UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Joseph T. Kelliher, Chairman; 

 Suedeen G. Kelly, Marc Spitzer, 

 and Jon Wellinghoff. 

 

North American Electric Docket No. RR06-3-000 

Reliability Corporation 

ORDER CONDITIONALLY ACCEPTING 

2007 BUSINESS PLAN AND BUDGET OF THE 

NORTH AMERICAN ELECTRIC RELIABILITY CORPORATION 

APPROVING ASSESSMENTS TO FUND BUDGETS 

AND ORDERING COMPLIANCE FILINGS 

(Issued October 24, 2006) 

1. On July 20, 2006, the Commission granted the application submitted by the North 

American Electric Reliability Council (NERC Council), on behalf of its wholly-owned 

subsidiary, the North American Electric Reliability Corporation (NERC Corp.) 

(collectively NERC) for certification as the Electric Reliability Organization (ERO) for 

the continental United States under section 215 of the Federal Power Act (FPA).1

 

2. The Commission’s regulations require the ERO to file with the Commission its 

proposed entire annual budget for statutory and non-statutory activities 130 days before 

the beginning of its fiscal year. This filing must also contain the entire annual budget of 

each Regional Entity for statutory and non-statutory activities and include supporting 

materials, including the ERO's and each Regional Entity's complete business plan and 

organization chart, and explanation of the proposed collection of all dues, fees and 

charges and the proposed expenditure of funds collected.2

 

3. Pursuant to section 39.4 of the Commission’s regulations, NERC filed its 2007 

Business Plan and Budget as well as the 2007 Business Plans and Budgets of Regional 

Entities on August 23, 2006 (NERC Application), and supplemented this filing on 

 1 North American Electric Reliability Corporation, 116 FERC ¶ 61,062 (2006), 

reh’g pending (ERO Certification Order). 

2

 18 C.F.R. § 39.4(b) (2006). 
Docket No. RR06-3-000 - 2 -

October 6, 2006. Based on our review of NERC's ERO business plan and budget 

application and consideration of the public comments submitted on NERC’s application, 

we conditionally accept the NERC budget and business plan, and the Regional Entity 

budgets in part, and order NERC to make compliance filings, as discussed below. 

4. As noted above, we are conditionally accepting the first budget submitted by the 

ERO, as amended in the October 6 supplemental filing. The ERO’s budget filing 

represents another important milestone toward achieving a strong ERO capable of 

developing and enforcing mandatory Reliability Standards. To this end the activities 

identified by NERC as statutory should be funded through the ERO under section 215 of 

the FPA, as NERC has proposed. We also find that NERC’s proposed business plan is 

consistent with the activities described in its certification application as approved by the 

Commission; therefore, we conditionally accept NERC’s budget, subject to NERC 

providing more information as described herein. 

5. Likewise, we find that the proposed activities to be performed by the Regional 

Entities, as amended by NERC, are statutory activities entitled to funding through the 

ERO. However, we reserve judgment on the proposed Regional Entity business plans at 

this time, as the Regional Entity delegation agreements have yet to be executed or filed 

with the Commission for approval. 

6. Other significant actions in this order include: 

• We approve the NERC funding request of $66,425,996, less the $6.9 million 

requested for WECC reliability coordinator activities, for operation in the United 

States for fiscal year 2007. The Commission approves the proposed billing 

mechanics of the ERO. In addition, the Commission authorizes NERC to issue 

billing invoices by December 1, 2006, as planned. This will allow NERC to fund 

its first fiscal year as the ERO. 

• We approve the budget and requested funding of $402,839 for the Western 

Interconnection Regional Advisory Body (WIRAB). 

• We direct that NERC submit compliance filings to provide additional information 

on NERC’s accounting and recordkeeping, and supplemental budget information 

for each Regional Entity, among other things. 

I. Background

 A. Order No. 672

7. The Energy Policy Act of 2005 was enacted into law on August 8, 2005. It added 

a new section 215 to the FPA, which requires a Commission-certified ERO to develop 

mandatory and enforceable Reliability Standards, subject to Commission review and 
Docket No. RR06-3-000 - 3 -

approval.3

 Once approved, the Reliability Standards are to be enforced by the ERO, 

subject to Commission oversight. With regard to funding, section 215(c)(2)(B) of the 

FPA provides that the ERO must have rules that “allocate equitably reasonable dues, fees 

and other charges among end users for all activities under this section.” 

8. On February 3, 2006, the Commission issued Order No. 672 to implement the 

requirements of section 215 of the FPA.4

 Order No. 672, among other things, sets forth 

requirements for the funding of the ERO and the approval of an ERO budget and 

business plan.5

 Specifically, Order No. 672 concludes that section 215 of the FPA 

“provides for federal authorization of funding limited to the development of Reliability 

Standards and their enforcement, and monitoring the reliability of the bulk-power system. 

