 ruralelectric systems.

NEI is coordinating the assessmentof Y2K readiness of U.S. nuclear fa-cilities and is providing that informa-tion as part of the NERC surveys.

CEA is assisting NERC by coordi-nating efforts in Canada, particularlyto address the readiness of electricdistribution systems and Canadiannuclear facilities.

Assessment

At the time of the hearing, there wasa lack of industry-wide survey data ofthe electric power industry. As a re-sult, the Committee staff surveyedfive large electric and five large gasand oil companies to obtain cursoryreadiness information. Figure 3 be-low displays the result of the survey.

Based on the survey results, theCommittee concluded that the utili-ties were proceeding in the rightdirection, but the pace of remedialefforts was too slow and there wasso much remaining to be done thatthere was significant cause for con-cern. Only two of the eight firmsreported completion of assessment,making assertions of Y2K compli-ance by December 1999 highlysuspect. Committee concern washeightened because the most diffi-cult tasks—renovation and testing—were yet to come.

The utilities’ lack of information re-garding Y2K compliance of theirmajor suppliers, vendors, and serv-ice providers created additionalconcerns about the utilities asser-tions of readiness. The surveyresults raise significant levels of con-cern given that the firms surveyedwere among the largest utilities andwere dedicating many resources toY2K (collectively over $400 million).Smaller firms with fewer resourcesare presumably further behind intheir Y2K remediation efforts.

On September 17, 1998, threemonths after the Committee’s hear-ing, NERC issued its firstcomprehensive report of electricalpower industry readiness based onsurvey data collected at the end ofAugust. It has issued two monthlyupdates since that time. Participationby the 200 bulk electric operatingentities increased from 144 in Augustto 155 and 188 in the Septemberand October surveys, respectively.



About 2,200 of the 3,000 distribu-tion entities, i.e., the actual electricutilities have participated in theNERC process by responding todata gathered by APPA and NRECAand providing it to the appropriatebulk electric operating entity.NERC‘s overall survey results aredepicted in figure 4.

While the NERC surveys clearlyshow progress in August, Sep-tember, and October, the questionis whether there is sufficient timeto complete Y2K remediation ef-forts. The data presented in theNERC report do not seem to supportthe optimistic tone contained in thereport’s executive summary. Of par-

ticular concern is that, with only alittle over a year to go, 34% of thefirms are operating without a writtenplan.

In addition, the assessment phase isonly 75% complete (federal agenciesare 99% complete with this phase).Remediation and testing is only 36%complete. Given that Y2K expertscontend that between 40 and 70% ofthe total effort will be expended intesting alone, there may not be suffi-cient time to complete this.

The highly interconnected nature ofthe grids raises concern about cas-cading failures. This in turn obviatesthe need for contingency plan-

Company DateAware

EstablishFormal Project

AssessmentComplete

PercentSystemsMissionCritical

Status ofService

Providers/Vendors

Legal orLiability

Concerns

ContingencyPlans Complete

ContactsBy

Creditors

Contactsby

Investors

Will YouFinish

In Time

1 1995 Yes No 54 ? Yes No Yes - Yes

2 1995 Yes Yes 5 ? Yes No Yes Yes Yes

3 1996 Yes No ? ? Yes No No Yes Yes

4 1992 Yes No 30 ? Yes No Yes Yes Yes

5 1995 Yes Yes 50 ? No No Yes Yes Yes

6 - Yes No ? ? Yes No Yes Yes Yes

7 1996 Yes No ? ? Yes No Yes Yes Yes

8 1996 Yes No 25 ? No No Yes Yes Yes

9 1996 Yes No 35 ? Yes No Yes Yes Yes

10 1996 Yes No 18 ? No No Yes Yes Yes

Figure 3: Committee Survey Results



ning, particularly plans for address-ing capacity shortages andoverages—of which only 13% of thefirms surveyed have in place.

Although nuclear plants are ad-dressed in the overall NERC study,public concern about their safetydictates that the Committee providespecific information regarding theoverall Y2K preparedness of theseplants. Nuclear facilities are laggingbehind other electric facilities in theirY2K assessment and remediationefforts.

In general, nuclear facilities containvery old analog technology and, as aresult, have fewer Y2K issues thanthe more digital and modern fossilfuel facilities. Nevertheless, as-sessments to date have revealedvarying degrees of problems in areassuch as plant process control, feedwater monitoring, refueling, turbinecontrol, and building security and ac-cess control.

While theseproblems shouldnot affect plantsafety, they couldcause seriouselectricity pro-duction problems.While NRC haslegal authorityonly to addressplant safety is-sues, it is workingclosely with NEIto assess nuclearplants. NRCplans detailedY2K assess-ments of 12 ofthe nearly 70 nu-

clear facilities. It has completed as-sessments on six of these plants,and has issued reports on the firstthree. These reports are publiclyavailable on NRC’s web site.

