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Board of Directors Meeting Minutes October 22_ 2008 Renaissance

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Board of Directors Meeting Minutes October 22_ 2008 Renaissance Powered By Docstoc
					                                Board of Directors
                                 Meeting Minutes
                                 October 22, 2008
                      Renaissance Charlotte SouthPark Hotel
                   5501 Carnegie Boulevard, Charlotte, NC 28209

Chairman Blackwell called to order a duly noticed meeting of the SERC Reliability
Corporation Board of Directors on October 22, 2008 at 10:00 a.m. A copy of the
meeting notice is attached as Exhibit A.

Attendance and Quorum
A list of meeting attendees is provided in Exhibit B. Upon conducting a roll call,
President Cauley announced that a quorum was present.

Antitrust Guidelines and Confidentiality Policy
President Cauley reviewed SERC’s antitrust guidelines and confidentiality policy, which
were attached to the meeting agenda. President Cauley indicated that a recent audit of
SERC Reliability Corporation’s files showed that, with one exception that is being
addressed, all member companies were current with a properly executed SERC
Confidentiality Agreement.

Consent Agenda
On a motion by Bill Thompson, the board approved the consent agenda as follows:
   a. April 23, 2008 meeting minutes (Attachment 4 to the agenda).
   b. Notice of action without a meeting modifying the SERC Bylaws and Delegation
      Agreement (Attachment 5 to the agenda).
   c. The meeting agenda, as revised by Chairman Terry Blackwell to move the
      Treasurer’s Report (agenda item 4) and Compensation and HR Committee
      Report (agenda item 5) ahead of the President’s report (agenda item 3).

Treasurer’s Report
Treasurer Mike Smith reviewed the 3rd quarter unaudited financial statements
(Attachment 10 to the agenda). Mr. Smith noted that the organization had an overall
negative variance of $383,892 through the first three quarters of 2008. However, this
deficit included a one-time cost of $690,452 due to transitioning from a cash basis to an
accrual basis of accounting in 2008 and an approximate cost impact of $80,000 for
additional administrative support to meet unforeseen needs. Meeting and travel
expenses also tracked higher than budgeted through the first three quarters. Despite
the higher than planned costs in these areas, SERC is exercising strong overall budget
controls and is realizing savings in other areas of office expenses, contractors,
consultants, and professional services. As a result, the yearend financials are expected
to be within the total planned budget.
                                                                           2




Mr. Smith reported that, consistent with the cash reserve policy approved by the board
in April 2008, SERC has obtained an unsecured line of credit in the amount of $250,000
at Wachovia. Use of the line of credit is subject to advanced approval by the board.

Compensation and Human Resources Committee Report
Mike Smith, Chairman of the Compensation and Human Resources Committee,
presented proposed changes to the eligibility requirements and vesting period in the
SERC 401k Plan. The proposed changes would require SERC staff enrolling in the
401k plan on January 1, 2009 or later to have one full year of service before becoming
eligible for the annual discretionary contribution. Additionally, SERC would institute a
three-year vesting period for the matching and discretionary contributions made by
SERC. The safe harbor contributions by SERC would remain unchanged with 100%
vesting upon entry into the 401k plan and currently enrolled employees would be
unaffected by any of the changes. On a motion by Mike Smith, the board approved
changes to the SERC 401k Plan as proposed in Attachment 12 to the agenda.

Finance Manager Jennifer Kelly reviewed changes that have been made to SERC’s
human resource policies and procedures to address recommendations from an outside
auditor (Attachment 14 in the agenda).

Election of Members to the Compensation and Human Resources Committee
On October 3, 2008, Chairman Blackwell solicited members of the board to determine
interest of the members in filling two vacancies on the Compensation and Human
Resources Committee for two-year terms beginning January 1, 2009. With one
member of the board responding, Chairman Blackwell nominated Clay Norris to serve a
second term on the Compensation and Human Resources Committee. Upon a motion
by Charles White, the board unanimously approved Mr. Norris to serve a two-year term
beginning January 1, 2009.

There being a vacancy still in the membership of the committee, the Chairman
requested staff to send a second request for nominations of board members to serve on
the committee. The board agreed by consent to consider approving the additional
member of the committee by email ballot on a later date.

The board discussed whether an Alternate serving on the board could serve on this
board-level committee. The board had previously determined in the Bylaws that
Alternates could not serve on standing board-level committees, i.e. the Executive
Committee and the Compliance Committee. With the consent of the board, the
Chairman directed staff to prepare draft changes to the Bylaws to add the
Compensation and Human Resources Committee as a standing committee of the board
and to clarify that the committee shall be comprised of board members only. These
revisions would be subject to board approval, with the intent to file the changes at the
next logical opportunity for filing changes with NERC and FERC.
                                                                             3




Approval of Corporate Officers
Mike Smith indicated that the Compensation and Human Resources Committee had
reviewed a recommendation by the President to promote Tom Galloway to Vice
President based on his valuable leadership in the establishment of the SERC
compliance program. Mr. Smith moved and the board unanimously approved Mr.
Galloway as a Vice President of SERC Reliability Corporation.

President’s Report (Exhibit C)
Mr. Cauley noted that the Commission has taken no actions yet on the amended SERC
bylaws and delegation agreement. SERC is currently operating under the delegation
agreement and bylaws approved by FERC on March 21, 2008 and executed on April 5,
2008.

Mr. Cauley reviewed recent changes in the relationship between NERC and the regional
entities. NERC has announced that it is shifting to more of an oversight role in
compliance and will focus on compliance program results from the regions. In
response, the regional executives group has formalized its charter establishing a
coordinated management structure for managing regional activities. This group does
not anticipate making policy but will be more of a steering and coordination function to
ensure consistency among the regions.

FERC has indicated that it plans to establish real time observation of the bulk electric
system including line status and flows on facilities 230kV and above. SERC is working
with NERC, FERC, and the other regions on this effort to obtain a consistent
specification for what is expected. Each reliability coordinator would have a server in
their facility that would provide 90-second updates of display data to FERC.

Lessons Learned from Hurricanes Gustav and Ike
George Bartlett of Entergy gave a presentation on the lessons learned from Hurricanes
Gustav and Ike. Mr. Bartlett indicated that helicopters were found to be critical for rapid
assessment of system damage and in some cases were used in the restoration, such
as for airlifting equipment and personnel.

Mr. Bartlett reviewed Entergy’s incident management organization and communications,
which evolved from the 9-11 attacks and were refined during Hurricanes Katrina and
Rita. He expressed an opportunity for further improvements, as Entergy was being
requested for information from many government agencies, SERC, NERC, and others.
Entergy’s policy is to speak with one voice and one set of data. Mr. Bartlett
recommended that SERC establish a predefined communications plan that can be
followed for future events.
                                                                              4




ERO and Regional Entity Performance Assessment
President Cauley noted that NERC will be leading a self-assessment of NERC and the
regions, which is required three years following certification as the ERO and every five
years thereafter. NERC General Counsel David Cook will be introducing the plan for
the assessment at the upcoming NERC board meeting.

Critical Infrastructure Protection
Mike Assante, NERC Chief Security Officer, gave a presentation on the critical
infrastructure protection (CIP) program (Exhibit D) and his role at NERC. NERC is
working on a new CIP program to ensure the reliability of the bulk power system.

Critical Infrastructure Protection Committee Report
Boyd Nation, Chairman of the SERC Critical Infrastructure Protection Committee,
proposed a pilot program to conduct sample (up to ten) reviews of the methods
registered entities are using to assess cyber vulnerability and the resulting critical asset
lists and critical cyber asset lists (Exhibit E). After extensive discussion, the board
agreed that conducting the pilot program would benefit the industry by developing and
demonstrating an effective approach to meeting FERC’s directive in Order 706. The
board consented to conducting the pilot reviews with the conditions that the reviews be
voluntary, strictly confidential, and not structured as compliance audits. Generic
lessons learned should be shared with other registered entities, NERC, and other
regions, subject first to approval of the final report by the board. The reviews would
include the following elements:
     • A review of the risk-based methodology used to create the Critical Assets list for
        the entity.
     • A review of the documentation of the steps taken to produce the Critical Assets
        list by implementing the entity’s risk-based methodology.
     • A review of the entity’s Critical Assets list.
     • A review of the entity’s Critical Cyber Assets list.

Boyd Nation reported that in September of 2008, Marshall Bissonnette resigned as the
CIPC Vice Chair. During the October 16, 2008 CIPC meeting, Chuck Abell was
nominated to complete the remainder of the CIPC Vice Chair term. The board
approved without objection the appointment of Chuck Abell as CIPC Vice Chair.

Compliance
The board heard a brief report from the Board Compliance Committee (Exhibit F).
                                                                          5




Committee Reports
In the interest of time, the board agreed to dispense with presentation of the committee
reports and include the presentation materials in these minutes.
    • Compliance (Exhibit G)
    • Reliability Assessment (Exhibit H)
    • Reliability Services (Exhibit I)
    • Operating Committee (Exhibit J)
    • Engineering Committee (Exhibit K)
    • Critical Infrastructure Protection Committee (Exhibit L)

Adjourn
There being no further business, the meeting was adjourned.
                                                                                           Exhibit A




September 5, 2008

SERC BOARD OF DIRECTORS

RE: 80TH General Meeting Notice

The 80th General Meeting of the SERC Reliability Corporation Board of Directors will be held on
Wednesday, October 22, 2008, beginning at 10:00 a.m. (EDT), at the Renaissance Charlotte
Southpark Suites Hotel.