However, the ERO or a Regional Entity is not precluded from pursuing other activities, 

funded from other sources.”6

 Likewise, any funding that is approved and provided by the 

ERO to a Regional Entity would be limited to a Regional Entity’s costs related to its 

delegated functions.7

 

9. On March 30, 2006, the Commission issued Order No. 672-A. While generally 

confirming the Commission’s determinations in Order No. 672, Order No. 672-A 

clarifies that the ERO may collect a Commission-approved assessment of dues, fees or 

charges for all activities performed pursuant to section 215 of the FPA, which would 

include all activities pursuant to the Commission’s associated regulations.8

 

 3

 Pub. L. No. 109-58, Title XII, Subtitle A, 119 Stat. 594, 941 to be codified at 

16 U.S.C. 824o. 

4 Rules Concerning Certification of the Electric Reliability Organization; 

Procedures for the Establishment, Approval and Enforcement of Electric Reliability 

Standards, Order No. 672, FERC Stats. & Regs. ¶ 31,204 (2006), order on reh’g, Order 

No. 672-A, FERC Stats. & Regs. ¶ 31,212 (2006). 

5

 18 C.F.R. § 39.4 (2006). 

6

 Order No. 672 at P 202. Order No. 672 also discusses possible limitations on 

such other activities. Id. A Regional Entity is a body to which the ERO has delegated, 

under a Commission-approved agreement, authority to propose Reliability Standards to 

the ERO and to enforce Reliability Standards. 

7 Id. at P 229. 

8

 Order No. 672-A at P 65. 
Docket No. RR06-3-000 - 4 -

B. ERO Certification Order

10. The subsequent ERO Certification Order generally accepted the funding proposal 

contained in NERC’s ERO certification application, which allocates costs for statutory 

activities based on net energy for load (NEL).9

 The order also approved NERC’s 

proposal to have each Regional Entity bill and collect fees from the load serving entities 

(LSEs) within its geographic boundaries. 

11. According to NERC’s proposal, costs incurred to implement the statutory 

functions for one Interconnection, region or entity will be directly assigned to that 

Interconnection, region or entity and allocated within it based on NEL. NERC will 

require each Regional Entity to identify all LSEs within its footprint, as well as the NEL 

of each. The NEL reported by balancing authorities within a region will be used to 

rationalize and validate cost allocation for collection through a Regional Entity process. 

The Commission accepted this proposal and noted that in Order No. 672 it had found that 

a funding apportionment method based on NEL is a fair and reasonable method for 

allocating costs that minimizes the possibility of double-counting.10 The Commission 

accepted NERC’s general approach that Regional Entities will either perform billing and 

collection for the ERO or will manage the billing and collection. However, it directed 

NERC to adopt appropriate safeguards in the delegation agreement to ensure that (1) the 

Regional Entities transfer the money to the ERO in a timely manner and (2) the Regional 

Entities do not use their position as billing agent and collector to unduly influence ERO’s 

decisions. It clarified that this money belongs to the ERO, and that the Regional Entity 

simply serves as a collection agent.11

12. In the ERO Certification Order, the Commission reserved judgment on what 

activities could be considered statutory and therefore eligible for funding under FPA 

section 215 until NERC files its detailed budget.12 However, the Commission did state 

 9

 The Commission defined NEL as “balancing authority area generation (less 

station use), plus energy received from other balancing authority areas, less energy 

delivered to balancing authority areas through interchange. It includes balancing 

authority area losses, but excludes energy required for storage at electric energy storage 

facilities, such as pumped storage.” ERO Certification Order, 116 FERC ¶ 61,062 at 

P167, n.73. 

10 Id. at P 167. 

11 Id. at P 169. 

12 Id. at P 185. 
Docket No. RR06-3-000 - 5 -

that it generally believes that anything required of the ERO or a Regional Entity by the 

statute, Order No. 672 pursuant to the statute, or any subsequent Commission order 

pursuant to section 215 of the FPA is a statutory activity.13

C. WIRAB Order

13. On July 20, 2006, the Commission granted the petition submitted by the 

Governors of a number of Western States to establish a Regional Advisory Body (RAB)14

for the Western Interconnection pursuant to section 215(j) of the FPA to be known as the 

Western Interconnection Regional Advisory Body (WIRAB).15 The Commission agreed 

in principle that reasonable costs incurred by an RAB in performing section 215(j) 

activities may be paid from mandatory fees collected under section 215. The 

Commission also reiterated that funding should be part of the overall ERO funding 

process, and that a proposed budget for WIRAB should contain sufficient detail to enable 

a determination regarding what portion thereof is for section 215(j) activities. Any 

WIRAB funding approved in connection with the overall ERO budget would be limited 

to WIRAB’s costs incurred in performing section 215(j) activities.16

 D. Description of NERC

14. NERC Corp. is a nonprofit New Jersey corporation. Its sole member is NERC 

Council, which is also a New Jersey nonprofit corporation whose members are the eight 

regional reliability councils covering the 48 states, several provinces in Canada, and a 

portion of Baja California Norte. NERC Council has operated as a voluntary, industrysponsored reliability organization whose mission is to ensure that the bulk-power system 

 13 Id. 

14 A RAB is a body established by the Commission pursuant to FPA section 215(j) 

upon a petition by a group of states. A RAB is authorized to provide advice to the ERO, 

a Regional Entity, or the Commission regarding the governance of an existing or 

proposed Regional Entity within the territory of the states represented in the RAB, on 

whether a Reliability Standard proposed to apply within the region is just, reasonable, not 

unduly discriminatory or preferential, and in the public interest, whether fees proposed to 

be assessed within the region are just, reasonable, not unduly discriminatory or 

preferential, and in the public interest, and to exercise any other responsibilities requested 

by the Commission. 

