MEMORANDUM

TO: Legislative Affairs Committee
       Regulatory Affairs Committee
       NAERO Working Group

FROM: Scott Weiner, Legislative Affairs Committee Chair
             Jim Steffes, Regulatory Affairs Committee Chair
             Mark Bennett, Senior Manager of Policy
             Donn Salvosa, Manager of Government Affairs

DATE: September 25, 2001

RE: NERC Statements on Impact of Security Threats on RTOs

The attached e-mail in Microsoft Word form contains statements that NERC made during a recent meeting with members of the national press.  The statements concern NERC's view of the implications of terrorist threats for FERC's " Four RTO policy" set forth in its July 12th Order.  The statements also may bear upon the effort to establish a new standards setting organization, particularly the possibility that NERC's responsibilities could be shifted to EISB.  Also attached is an article containing the views of R.J. Rudden Associates, Inc. that discusses the risks associated with centralizing control center operations.

Specifically, NERC representatives informed the press that on September 11 "the grid was the target of an insidious cyber attack that shut down some facilities...from an information administration standpoint."  They noted that this resulted in service denials, although it is not clear whether they indicated where or how much.  This event was attributed to the so-called "NIMBA virus".

NERC's statements suggest a new strategy to preserve the role they've played not only in security matters, but possibly other aspects pertaining to "reliability standards."  They warn against any immediate transition to fewer RTOs as envisioned in FERC's July 12th Order.  Moreover, it is likely that NERC will argue that, given its expertise and experience, recent events make transitioning to a new standards organization (EISB?) ill advised.  

It is unclear what, if any, impact all this may have on RTO development, the legislative effort to establish a new reliability standards body or the NERC Board's consideration of pending reform proposals at its October meeting.  However, we can expect security related issues to be included in future discussions of these matters. 

Please provide your reactions to the NERC statements to Mark Bennett at 202-628-8200 or mbennett@epsa.org