If you plan to fly in the night before the meeting, guestrooms have been reserved at the hotel at
a discounted rate of $129. Reservations can be made by calling the hotel directly at 704-501-
2510 or toll free at 800-468-3571 and asking for the SERC Reliability Corporation room block.
The room block will close on October 1.

Register for the Board meeting online at www.serc1.org.

Dress for the meeting is business casual. An agenda will be distributed prior to the meeting.

Very truly yours,




                                                                                                    6
                                                                                 Exhibit B




                                SERC Board of Directors
                                  Meeting Attendance
                                   October 22, 2008

                       Board of Directors – Voting Members Present
Member Name                            Member Organization
Ray Phillips                           Alabama Municipal Electric Authority
Marion Lucas                           Alcoa Power Generating, Inc.
Maureen Borkowski                      Ameren
Chris Bolick                           Associated Electric Cooperative
David Spainhoward                      Big Rivers Electric Corporation
Tad A. Johnson (WebEx)                 City of Columbia, MO
Karl Kohlrus                           City of Springfield, IL – CWLP
Tom Bonner (WebEx)                     Cogentrix Energy, Inc.
Richard L. Wolfinger                   Constellation Energy Commodities Group, Inc.
C.J. Ingersoll (WebEx)                 Constellation Energy Control and Dispatch
Bill Thompson                          Dominion Virginia Power - Transmission
R. Scott Henry                         Duke Energy Carolinas
Keith Yocum                            E.ON U.S. Services, Inc.
George Carruba                         East Kentucky Power Cooperative
George Bartlett                        Entergy
Cesar Seymour                          GDF SUEZ SA
Leslie Sibert                          Georgia Power Company
Greg Ford                              Georgia System Operations Corporation
Mike Smith                             Georgia Transmission Corporation
Dan Jewell                             Louisiana Generating, LLC
Bill Phillips                          Midwest ISO
Steve Craig (WebEx)                    Mississippi Power Company
Gary Schaeff                           Municipal Electric Authority of Georgia
David Beam                             N.C. Electric Membership Corp.
Clay Norris                            North Carolina Municipal Power Agency #1
James Messersmith                      Oglethorpe Power Corporation
Mark Ringhausen                        Old Dominion Electric Cooperative
Frank Koza                             PJM Interconnection, LLC
Jay Farrington                         PowerSouth Energy Cooperative
John Dalton                            Prairie Power, Inc.
Caren Anders (WebEx)                   Progress Energy Carolinas
Charles A. White                       South Carolina Electric & Gas Company
Terry Blackwell                        South Carolina Public Service Authority
Nathan L. Brown, P.E.                  South Mississippi Electric Power Association
Kenneth Legg                           Southeastern Power Administration
B. L. (Pete) Ivey                      Southern Company Services, Inc.
Kevin Smith                            Tenaska Power Services Co.
Van Wardlaw (WebEx)                    Tennessee Valley Authority




                                                                                        7
                         Other Attendees
Name                      Organization
Robert Koger (WebEx)      Customer
John D. Smatlak           Dominion Virginia Power – Transmission
Nam Nguyen                Dominion Virginia Power – Transmission
Gerry Cauley              SERC Reliability Corporation
Tom Galloway              SERC Reliability Corporation
Herb Schrayshuen          SERC Reliability Corporation
Carter Edge               SERC Reliability Corporation
August McClaine           SERC Reliability Corporation
Jennifer Kelly            SERC Reliability Corporation
Kevin Berent              SERC Reliability Corporation
Brian Harrell             SERC Reliability Corporation
Bob Goss                  SERC Reliability Corporation
Ken Keels                 SERC Reliability Corporation
Boyd Nation               SERC CIPC Chair
Ed Pfeiffer               SERC EC Chair
Russ Schussler (WebEx)    SERC EC Vice Chair
Jim Griffith              SERC OC Chair
Steve Williamson          Southern Company Services, Inc.




                                                                   8
                                   Exhibit C

                               Gerry Cauley
                            President & CEO




SERC Board of Directors Meeting
         October 22, 2008




                                          9
                                               Gerry Cauley
                                            President & CEO


                  Introductions
• Introductions
• Establish a quorum (roll call of the members)




                                                      10
                                                 Gerry Cauley
                                              President & CEO

              Antitrust Guidelines
                (Attachment 2)
• It is SERC’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 which 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.
                                                        11
                                                 Gerry Cauley
                                              President & CEO


    Confidentiality Policy (Attachment 3)
• SERC Confidentiality Agreement prohibits (i) the
  use of Confidential Information by Member
  Employees for other than SERC purposes and (ii)
  the disclosure of that information to any third party,
  unless disclosed to NERC pursuant to delegation
  agreement, or to a third party that has signed a
  Confidentiality Agreement with SERC.
• If either you or your employer has not signed such
  an Agreement and/or your employer has not
  designated you as a Member Employee authorized
  to receive Confidential Information then you will not
  be given access to Confidential Information and you
  will be required to leave the meeting before any
  such information is disclosed, used, or discussed.
                                                        12
                                              Gerry Cauley
                                           President & CEO


               Consent Agenda
• Approve April 23, 2008 minutes (Attachment 4)
• Approve July 10, 2008 action without a meeting
  (Attachment 5)
• Approve today’s agenda




                                                     13
                                                        Gerry Cauley
                                                     President & CEO

          President’s Report
 SERC Bylaws and Delegation Agreement
• No action by Commission since July 20 filing
  – See Attachment 6
  – Minimal comments filed regarding FERC-Canada
    jurisdiction and de facto approval of mitigation plans
  – None affecting SERC
• Currently operating under delegation agreement
  and bylaws:
  – Filed October 31, 2007
  – Approved by FERC on March 21, 2008
  – Executed and posted April 5, 2008


                                                               14
                                                             Gerry Cauley
                                                          President & CEO

           President’s Report
FERC Order Approving 2009 Business Plan
• October 16, 2008 order
• Conditionally approves NERC and 8 regional entity
  business plans and budgets for 2009
• Compliance filing required in 60 days
  – NERC justify sufficient resources or requesting increase
       Reliability standards
       Readiness evaluations (consider reinstating)
       Reliability assessment (need to be able to validate regional
       data and analysis)
  – Region business plans
       Standardized terms describing audit types
       “Shore up and reduce” administrative costs
       Explain ‘per FTE’ salary increases under general and
       administrative (95% for SERC described in business plan as
       transfer in from IT, finance, and HR)
                                                                      15
                                                                                  Gerry Cauley
                                                                               President & CEO

              2009 Administrative Costs
             Comparison across Regions
                     Percent Administrative Cost in 2009 Budget


70%



60%


50%


40%


30%


20%


10%


0%
      FRCC    SPP   SERC          WECC             RFC            MRO   NPCC       TRE




                                                                                         16
                                                        Gerry Cauley
                                                     President & CEO

               President’s Report
          Experience with the Regulator
• Hands on vs. oversight/backstop
  – Motivated to serve the public interest and exercise full
    authorities granted by Congress
• Focus areas
  –   Investigations
  –   Zero tolerance for compliance failures
  –   Situation awareness
  –   Documentation of ‘the record’
  –   Remediation and penalties
  –   Elevating standards
  –   Resource adequacy
  –   Critical infrastructure protection
                                                               17
                                                Gerry Cauley
                                             President & CEO

            President’s Report
 Delegation Agreement & NERC Relations
• See Attachments 7 and 8
• Some differing views of delegation model
• Need to clarify roles and authorities
  – NERC shifting to oversight role
  – Focus on results and defined process
• Opportunity to review functional alignment of
  NERC and regions in next budget cycle




                                                       18
                                             Gerry Cauley
                                          President & CEO

            President’s Report
       Regional Focus in Compliance
• Backlog reduction (target to be current)
• Supplementing records to meet FERC July 3 order
• Transparency to stakeholders (new RE website)
• Cross-regional consistency and commonality
• Resource sharing and efficiency
• Settlements
• Short form settlements for misdemeanor violations
• FRCC eliminating volunteer auditors in 2009
  (SERC is last region)
• 6 regions and NERC committed to SERC Portal


                                                    19
                                                    Gerry Cauley
                                                 President & CEO

           President’s Report
   Lessons on Remediation of Violations
• Required remediation
  – Penalty ($0 must be justified)
  – Fix the noncompliance
  – Measures to prevent similar future noncompliance
• ‘Extra credit’ remediation
  – Improvements to achieve excellence in compliance
    program
  – Additional reliability measures
• Remediation plans must be
  – Completed on time to avoid further action
  – Verifiable by regional entity
                                                           20
                                                  Gerry Cauley
                                               President & CEO