15 Governors of Arizona, California, Colorado, Montana, Nevada, New Mexico, 

Oregon, Utah, Washington and Wyoming, 116 FERC ¶61,061 (2006) (WIRAB Order). 

16 Id. at P 33-36. 
Docket No. RR06-3-000 - 6 -

in North America is reliable, adequate and secure. In response to changes taking place in 

the electric industry, NERC Council has promoted the development of a mandatory 

system of Reliability Standards and compliance. NERC Council intends to merge into 

NERC Corp. prior to December 31, 2006, with NERC Corp. being the surviving entity. 

 E. NERC’s ERO Business Plan and Budget Application

15. The NERC Application contains NERC’s initial proposed ERO business plan and 

budget for the year ending December 31, 2007. It also includes proposed business plans 

and budgets for the year ending December 31, 2007, for the entities that NERC 

anticipates will become Regional Entities under FPA section 215, i.e., NERC’s current 

member regional reliability councils: Electric Reliability Council of Texas, Inc. 

(ERCOT), Florida Reliability Coordinating Council (FRCC), Midwest Reliability 

Organization (MRO), Northeast Power Coordinating Council (NPCC), Reliability First 

Corporation (RFC), Southeastern Reliability Council (SERC), and Western Electricity 

Coordinating Council (WECC). It also includes Southwest Power Pool, Inc.’s (SPP) and 

WIRAB’s budgets. 

16. In the October 6 supplemental filing, based on updated information provided by 

FRCC, MRO, RFC, SERC, SPP and WECC, NERC filed revised proposed assessments 

to LSEs or their designees within the footprint of each Regional Entity and revised 

allocations of NERC’s proposed 2007 budget among the United States, Canada and 

Mexico. 

II. Notice of Filing, Comments and Answers

17. Notice of filing was published in the Federal Register,

17 with motions to intervene 

and protests due on or before September 13, 2006. Intervenors, including entities that 

filed comments, are listed in Attachment A to this order. On September 26, 2006, NERC 

filed an answer. On September 29, 2006, the New York Independent System Operator, 

Inc. (NYISO) filed an answer. On October 6, 2006, WIRAB filed comments. On 

October 6, 2006, the Committee on Regional Electric Power Cooperation (CREPC) filed 

a motion to intervene out-of-time and comments. On October 11, 2006, Alcoa filed an 

answer to NERC’s answer. 

 17 71 Fed. Reg. 52,785 (2006). 
Docket No. RR06-3-000 - 7 -

III. Procedural Matters

18. Pursuant to Rule 214 of the Commission’s Rules of Practice and Procedure,18 

the timely, unopposed motions to intervene serve to make the entities that filed them 

parties to this proceeding. We will also grant the untimely motions to intervene and 

accept the late comments given the early stage of this proceeding, the parties’ interests, 

and the absence of any undue burden or delay. Rule 213(a)(2) of the Commission's Rules 

of Practice and Procedure19 prohibits an answer to a protest or an answer to an answer 

unless otherwise ordered by the decisional authority. We will accept the answers of 

NERC, NYISO and Alcoa because they have provided information that assisted us in our 

decisionmaking process. 

IV. Discussion

 A. Scope of ERO Activities to be Funded

19. The ERO Certification Order stated that the Commission would defer until review 

of NERC's proposed budget a decision regarding which specific activities should be 

considered statutory, that is authorized by section 215 of the FPA.20 NERC had 

committed in its certification application to provide in its budget filing more description 

of its proposed activities. The Commission explained that it expected this to 

provide sufficient detail for it to determine the complete scope of statutory activities. 

 1. NERC Application

20. NERC states that its 2007 business plan and budget were developed based on the 

following major program elements: (1) Reliability Standards; (2) compliance 

enforcement and organization registration and certification; (3) reliability readiness audits 

and improvement; (4) training, education and operator certification; (5) reliability 

assessment and performance analysis; (6) situational awareness and infrastructure 

security; and (7) administrative services. NERC advises that all of these activities are 

statutory activities necessary and appropriate to carry out NERC’s responsibilities as the 

 18 18 C.F.R. § 385.214 (2006). 

19 18 C.F.R. § 385.213(a)(2) (2006). 

20 ERO Certification Order, 116 FERC ¶ 61,062 at P 184. 
Docket No. RR06-3-000 - 8 -

ERO.21 NERC also explains that the detailed information in its application and 

appendices demonstrates two22 of the budget principles the Commission directed NERC 

to submit in its compliance filing for Commission approval.23 

 2. Comments

21. EEI agrees with the activities NERC designates as statutory in its 2007 business 

plan and budget. Nonetheless, EEI believes that in the future NERC should provide 

greater clarity in defining the criteria for designating activities statutory versus nonstatutory “rather than relying on the regional self-selection.” 