Concerns

• While complete power grid failureand prolonged blackout is highlyunlikely, failure of at least someparts of the electric power indus-try, e.g., local or regionaloutages, is possible. The 3200electric utilities are at variousstages of remediation. The likeli-hood of outages in a given areais directly related to the overallpreparedness of the individualelectric utility serving that area.

• Overall Y2K remediation prog-ress has been slow due to theindustry’s late start, the complex-ity of the power grids, and themagnitude of the problems. As aresult, power companies must

0102030405060708090

100

Pla

n

Inve

ntor

y

Ass

ess

Rem

/Tes

t

Con

tP

lan

Aug-98

Sep-98

Oct-98

Y2K STATUS OF ELECTRIC POWER INDUSTRY

PERCENTCOMPLETE

Figure 4: NERC Monthly Status Reports



step up their efforts, and developworkable contingency plans inthe event their best efforts fallshort.

• The interconnectivity of the elec-tric generation and transmissionentities making up the grids is astrength and a weakness. On theone hand, interconnectivity pro-vides flexibility in that electricitycan be routed around troublespots. On the other hand, out-ages in one part of the grid couldaffect power in other parts of thegrid. There are no comprehen-sive studies concerning thenumber of entities that wouldhave to fail to put the entire gridat risk, but some experts suggestthat it may be a very small per-centage if in key locations.

• The interrelationship of the elec-tric power sector with othersectors it depends on—telecom-munications, natural gas and oilsupplies and pipelines, and railtransportation for coal supplies—requires close coordination.There are signs that this coordi-nation is beginning, but effortsneed to be stepped up so that theelectric utilities can engage inmore meaningful contingencyplanning.

• The bulk power entities arespending large amounts ofmoney on Y2K remediation andmost are making good progress.Of greater concern are some ofthe smaller and medium-sizeddistribution entities that may nothave sufficient resources to de-vote to the problem. Each is an

essential link to the overall suc-cess of the industry.

• State public utility commissionersmust play an active role in en-suring that the electrical utilitiesunder their purview are takingappropriate Y2K remediation, riskreduction, and contingency plan-ning actions. In addition, theyshould keep the public informedabout the status of the utilities.

• Nuclear plants are at variousstages of Y2K remediation.Some have only recently begunto assess the systems within theirplants. Even if for no other rea-son than to allay public concern,NRC needs to expand its detailedY2K assessments to include allnuclear plants. In addition, notwithstanding the NRC charter ofaddressing safety issues only, itneeds to broaden the scope of itsY2K assessments to include op-erational issues as well.

• The electric industry is in themiddle of a major restructuring tointroduce wholesale and retailcompetition for electricity. Atten-tion has been on competing inthe marketplace, cutting costs,mergers, reorganizations, andsurvival. The industry must find away to ensure that all of this re-structuring activity does notinterfere with the more immediateconcerns of timely Y2K remedia-tion.



OIL & GAS UTILITIES

This sector covers both oil productsand natural gas, however, the Com-mittee’s hearing focused primarily onnatural gas as the principle source ofresidential heating. Oil providesabout 40 percent of the energyAmericans consume, including homeheating. In addition, about 60 millionAmerican homes and businessesuse natural gas for heating, cooking,and other applications.

Gas and oil utilities face a variety ofY2K problems in their administrativesystems, as well as the microproc-essors or computer chips embeddedin the production, transportation anddistribution systems used in this in-

dustry. Survey results published bythe Federal Energy RegulatoryCommission (FERC) in September1998 show that this industry, likemany others, started its Y2K effortslate.

According to the survey, most of thecritical systems in this industry arestill in the inventory and assessmentphase, leaving little time for the moredifficult phases of Y2K remediationand testing. As a result, the industryis not likely to complete repairs of allof its system in time, which in turnmeans that possible disruptions inthe production, transportation, anddistribution of gas and oil are possi-ble.

Figure 5



Automation and, thus, Y2K concernsare prevalent throughout both thegas and oil industries. As depictedin figure 5, FERC published a ge-neric diagram that maps out theelements of gas and oil production,transmission, and distribution thatmust be checked for Y2K problems.

Note: This year, the Committeeplans to increase attention to the oilindustry, particularly the internationalY2K implications on oil imports. TheU.S. gets nearly 50 percent of its oilfrom imports, and several key oilproducing countries are behind intheir Y2K remediation efforts. Ifthese countries are unable to sustainthe level of imports because of Y2Kfailures in the pumping, refining, ortransportation of crude oil, the impli-cations on the price of gasoline maybe significant.