            President’s Report
Event Analysis & Compliance Investigations
• Recent increase in FERC activity
• Timelier overall, with initial alerts within 2-3 weeks
• Compliance investigation, if warranted, should
  begin early and run in parallel
  – Entity should be informed early
• Need more work on triggers for event analysis
  – OE-417 alone is not sufficient
• NERC forming event analysis coordination group
• Expect FERC/NERC involvement and leadership
  – Need for aggressive posture by regions

                                                         21
                                                     Gerry Cauley
                                                  President & CEO

               President’s Report
      Situation Awareness (Attachment 9)
• FERC receiving RCIS reports from NERC and has
  other near-real-time information sources
• FERC proceeding with initiative to have near real-
  time reliability coordinator data in FERC office
  –   Line status and flows 230 kV and above
  –   Voltage and frequency
  –   Generator status and output
  –   CA-ISO has set benchmark
  –   NERC and regions working to support and collaborate




                                                            22
                                                   Gerry Cauley
                                                President & CEO

               President’s Report
               Role of the ES-ISAC
• Lessons from Gustav, Hanna, and Ike
  – Government interest in line and generator
    outages/damage, nuclear plant status, customer outages
    and restoration estimates, mutual assistance
  – Concerns with confidentiality/standards of conduct and
    one sidedness of calls




                                                          23
                                                  Gerry Cauley
                                               President & CEO

               President’s Report
             Reliability Assessment
• New capacity definitions for consistency
• Resource adequacy metrics (13% rule?)
• Consideration of future scenarios such as impacts
  of renewables, environmental initiatives, and
  demand side management
• Push for independent verification of assessments
  and data
• Ensuring reliability assessments do not create
  barriers to resource additions
• Range of forecasts from ‘as built’ to ‘full potential’
                                                         24
                                               Gerry Cauley
                                            President & CEO

             President’s Report
           Reliability Improvement

• NERC readiness review program being phased out
  – Challenged by FERC order on NERC 2009 budget
• SERC will complete 1 final readiness review in 2008
• Staff resources have been redirected to:
  – Event analysis
  – Recommendations tracking
  – Reliability improvement




                                                      25
                                                Gerry Cauley
                                             President & CEO

               President’s Report
              Reliability Standards
• Differing expectations on direction for standards
• SERC approaching finalization of regional
  standard on under-frequency load shedding




                                                       26
                                                       Gerry Cauley
                                                    President & CEO

                 President’s Report
                      Training
• Kudos to System Operator Subcommittee for ‘best
  in class’ regional training program
  – 5 system operator conferences – all filled
  – 2 upcoming ‘train-the-trainer’ sessions in early 2009




                                                              27
                                                                                               Gerry Cauley
                                                                                            President & CEO

          President’s Report
SERC Performance Measurement (9/30/08)
                                                                          Target                      Stretch
                                      2009 Corporate Total Results




Maximum                                                                                                  100.0%




Achieved                                                                    71.5%




       0.0%   10.0%   20.0%   30.0%     40.0%       50.0%       60.0%   70.0%       80.0%     90.0%     100.0%




                                                                                                         28
                                                                                                        Gerry Cauley
                                                                                                     President & CEO

                      President’s Report
               Performance Metrics – 2008 Goals
                                                      2009 SERC Results by Goal


                                                                                                              32.3%
    Reliability Improvement
                                                                                           23.1%

                                                                           16.7%
Enforcement Accountability
                                                       9.6%

                                                                       15.3%
     Auditable Compliance
                                                                   14.2%

                                                                      15.1%
          Customer Focus
                                                         10.3%

                                               7.5%
 Learning and Competency
                                   4.8%

                                             7.4%
                 Efficiency
                                         6.2%

                                        5.7%
       Information Services
                                 3.8%

                          0.0%   5.0%                 10.0%        15.0%           20.0%     25.0%    30.0%       35.0%




                                                                                                                      29
                                                                                                                    Gerry Cauley
                                                                                                                 President & CEO

                        President’s Report
                   2008 Performance by Program
                                                           SERC 2009 Results by Program


                     Compliance                                                                                        45.0%
                                                                                                     33.6%

         Reliability Assessment                                      15.0%
                                                                12.1%

                      Standards                     6.0%
                                                 4.7%

           Situation Awareness                   5.0%
                                                4.3%

Critical Infrastructure Protection               5.0%
                                          2.3%

         Training and Education                5.0%
                                            3.4%

                    Committees                 5.0%
                                           2.9%

         Reliability Improvement               3.5%
                                     1.0%

        Information Technology              4.0%
                                         2.2%

                         Finance              4.5%
                                           3.3%

             Human Resources         1.0%
                                     0.8%

                            Legal       1.0%
                                        1.0%

                                 0.0%          5.0%     10.0%     15.0%      20.0%   25.0%   30.0%   35.0%   40.0%   45.0%     50.0%




                                                                                                                                  30
                                                                   Gerry Cauley
                                                                President & CEO


       Treasurer’s Report (Attachment 10)
• Review 3rd quarter unaudited financial statement
  – $597,422 overrun in payroll/benefits
       $517,500 due to switch to accrual basis (7 quarters of bonus/401k)
       $79,922 due to addition of 4.5 FTE administrative staff partially offset
       by understaffing and turnover in other positions
  – $112,188 overrun in meetings and travel due to heavier than budgeted
    activity and $35,393 for conference calls budgeted in IT
  – $253,645 under run in operating expenses due to office build out in
    2007, lower legal/contractor fees, rent deferral
  – Cash balance 9/30/08: $1,194,189
  – Unused, unsecured credit line with Wachovia: $250,000
• Status of actions to resolve auditor recommendations
  – Switched to accrual accounting in 2008


                                                                          31
                                                                 Gerry Cauley
                                                              President & CEO

                 Treasurer’s Report
             Summary of Yearend Projection
$9,000,000


$8,000,000


$7,000,000


$6,000,000                                       2007 Excess Reserve / 2007
                                                 Expenses Booked in 2008

$5,000,000                                       2008 Other Revenue / 2008
                                                 Unbudgeted Accrual of Incentive
$4,000,000                                       Pay/401k
                                                 2008 ERO Assessment Revenue /
                                                 2008 Actual Operating Expenses
$3,000,000


$2,000,000


$1,000,000


       $0
                  1                          2
                      Revenue/Expenditures




                                                                               32
                                                        Gerry Cauley
                                                     President & CEO


      Compensation and HR Committee
• Approve amendments to 401k Plan (Attachment 12)
  – Eligibility for discretionary contribution requires 1 year of
    service and employed on December 31
  – Three year vesting period for matching and discretionary
  – For all employees entering plan January 1, 2009 and later
• Approve two members for Compensation and HR
  Committee for 2009-10 (Attachment 13)
• Review status of recommendations from outside
  audit of HR practices (Attachment 14)



                                                               33
                                              Gerry Cauley
                                           President & CEO



NERC Member Representatives Committee
     Discussion Topics of Interest
•   CIP
•   2009 ERO performance assessment
•   Cross border issues
•   2009 winter assessment
•   NERC/regional entity improvements to compliance
    program




                                                     34
                                                             Gerry Cauley
                                                          President & CEO

           NERC Board Key Issues
   Policy Questions on Standards Process
• Approve updated reliability standards work plan 2009-11
• Approve recommendations on standards process policy
  – Standards for national security emergencies?
        Issue essential action alerts
        Develop security standards using urgent, confidential basis
  – How to manage FERC staff participation in drafting teams?
        Allow
  – How to manage FERC staff verbal feedback not in a Commission
    directive?
        Respond as team would to comments from another participant
• How should VRFs and VSLs be developed and approved?
  – Recommendation TBD



                                                                      35
                                                   Gerry Cauley
                                                President & CEO


   Compliance Issues Being Considered
• Should penalty calculator tool be made public?
  – Yes
• How can NERC assure registered entities
  regarding risk exposure during audits and
  interpretations made therein by audit teams?
  – Enhance RSAWs
  – Provide additional transparency of process and
    examples on what constitutes acceptable evidence of
    compliance




                                                          36
                                                               Gerry Cauley
                                                            President & CEO


         NERC Board Other Key Issues

• Approve TADS Phase II report and recommendations
  – Requires reporting of planned and other manual transmission
    outages beginning 3/1/2011 for calendar year 2010
  – AC circuits above 200 kV, radial included
  – Transformers above 200 kV on low side
  – All registered transmission owners in U.S. and all non-U.S. owners
    who are members of NERC
  – Data
        Outage start time and duration
        Outage category (planned/operational) and cause code




                                                                         37
                                                Gerry Cauley
                                             President & CEO

        ERO and Regional Entity
  Performance Assessment Assessment
• Assessment required three years following
  certification as ERO and every five years
  thereafter
• An explanation of how NERC satisfies the
  requirements for original certification as the ERO
  and effectiveness of NERC as ERO
• Must include a performance assessment of
  effectiveness of each Regional Entity
• Must obtain and respond to recommendations
  from stakeholders for improvement of NERC’s
  operations, activities, oversight and procedures,
  and NERC’s response to such recommendations
• First assessment due July 20, 2009
                                                       38
                           Exhibit D




CIP Highlights

SERC Board
October 22, 2008


Michael Assante
CSO
michael.assante@nerc.net
                                       39
CSO Management & Leadership                                            2

