NEWS AND INSIGHTS

Now we know “What’s Going on….”  FERC issued a press release this afternoon, reading as follows:

Senate Confirms McIntyre, Glick to FERC

The U.S. Senate has confirmed the nominations of Kevin McIntyre and Richard Glick to join the Federal Energy Regulatory Commission (FERC). McIntyre will serve as Chairman.

McIntyre, co-leader of the global Energy Practice at the law firm Jones Day, will serve out the remainder of a term that ends June 2018 and a full term that ends June 2023. Glick, general counsel for the Democrats on the Senate Energy and Natural Resources Committee, will serve out the remainder of a term that ends in June 2022.

FERC Chairman Neil Chatterjee congratulated McIntyre and Glick on their confirmation.

“I am very pleased to welcome Kevin and Rich to the Commission, and I look forward to working with them on behalf of the American people,” Chatterjee said. “I’ve enjoyed getting to know Kevin through the confirmation process and am eager to start working with him, and it will be great to reunite with Rich Glick, my former Senate colleague. Both Kevin and Rich bring years of experience and knowledge to the significant issues before the Commission and, importantly, their arrival restores the Commission to full strength.”

 

It will be interesting to see what deal was struck to remove the hold placed on Mr. Glick by Senator Inhofe.  But FERC is back to a fully populated Commission, which has not been the case since October of 2015.

 

 

With the Federal Energy Regulatory Commission now several weeks into collecting comments on DOE Secretary Rick Perry’s “rocket rulemaking” to address grid resiliency in organized capacity markets (FERC Docket No. RM18-1-000), one may wonder what has happened to the two commissioner nominations pending before the Senate, Democrat Richard Glick and Republican and soon-to-be Chairman Kevin McIntyre. Both nominees passed through the Senate Committee on Energy and Natural Resources’ review with unanimous bipartisan support in September. The nominees are needed to fill out the five-member Commission with three Republicans and two Democrats. And more importantly, the nominees are needed to help pour through the 690 sets of comments in the docket. So why haven’t they been seated yet?

(Spoiler Alert: Politics!)

As part of its confirmation of Commissioners Chatterjee and Powelson in August, Senate leaders struck a deal to advance the remaining Democrat and Republican nominees in tandem. President Trump announced his formal appointment of McIntyre and Glick to the Commission on August 2nd. This cleared the way to Senate confirmation of Chatterjee and Powelson the very next day by voice vote, and the FERC quorum was restored to everyone’s delight.

Glick and McIntyre appeared before the Senate Committee on Energy and Natural Resources a month later, on September 7th, and that committee promptly voted out and reported to the entire Senate for consideration on September 19th. At that point, everything was smooth sailing. Senator Murkowski proposed to confirm the nominations by unanimous consent….and fellow Republican Jim Inhofe – a Senator from energy resource rich Oklahoma – objected. Senator Inhofe’s objections have absolutely nothing to do with FERC or its agenda. Rather, as Senator Inhofe explained:

“Given the unprecedented obstruction by the Senate Democrats to President Trump’s nominees, I could not allow the confirmation of the pending Democratic FERC nominee [Glick] to move forward without more nominees included as well. The price was too low, particularly given the fact that there is an agency with only one political appointee confirmed.”

The agency he was referring to was the Environmental Protection Agency, an agency headed by fellow Oklahoman Scott Pruitt. Senate Democrats objected strongly to Michael Dourson to run the EPA chemicals office, and Bill Wehrum to lead the agency’s air office. This past Wednesday, October 25th, the Senate Environment and Public Works Committee voted along party lines (11-10) to advance the nominees, together with Matthew Leopold to be assistant administrator in the EPA general counsel’s office and David Ross as assistant administrator for the Office of Water. In all, there are 15 positions within the EPA that the Senate must confirm. Within FERC, it is only the 5 Commissioners that the Senate vets. Other positions, like the chief counsel, are selected by the Chairman, and Chairman Chatterjee has already done so.