Overview

Nearly all Americans rely on oil andgas in their everyday lives. Oil pro-vides about 40 percent of the energyAmericans consume. Besides theobvious gasoline, diesel fuel, andhome heating oil, petroleum productsare used in everything from tooth-paste to raincoats. A barrel of crudeoil (42 gallons) is refined into

Product Gallons*

Gasoline 19.5Fuel oil 9.2Jet fuel 4.1Residual fuel 2.3Liquefied gas 1.9Still gas 1.9Coke 1.8

Asphalt 1.3Petrochemicals 1.2Lubricants 0.5Kerosene 0.2Other 0.3

*Totals more than 42 gallons due to processing gains.

Almost 60 million American homesand businesses use natural gas forheating, hot water, cooking and otherapplications. Natural gas comesthrough a 1.3 million-mile under-ground system. The U.S. has about58,000 miles of gathering lines in thegas production areas, 260,000 milesof long-distance pipelines, andnearly 1 million miles of distributionlines operated by local gas utilitiesthat must all be checked for Y2Kproblems.

Thousands of embedded systems inmillions of miles of pipelines all mustbe checked and, if necessary, re-placed. Vulnerable systems includedistributed control systems, pro-grammable logic controllers, digitalrecorders, control stations, record-ers, meters, meter reading andcalibration software, and SCADA.PC-based applications such as con-trol and work management softwarewithin a utility may also possess Y2Kvulnerability. Any date-dependentapplication, system or componentmay experience problems that resultin complete system or station shut-down.

The President’s Council on Year2000 Conversion assigned FERCresponsibility for the gas and oilsector. Other federal agencies in-volved in this sector include theDepartment of Energy, the De-



partment of Transportation (pipelinesare a form of interstate transporta-tion), the Department of the Interior,and the General Services Admini-stration.

Trade associations representing thevarious gas and oil entities are alsoplaying a key role in Y2K remedia-tion efforts for this industry. 1

Major Initiatives

The Committee’s energy utilityhearing was held on June 12, 1998.As described in the previous section,both electric utilities and oil and gasutilities were addressed. Gas and oilwitnesses included, the HonorableJames Hoecker, Chairman, FERC,Mr. James Rubright, Executive VicePresident, Sonat, Inc. representingINGAA, and Gary Gardner, ChiefInformation Officer, AGA, and LouMarcoccia, energy industry consult-ant.

The hearing better defined the Y2Kproblem in the gas and oil sector,heightened awareness, and mobi-lized an industry that was not yetfully engaged in addressing the Y2Kproblem.

1 The American Petroleum Institute (API), the NaturalGas Council (NGC), the American Gas Association(AGA), the American Public Gas Association (APGA),the Gas Research Institute (GRI), the Interstate NaturalGas Association of American (INGAA), the IndependentPetroleum Association of America (IPAA), the Associa-tion of Oil Pipelines (AOPL), the Gas ProcessorsAssociation (GPA), the National Gas Supply Associa-tion (NGSA), the Gas Industries Standards Board(GISB), the National Petroleum & Refiners Association(NPRA), the National Propane Gas Association(NPGA), the Petroleum Marketers Association ofAmerica (PMAA), and the Petroleum TechnologyTransfer Council (PTTC).

In his testimony, Mr. Hoecker indi-cated that the Y2K status of the gasand oil industry is essentially un-known. He was especiallyconcerned about small and mediumsized companies and focused on theneed for the gas and oil industry toshare Y2K testing and complianceinformation. He indicated that Y2Kreadiness information might be diffi-cult to obtain because of fear that theinformation may be commerciallysensitive, that certain liability issuesmay arise, or that collaboration onthis problem may expose companiesto anti-trust actions.

The Committee was key to passingY2K information disclosure legisla-tion and obtaining clarification fromthe Justice Department to exemptY2K information exchange from anti-trust laws. Mr. Hoecker also sug-gested that a Y2K database beestablished. API has since set upsuch a database.

Mr. Rubright, representing the inter-state gas pipeline companies,highlighted the extensive use of em-bedded chips in the computerizeddevices instrumental to the operationand monitoring of gas and oil pipe-lines. According to him, mostpipeline companies contend they willbe Y2K ready by October 1999, butare concerned over both upstreamand downstream suppliers, as wellas utilities and telecommunicationsproviders on which they rely. Healso expressed concern over litiga-tion risks, the large number ofcongressional electronic commerceinitiatives, and anti-trust issues.



Mr. Gardner, representing gasutilities, focused on the complexity ofgas distribution systems. He indi-cated that a gas utility will typicallyhave between 50 and 100 systemswith embedded processing located insuch areas as storage fields, gascontrol and management operations,metering and facilities, and SCADAsystems. His industry’s experiencesuggests that the process of identi-fying, replacing or upgrading, andtesting takes 12 to 18 months tocomplete.

The Committee’s hearing was in-strumental in motivating thePresident’s Council on Y2K Conver-sion to create an oil and gas workinggroup. The kick-off meeting for theoil and gas group was held at FERCin June 1998.

FERC has held subsequent meet-ings on July 14, 1998, September 3,1998, and November 13, 1998.Minutes of the Oil and Gas WorkingGroup meetings and other proceed-ings and events are publiclyavailable on FERC’s website.