                         Leadership
                            Core
                          Purposes
   • Standards                                   • Risk Assessment
  • Compliance         • Enhance Security
                                                   • Preparedness
      • CIP               • Preparedness              Evaluations
 - CIP Committee     • Situational Awareness   • Thought Leadership
 - Guidelines                                     • Communicating
 - Alerts                                           Industry Efforts

                        Coordination
        • Governments • Industry • Other Infrastructures
                           ES-ISAC
                                                              40
Establish a core CIP program, Enhance SA
& works across NERC’s programs
                                                                                                         3

                                            Board of Trustees              ESSG

                                               NERC CEO



Standards Compliance Assessment                    CSO                 Events Analysis        Training

 • Focused on CIP risks                         Mutually               • Focused on CIP events &
                                                                          enhancing preparedness
                                              Supporting
                                              Constructive
   Regions                                                                                 Industry
                                                Overlap
 • Support their              Critical         (ES-ISAC)                        • CIPC & EC
  mission/role            Infrastructure                            Situational      • ESCC
• Support the               Protection                              Awareness        engagement
  development of                                        • Monitor reliability          • Standards
  expertise                • Identify, address and      • Monitor hazards              • Assessments
• Training                   monitor security risk to
                             the BPS                    • Coordination with            • Leadership
                                                         government
                           • Provide expertise          • Coordinate with other        • Support   41

                           • Support efforts             sectors (PCIS)
  NERC Core Programs - CIP
                                                                                                                                   4


                               Ensure the Reliability of the Bulk Power System
                               Trusted within the industry
                               Recognized for effective leadership

 “Ensure threats to the reliability of the BPS,
 especially cyber, are clearly understood and
           are sufficiently mitigated”
                                                           Critical
                                                       Infrastructure
                                                         Protection



CIP Standards Development                  CIP Standards Compliance                      Security Risk Assessment
 9 CIP standards approved                  Enforce compliance (along with               Assess threats to the Bulk Power
 Enhance & update existing                  regional reliability organizations)           System
  standards                                 Audits, monitoring & investigations          Identify concerns to be addressed
 Propose new standards to address                                                        Cyber risk & preparedness
  security concerns                                                                        evaluation


    ES-ISAC                                       Security Leadership                  Situational Awareness
                                                   Chief Security Officer (CSO)
• Notifications & alerts                           ESCC, ESSG, PCIS, NIAC,         • Monitor events impacting the grid
• Preparedness & response coordination             CSO Council                                                      42
                                                                                   • Facilitate coordination & reliability tools
NERC CIP Enhancement Plan
                                                                                    5

  Mobilize executive participation & guidance (e.g. ESSG)
  Establish NERC CIP Program (Hire CSO, Strategy, Resources)
  Formalize NERC led assessment & initial CRP evaluation
  Enhance the ES-ISAC (improve alert reporting, process maturity, lists)
  Milestones                  2HCY08                   1HCY09       2HCY09
  Executive Engagement    Cyber Summit                          CEO Briefing
  ESSG                    ESSG
  NERC CIP Program             CSO
  Portfolio                 CIP Portfolio
  Resourcing                        Resourcing
                               Order 706
  Assessments                                     Phase I

  Risk Assessment
  CRP Evaluation

  Enhance ES-ISAC        Improve. Prjcts                                       43
Cyber Risk Preparedness Evaluation
                                                                                                     6


   Identify existing capabilities to prevent, detect, respond and limit the
    potential damage of existing/emerging attack techniques
   Objective: Understanding how prepared both individual entities (by
    type) and existing processes/mechanisms are to ensure reliability of
    the BPS while under a successful cyber attack
   Approach: Devise several realistic but challenging cyber scenarios
    and conduct a series of table top exercises with volunteer entities
     • CRP team will use a process to evaluate key criteria for
       determining preparedness
   Areas to Evaluate: (The scenarios will be consistently evaluated for all entities for the
    following capabilities)
     •   A. Prevent cyber attacks
     •   B. Detect cyber attacks
     •   C. Technically respond to cyber attacks
     •   D. Manage their systems and electricity assets to minimize potential damage
     •   E. Communicate and coordinate effectively with interconnected neighbors and area
         coordinators to contain effects on the bulk power system
                                                                                                44
CRP Evaluation Project Approach
                                                                                                  7

 In Development - DRAFT




                     Project Timeline: Completed in 4Q 2009

                      Design Development           Execution      Analysis & Reporting       45
                           1 Mo.           2 Mo.               6 Mo.                 3 Mo.
                           8




ES-ISAC Enhancement




                      46
ES-ISAC Mission
                                                                        9




  The ES-ISAC serves the Electricity Sector by facilitating
   communications between electricity sector participants,
   federal governments, and other critical infrastructures.
    • Preparedness & response calls (e.g. Hurricane Gustav)
  It is the job of the ES-ISAC to promptly disseminate
   threat indications, analyses, and warnings, together with
   interpretations, to assist electricity sector participants to
   take protective actions.
    • As the ES-ISAC, NERC gathers, disseminates and interprets
      security-related information.
    • FERC has oversight of NERC’s alerting process for U.S. entities
    • Canadian authorities provide guidance for alerting to Canadian
      entities
                                                                  47
ES-ISAC Structure
                                                                                                                                  10




     The ES-ISAC serves:
           • All entities in the electricity sector are participants in
             the ES-ISAC

     The ES-ISAC is operated by:
           • The North American Electric Reliability Corporation
             on behalf of the electricity sector*

     The governance body responsible for direction:
           • Electricity Sector Steering Group
* The DOE designated NERC as the electricity sector coordinator for critical infrastructure protection. NERC serves as the
Information Sharing and Analysis Center for the electricity sector. NERC also works closely with the DHS and Public Safety
                                                                                                                       48
Canada to ensure the critical infrastructure protection functions are coordinated with the governments of the United States and
Canada.
ERO & ES-ISAC (similar but distinct)
                                            11




                                       49
CIP: ES-ISAC/NERC Alerts
                                                                  12




 Advisories, recommendations, and requests for essential
  actions (ERO & ES-ISAC missions)
 Issued to relevant industry sectors when a security risk
  (threat or vulnerability) arises
   • Advises the industry to evaluate the risk and take
     action to correct issues affecting reliability/CIP
       Cyber
       Physical
       Logical
       All Hazards
                                                             50
    ES-ISAC Reporting – Risk Based
                                                                                                                                                    13



   Extreme           5
(Measured in Weeks
 & Impacting Large
      Areas)

                     4

                     3


                     2

                     1
    No
Consequence
 (Failed attempts)   0
                      0                         1                  2                   3                  4                5
                             Non-existent                                                                                        Frequent
                         (Measured in 10s of years)                                                                            (Measured in days)
                                                           The actions are additive as you move right

                                                                           Advisory          Recommendation Essential Action
                                                                            Continuous         Active          Emergency
                                                       Annual                                                                          51
                              Awareness                                    Evaluation &
                                                                                             Management        Response
                                                      Evaluation       Selected Management
Reporting Concerns & Objectives
                                                                                                  14


    Don’t want to numb the sector with too much reporting
    Do want to appropriately chose alerting vehicles based on the seriousness
     of the risk
      •   Advisory – Notify the sector of a vulnerability that could applied in a way that
          would directly of indirectly impact the BPS
      •   Recommendation – Notify the sector and receive replies to appropriately monitor
          the status of the risk (mitigation efforts) based on the attributes of the
          vulnerability and potential to cause serious consequence in the BPS
      •   Essential Action – Notify the sector so they may take immediate actions and
          require replies to appropriately monitor the status of the risk (mitigation efforts)
          based on the attributes of the vulnerability, potential consequences, and
          indications or the potential that an attacker will exploit the vulnerability
    In a perfect world we would like to see the reporting fall into the following
     buckets over a year (we will not shape reporting to arbitrarily fit these levels):
      •   Advisories: 80%
      •   Recommendations: <20%
      •   Essential Actions: <1% (only used for critical & time sensitive risks)


                                                                                             52
Technology Application of Concern (TAC)
                                                        15




      Technology Area         Vulnerability Alerting
 SCADA EMS                             Yes
 Field Control & Protection            Yes
 Plant Control Systems                 Yes
 Market Systems                     Consider
 Networking &
                                    Consider
 Telecommunications
 Business Systems                      No
 Mobile Technology                     No
                                                   53
    Cyber Vulnerability Attributes
                                                                                                            16

    Qualitative & expert based evaluation of a vulnerability’s attributes
    Can be conduct in consultation with the disclosing entity, the vendor, experts and industry
      •   ES-ISAC references NIST’s CVSS scoring equation (when available)
    The following attributes are qualitatively assigned High, Medium or Low values:


      •   Simplicity - How easy is it for an attacker to exploit
      •   Accessibility – How accessible is the vulnerable technology
      •   Technical Impact – What can an attacker do to the technology
      •   Deployment – How widely is it deployed in the electric sector
      •   BPS Impact – What kind of an effect on the BPS can an attacker intentional or accidentally have
      •   Awareness – How widely is it known that the vulnerability exists
      •   Remediation – (inverse) Does actionable remediation exist (e.g. Patch is available)


