A Discussion on NERC Compliance

By Cristin Lyons, ScottMadden

Companies need to be proactive and well organized to ensure they remain compliant with NERC reliability standards. The recent $25 million fine assessed to Florida Power & Light has once again crystallized industry attention on NERC compliance. Based on industry conferences, a recent Webinar, and discussions with industry leaders, leading practices in NERC compliance are emerging:

Provide centralized oversight of compliance work. Most organizations are opting to centralize NERC compliance oversight to ensure that the processes and systems to support compliance are in place. In this model, while the business units retain responsibility for standards compliance, the centralized oversight group is responsible for making sure the right infrastructure and processes are in place. This centralized group should understand both sides of NERC compliance—regulatory and operational—and coordination between the centralized group and the operating business units is vital.

Establish clear processes and assign roles and responsibilities. NERC compliance requires coordination across multiple business units, which implies that processes spanning these organizational units need to be clear. Each person responsible for some aspect of compliance work needs to understand his or her role in the company’s compliance program and how that role interfaces to other business units.

Use the centralized group to assist the business units. In a recent Webinar, a panelist described his company’s centralized compliance group as being made up of Six Sigma black belts and green belts who work with the business units to improve processes and practices. They provide much more than oversight to the compliance effort and serve as resources to the business units, whether the corrective actions identified are reportable or not. This creates an environment where the groups are working as a team toward a common goal.

Quantify risk. Part of the same Webinar discussion focused on the need to quantify the risks and potential financial impacts associated with compliance activities. Two areas should be considered: the risk of violating the rules and potential sanctions from the regulatory authority and the commercial impact to revenue, capital or operations and maintenance expenses. This quantification can guide standards development.

Treat compliance as a discipline. Compliance requires additional processes and skills. This is an important career message for the staff performing the work in the field or the control room. NERC compliance has changed the way the industry works; a different discipline is required and a centralized compliance group can help provide it.

Report on the state of compliance. Management should be made aware of the organization’s compliance performance on a monthly basis. NERC compliance should appear in performance evaluations and annual bonuses at all levels, ensuring that responsibility for and awareness of compliance span the entire organization.

Communicate and train. Communication is key to all parties’ understanding of their roles and responsibilities and the handoffs between functions. Training should be targeted to address the roles employees have in NERC compliance.

Select appropriate tools to support the NERC compliance program. No single software application has emerged as the standard for managing NERC compliance; however, as companies elect to implement software packages, they should spend time up front to clarify business requirements and confirm that the application selected will meet the needs of the program.

Operating the bulk electric system in compliance with the standards and providing evidence that demonstrates this remain paramount in meeting the standards. There is no substitute for good operations; however, the practices above can provide the infrastructure to sustain a compliance program over time.

Cristin Lyons is a partner with ScottMadden Inc., where she leads the firm’s transmission practice. She has been consulting in the energy industry since 1999 and her recent engagements have focused on transmission operations, NERC compliance, smart grid initiatives and transmission acquisitions. She may be reached at cmlyons@scottmadden.com.


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