API, a national trade association rep-resenting all phases of the oil andgas industry, provides direct assis-tance to FERC in managing theworking group. In 1997, the APIformed a Year 2000 Task Force tofacilitate Y2K readiness across thepetroleum industry. The API Year2000 Task Force currently repre-sents over 50 industry companiesand meets every 6 to 7 weeks.

One of API’s primary functions is toalert and educate industry membersabout the potential impact of Y2K on

information, process control, auto-mation and instrumentation systems,as well as concerns about othercompanies in the supply chain. APIhas also created a database to allowcompanies to share informationabout the readiness status of com-puter software and hardware,telecommunications networks, proc-ess control and electrical equipment,and embedded systems used by thepetroleum industry.

AGA, a trade association of almost300 natural gas transmission, distri-bution, gathering and marketingcompanies, and 181 local naturalgas utilities that deliver gas to 54million homes and businesses, hasalso been actively involved in Y2K.AGA members account for morethan 90 percent of natural gas deliv-ered in the United States.

AGA sponsors business televisionseries, joint information technologyconferences, and other forums toinform its membership of Y2K solu-tions.

Assessment

The Committee’s survey, depicted infigure 3, included both electric andgas and oil utility companies. Con-cerns resulting from the surveyexpressed in the electric utility sec-tion of this report also apply to thegas and oil utilities. Progress is slowprogress, assertions that they willcomplete Y2K remediation efforts intime are overly optimistic, the indus-try lacks knowledge about suppliers’Y2K status, and contingency plan-ning is deficient.



The Committee’s survey, althoughlimited in scope, was the only avail-able survey at the time. Since then,FERC released its first overall as-sessment of the Y2K status andpreparedness of the gas and oil in-dustry on September 18, 1998. AGAin coordination with the Gas Re-search Institute and the InterstateNatural Gas Association of Americacollected and analyzed surveys of itsmembers to assess the industry'scompliance with Y2K requirements.These surveys form the basis for theFERC assessment. Assessment re-sults are depicted in figure 6 forbusiness systems and figure 7 forembedded systems.

The survey was sent to over 8,000gas and oil companies. Only 638 orless than 10% responded. Althoughthe response was disappointing, itdid represent 45% of oil and gasproduction, 78% of refining capacity,70% of crude and product pipelinedeliveries, and 43% of U.S. servicestations.

The survey asked companies to indi-cate the stage their companies werein for business systems and for em-bedded systems. This requiredcompanies to summarize informationat too high a level to be meaningful.In reality, a company may have hun-dreds or even thousands of businessand embedded systems each at adifferent stage of remediation. Nev-ertheless, the survey results are stillalarming. The survey indicates that45% of companies who respondedconsider themselves to be in the as-sessment phase or earlier forbusiness systems, and 60% for em-bedded systems.

The Committee can only concludethat, despite claims to the contrary,many companies in the gas and oil

industry will not complete Y2K reme-diation efforts in time. Thisconclusion is based on the fact thatonly companies with the most robustprograms typically respond to Y2Ksurveys. Y2K consultants estimatethat remediation and testing are themost difficult phases, often consum-ing up to 40 to 70% of the entire Y2Keffort.

Survey respondents all contend thatthey will be Y2K ready in time—76%by June 1999 and the remaining24% by December 1999. However,based on the progress to date, and

Figure 6

Figure 7



Country Percent U.S. Imports

Y2K Status(Months Be-hind U.S.)

Risk ofDisruption

Venezuela 16.2 12-18 HighCanada 15.5 0-3 LowSaudi Arabia 14.4 12-18 HighMexico 12.9 12 MediumNigeria 7.3 12-18 HighAngola 4.2 Unknown ?Colombia 3.0 12-18 HighAlgeria 2.9 Unknown ?Kuwait 2.9 12-18 HighVirgin Islands 2.9 Unknown ?Norway 2.3 12 MediumIraq 2.2 Unknown ?Gabon 2.0 Unknown ?United Kingdom 2.0 0-3 LowEcuador 0.9 12-18 HighArgentina 0.9 12-18 HighAll Others 7.5 Unknown ?

Figure 8: Imported Oil Country Y2K Status

the experience regarding the amountof time and resources it takes tocomplete the remaining phases, thiscontention may be unrealistic. TheCommittee recommends that thecompanies who are lagging this farbehind, i.e., are still in theassessment phase orearlier, devote significantresources to contingencyplanning because they willnot have sufficient time torepair and test all of theirmission critical systems inthe limited time remaining.