    The scores would vary for specific entities based on their deployment, configuration,
     architectures, but the ES-ISAC will rate according to the highest possible score (based on expert
     understanding of how technology is being deployed)

                                                                                                   54
SCADA Vulnerability & Exploit Disclosures
                                                                                                     17




    Tracking from 2005 to Present (4QTR08)

                      Control Systems Vulnerability & Exploit Disclosures


        12

        10

         8
                                                                                Available exploits
         6
                                                                                Disclosed Vuls
         4

         2

         0
               2005          2006          2007          2008



* This captures only publically released vulnerability discoveries and exploit tools/code   55
ES-ISAC “Operational Excellence”
                                                                                           18



    Streamline & exercise NERC notification lists
      •   Project underway to address existing problems and establish a sustainable
          approach to manage the lists
      •   Will exercise the notification lists (improve, educate and verify)
             Administrative exercise (November)
                 – Addition of an FAQ
                 – Instructions to recipients
             Operational exercise (2 tests per year)
                 – Recommendation-level or higher Alert
                 – Instructions & Exercise Replies required


    Longer-term: Develop a secure mechanism to receive alert feedback and
     facilitate effective two-way communication
      •   Identify an appropriate mechanism for authenticated (record responses for
          recipients by entity) and secure feedback & alert responses


                                                                                      56
Communication Coverage Chart
                                                                                          19




                                         2-way
                                        Secure      2-way    Private Push   Public Pull
                                       Electronic   Secure     (direct e-   (ES-ISAC
                                      Communica     Paper        mail)      web post)
                                          tions

                     BPS Entities        NO         YES         YES           YES
                      Non-BPS
                       Entities
                                         NO          NO          NO           YES

                    Hawaii, Alaska,
                       & U.S.            NO          NO          NO           YES
                     Possessions




                                                                               57
Extend the Reach of the ES-ISAC
                                                                                 20


 NERC as the international ERO is…


                                     As the ES-ISAC we need to extend
                                            our reach to include:

                                          U.S. distribution only entities
                                                 Hawaii & Alaska
                                                 U.S. Territories




 Organized to communicate with the
   BPS entities of North America




                                                                            58
CIP Highlights

SERC Board
October 22, 2008


Michael Assante
CSO
michael.assante@nerc.net
                           59
                                                                                           Exhibit E




                    SERC CIPC Proposal for a Pilot Program for a
                        SERC Critical Asset Review Process

                     Presented by Boyd Nation, SERC CIPC Chair
                                   October 22, 2008

In FERC Order 706, the Commission instructed that NERC “develop through its
Reliability Standards development process a mechanism for external review and approval
of critical asset lists”. Elsewhere, the Commission directed that the Regional Reliability
Organizations would be responsible for performing the actual reviews, and that the
reviews must be carried out on a more frequent basis than the standard audit process
would allow. While this process may be included as part of the next version of the CIP
standards, it is unlikely that the prescribed process will be specific enough to provide full
guidance in the creation of such a program. It is also likely that delays in implementation
of the review program will cause FERC staff to claim a more active role in the process
for themselves.

We propose that SERC staff establish a pilot program wherein reviews will be carried out
for eight to ten member entities before June 30, 2009. These reviews will include the
following elements:

•   A review of the risk-based methodology used to create the Critical Assets list for the
    entity. This review should be guided by the guideline being created by the NERC
    Risk Assessment Working Group but should not treat that document as a prescriptive
    standard; local considerations such as regional consensus, as one develops, and the
    specifics of the entity’s system should be taken into consideration.
•   A review of the documentation of the steps taken to produce the Critical Assets list by
    implementing the entity’s risk-based methodology.
•   A review of the entity’s Critical Assets list.
•   A review of the entity’s Critical Cyber Assets list.

Initially, these reviews should be carried out at a location of the entity’s choosing. Under
no circumstances is SERC staff to maintain possession of any of the reviewed materials
once the review is complete.

In general, the review teams should be constructed in a matter similar to the Reliability
Audit teams, with two SERC staff members and two industry subject matter experts.
With the consent of the reviewed entity, the team may also include observers from other
regions, so that the lessons learned can be used as a model for other regions if desired.

Order 706 provides no guidance as to what should be done with the results of the
reviews. Under the existing CIP standards, there is no provision for a finding of an
inadequate methodology; as long as a methodology exists and is used to create the
Critical Asset list, the entity is in compliance with the standard as written. Therefore, at
this time, we propose that the review results be provided to the reviewed entity but that
no compliance findings result from the review.



                                                                                                 60
In addition to the Critical Asset review, Order 706 instructs the Regional Reliability
Organizations to review Technical Feasibility exceptions to the CIP standards. Those
exceptions should not be included in the current pilot program, but the review teams
should identify methods to include them in the permanent program, if possible, or make
recommendations on the best means to perform them if they do not fit within the review
framework.




                                                                                         61
                               Exhibit F




SERC Board Compliance Committee
        Report to Board

   October 22, 2008
   Charlotte, North Carolina




                                     62
                  General

• There have been eight meetings since our last
Board meeting in April, including this morning
(October 22)
• One meeting canceled due to lack of quorum
• Began using informal settlement information
meetings without BCC vote, in order to prepare for
future vote


                                                  63
              Administrative

• Still awaiting FERC response on SERC re-filing
of Hearing Procedure
• Approved compliance implementing
procedures: 2.0 (Rev 1) Registration; 6.0 (Rev 2)
Mitigation; 5.3 (Rev 1.a) Hearings; 3.1 (Rev 0)
Audits; 9.0 (Rev 1) Data and Confidentiality
• Formatted meetings to include a consent
agenda for more routine actions that require vote

                                                    64
                 Decisions
• BCC has concurred in staff’s proposal to treat
non-completed mitigation plans as new non-
compliance
• We have decided that a BCC member that must
be recused from a staff-proposed Settlement for
approval should exit the meeting




                                                   65
             Under Discussion
• In an effort to streamline our processes, we have
reviewed how other Regions handle the BCC
function
• We are considering changes to the governance
of the BCC, whereby SERC staff could have
authority for certain decisions
• The need for validation of e-mail ballots
• Need for public posting of non-confidential BCC
activities, such as policy issues

                                                      66
     Questions?

For additional information
     www.serc1.org




                             67
                                  Exhibit G

                              BOD 10-22-08




Compliance Update
  for SERC BOD

         T. Galloway
   SERC Compliance Director
      October 22, 2008




                                        68
                                   BOD 10-22-08




                        Overview
• Top Regional Issues
  – Programmatic
  – Standards
• Audit and Spot-Check Program
  – Audit status
  – CIP spot-checking
• Enforcement Program
  – Penalties
  – Settlements




                                          69
                                                         BOD 10-22-08




               Top Regional Issues

• Programmatic
  – NERC / Regional Roles and Interface
  – Throughput and backlog elimination
  – Transparency and cross-regional consistency
• Specific Standards
  –   Vegetation Management (FAC-003)
  –   Protection and Control (PRC series)
  –   Facility Ratings (FAC-008 and 009)
  –   Critical Infrastructure Protection (CIP-002 thru 009)


                                                                70
                                             BOD 10-22-08




             Top Regional Issues
         (NERC and Regional Interface)


•   Redefined NERC / Regional Roles & Interface
•   NERC: Judges outputs, ROP conformance
•   Regions: “How to” execute compliance
•   Regional Managers, Regional Compliance
    Managers, and selected Working Groups
    formalized


                                                    71
                                                                           BOD 10-22-08




                   Top Regional Issues
•   Throughput and backlog elimination
    – Alleged violation processing
          > 20 SERC Notice of Penalty(s) (NOPs) FERC accepted
             Involves 70 of total 100 violations approved to date
          12 Notice of Confirmed Violations (NOCs) at NERC
          8 SERC Settlements ( 20 violations) NERC approved
             Expect most above settlements, NOCs to be filed by 10-27-08
         Supplementing records per FERC feedback
    – Process changes (prioritization / efficiency)
         Structured internal work management process
         Short-form settlement and/or “Misdemeanor” violations
             Within constraints of existing ROP / CMEP




                                                                                  72
                                                                                 BOD 10-22-08




                      Top Regional Issues
              (Transparency & Consistency)
•   Working groups formed and formalized
•   SERC in leadership roles
    –   Audit Observation
            Practices, Application of Standards, Evidence, Cross-region audits
    –   Enforcement & Mitigation
            Common forms and notices
            Penalty determination
    –   Registration and Certification
            Multi-regional registered entities
            Joint registration
            Generator leads issues
    –   Information management
            Congruent platforms, data interface with NERC
•   Common website to post common positions / processes



                                                                                        73
                                                                     BOD 10-22-08



                            Transparency
•   Lessons learned document
    –   Most frequently cited standards in violations
    –   Compliance “position” on application of standards
•   Added self-report & mitigation workshop (11-6-08)
•   Outreach program to cooperatives
•   New “Open Forum” to pilot in October 2008
•   Cross-regional website – post common processes and application
•   SERC Portal as platform for Compliance (and other) functions
•   Added 4th compliance seminar for 2009
    –   April 14-15 Atlanta
    –   May 19-20 St. Louis
    –   September 9-10 Nashville
    –   October 6-7 Charlotte
•   Intend continued use of volunteers
    –   Audit staffing
    –   Compliance Advisory groups
    –   Seminar support, including presentations
    –   Template mitigation plans



                                                                            74
                                                  BOD 10-22-08




           TOP REGIONAL ISSUES
                (Standards)
• Vegetation Management (FAC-003)
 – Several encroachments / contacts under evaluation
 – Continued strong focus by SERC, NERC, and FERC
 – Working to inform entities via compliance seminars /
   other forums that:
      Clearance 2 violations are possible violation
      independent of an outage
      Momentary vs. sustained outage bears on reporting,
      not violation

                                                           75
                                                 BOD 10-22-08




          TOP REGIONAL ISSUES (cont.)