 

22. Alcoa comments that the proposed NERC application contains budget line items, 

such as organization certification, reliability readiness improvement, reliability 

performance analysis, training and education, and situational awareness and 

infrastructure security, that extend beyond any reasonable interpretation of the section 

215 mandate with regard to the role and functions of the ERO. Alcoa points out that it is 

concerned, not only with ensuring that the non-statutory activities can be separately 

funded, but that those activities can be carried out without adversely affecting the ERO’s 

statutory responsibilities. For example, Alcoa explains that with regard to training and 

education, the ERO could, instead of allocating money, approve college education classes 

or industry classes that meet the criteria for accepted training. Alcoa is also concerned 

that the objectives of the reliability readiness audits are not clearly delineated. According 

to Alcoa, the reliability readiness audit is designed to give the ERO a preview of potential 

compliance issues to be investigated in the regular compliance audit, thus the very 

activity creates a conflict of interest since the ERO cannot both enforce and function as a 

 21 NERC Application at 8 & Att. 2. 

22Although NERC acknowledges that it has not yet adopted formal budget 

principles as required by the ERO Certification Order, NERC states that the budget 

development process used to formulate the 2007 NERC business plan and budget 

addresses these principles. NERC Application at 7, note 12. The two budget principles 

NERC references are budget principle (2) how the budgeted activity lends itself to the 

accomplishment of the statutory or other authorities and budget principle 

(5) affordability, sustainability, and efficiency and effectiveness of expenditures. 

NERC Application at 5. 

23 ERO Certification Order, 116 FERC ¶ 61,062 at P 202. 
Docket No. RR06-3-000 - 9 -

consultant giving advice on how to avoid enforcement. Accordingly, Alcoa requests that 

the Commission carefully consider whether such aforementioned activities are statutory 

under section 215.24 

23. New York Transmission Owners and IRC argue that the NERC filing does not 

provide adequate justification of NERC’s designation of statutory/non-statutory 

activities. As a result, they request that the Commission require NERC to provide 

detailed support for its designation of statutory/non-statutory activities. 

 3. NERC Reply Comments

24. NERC responds that Congress’ goal of preventing a recurrence of the 2003 

blackout is not well served by a narrow reading of section 215 that limits the statutory 

activities of NERC and the Regional Entities. 

25. According to NERC, the Commission, in the ERO Certification Order, has already 

recognized the importance of activities, services and tools such as situation awareness 

and infrastructure security, readiness review and improvement, tagging requirements, and 

the Interchange Distribution Calculator for the provision of adequate reliability, because 

they relate specifically to compliance with existing standards and they proactively help 

avert reliability standard violations and system disturbances.25 NERC also asserts that 

the Commission stated that enforcement includes both proactive and compliance efforts 

by the ERO and Regional Entities as well as after-the-fact investigation and imposition of 

penalties.26 Further, NERC argues that the Commission found that reliability readiness 

reviews are an important facet of proactively maintaining a reliable Bulk Power 

System.27 

26. Further, NERC states that Attachment 2 its Application describes its planned 

programs and explains why each program falls within its statutory functions. For 

example, Attachment 2 explains that the reliability readiness audit and improvement 

program will assess the readiness of operators of the bulk power system to execute their 

responsibilities for maintaining reliable operation of the system, and play a vital role in 

ensuring the reporting of all probable violations to the regional compliance officers. It 

explains that the training and education program provides a system of certification of the 

 24 In its answer to NERC’s reply comments, Alcoa reiterates its arguments. 

25 See Id. at P 188. 

26 See Id. at P 302. 

27 See Id. at P 332. 
Docket No. RR06-3-000 - 10 -

basic competencies of operating personnel, which helps ensure reliable operations, 

including the understanding and ability of operating personnel to perform their 

responsibilities in compliance with mandatory reliability standards. 

27. NERC also asserts that the situation awareness and infrastructure security program 

ties to reliability improvement activities by providing for monitoring of conditions on the 

bulk power system and providing leadership coordination, technical expertise and 

assistance to the electric industry in responding to abnormal events on the bulk power 

system. 

 4. Commission Conclusion

28. We find that NERC’s proposed activities reasonably fall within the types of 

activities the Commission considers to be covered by FPA section 215, i.e., the 

development and enforcement of reliability standards, and are entitled to receive funding 

under section 215 of the FPA. As explained in the ERO Certification Order, anything 

required of the ERO or a Regional Entity by the statute, Order No. 672 pursuant to the 

statute, or any subsequent Commission order pursuant to section 215 of the FPA is a 

statutory activity.28 NERC, in its budget filing and subsequent response, has provided an 

explanation for each of its program areas that relates to a function for which the ERO is 

responsible pursuant to section 215 of the FPA, Order No. 672 or the ERO Certification 

Order. Accordingly, we find acceptable NERC’s designation of specific program 

activities as “statutory” (our determination regarding the reasonableness of the funding 

for these activities is discussed later). 