One of the biggest areas ofconcern for the Committeeis the Y2K status ofcountries from which theU.S. imports oil. Nearly50% of the oil used in theU.S. comes from foreignsources. Yet, as depictedin figure 8, many of the countries aresignificantly behind the U.S., andthus, have a high risk of failure. In-deed, 3 of the top 5 countries fromwhich the U.S. imports oil are, ac-cording to the Gartner Group, 12 to18 months behind the U.S. in theirY2K remediation efforts. This meansthat oil production and transportationmay be at risk in these countries.Any disruption to oil imports couldsignificantly impact oil availabilityand, thus, prices in the U.S. The oilindustry and the federal governmentneed to monitor this situation closely.

Concerns

• Y2K remediation in the gas andoil sector began too late and isprogressing too slowly. Thethousands of miles of pipeline

that must be checked and re-paired and the proliferation ofembedded chips and processorsthroughout the industry’s produc-tion, transportation, anddistribution systems make failure

of at least some mission-criticalsystems possible. The industryneeds to step up its efforts andfocus on developing contingencyplans.

• The dependence of the gas andoil industry on other sectors—electric power and telecommunica-tions—dictates bettercoordination with these sectors.

• While the large gas and oil com-panies are spending largeamounts of money on Y2K reme-diation, the Committee isconcerned about some of thesmaller and medium-sized com-panies in this industry, includingthose up and down the supplychain. These small companiescould be the linchpins for the



overall success of this industry.

• A Y2K assessment of oil produc-ing countries is needed todetermine the likelihood that U.S.oil imports will be disrupted, and,if so, what contingency planningwill be needed.

WATER UTILITIES

Overview

Water:

There are approximately 200,000public water systems (PWSs) regu-lated under the Safe Drinking WaterAct that serve 243 million people inthe United States. The remainingpopulation obtains their drinkingwater from private wells.

PWSs are defined as communitywater systems, non-transient, non-community, or transient systems.Approximately 60,000 of the 200,000public water systems are classifiedas community water systems. Acommunity water system provideswater to the same population yearround. There are 3,687 communitywater systems in the U.S., whichserve a population of 10,000 ormore, and provide water to a total of204 million people.

Approximately 75 percent of theAmerican public is served by largecommunity water systems coveringpopulations of 100,000 or more.

There are over 30 community watersystems serving populations in ex-cess of one million people.

Although the community water sys-tems collectively serve a largenumber of people, most communitywater systems serve less than 3,300people. Many of those systems areprivately owned and operated.

A transient non-community watersystem serves transitory customersin non-residential areas such ascampgrounds, motels, and gas sta-tions. Approximately 57 percent ofpublic water systems are transientnon-community systems. (Sources:EPA Report to Congress, EPA-810-R-93-1. September 1991, andAWWA/AMWA/NAAW 1998 Survey.)

Wastewater:

Seventy-two percent of the U.S.population (190 million people) isserved by centralized wastewatertreatment facilities; the remainder isserved by on-site systems (e.g.,septic systems).

There are 16,000 wastewater treat-ment facilities nationwide, withoperations ranging from less than100,000 gallons per day (about 1/3of the total number of facilities) tosystems that treat over 100 milliongallons per day (less than 1% of thesystems).

Systems such as Prince WilliamCounty, Virginia, and Independence,Missouri, treat approximately 10 mil-lion gallons of sewage a day, whilethe largest systems, such as



those of New York or Chicago, treatapproximately 1.5 billion gallons ofsewage per day.

Nationwide, approximately 42 billiongallons of sewage are treated perday.

About 31% of the U.S. population isserved by facilities that provide sec-ondary treatment of waste andanother 31% is served by facilitiesthat provide better than secondary.Fifty percent of the design capacityof existing treatment plants allows forbetter than secondary treatment.

The remaining population is servedeither by plants that have no dis-charge or by individual on-sitedisposal systems.

Municipal governments own 95% ofwastewater treatment facilities, eitheras part of a local government’s pub-lic works department, or as aseparate authority or utility district.

Typically, in small to medium-sizedcities, the water utility and wastewa-ter treatment systems are operatedjointly. In larger cities they are usu-ally separate operations.2

Major Initiatives

The Committee assessed the Y2Kvulnerability of the water and waste-water, and took steps to increaseawareness about Y2K issues in thisvital sector of service. These includestaff networking with the major waterand wastewater industry association 2 Congressional Research Service Briefing to Commit-tee Staff on 06/02/98

groups and the Environmental Pro-tection Agency (EPA). TheCommittee also interviewed numer-ous industry experts, surveyed waterand wastewater company Y2K pre-paredness, and monitored otherindustry surveys recently adminis-tered by the major water andwastewater industry associations.

The Committee staff has also par-ticipated with the EPA in tours of fivelocal Washington, D.C. area waterand wastewater treatment plants andworked with the major water andwastewater industry associations.These include

• the Association of MetropolitanWater Agencies (AMWA),

• the National Association of WaterCompanies (NAWC),

• the American Water Works Asso-ciation (AWWA),

• the Water Equipment Manufac-turers Association (WEMA), and

• the Association of MetropolitanSewerage Agencies (AMSA).