• Protection and Control Standards (PRC series)
  – Frequently cited in SERC issues (PRC-005)
  – Majority documentation
      Gaps describing program scope / affected equipment
      Gaps describing maintenance bases
  – Some maintenance / test bases not substantiated




                                                        76
                                                     BOD 10-22-08




   Compliance Audits and Spot-Checking

• 2008 – 50 Entities scheduled for audit
• All Audits are “on-site”
• Focus areas / challenges
  –   Increased scope (# standards)
  –   Increased evidence required for dispositions
  –   Some entities not fully prepared
  –   Continue work for consistent “application”
• Spot-checks underway
  – FAC-3, PRC-5, FAC-8/9
  – CIP 2 thru 9 being piloted



                                                            77
                                                       BOD 10-22-08




                     Enforcement

• Majority pre-June 18th issues self-reported
  – All but 2 mitigation plans completed
  – 2 entities prosecuted for inadequate MP performance
• Majority of 2007 alleged violations processed
• Shift in discovery methods
  – More audit, self-certification findings
• 2008 – 146 Possible Alleged Violations YTD
  – Majority involve penalties, are under settlement

                                                              78
                                                                 BOD 10-22-08




                    EVENTS ANALYSES / CVIS

•   Compliance staff involved in 2 event analyses
•   NERC / Regions to standardizing Events Analyses process
•   NERC / Regions standardizing compliance violation investigations
•   CVIs related to events will be started earlier
•   CVIs will include NERC and FERC participation
•   CVI – systematic and rigorous review to determine possible violations




                                                                            79
                                                        BOD 10-22-08




         Penalties and Settlements

• Proposed Penalties
  – 146 possible alleged violations YTD
  – Expect that most (but not all) valid 2008 violations will
    include penalties
  – Internal reviews for equitable treatment
  – Cross-regional comparisons started
• Settlements
  – Majority of valid PAVs are in settlement
  – Settlement: More expedient and certain outcome


                                                                80
                                                                            BOD 10-22-08




  All Possible Alleged Violations (PAVs)

160                                                       All PAVs
      144                            146
140                                                       Reported to SERC
                     134
120
                                                          PAVs Sufficient
100                                                       Basis
                           84
80          73 71                          73
60                                                        PAVs Dismissed
                                50                   52   or Non-
40                                                        Enforceable
20                                              21
                                                          PAVs With
               0               0                          Incomplete
 0
                                                          Determination
       Pre-June     Post-June 2007         2008




                                                                                   81
                                                        BOD 10-22-08




Monitoring Sources for PAVs Deemed to Have Sufficient
                        Basis
 70

 60

 50
                                         Audit
 40                                      Self-Report
 30                                      Self-Certification
                                         Periodic Data Submittal
 20                                      Other Sources

 10

 0
      Pre-June   Post-June 2007   2008



                                                                   82
                                                   BOD 10-22-08




Top 5 PAVs Reported Standards Deemed to Have
              Sufficient Basis



PER-002-0


FAC-009-1


FAC-008-1


PRC-005-1


 CIP-001-1

             0   5   10   15   20   25   30   35   40




                                                          83
                                                                                  BOD 10-22-08




Status for all Post June 18, 2007 PAVs Reported to NERC
                       as of 10/15/08

      250



      200



       150



       100



       50



        0
              No. of    Dismissed      Non-     Enforceable   Non-     Document
             Probable               Enforceable             Document



                                                                                         84
                                                                                       BOD 10-22-08




Post-June 18, 2007 Mitigation Plan Status for Enforceable
                                  Violations


         Region        Region        NERC         NERC        Mitigation
                                                                              Total
         Awaiting     Reviewing    Reviewing     Approved     Completed



           68            41           6             15           79           209*




         •Several issues are in settlement or have been settled and no mitigation
         plan was required.

         •This table includes Mitigation Plans that the region has not completed the
         determination.




                                                                                              85
                                             Exhibit H


                           Board of Directors Meeting



    Reliability Assessment Report



      October 22, 2008
      Renaissance Charlotte Southpark
      Charlotte, NC




1
                                                   86
                                            Board of Directors Meeting



                     Reliability Assessment
    • 2008 RRS Annual Report to the Engineering Committee
    • Regional Assessments to NERC
       • Summer
       • Long-Term
       • Winter
    • Portal Data Collection Improvements
    • Resource Adequacy Working Group




2
                                                                 87
                                           Board of Directors Meeting



                     Winter Assessment
    • Peer Review Completed October 15-16
    • Preview with FERC and industry
    • Publication November 21 with press conference & press
      release
    • SERC Reliability Corporation expects its members to
      have adequate capacity margins with adequate
      transmission system capability to serve their load




3
                                                                88
                                                                             Board of Directors Meeting



            Winter Assessment Margin Statistics
                         SERC & Sub-regional Net Capacity Resources

    50.0%


    45.0%


    40.0%


    35.0%


    30.0%


    25.0%


    20.0%


    15.0%


    10.0%


    5.0%


    0.0%
              SERC   Central               Delta              Gateway            Southeastern   VACAR

                           2006-2007 Forecast   2007-2008 Forecast   2008-2009 Forecast




4
                                                                                                        89
                                          Board of Directors Meeting




     Winter Assessment Data by Sub-Region
    Sub-region/Region   Internal Demand    Capacity Margin
    Central                 43,778.0 MW              14.2 %
    Delta                   24,801.0 MW              33.1 %
    Gateway                 14,965.0 MW              39.9 %
    Southeastern            42,415.0 MW              30.0 %
    VACAR                   57,683.6 MW              23.0 %
    SERC Total             183,642.6 MW              26.0 %




5
                                                               90
                             Board of Directors Meeting




      2008 Long-Term
    Reliability Assessment




6
                                                  91
                                             Board of Directors Meeting



            Long-Term Reliability Assessment
    • Embargoed version was circulated for regulatory comments.
    • Received some questions from the NERC BoT on the
      SERC (Delta subregion) portion of the report.
      – The NERC BoT focused their comments on DSM and Transmission
        elements which may require more data definition changes
    • Publication and press conference October 23
    • Some SERC regions show as low margin, but are not being
      identified in the text as areas of concern.




7
                                                                  92
                                            Board of Directors Meeting



      NERC Planning Committee Decision for 2009
    • The NERC Planning Committee approved the structure for
      the 2009 data collection. Definitions have changed – again!
    • The objective is to have a more comprehensive
      categorization of the resource types.




8
                                                                 93
                                          Board of Directors Meeting



              Comparison to Current Definitions
        Current Definitions      Proposed Definitions
                               • Existing - Certain
    • Existing - Certain
                               • Existing - Other
    • Existing - Uncertain
                               • Existing but Undeliverable


    • Future - Planned         • Future - Planned
    • Future - Proposed        • Future - Other



                               • Conceptual



9
                                                               94
                                               Board of Directors Meeting



                      Data Collection Issues
     • In 2009 we will be collecting data on a generating unit basis,
       rather than relying on a roll up by the connecting
       transmission service providers.
     • The challenge will be to deal with the number of contacts for
       the outreach effort which is greatly expanded.
     • SERC staff will have to step up quality control efforts to
       avoid double counts.




10
                                                                    95
                                                     Board of Directors Meeting



             Resource Adequacy Working Group
     • The RAWG recommends that the SERC Engineering
       Committee establish a minimum planning reserve margin for
       the peak summer season.
     • There are two more steps needed:
        – Prepare a SERC-wide Loss of Load Expectation (LOLE) study to
          determine what SERC’s LOLE currently level is on a SERC-wide
          and subregional basis.
        – Establish a regional standard or guideline based on the results of
          the study.




11
                                                                               96
                         Board of Directors Meeting




          Questions?

     For additional information
          www.serc1.org




12
                                              97
                                                   Exhibit I


                                       SERC Board Meeting




Reliability Services Report
           October 22, 2008


            Carter B. Edge
    Director of Reliability Services




                                                         98
                                                  SERC Board Meeting




    Standing Committee Documents
       (Supplements) Revisions
• 23 Documents in 2008 Work Plan
   •10 documents revised year-to-date
      •5 Approved at SERC EC Meeting on October 16, 2008
   •5 Drafts Posted for Comments (due 10/24/08)
   •8 On-hold Pending NERC Action




                                                                99
                                             SERC Board Meeting



           Standards Development
• SERC Regional UFLS Standards
  ►   Comments received through October 20

• SERC Registered Ballot Body
  ►   Deadline for Ballot Pool November 10

• SERC entity participation in Standards process
  ►   Deep but narrow




                                                           100
                                                  SERC Board Meeting



              SERC UFLS Standard


Goal:
• Obtain ballot body and SERC Board (or Executive Committee) approval:
  December 2008
• Obtain both NERC and FERC approval and implement in 2009.