With one roadblock down, it is still unclear if a deal that packages the EPA and FERC nominees, as well as other nominees, is in the works. Senate Democrats do not seem to be backing down over their objections to the EPA nominees, and there is a pending legal challenge to the Trump Administration under the Federal Vacancies Reform Act because Mr. Dourson is already working at EPA as a “special advisor” even as he awaits his Senate vote. Similar legal challenges were made under President Obama’s administration. Senate Democrats are also bemoaning Dourson’s ties to the chemical industry that he will be charged with regulating.

With the two-month delay in confirming the first two vacancies on the Commission, the debate over tax reform and the budget, and the glacial pace that the Senate is handling the other business before it, one would not be surprised if we will do not see the Commission restored to its five-member panel for several more months. Chairman Chatterjee is moving ahead. He testified before Congress in September and has separately laid out an agenda to address natural gas pipeline and hydroelectric project review, PURPA, energy storage, transmission incentives, and cybersecurity, among other issues. It may be that the DOE “rocket rulemaking” is considered by only three Commissioners, a fact that may sway the outcome given that the two Commissioners waiting in the wings have already stated that their charge in regulating the energy markets through FERC is not fuel specific, which directly contravenes Secretary Perry’s coal and nuclear-centric rule.

But for now, we’ll have to wait to see “what’s going on.”

FERC has released a 23-page Staff report entitled “Lessons Learned from Commission-Led CIP Version 5 Reliability Audits.”  A copy of the report can be found here.  This report is a must read for compliance and cybersecurity professionals that support utilities with NERC CIP compliance programs.

Two years ago, FERC announced that it was going to take the lead on various audits throughout the country, stepping in front of NERC and the Regional Entities.  In the past, I have been involved in audits where FERC has served as “passive observers” (well, sort of), to audits led by the Regional Entities.  FERC conducted its own audits in 2016 and 2017, and is now taking the opportunity to inform the industry on what it views as lessons learned from reviewing compliance with CIP Version 5 implementation, as well as the remnants of CIP Version 3 programs.  

I could try to summarize FERC’s 21 observations, but it is probably easiest to just repeat them here.  With each lesson learned, FERC includes a paragraph or two of elaboration.  While extremely high level, FERC’s comments are practical, and can be the basis for developing internal audit and compliance activity.  Kudos to FERC Staff for providing insight to the industry in this regard.

Happy reading and have a great weekend.

  

1. Conduct a thorough review of CIP Reliability Standards compliance documentation; identify areas of improvement to include but not be limited to instances where the documented instructional processes are inconsistent with actual processes employed or where inconsistencies exist between documents; and modify documentation accordingly.

2. Review communication protocols between business units related to CIP operations and compliance, and enhance these protocols where appropriate to ensure complete and consistent communication of information.

3. Consider all owned generation assets, regardless of BES-classification, when evaluating impact ratings to ensure proper classification of BES Cyber Systems.

4. Identify and categorize cyber systems used for supporting generation, in addition to the cyber systems used to directly control generation.

5. Ensure that all shared facility categorizations are coordinated between the owners of the shared facility through clearly defined and documented responsibilities for CIP Reliability Standards compliance.

6. Conduct a detailed review of contractor personnel risk assessment processes to ensure sufficiency and to address any gaps.

7. Conduct a detailed review of physical key management to ensure the same rigor in policies and testing procedures used for electronic access is applied to physical keys used to access the Physical Security Perimeter (PSP).

8. Enhance procedures, testing, and controls around manual transfer of access rights between personnel accessing tracking systems, Physical Access Control Systems (PACS), and Electronic Access Control Monitoring Systems (EACMS) or, alternatively, consider the use of automated access rights provisioning.

9. Ensure that access permissions within personnel access tracking systems are clearly mapped to the associated access rights within PACS and EACMS.

10. Ensure that policies and testing procedures for all electronic communications protocols are afforded the same rigor.

11. Perform regular physical inspections of BES Cyber Systems to ensure no unidentified Electronic Access Points (EAPs) exist.