On December 18, 1998, the Com-mittee held a field hearing on Y2Kpreparedness in the water andwastewater industry in Anaheim,California. The City of AnaheimPublic Utilities Department hostedthis hearing. The witnesses wereDana Minerva, EPA Deputy Assis-tant Administrator for Water; JamesBrainerd, Chief Information Officer,Los Angeles Department of Waterand Power; James Ellisor, Director ofInformation Systems, Las VegasWater District; Patrick Miles Informa-tion Technology Director, OrangeCounty Sanitation District; WilliamHetland, District Manager, El do-



rado Irrigation District; and JamesBell, Vice President; TechnicalServices, Smith and Loveless, Inc.,(a leading manufacturer of water andwastewater and pumping equip-ment). Following the hearing,Senator Bennett toured the City ofAnaheim Water Services LenainWater Filtration Plant.

One of the major topics of discussionduring the hearing was the need forwater and wastewater companies toobtain assurances from their electricpower providers that they will beconsidered “uninterruptable” or prior-ity customers in the event powersupply problems occur. Currently, nolegal authority exists to require thatpower utility companies considerwater and wastewater companies aspriority customers. Such agree-ments have customarily beennegotiated on a case-by-case basisbetween power and utility compa-nies.

Mr. Jim Ellisor, Director of Informa-tion Systems for the Las VegasValley Water District, noted in histestimony that some variability existsin water systems’ reliance on elec-tricity, depending on system design.He noted that some systems relycompletely on gravity and requirelittle or no electricity for their opera-tion, including some large systems.

During her testimony, EPA DeputyAssistant Administrator Dana Min-erva noted that the EPA does notconsider reliance on switching to themanual mode of operation as thepreferred solution to Y2K problems.Manpower limitations were citedduring the testimony as one impedi-

ment to a company’s ability to easilyswitch to the manual mode of opera-tion. The possibility of creating sometype of “reserve force” that could as-sist companies in need of additionalpersonnel in the event of the need todefault to manual mode was dis-cussed. It was concluded thatoperation of water and wastewaterplants in the manual mode requiresskilled and certified operators. Con-sequently, a pool of unskilledreservists from outside of the waterindustry would probably not providean effective solution to the man-power shortage problem.

It should also be noted that eachwater and wastewater treatmentsystem requires operators to pos-sess a body of knowledge specific tothose individual systems. Mr. BillHetland, General Manager of the ElDorado Irrigation District, stated thatmost agencies would have to look totheir own internal resources to solvethe Y2K problem, that it would beunrealistic to think that a pool of la-bor would be available to assist inY2K. He also stated that staffingwould become an issue for hisagency if manual operations wererequired for an extended period oftime.

Mr. Hetland stressed the importanceof providing information to the com-munity about the problem. He alsodescribed the progress his agencyhad made and said such informationis vital to community preparedness.He also expressed concern aboutregulatory compliance and the liabil-ity issue.



Deputy Assistant AdministratorMinerva testified about EPA’s im-plementation of a new policy aimedat encouraging Y2K testing in thewater and wastewater industry. Thispolicy waives penalties if violationsoccur during Y2K testing, providedspecific conditions are met. DeputyAssistant Administrator Minervafurther stated that testing andpreparation would be taken into ac-count if Y2K-related enforcementviolations occur on January 1, 2000or other “problem dates.” Accordingto Ms. Minerva, EPA cannot rule outany enforcement pertaining to Y2Kproblems, however it will take effortsto resolve the problem into account.

The new EPA policy is limited totesting-related violations disclosed toEPA by February 1, 2000. The policyis subject to conditions which includethe need to design and conduct thetests well in advance of the dates inquestion and to correct any testing-related violations immediately to en-sure the protection of human healthand the environment.

The General Accounting Office, atthe request of this Committee, is cur-rently preparing a survey of stateregulatory agencies with jurisdictionover public water and wastewaterutility companies. This survey willdetermine the extent to which stateregulatory agencies are assessingthe Y2K readiness of public waterand wastewater utilities.

In July 1998, Committee staff sur-veyed 20 water and 20 wastewatercompanies regarding their Y2K pre-paredness. About 25% of thosecontacted responded to the survey,

despite the fact that a confidentialitypledge was made to all survey re-cipients. The results indicate that ofthe 11 companies that responded tothe survey, slightly over 25% statedthat it was unlikely they would beY2K compliant by January 1, 2000.More than 50% of the respondentshad not yet completed the initial as-sessment phase, and 36% did nothave contingency plans in place.Of the 64% that had contingencyplans in place, the contingency con-sisted of either switching to manualoperations or utilizing parent com-pany operations. The table at theend of this section displays the re-sults of the Committee’s survey.

