On March 12, 2013, the Western Electricity Coordinating Council (“WECC”) filed with the Federal Energy Regulatory Commission (“FERC”) a petition for declaratory order in Docket No. EL13-52-000 seeking to confirm the funding arrangements proposed by WECC to establish a separate reliability coordination company (“RC Company”).

WECC is one of eight “regional entities” that operate by delegation agreement with the North American Electric Reliability Corporation (“NERC”) to enforce NERC’s reliability standards and to propose regional reliability standards. WECC is one of three of those regional entities that act as a “registered entity” that must comply with the reliability standards. WECC performs reliability coordination among balancing authorities and transmission operators in the Western Interconnection. WECC also performs registered entity functions as interchange authority by administering and maintaining the WECC Interchange Tool (“WIT”).

WECC’s dual role as both enforcer of and complier with NERC reliability standards has been the source of some concern for FERC. It has led WECC and NERC and another regional entity (Northeast Power Coordinating Council (“NPCC”)) to enter into a separate delegation agreement, so that NPCC can serve as WECC’s compliance enforcement authority with respect to the reliability coordination functions performed by WECC. Moreover, WECC’s role as reliability coordinator in the West is more limited than other reliability coordinators in that WECC does not directly operate the bulk electric system (“BES”). WECC merely “would advise and, when necessary, direct other entities to take operational actions.” Even with WECC’s limited reliability coordination role, recent outages and events in the West have raised questions about whether WECC is spread too thin in its regional entity and registered entity roles.

In the Petition, WECC announced its intent to spin out its reliability coordination and interchange authority responsibilities into a separate RC Company. The WECC would delegate its reliability coordination and interchange authority functions to the new RC Company through a new sub-delegation agreement. WECC intends to organize the RC Company as a not-for-profit company and to finalize the structure in 2013. To manage the RC Company, WECC will appoint an interim board committee that will be drawn from WECC’s own board members and subject to oversight by the WECC Board. The overlap between the WECC board and the RC Company interim board committee will continue until January 1, 2014, when the RC Company will begin to operate independently and interim board committee members will resign from the WECC Board. WECC intends to transition all reliability coordination employees to the RC Company and to expand staffing by as much as 50% over the next three years. Upon completion of this transition, WECC also proposes to terminate the compliance enforcement authority arrangement it has with NPCC and to assume the compliance enforcement authority role over RC Company.

The Petition specifically seeks authority for RC Company to be funded by the same funding mechanism under Section 215 of the Federal Power Act that funds NERC’s and WECC’s operations. That funding mechanism also funds the group of state regulators that provides advice to WECC (the Western Interconnection Regional Advisory Board or “WIRAB”). Although most reliability coordination is funded through contracts and separate tariff mechanisms, WECC argues that 215 funding should continue for RC Company because 215 funding for WECC’s reliability coordination activity was originally supported by WIRAB and most of WECC’s stakeholders. WECC also argues that its reliability coordination is distinguishable from other reliability coordinator operations because WECC has limited involvement in day-to-day bulk electric system operational decisions. WECC notes that its reliability coordination helps support NERC’s situational awareness obligations under Section 215.

Whether WECC will succeed in securing 215 funding for the RC Company is an open question. It should be noted that, as a result of FERC’s audit of NERC, NERC provided criteria for 215 funding. That criteria would support 215 funding for “leadership coordination, technical expertise and assistance to the industry in responding to events,” but would specifically disallow 215 funding for “activities entailing real-time operational control” of the BES. NERC’s criteria are currently in being litigated in FERC Docket No. FA11-21-000.

The Petition also raises questions about how independent the RC Company will ultimately be from WECC. WECC claims:

RC Company’s staff will be hired and subject to performance review only by RC Company management, and RCs and RC Company management will have their work product reviewed only by RC Company’s board and management personnel. WECC will act independently with respect to board positions, compensation, the preparation and control of budgets, the separation of personnel, and the development of reliability standards. There will be no commingling of employees or shared responsibilities. Because RC Company will operate completely independently from WECC and will have an independent board, this provides the strong separation that the Commission found lacking under the existing approach.

Nevertheless, to secure the 215 funding for the RC Company, WECC indicated that it intends to delegate its reliability coordination and interchange authority functions to the new RC Company through a sub-delegation agreement. WECC further states that it will collect the assessments that will be allocable to the RC Company’s annual budget. FERC could find that WECC’s control of this sub-delegation agreement and of the collections for the RC Company’s funding could dilute the RC Company’s independence.

Ultimately, the question raised by WECC’s proposal is whether WECC’s proposed restructuring is worth the costs of separating out the reliability coordination function and increasing staffing. The restrictions noted above in NERC’s criteria for Section 215 funding may inhibit the RC Company’s ability to do much more than it currently does with respect to day-to-day operation of the bulk electric system. Even if the restructuring does enhance the independence of the regional coordination function from WECC’s regional entity activities, it is unclear what operational improvement will result from the restructuring, other than the potential for the WECC regional entity to take back from NPCC the compliance enforcement role over Western reliability coordination.

In a notice issued March 14, 2013, FERC has requested comments and interventions on WECC’s Petition on or before April 11, 2013.

Relevant Links

WECC’s Petition: http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=13202693

FERC’s Notice: http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=13204675