                                                                   101
                                            SERC Board Meeting



                  CIP Initiatives

• Track the work to address the Aurora vulnerability
• Develop a contact list for communicating security-related
  alerts.
• Share the GAO recommendations to the extent permitted
• Form an interregional CIP coordination group
• Accelerate the hiring of a highly qualified CIP Manager




                                                              102
                                                       SERC Board Meeting



 Development of SERC UFLS Standard
               (Cont.)
Status:
• SAR accepted by SERC SC on February 27, 2008 and assigned to the EC.
  It was approved by EC Executive Committee on April 25, 2008. SDT
  assigned June 20th. First SDT meeting July 21st by WebEx.
• Step 6 (Drafting of a SERC Regional Reliability Standard) of the 13 step
  SERC standards development procedure.
• Posted 1st Draft of SERC UFLS Standard for 30-day comment period (Step
  7) on September 19, 2008, with comments due October 20, 2008




                                                                         103
                                                       SERC Board Meeting



 Development of SERC UFLS Standard
               (Cont.)

Notes for Draft 1 of the SERC UFLS Standard:
• The SERC UFLS standard is designed to meet the performance
  characteristics specified in the July 2, 2008 NERC draft requirements for
  regional UFLS standards.
• Contains only the Applicability section and the requirements sections
• The measures, compliance elements, and implementation plans will be
  included in the second posting of this standard



                                                                          104
                                                          SERC Board Meeting




          SERC Registered Ballot Body
                    (RBB)
• Balloting on a SERC standard is done by a Ballot Pool formed from the
  SERC Registered Ballot Body
• Initial RBB Registration Period Opened: Oct 10th
• Complete Registration Application Form: Nov 10th
• Open to any entity with a legitimate interest in the reliability of the SERC
  bulk power system that can meet the criteria of a sector as defined in
  Section 3.4 of the SERC’s Bylaws




                                                                             105
                                          SERC Board Meeting



     SERC Registered Ballot Body
              (Cont.)
SERC Sectors:
• Investor-Owned Utility Sector
• Federal/State Sector
• Cooperative Sector
• Municipal Sector
• Marketer Sector
• Merchant Electricity Generator Sector
• ISO-RTO/Customer Sector



                                                        106
                                                        SERC Board Meeting



        SERC Registered Ballot Body
                 (Cont.)

Affiliates:
• Corporations or organizations with affiliates that qualify to belong to
  more than one sector (e.g., Investor-Owned Utility and Merchant
  Electricity Generator) may belong to each of the sectors in which
  they qualify provided that each sector constitutes a separate [RBB]
  membership and is represented by a different representative.




                                                                            107
                                             SERC Board Meeting




      NERC Standards Ballots SERC
             Participation

Initial Count of NERC Ballots: Jan – July, 2008 (35)
• SERC Members in NERC RBB:              48 (70.8%)
• Ave SERC RBB Members in Ballot Pool:   32 (65.7%)
• Ave SERC Ballot Pool Members Votes:    29 (91.6%)




                                                           108
                                                SERC Board Meeting



Proposed Development of Regional
           Standards

• Disturbance Control Performance (BAL-002)
   − Regional Contingency Reserve Policy
   − Previous NERC schedule was to begin development of regional
    standards: mid-October 2008
   − NERC schedule no longer shows when development of regional
    standards are to begin
   − NERC schedule shows completion date of August 2010 for
    revision of BAL-002



                                                                   109
                                                   SERC Board Meeting



  Proposed Development of Regional
             Standards
              (Cont.)
• Disturbance Monitoring Equipment (PRC-002)
   − NERC schedule to begin development of regional standards: mid-
    September 2008
   − Estimated amount of time the NERC effort is behind schedule: 6
    months
   − NERC SDT will likely recommend that regional standards are not
    needed




                                                                      110
                                                  SERC Board Meeting



  Proposed Development of Regional
             Standards
              (Cont.)

• Special Protection Systems (PRC-012, 013, 014, 015 &
  016)
   − NERC schedule to begin development of regional standards: 1st
    Quarter 2010




                                                                     111
                                     SERC Board Meeting



        Areas of Focus in Situation
               Awareness
• Daily reports - Situation of the SERC Sub-Regions
• Expanded reports - elevated risks conditions
  – Severe Weather Events
• Triage of events
• Review Lessons Learned
  – NERC events
  – Other regional events



                                                   112
                                                   SERC Board Meeting



                Incident Response
•Complete initial triage activities
•Focus on coordinated reporting of facts
•Based on ES-ISAC Threat and Incident Reporting
Guidelines
   •Establish a communications path among the operating members
   or registered entities, SERC, NERC, and FERC (if appropriate);
   •Identify a single-point-of-contact (SPOC) from each organization
   to facilitate events analysis;
   •Develop initial communications that will be shared with NERC
   and FERC as soon as possible after the event (1st 24 hours)


                                                                       113
                                     SERC Board Meeting




                   Event Triage

• Event Category (Emergency Action, System
  Disturbance, etc.)
• Event Classification Scale (Category 1-5)
• Assessment - It is important to understand:
      What is and is not happening
      Who is involved
      What the stakes are




                                                   114
                                        SERC Board Meeting




              Review Past Events

•   NERC, SERC and other RRO’s
•   Identify lessons learned
•   Provide SERC Alert’s to membership
•   Identify areas to potentially develop new standards
•   Issues and concerns raised by NERC and FERC




                                                      115
                                  SERC Board Meeting



               NERC Alerts
• Status being tracked in Recommendations
  database
  ►   Aurora
  ►   ABB

• Three Operating Advisories issued in June
• Three Cyber Advisories issued in October
• One Cyber (Boreas) Advisory being
  developed further

                                                116
                                                            SERC Board Meeting


          Training - System Operator
                 Conferences
• 503 participants
• 32 SERC entities
 -emergency recognition and response
 -real-life simulation of events, and
 -lessons learned
• registration fee of only $250 per participant
• 19 Continuing Education Hours (6 in Standards, 6 in Simulation)


The breakout sessions have historically been the most popular and beneficial
 part of the SERC conferences, and 2008 was no exception! Feedback from
  the participants indicated that the scenarios and interaction were invaluable

                                                                                  117
                        SERC Board Meeting




     Questions?

For additional information
     www.serc1.org




                                      118
                                   Exhibit J


                           SERC Board
                             Meeting




Operating Committee Report
        October 22, 2008


         Jim S. Griffith
        Chair, SERC OC




                                        119
                                                                 SERC Board
                                                                   Meeting

    October 16-17, 2008 OC Meeting

•   70 Attendees – 35 members

•   Project Reports
    – OATI Scheduling/Checkout Tool
          User Meeting held October 14-15, 2008
          21 BAs have installed system and using it at different levels
          Will develop an Ad Hoc User’s Group to guide further implementation
          Next meeting in January 2009 – advance to Phase 3 with 5 additional
          BAs and 2 TSPs
          NERC Investigating Similar Tool

    – SERC Hotline Installed & Operational
          28 Primary Centers and 14 Back-up Centers have Hotline Phones
          Periodic Testing going well – Failover test failed; Holding final payment
          until failover test is shown to work


                                                                                 120
                                       SERC Board
                                         Meeting


 October 16-17, 2008 OC Meeting
• Approvals
 – Minor Changes to SOS Scope document
 – Changes to membership requirements for TSC
   Scope Document to align with SERC
   requirements
 – Report on Savannah Severe Weather (Tornadoes)
   Event
 – Revisions to OPS Procedures Document to
   remove any material that may be interpreted as
   regional criteria

                                                121
                                                     SERC Board
                                                       Meeting

      October 16-17, 2008 OC Meeting

• Training
  Certification
        Approximately 30% of personnel holding the Reliability
        Certificate have downgraded to a lower certificate
        After October 1, 2009 all NERC Certificates will be on a 3-
        year cycle and only those personnel requesting an initial
        exam (new hire) or different certificate will be permitted
        to test.
  52 Attendees registered for ‘Train the Trainer” Class
  (January and February, 2009)
  –



                                                                  122
                                                 SERC Board
                                                   Meeting

  October 16-17, 2008 OC Meeting

• Training (Continued)

  – 2008 Operator Training Seminars
       5 sessions – 503 participants
  – 2009 Operator training Seminars – 6 sessions, 598
    reservations
       Columbia SC, April 7- 9, 21 - 23
       Atlanta GA, May 5 - 7, 12 – 14
       Memphis TN, September 15 – 17, 22 - 24
       Approx Registration fee $300
  – SERC Operator Training Records uploaded to NERC
    Database
       503 uploaded in 2008


                                                          123
                                                   SERC Board
                                                     Meeting