29. With regard to Alcoa’s specific comments that objectives of the reliability 

readiness reviews are not clearly delineated from the compliance audits, we disagree. In 

the ERO Certification Order, we explained that enforcement includes proactive 

compliance efforts by the ERO and each Regional Entity and that reliability readiness 

reviews are an important facet of these proactive efforts to maintain a reliable bulk-power 

system.29 For that reason, we also see no conflict of interest between the ERO’s 

requirement under the statute to enforce compliance and the ERO’s proactive effort to aid 

and enhance compliance. 

30. In the ERO Certification Order, the Commission directed NERC to submit a list of 

budget principles in its compliance filing for Commission approval.30 These principles 

 28 Id. at P 185. 

29 Id. at P 332. 

30 Id. at P 202. 
Docket No. RR06-3-000 - 11 -

should include among other things, how the budgeted activity lends itself to the 

accomplishment of the statutory or other authorities.31 We believe that the 2007 NERC 

business plan and budget provide sufficient information for the Commission to determine 

that the proposed designated activities are statutory because they are within the scope of 

the reliability functions required of the ERO and the Regional Entities under section 215. 

However, we acknowledge commenters’ concerns that NERC should provide greater 

detail and justification for the criteria it uses to designate statutory activities. 

Accordingly, we require that, when NERC files its 2008 budget and business plan, it 

identify the general statutory activity, and which sub-activities, are covered by the 2008 

budget and business plan. 

 B. Scope of Regional Entity Activities to be Funded

31. Regional Entities are entitled to receive funding under section 215 of the FPA for 

functions covered by section 215 (referred to herein as “statutory” functions), such as the 

development of Reliability Standards and their enforcement, and monitoring the 

reliability of the bulk-power system. Regional Entities are not precluded from pursuing 

other activities, but they may not use Commission-authorized funding for such 

activities.32 Any delegation of authority to a Regional Entity must occur through a 

Commission-approved delegation agreement. 

1. NERC Application

32. The NERC application states that the Regional Entity budgets for section 215 

statutory activities that are to be funded through NERC should include the following 

activities that will be delegated by NERC to the Regional Entity pursuant to a 

Commission approved delegation agreement: development of Reliability Standards, 

compliance enforcement, organization registration and certification, reliability readiness 

audit and improvement, reliability assessment and performance analysis, training and 

education, and situational awareness and infrastructure security.33 

33. NERC notes that two Regional Entity candidates (FRCC and NPCC) submitted 

budgets for statutory activities that do not encompass all of the activities that NERC 

 31 Id. The Commission recognized that the submission of NERC’s budget 

principles in compliance with the ERO Certification Order will occur after the filing of 

the 2007 NERC business plan and budget. 

32 Order No. 672 at P 34. 

33 NERC Application at 11. 
Docket No. RR06-3-000 - 12 -

designates as statutory under section 215. For example, FRCC’s proposed budget for 

statutory activities did not include organization certification, reliability readiness 

improvement, reliability performance analysis, training and education or situational 

awareness and infrastructure security. NERC states that its projected costs for these 

additional activities that NERC designated as statutory under section 215 increase the 

FRCC budget by $1,152,726 or roughly 89 percent for 2007. 

34. Similarly, NPCC informed NERC that they agreed with FRCC that training and 

education, and situational awareness and infrastructure security are not statutory.34 

NERC states that NPCC’s presentation of its budget permitted NERC to include amounts 

for NPCC that reflect NERC’s designation of statutory activities in the NPCC proposed 

budget and assessment information. NERC made adjustments to NPCC’s budget to 

include training and education, and situational awareness and infrastructure security. 

35. NERC believes that Regional Entity budgets for statutory activities must be 

consistent across all eight Regional Entities. NERC therefore requests that the 

Commission accept the proposed Regional Entity candidates’ proposed budgets as 

adjusted and filed by NERC. 

 2. Comments

36. EEI states that while it agrees with NERC’s list of section 215 statutory functions, 

in the future NERC should provide greater clarity in defining the criteria for designating 

activities statutory versus non-statutory “rather than relying on the regional selfselection.”35 

37. Commenters36 observe that some of the proposed budgets submitted by the regions 

are inconsistent as to which functions are statutory and non-statutory. Exelon suggests 

that the Commission should require that Regional Entities submit budgets to NERC that 

are consistent with the statutory activities delegated to the Regional Entities by NERC. 

 34 Id., n.20. 

35 EEI is referring to FRCC’s, NPCC’s and WECC’s initial budgets which did not 

match all of the activities deemed statutory by NERC. 

36 See, e.g., Exelon, Alcoa, and New York Transmission Owners. 
Docket No. RR06-3-000 - 13 -

 3. Commission Conclusion

38. NERC has proposed that funded statutory activities be consistent as between the 

ERO and each Regional Entity. We support NERC’s proposal in this regard and NERC’s 

adjustment of the budgets of NPCC and FRCC to correlate with NERC’s designation of 

statutory activities. While the Commission reserved judgment in Order No. 672 and 

672-A on what activities could be considered statutory and thus eligible for funding 

under section 215, the Commission gave guidance. NERC’s proposed activities are the 

same that we find to be within the ambit of FPA section 215 and thus entitled to receive 

funding pursuant to section 215 of the FPA for the ERO and should be statutory in the 

context of the Regional Entities. We see no reason why they would differ on a regional 

basis. In the interest of consistency in funding section 215 activities, we accept the 

Regional Entity candidates’ budgets as adjusted and filed by NERC, with the exclusion 

described below. 