12. Review all firewall rules and ensure access control lists follow the principle of “least privilege.”

13. For each remote cyber asset conducting Interactive Remote Access (IRA), disable all other network access outside of the connection to the BES Cyber System that is being remotely accessed, unless there is a documented business or operational need.

14. Enhance processes and controls around the use of manual logs, such as using highly visible instructions outlining all of the parts of the requirement with each manual log, to consistently capture all required information.

15. Enhance processes and procedures for documenting the determination for each cyber asset that has no provision for disabling or restricting ports, to ensure consistency and detail in the documentation.

16. Consider employing host-based malicious code prevention for all cyber assets within a BES Cyber System, in addition to network level prevention, for non-Windows based cyber assets as well as Windows-based cyber assets.

17. Implement procedures and controls to monitor or limit the number of simultaneously successful logins to multiple different systems.

18. Implement procedures to detect and investigate unauthorized changes to baseline configurations.

19. Ensure that all commercially available enterprise software tools are included in BES Cyber System Information (BSCI) storage evaluation procedures.

20. Enhance documented processes and procedures for identifying BCSI to consider the NERC Critical Infrastructure Protection Committee (CIPC) guidance document, “Security Guideline for the Electricity Sector: Protecting Sensitive Information.”

21. Document all procedures for the proper handling of BCSI.

The Senate Energy and Natural Resources Committee held a two-hour hearing today to review the nominations of Democrat seat appointee Richard Glick and Republican seat appointee and prospective Chairman Kevin McIntyre to be members of the FERC.  The Committee also reviewed the nominations of Joseph Balash to be Assistant Secretary of the Interior for Land and Minerals Management and Ryan Nelson to be Solicitor of the Department of the Interior.  If you have the time and the inclination, the hearing is archived here.

Each nominee began with a prepared opening statement.  Mr. Glick noted his prior experience on the Hill, working for Senator Cantwell and previously for Senator Bumpers in the 1990s.  He also highlighted is broad experience in the industry, including representation ranging from public power entities and state regulators while in private practice to serving as in-house counsel to utilities such as PacifiCorp and Avangrid.  Mr. McIntyre highlighted his 30-year career which included substantial practice before FERC on behalf of a wide swath of energy industry participants and his “rule of law” approach to reasoned decision making that would be applied if confirmed as a Commissioner.

The questions from both Republicans and Democrats were handled very well by both nominees, with each expressing expert understanding of the primary jurisdiction of FERC, pending rulemakings and matters before the agency, significant policy considerations and challenges to grid reliability, resource integration, and state law issues like renewable portfolio standards.  A few recurring themes appeared that I would note:

• The recently released DOE Staff Report surfaced in questions by several Senators, including questions about the ability for FERC to express a fuel source preference.  Mr. McIntyre asserted that FERC does not pick fuels, that it should be open to the science, and that reliability and economics also play a key role in FERC’s role in market design and operation. Mr. Glick provided complimentary responses, noting that the Staff Report indicated that the significant loss of baseload generating resources hasn’t impaired reliability to date, but is something that FERC needs to keep its eye on.
• Both nominees noted the ongoing price formation and transparency and energy storage initiatives that are already underway.  While not expressing opinions on how they would vote on the matters currently before FERC, both indicated that these policy initiatives were important and (in my view) signaled they would be continued under the new Commission.
• Both nominees acknowledged state’s rights in the context of the right to establish renewable portfolio standards, dealing with state specific issues like nuclear generation, and in infrastructure siting determinations.  Mr. Glick cited to the recent Hughes Supreme Court decision, and Mr. McIntyre provided a complementary follow up response, consistent with his “rule of law” comment provided in his opening remarks.

All in all, there were no gotcha moments and no zingers from either the dais or the nominees.   The two nominees expressed great poise and knowledge to every question thrown their way, and neither expressed what I would consider to be extreme positions in relation to criticisms lodged against other administration appointees to the Department of Energy, Environmental Protection Agency, or other agencies that impact the energy business.