 October 16-17, 2008 OC Meeting

• OC Discussions on Topics for Input To Members on
  Standards Committees
  – NERC Reliability Metrics Working Group
  – Vegetation Management FAC-003-1
  – Loss of Control Center Functionality EOP-008

  – Significant Issues/Events Analysis For Future OC Action:
       Single Points of Failure at Interconnection Points
       FERC GO/TSP Pro-Forma Tariff Revision Increasing
       Minimum Protective Relaying Requirements
       Evaluation of Recommended Best Practice Tools



                                                               124
                                     SERC Board
                                       Meeting

    Summer Events Awareness

• Situational Awareness and Event Analysis –
  Initial Response and Notification Procedures
  (Presented at May 28th OC meeting)

• Daily Calls – Elevated Risk Preparation

• ES-ISAC Hurricane Daily Information Calls
  – SERC RC Reports



                                              125
                      SERC Board
                        Meeting


     Summary

 NERC OC Meeting


September 10 and 11
Seattle, Washington



                               126
                                                     SERC Board
                                                       Meeting
  NERC Budget – Impact of Committee and
          Subgroup Meetings

• NERC total budget for “Committees” reduced in 2009
• NERC committees asked to evaluate $ reduction
  alternatives
  – Discussed eliminating Joint committee meeting but did not
    eliminate
  – Discussed merging the NERC OC and PC committees
  – Discussed reducing the number of meetings
  – Discussed subcommittee meetings

• Possible most productive efforts may be to discontinue
  subcommittee meetings at expensive hotels
• NERC OC requested NERC to provide the budget
  breakdown of NERC OC expenses

                                                                127
                                                              SERC Board
                                                                Meeting
    Future Path of Transmission Loading Relief
                 (Submitted SAR)

•    MISO, PJM and SPP submitted a SAR which would require
     – All Eastern Interconnection RCs report generator-to-load impacts to the
       IDC on a real time basis which will give RCs experiencing the
       congestion knowledge of the magnitude and source of all flows affecting
       their congested flowgate using the IDC

•    Operating Reliability Subcommittee (ORS) and the Reliability
     Coordinator Working Group discussed the proposal but did not
     endorse the concept.
     – Asked for a cost/benefit analysis

•    NERC Operating Committee were not asked and did not endorse
     the concept



                                                                            128
                                              SERC Board
                                                Meeting

Reliability Fundamentals Working Group

• Reliability guidelines are documents that suggest
  approaches or behavior in a given technical area for the
  purpose of improving reliability. They are not binding
  norms or mandatory requirements.

• Working group formed and purpose is to:
  “ Oversee the maintenance of the reliability concepts
  document and assign chapters and provide subject
  matter expertise to standard drafting teams and NERC
  committees and subcommittees as requested.”


                                                          129
                                SERC Board
                                  Meeting
Integration of Variable Generation Task
Force Report – Operational Perspective


 140,000 Mw of wind generation
         in next 10 years!

     Integration uncertainty!



                                          130
                                                        SERC Board
                                                          Meeting

           Reliability Readiness Program
•   Begin after 2003 blackout in response to FERC Directive
•   Purpose
    – Increase transparency on operating practices
    – Assess the industry’s overall preparedness to minimize the
      likelihood of another major blackout
•   Most industry feedback about the program has been favorable
    but comments came forth offering:
    – its value is diminishing
    – NERC should focus on standards and compliance
    – NERC’s mandatory compliance enforcement function creates a
      conflict environment at NERC
•   $ in 2008 and beyond for the program is an issue?




                                                                   131
                                                   SERC Board
                                                     Meeting

      Reliability Readiness Program
• Direction provided by the NERC Board’s Finance and
  Audit Committee was that the Reliability Readiness
  Program - Complete essential evaluations by
  February 2009.

  – All RCs, BAs, and TOPs initially scheduled for evaluation
    this year which have not been reviewed before have been
    cancelled.
  – Entities requesting evaluation will be evaluated this year.
  – NERC staff working on the readiness program will work in
    other areas




                                                                  132
                                    SERC Board
                                      Meeting

  Under-frequency Load Shedding Relays

• Events analysis are showing their should be
  concern about the coordination of the
  under-frequency relays across regions
• NERC OC working with NERC on this issue




                                             133
                                             SERC Board
                                               Meeting

   Operating Committee 3 Year Work Plan
• NERC OC 3 year plan developed in December 07 and it
  needs updating.

• Team put together to review and revise the work plan
  for discussion at the December NERC OC meeting.
  Sam Holeman is chairing the team.

    Question: Does the NERC OC provide the industry
    with a positive value proposition moving forward? In
    other words, does the NERC OC have a future place
    (3 year planning window) in the industry?




                                                           134
                                                             SERC Board
                                                               Meeting
NERC Operating Committee 3 Year Work
                Plan
  Possible Items
  – Operational/Ops Planning Tools Evaluation (such as syncho-phasor
    measurements)
  – NERC Reliability Standard Engagement
  – Documentation/Concept Documents
    Development/Maintenance/Management
  – Aging Workforce Engagement
  – Event Analysis Engagement
  – Metrics Engagement
  – Readiness Evaluation Program Closeout Involvement
  – Cyber Security/CIPC Involvement – could point to the what if scenario
    of post successful cyber/physical security attach operations – kind of a
    N-1 ops planning
  – Long Term Reliability Assessment Involvement
  – Variable Generation Leadership




                                                                               135
                             SERC Board
                               Meeting




     Questions?

For additional information
     www.serc1.org




                                      136
                                  Exhibit K




  SERC Reliability Corporation
ENGINEERING COMMITTEE (EC)
         REPORT

  SERC Board of Directors (BOD)
    Meeting, October 22, 2008
            Charlotte




                                       137
             EC Moving Forward

• Evolutionary time with Revolutionary Effects
  – Impact of Standards
  – New ways of looking at old problems
• Member Participation
  – Wide stakeholder participation in EC
  – Over 40 members active in standards development
• SERC and the EC are having a positive impact


                                                      138
      EC Process Documents Revisions
          Reviewed and Approved
• Protection and Controls Subcommittee (PCS)
  – Special Protection System (SPS) Misoperations Supplement
    revision
• Dynamics Review Subcommittee (DRS)
  – SPS Supplement revision
  – Under Voltage Load Shedding (UVLS) Supplement revision
  – Power System Stabilizers Guideline
• Reliability Review Subcommittee (RRS)
  – Transmission System Performance Supplement revision-pending
• Planning Standards Subcommittee (PSS)
  – PSS Scope Document revision



                                                                  139
   Protection and Controls Subcommittee
                   (PCS)

Transmission/Generation System Misoperations Supplement
  – Applicable NERC standards are PRC-003 and PRC-004
  – Latest version (Rev 8)of Misoperations Supplement does not require
    general reporting of Misops 100kV to 200kV
  – Interpretation request made of SERC Compliance
  – SERC Compliance interpretation found supplement inconsistent with
    the BES definition
  – Additional justification required to maintain supplement in latest
    revision
  – December 2008 Misops reporting will be under Rev 8



                                                                     140
       Dynamics Review Subcommittee
                  (DRS)

• Updating guides and supplements to enhance
  standards compliance
• New Issues
  – Fault Induced Delayed Voltage Recovery




                                               141
         Reliability Review Subcommittee
                       (RRS)

•   Impact of drought conditions on reliability
•   2008 SERC Summer Assessment
•   NERC LTRA Regional Assessment
•   Future Scenarios for LTRA
•   Development of LOLE study




                                                  142
      Planning Standards Subcommittee
                   (PSS)

• Actively reviewing key standards
• TPL-001-1
• Reviewing Supplements
  – Many transition to guides
  – Some may become regional standards
• May dissolve and let subject matter
  subcommittees address specific standards


                                             143
     Questions?

For additional information
     www.serc1.org




                             144
145
      Industry Issues & Updates

• NERC Issues
•




                                  146
                                        Exhibit L

                      2008 Fall Board Meeting




    2008 SERC Board
     Spring Meeting
      CIPC Update



       October 22, 2008
Boyd Nation, Southern Company
         CIPC Chair

                                             147
                                      2008 Fall Board Meeting




  SERC Participation in NERC CIP Efforts
• Vice-Chair of NERC CIPC
• Chair of NERC Boreas Working Group
• Participation in the following, among others:
    • CIPC
    • Risk Assessment Working Group
    • CIP Standard Drafting Team
    • Regional CIPC Liaison Task Force
    • Control Systems Security Working Group
                                                         148
                                  2008 Fall Board Meeting



Recommended Process for Critical Asset
             Review
• See handout.
• 8-10 reviews by mid-2009.
• Review methodology, process, CA list, and CCA
  list.
• On-site at first; no documents kept by SERC.
• Team construction similar to audit team.
• No compliance findings to result.

                                                     149
                                     2008 Fall Board Meeting




   Approval of New CIPC Vice-Chair
Marshall Bissonnette has resigned as CIPC Vice-Chair.
On 10/16/08, the CIPC elected Charles Abell of Ameren
to succeed him. His qualifications:

• EMS Manager for Ameren; heavily involved in Ameren
  efforts for CIP standards
• Active participant in SERC CIPC Executive Committee
• Alternate member and active participant in NERC CIPC




                                                         150

				
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