39. We share commenter concerns that Regional Entities budget submissions to 

NERC are inconsistent with the statutory activities delegated to the Regional Entities by 

NERC. We are concerned that NERC did not provide clear criteria for the design of 

statutory activities. Accordingly, we have addressed the concerns of the commenter that 

there are inconsistent budgets among Regional Entities. Because this is the first budget 

submitted by the ERO, we will be flexible to assist the start-up of the ERO and Regional 

Entities. In the future, we expect Regional Entity proposed budgets to be consistent in 

the activities that are funded. We direct NERC to provide the Regional Entities with 

better designations, descriptions and criteria of statutory activities for the 2008 budget. 

 C. Funding of Other Regional Entity Activities 

40. In the ERO Certification Order, the Commission stated that it generally believes 

that anything required of the ERO or a Regional Entity by the statute, Order No. 672 

pursuant to the statute, or any subsequent Commission order pursuant to section 215 of 

the FPA is a statutory activity.37

41. However, the ERO or a Regional Entity is not precluded from pursuing other 

activities, funded from other sources, as long as the other activities do not interfere with 

implementation of section 215 activities. 

 37 ERO Certification Order, 116 FERC ¶ 61,062 at P 185. 
Docket No. RR06-3-000 - 14 -

1. NERC Application

42. Although NERC includes $6.9 million for WECC’s reliability coordinator38

function in its proposed budget at the request of WECC, NERC states that it is not sure 

whether the reliability coordinator function is a statutory function under FPA section 215. 

NERC points out that the other seven Regional Entity candidates do not include expenses 

for the reliability coordinator function in their proposed budgets. NERC requests that the 

Commission decide whether the reliability coordinator function performed by WECC is a 

statutory activity and whether it is appropriate to include $6.9 million in WECC’s budget 

to be recovered from users, owners, and operators of the bulk-power system. 

43. WECC, in its proposed budget submission to the ERO, claims that the reliability 

coordinator function in the Western Interconnection is integral to the Western 

Interconnection’s reliability. In fact, NERC’s proposed reliability standards contain 137 

requirements aimed at reliability coordinators. WECC claims that the reliability 

coordinator function is clearly a statutory function in the context of the Western 

Interconnection because it provides WECC with situational awareness that is required for 

reliable operation. 

 2. Comments

44. EEI supports WECC’s claim that the reliability coordinator function in the west is 

a statutory function because WECC is an interconnection-wide entity. However, it states 

that the Commission should not require other Regional Entity candidates to perform this 

function in the Eastern Interconnection. 

45. California IOUs assert that WECC should be permitted to recover costs it incurs 

for reliability coordinators in the region because they maintain real-time situational 

awareness of conditions on the bulk-power system. It also argues that at present, only 

WECC members fund the reliability coordinator function and several load-serving 

entities get a free ride, since not all load-serving entities are members of WECC. In 

addition, California IOUs claim that the reliability coordinators have authority and 

 38 A Reliability Coordinator is “the entity that is the highest level of authority who 

is responsible for the reliable operation of the Bulk Electric System, has the Wide Area 

view of the Bulk Electric System, and has the operating tools, processes and procedures, 

including the authority to prevent or mitigate emergency operating situations in both next 

day analysis and real-time operations. The Reliability Coordinator has the purview that is 

broad enough to enable the calculation of Interconnection Reliability Operating Limits, 

which may be based on the operating parameters of transmission systems beyond any 

Transmission Operator’s vision.” See NERC’s Glossary of Terms at 

http://www.nerc.com. 
Docket No. RR06-3-000 - 15 -

responsibility to mandate compliance with reliability standards. In fact, the reliability 

coordinators provide a strong enforcement mechanism within WECC, and their costs 

should be allowed to be recovered under section 215 of the FPA. 

46. FRCC states that it does not have any problem with WECC performing the 

function of reliability coordinator for its region, but it opposes any statutory funding for 

this role. FRCC argues that if the reliability coordinator, which is one of the entities in 

NERC’s Functional Model, is worthy of statutory funding, other entities such as 

balancing authority and transmission provider may also seek funding for the tasks they 

perform. Such funding is clearly outside the intent and scope of FPA section 215. 

47. WECC explains that its reliability coordinators provide the services needed for 

situational awareness and that NERC is seeking that situational awareness be deemed a 

statutory activity. WECC states that its reliability coordinators are the “guardians of 

Reliability Standards in real-time” and a key part of WECC’s enforcement program. 

48. WECC adds that its reliability coordinators are independently operated and funded 

through WECC. It explains the structural differences between the Eastern 

Interconnection, where the reliability coordination function is performed by designated 

control areas, and the Western Interconnection, where the reliability coordination 

function is performed by an interconnection-wide regional reliability coordinators that is 

independent of control areas. According to WECC, in the Western Interconnection, 

reliability centers were established as entities independent of control area operators. 