Chairwoman Murkowski indicated at the end of the hearing that it was her desire to move to a vote quickly, and told Messrs. Glick and McIntyre “we can’t get you there fast enough.”  Let’s hope that is true and it takes less than the time it took for the confirmation of Messrs. Chatterjee and Powelson. 

 

Last night, the Department of Energy released its highly anticipated Report to Secretary of Energy Rick Perry on Electric Security Markets and Reliability.  A copy of the DOE Staff Report, along with Secretary Perry’s cover letter, can be found here:

https://energy.gov/downloads/download-staff-report-secretary-electricity-markets-and-reliability

Four months ago, Secretary Perry issued a memorandum directing a study to explore three main topics: (1) the evolution of wholesale electricity markets, including the extent to which Federal policy interventions and the changing nature of the electricity fuel mix are challenging the original policy assumptions that shaped the creation of those markets; (2) whether wholesale energy and capacity markets are adequately compensating attributes such as on-site fuel supply and other factors that strengthen grid resilience and, if not, the extent to which this could affect grid reliability and resilience in the future; and (3) the extent to which continued regulatory burdens, as well as mandates and tax and subsidy policies, are responsible for forcing the premature retirement of baseload power plants.  As most are aware, the Trump Administration has a desire to preserve the coal industry (with an emphasis on the jobs it creates), and the recent spate of baseload coal generating plant retirements and litigation involving state policies has put new pressures on wholesale markets.

The results of the DOE Staff Report are perhaps a little different than what were originally expected and more importantly, telling of how FERC may advance its future policies toward market design reforms, grid resilience, resource preference, integration of variable energy resources, fossil fuel delivery and availability, changing and expanding federal and state policy objectives, and least cost vs. reliability concepts.   At the same time, some of these initiatives are already underway in FERC Rulemakings issued over the last three years, all under the general auspices of the price formation and transparency improvements to organized markets.  The DOE Staff Report recommends policies be created to acknowledge the importance of fossil fuel baseload and responsive peaking generation as critical to the reliability of the electric grid.  It will be interesting to see whether and how the recommendations are advanced, and how the DOE Staff Report shapes FERC’s agenda over the coming months.

So, get a large cup of coffee this morning, and start reading….

Commissioner Chatterjee was sworn in yesterday.  According to news reports, Commissioner Powelson has indicated that he will come to D.C. on Monday and along with his colleagues, get started on resolving the large backlog of proceedings right away.  It is still unclear when FERC will commence its regular monthly Open Meetings, but typically, there is not a meeting in August even when there was a quorum.   FERC can and often does use notational voting, however, meaning we could start seeing substantive orders soon.

There have been no formal announcements on any advisory staff positions yet for either new Commissioner or whether President Trump will seek to replace Chairman LaFleur with one of the two new Republicans as we wait for Kevin McIntyre to be confirmed and seated as the new Chairman.  There are also no indications that Chairman LaFleur would leave FERC if removed from the Chair position, as was the case with Commissioner Bay.

Interestingly, Commissioner Powelson has indicated that he will commute from his Pennsylvania home (west of Philadelphia and northwest of Wilmington) to D.C.   He commuted to Harrisburg as a Commissioner on the PUC as well.

 

At 6 PM today, I posted an insight explaining that while Majority Leader McConnell successfully pushed through approximately 65 of the President’s appointees pending before the Senate, the Chatterjee and Powelson nominations were NOT among them.  Several other key positions, including FCC and CFTC Commissioners were cleared. These nominations were made “on block,” meaning there was no individual vote or floor debate as to each.  It also meant that the Senate Democrats consented to those nominations.   I sent the post, jumped in my car and headed home, thinking that we’d be without a quorum for several more weeks until the Senate reconvened.

Shortly before 7 PM, the Senate did push Chatterjee and Powelson through!  The Washington Examiner and Politico separately reported that Senate Democrats were holding up the FERC nominations.   The reports also indicated Democrats were first waiting for the official nomination of Richard Glick to materialize, which it did.   Apparently, content with promises that the Glick nomination would be brought to vote, the Chatterjee and Powelson nominations were brought to the floor of a largely empty Senate chamber.