In July and August 1998, the Ameri-can Water Works Association(AWWA), the Association of Metro-politan Water Agencies (AMWA),and the National Association of Wa-ter Companies conducted a jointsurvey of their memberships re-garding Y2K readiness.Approximately 725 of the 4000members of these associations re-sponded to this survey.

• About 81% of the respondentsexpect to complete their internalY2K work on time.

• About 89% of the communitypublic water systems servingpopulations ranging from 100,000to 1 million people expect to haveY2K compliance work completedon time.

• About 87% of the systems serv-ing between 10,001 and 100,000people expect to complete theirwork on time.



• About 76% of the systems serv-ing less than 10,000 peopleexpect to be completed on time.

• Only 26% of the respondents re-ported having fully assessed thecompliance status of vital busi-ness partners such as power andtelecommunications service pro-viders and vendors upon whomthey rely.

• About 83% of the respondentsreported that they had not com-pleted their Y2K contingencyplans.

• About 39% of the respondentsreported that they expect tospend less than $10,000 on theirY2K programs.

• About 26% expect to spend$10,000 to $50,000 on their pro-grams.

• About 80% expect to spend$50,000 to $100,000.

• About 10% expect to spend$100,000 to $1 million.

• About 4% expect to spend over$1 million.

In June 1998, the Association ofMetropolitan Sewerage Agencies(AMSA) conducted a survey of its202 members. AMSA is a coalition ofpublicly owned wastewater treatmentagencies. Its member agencies areresponsible for collectively treatingand reclaiming over 18 billion gallonsof wastewater each day. AMSA re-

ceived 76 responses to its survey.Results indicated the following:

• The level of automation withineach agency averaged 54%. (Notall aspects of each agency’s op-eration are automated, i.e., anagency may utilize automatedbilling but its operational plantprocesses may be manually con-trolled.)

Eighty-eight percent of the respon-dents reported that they currentlyutilized some form of SupervisoryControl and Data Acquisition System(SCADA) in their operations. Itshould be noted that while anagency might use SCADA in one as-pect of its operation, such asmonitoring a remote pumping sta-tion, this does not mean that itsentire system is automated. Thesesystems are pervasive in the powerand water and wastewater utility in-dustries and typically collect andtransmit data about flow, pressure,and temperature. Computers can beutilized at any point in the systemwhere measurements are made re-garding pressure, water quality,chemical content, treatment, time, orbilling.

• Nearly 100% of the respondentsreported that they use computersfor process control, laboratory re-search, industrial compliance,billing systems, and other ad-ministrative purpose, such asfinances, inventory, and mainte-nance management.

• Ninety percent of the respon-dents have developed a plan to



assess and address the Y2K is-sue.

• Forty-five percent of the respon-dents reported estimated Y2Kcosts ranging from $0 to$100,000. Fifteen percent re-ported estimated costs in excessof $1 million, with two respon-dents reporting estimates of $15million. Most of the agencies re-porting costs in excess of $1million were relatively large sys-tems, but 17 % of those reportingcosts in excess of $1 million wereagencies which served under250,000 people. Most agenciesestimated Y2K costs between 0and 2 percent of their operatingcosts.

• Approximately 95% of the re-spondents reported they hadbegun to implement Y2K solu-tions, and 26% reported theywere complete or nearly com-plete in their Y2K preparation.

• Approximately 55% of the re-spondents reported having abackup plan should all or a por-tion of their systems fail as aresult of Y2K.

Concerns

With very few exceptions, the abilityof the water utilities to supply fresh,clean drinking water and to effec-tively treat wastewater is linkeddirectly to the utilities’ ability to obtaina continuous and reliable source ofelectric power. This fact under-scores the importance of the topic ofthis Committee’s hearing on June

12, regarding the Y2K problem andelectric power utilities.

While some water and wastewaterutilities can generate their own elec-tricity in the event of a power outage,the ability to do so for an extendedperiod of time would depend uponthe availability of a steady supply ofdiesel or other alternative fuel topower the utilities’ independent gen-erators. In general, the larger waterand wastewater utilities do maintainthe ability to generate their ownsource of back-up electricity, but theduration for which this can be donevaries widely within the industry.

There is no interconnectivity built intothe water distribution system as withthe electric power grid. Nevertheless,some citizens could be facing inter-ruptions of water utility service onJanuary 1, 2000 if water utility com-panies do not adequately addressthe Y2K problem.

Water industry Y2K issues arebroader and more complex thansimply whether electric power will beavailable to run the pumping sta-tions. For example, wastewatertreatment facilities and water supplyutilities are interrelated. Upstreamcontamination caused by a malfunc-tioning wastewater treatment plantwould have a direct impact on afresh water treatment facility locateddownstream.

The EPA identified six major areas inwater and wastewater treatment fa-cilities where embedded computerchips might be located. These arecommunications infrastructure, in-strumentation, facilities and sup-



port, materials tracking, productionand process, and process controls.The list included 51 individual de-vices that potentially could containembedded chip technology.