WECC states that the reliability centers were incorporated into WECC’s reliability 

coordination function and funded through WECC.39 WECC claims that establishment of 

reliability coordinators as an independent entity was deliberate to ensure that the 

decision-making was independent of the interests of any individual control area. Such 

independence and absence of conflicts of interests has been a central theme in the recent 

orders issued by the Commission that implement section 215 of the FPA. 

49. CREPC and WIRAB support funding of WECC’s reliability coordinator function 

under section 215 of the FPA. CREPC and WIRAB argue that the reliability coordinator 

function is necessary for situational awareness, that funding is necessary for WECC to 

bring the reliability coordinator function into compliance with reliability standards, that 

funding through section 215 is necessary to eliminate the potential problem of free riders, 

and that funding through section 215 will ensure the independence of the reliability 

coordinator function. WIRAB adds that unlike approaches used for reliability 

coordinators in other regions, given the large number of individual transmission 

providers, a tariff funding approach in the West would result in duplicative funding 

mechanisms. 

 39 WECC at 6-7. 
Docket No. RR06-3-000 - 16 -

3. NERC Reply Comments

50. NERC states that it takes no position concerning whether WECC’s reliability 

coordinator duties are statutory under section 215. However, if the Commission 

determines that inclusion of reliability coordination costs is permissible, NERC states that 

it agrees with EEI that the Commission should not require all other Regional Entities to 

include such costs within their budgets. NERC states that funding of the reliability 

coordinator function is handled through other mechanisms in other regions, and it argues 

that each region should be allowed to continue with its existing mechanism if it believes 

it to be effective. In addition, NERC states that it has no intention of becoming involved 

in real-time operations, and it believes that real-time operations must remain with the 

owners and operators of the bulk power system. 

 4. Commission Conclusion

51. Although WECC’s reliability coordinator function is independent of control areas, 

we are not persuaded that, in its current form, WECC’s real-time reliability coordinator 

function should be funded under section 215 of the FPA. WECC’s justification that its 

role as a reliability coordinator is similar to NERC’s situational awareness activity is not 

persuasive. While WECC’s reliability coordinators are involved in real-time operations 

of the bulk-power system, NERC’s situational awareness activity is narrow in scope and 

limited to such things as providing tools and support services for the use and benefit of 

reliability coordinators and other bulk-power system operators.40 Moreover, NERC 

makes it clear that it has no intentions of becoming involved in real-time operations. 

52. WECC’s claim that as a reliability coordinator, it is subject to 137 requirements of 

NERC’s proposed reliability standards is also not convincing as to why its reliability 

coordinator function should be treated as a statutory activity. Unless there is a strong 

separation between oversight and real-time operations, the same entity should not oversee 

its own compliance with reliability standards. We are not persuaded that is the case 

here.41 Therefore, we exclude $6.9 million of WECC’s proposed budget from funding 

under FPA section 215. 

53. We disagree with CREPC and WIRAB that a Regional Entity must fund reliability 

coordinator functions in order for it to maintain situational awareness. A reliability 

coordinator participates in operations but a Regional Entity can maintain situational 

awareness without participating in actual operational decisions. Also, funds collected by 

 40 NERC Application at 31. 

41 See Order No. 672 at P 698. 
Docket No. RR06-3-000 - 17 -

the ERO under section 215 should not be used to pay for entities to meet reliability 

standards. The potential problems of free riders, independence, and duplicative 

mechanisms may need to be addressed, but they should be addressed through other 

approaches. Funds collected under section 215 should be used for ERO and Regional 

Entity statutory responsibilities such as developing and enforcing reliability standards, 

not implementing reliability standards. 

D. NERC Business Plan

1. NERC Application

54. NERC’s proposed business plan divides the organization’s activities into: 

(1) Reliability Standards; (2) compliance enforcement and organization registration and 

certification; (3) reliability readiness audits and improvement; (4) training, education and 

operator certification; (5) reliability assessment and performance analysis; (6) situation 

awareness and infrastructure security; and (7) administrative services. 

55. Addressing its responsibility as the ERO to develop Reliability Standards, NERC 

describes five categories of objectives for the Reliability Standards program: standards 

development, regional standards development, standards improvement, business practice 

interface, and standards process improvement. Among these categories, NERC’s 

business plan lists a number of specific 2007 objectives, such as approving training 

standards, completing field tests of planning standards, reviewing and approving 40 

regional standards, updating one-third of existing standards to meet quality 

characteristics, and reducing the average time required to develop a high-priority standard 

to 12 months. 

56. For the compliance enforcement and organization registration and certification 

program, NERC’s objectives in 2007 include working with Regional Entities on audits, 

managing enforcement action appeals, overseeing Regional Entities’ implementation of 

the organizational registration process, and undertaking organizational certification 

audits. 

57. For the reliability readiness audits and improvement program, NERC plans to 

audit reliability coordinators, balancing authorities, transmission operators, and large 

local control centers. NERC also plans to train reliability readiness auditors, assist 

entities in developing mitigation plans, and develop enhanced tools to track the 

implementation of recommendations. 