So ends the drama of the quorum-less FERC and my one hour of being #FAKENEWS.

 

At 11:45 A.M. today, the Senate will begin considering Dan Brouillette to be Deputy Secretary of Energy.  Mr. Brouillette participated in the same committee confirmation hearing as prospective Commissioners Ronald Powelson and Neil Chatterjee in late May.  Having now cleared more high profile nominations such as Director of the FBI, a position on the NLRB, federal judicial posts and many military posts, it may finally be the time that we see the FERC’s quorum restored.   At least one official Senate website is posting that “additional votes are possible during Thursday’s session.” 

No one is expecting controversy on these two candidates.  I, for one, am surprised it has taken this long, considering (i) that Mr. Chatterjee was sponsored by the Majority Leader, Senator McConnell, and (ii) the economic development that is being held up by a failure of FERC to move swiftly on pending infrastructure applications.

The Congressional Record today also officially acknowledges the receipt of the nominations of Richard Glick and Kenneth McIntyre from the White House.  As expected, Mr. McIntyre will be considered for two terms, one expiring June 2018, and the other in June 2023.  The Energy and Natural Resources Committee has scheduled (link here) a committee meeting to consider these nominations on September 7, 2017.   

 

 

 

On July 25, the SPP issued a press release publicly announcing that the SPP and NERC have agreed to terminate their Electric Reliability Organization delegation agreement.  Action had been taken by SPP’s Board of Directors on Sunday, July 23^rd.  This move will dissolve the SPP Regional Entity, one of NERC’s eight delegated Regional Entities responsible for compliance and enforcement for the Reliability Standards promulgated under Section 215 of the Federal Power Act.   This termination and transition to a new Regional Entity (or Entities) is contemplated to be complete by the end of 2018.

 A copy of SPP’s press release can be found here.

Nick Brown, CEO of SPP stated that the goal is to focus on strategic objectives, including Western expansion, wholesale market operations and transmission planning of the SPP RTO.   SPP was the only remaining organization to operate as both an RTO and as a Regional Entity.  As such, it could both recommend fines and pay fines, raising concerns about independence.

The SPP Regional Entity utilizes 24 of SPP’s employees and has 120 entities under its compliance monitoring and enforcement program.  It is unclear at present which of the other Regional Entities these companies will be transferred.  It is quite possible that the answer will vary within the SPP footprint.

 

 

 

(Couldn’t resist; rest in peace Gene Wilder, you were a brilliant actor and this was one of your finest)

Thursday evening, President Trump announced his intent to make his final appointment to the Federal Energy Regulatory Commission: Kevin McIntyre, a well-respected Jones Day energy attorney.  Mr. McIntryre’s name has been out there for several months; now it looks like it’s going to happen.  Once confirmed, McIntyre is expected to be tapped as the Republican-appointed majority Chairman.

 According to The Hill, Trump is asking the Senate to confirm McIntyre to two terms, through 2023.  This sounds more bombastic than it really is; Commissioner terms are staggered, 5-year terms.  Ron Powelson is getting a seat that expires in June 2020, Neil Chatterjee is getting a seat that expires June 2021, Richard Glick is getting a seat that expires in June 2022, and current sitting Chairwoman LaFleur’s seat expires in June 2019.  That leaves the seat that expires June 2018.  The law says that “any Commissioner appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed shall be appointed only for the remainder of such term.”  And it would be very awkward for the Trump Administration to tap an established energy practitioner to lead the Commission, only to have to work for his reappointment after a short period of time on the job.  Perhaps not that appealing to Mr. McIntyre either.

For you legal eagles out there that read my insights, the details of FERC appointments can be found in 42 U.S.C. § 7171(b).

As we wait for the Glick and McIntyre confirmation hearings, I watch the Senate Executive Calendar daily (ok, this may be a bit of a stretch, I do have a life), wondering if we will see action on Chatterjee and Powelson before Congress takes the month of August off.  We can only hope.  FERC’s backlog is growing. We need a fully functioning Commission as soon as possible.