Of primary concern in the water andwastewater industry is the vulner-ability of sensitive SCADA systemsutilized in automated water andwastewater processes

The degree of automation in waterand wastewater systems varieswidely throughout the country, de-pending upon both the age and sizeof the individual systems. Manyolder systems are not highly com-puter dependent.

The Committee is concerned aboutthe inability of some wastewatertreatment facilities to properly oper-ate in the event of power outages ofeven moderate duration. Committeestaff reviewed numerous cases inwhich electrical power interruptionsled to the discharge of untreatedwastewater or raw sewage into riversor the ocean. Such discharges cur-rently occur on a sporadic basisthroughout the country due to poweroutages and excessive rainfall.

As is true in all other aspects of theY2K problem, the water and waste-water industry is also vulnerable tosupply chain interruptions. Watertreatment plants in particular rely ona regular supply of chlorine andother chemicals that are required inthe water treatment process. Long-term interruptions in the means ofproduction or delivery of these itemsdue to other Y2K problems woulddirectly impact the utilities’ ability to

deliver their services. The stockpil-ing of some of these chemicals priorto the Year 2000 has been proposedby some as a means of alleviatingconcerns about supply chain inter-ruptions. However, some of thechemicals used in the industry rep-resent a public health hazard ifaccidentally discharged into the envi-ronment. The risk to public safetywould be greatly multiplied if some ofthese chemicals were stockpiled.

Committee staff has reviewed nu-merous recent examples ofcomputer-related or computer-induced failures in the water andwastewater industry. While the casesreviewed are not believed to be theresult of Y2K induced problems, theyclearly illustrate the sensitive andimportant role which computers playin the water and wastewater servicesarea. Numerous water or wastewa-ter companies could be confrontedby similar computer-related failureson January 1, 2000, if proper stepsare not taken now to address theY2K issue.

Numerous representatives of thewater and wastewater industry of-fered assurances to Committee staffthat they could switch their opera-tions to the manual mode in theevent of a Y2K disruption. In theirresponse to the AMSA survey, mostwastewater agencies pointed outthat switching to the manual modewould present little if any problemssince many automated processesrun in parallel with manual instru-mentation and control. Switching tothe manual mode of operation mayrepresent a viable alternative tocomputer-controlled processes



under ideal conditions and in a con-trolled environment. However, theconditions that might require transi-tion to a manual mode of operationare likely to be neither controlled norideal in the case of Y2K.

On its face the survey data citedhere appear to present a somewhatoptimistic picture of the Y2K readi-ness of the water and wastewaterindustry. However, attention mustbe paid to the fact that the responserate for each of these surveys wasrelatively low, and the status of thoseagencies that did not respond re-mains largely unknown.

Analysis of the July 1998 jointAMWA/NAWC/AWWA July 1998survey of water agencies revealsthat 14% of responding companiesserving populations over 100,000people reported that they would nothave their Y2K compliance workdone on time. The exact impact thatthis will have on their operations isnot clear, as it is unknown whetherthis includes any of their mission-critical systems. Of the 11 compa-nies who responded to theCommittee’s survey, over 25% indi-cated that they did not expect to beY2K compliant by January 1, 2000.



Water Utility Sector Survey Conducted by Special Committee Staff

Company Type Date Awareof Y2K

Problems

Date FormalProjectStarted

Is Your As-sessmentComplete

PercentSystemsMissionCritical

ContactedService

Providers/Vendors

Legal or Liability

Concerns

ContingencyPlans Com-

plete

Contactedby

Regulators

Contactedby

Investors

Will YouFinish

In Time

1 water 1996 1996 80% 50% Y Y Y Y Y Y

2 water 1997 1997 N 90% N N Y Y Y Y

3 water 1997 1997 Y 50% N Y Y N Y Y

4 water 1996 1998 N unknown N Y N Y Y N

5 water 1996 1998 N unknown N N N Y Y unknown

6 waste water 1995 1996 Y 0% N N Y Y N Y

7 water/waste 1996 1997 Y 20% Y N Y N Y Y

8 water/waste 1996 1997 Y 100% Y Y Y N Y Y

9 water/waste NR NR NR NR NR NR NR NR NR Y

10 water/waste 1996 1996 N unknown Y N N Y N Y

11 water/waste 1996 1996 Y 90% Y N Y Y Y N

Notes:

* MC = mission critical, NR = no reply.C Only 27.5% of all water and wastewater companies surveyed responded.C The 8 companies that reported their costs, project that they will spend over $86 million collectively on Y2K.C Of the 11 companies who responded, 27% reported they would probably not be Y2K compliant.C More than 50% of the 11 respondents have not finished their companies’ initial assessment of compliant.C Of the 11 water and wastewater companies, 36% do not have contingency plans in place. The 64% who do intend to either use their par-

ent company’s system or operate manually.

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