58. According to the business plan, as part of the training, education, and operator 

certification program, NERC will develop training and education materials on Reliability 

Standards, promote quality in the training offered by vendors, and provide certification 

credentials for operating personnel. 
Docket No. RR06-3-000 - 18 -

59. As part of the reliability assessment and performance analysis program, NERC 

plans to conduct reliability and adequacy assessments; investigate large-scale outages, 

disturbances, and near-misses; identify and track key reliability indicators; maintain the 

generating availability data system; and undertake other related activities. 

60. For the situation awareness and infrastructure security program, NERC will, 

among other things, operate the electricity sector information sharing and analysis center, 

enhance and expand the critical spare transformer program, and provide a number of 

operating reliability support services. 

61. Administrative services activities will include internal support services such as 

information technology, legal and regulatory, and human resources. 

2. Comments

62. IRC requests that the Commission reject what IRC sees in the business plan as an 

effort by NERC to insert itself into operations. IRC is concerned that NERC’s plans, for 

example, on risk management, could duplicate or conflict with the functions that 

transmission operators currently perform. IRC does not believe that NERC staff, who are 

fewer in number, less experienced, and more remotely located will find problems missed 

by other operators. IRC, therefore, asks the Commission to reinforce its holding in the 

ERO Certification Order and limit the scope of NERC’s situation awareness and 

infrastructure security program to leadership coordination, technical expertise, and 

assistance to the industry in responding to events.42 It also asks that the Commission 

direct NERC not to engage in activities that would be redundant to the functions that 

ISOs and RTOs and other transmission operators perform. 

 3. NERC Reply Comments

63. NERC asserts that it “has no intention or interest in becoming involved in control 

functions, because the control functions must remain with the owners and operators of the 

bulk-power system.”43 It further asserts that its situation awareness and infrastructure 

security program is designed to enhance the reliable operation of the bulk power system 

and not to duplicate or infringe on existing arrangements and relationships. NERC 

asserts that it could not take on significant operational responsibilities for the bulk power 

 42 See 116 FERC ¶ 61,062 at P 186. 

43 NERC Answer at 8. 
Docket No. RR06-3-000 - 19 -

system without a substantial increase in resources and cites its allocation of only 4.5 

FTEs to the situation awareness and infrastructure security program as evidence that it 

does not intend to do so.44

4. Commission Conclusion

64. Section 39.4(b) of the Commission’s regulations requires the ERO to file annually 

with the Commission its proposed budget, business plan, and organization chart. We find 

that NERC’s submitted business plan provides sufficient detail for us to judge whether 

NERC intends to pursue appropriate activities. We further find NERC’s proposed 

business plan consistent with the activities described in its certification application as 

approved by the Commission. In the ERO Certification Order, the Commission 

concluded that NERC does not have the ability to exercise real-time operating authority. 

Instead, NERC’s role is limited to leadership coordination, technical expertise and 

assistance to the industry in responding to events.45 We are not convinced by IRC that 

NERC shows any intention to exercise real-time operational control over the bulk-power 

system. Accordingly, we accept NERC’s proposed business plan. 

E. Regional Entity Business Plans

1. NERC Application

65. NERC’s application contains proposed 2007 business plans for each of the 

Regional Entity candidates except SPP.46 The business plans of MRO, NPCC, RFC, and 

SERC generally follow the same organizational structure as the business plan of NERC. 

ERCOT has created an independent reliability entity47 that will be responsible for 

compliance, Reliability Standards, “legal/regulatory/enforcement,” and corporate 

operations. In the category of compliance, ERCOT will address compliance audits, 

reliability readiness reviews, organization registration and certification, self-certification, 

event investigations, Reliability Standard enforcement, reliability assessment and 

performance analysis, and penalty and sanction administration. FRCC’s business plan 

for statutory activities is divided into just Reliability Standards and regional reliability 

standards, compliance enforcement, and reliability assessment categories. The WECC 

 44 Id. 

45 See 116 FERC ¶ 61,062 at P 186. 

46 The application does contain, as it does for the other regions however, a 

proposed budget for SPP, including some explanatory material. 

47 Texas Regional Entity. 
Docket No. RR06-3-000 - 20 -

business plan identifies the following categories of objectives for statutory functions: 

regional entity implementation, Reliability Standards, compliance enforcement, reliability 

centers, resource adequacy assessment, board and committee work, training, and 

administrative and general. 

66. NERC explains that its staff provided guidance to the prospective Regional 

Entities on the expected scope and content of their budget submissions. Finance and 

accounting staff reviewed the submitted budgets, as did the Finance and Audit 

Committee of NERC’s Board of Trustees. NERC states that its review focused on 

verifying that each Regional Entity’s business plan and budget provided sufficient 

resources to adequately carry out the functions that NERC expects to delegate to the 

Regional Entity, as well as understanding the bases for any significant differences in the 

amounts budgeted by different Regional Entity candidates for the same function.48

 2. Comments

67. Alcoa notes that there are “significant disparities among the regions regarding 

their respective budgets.” Based on this observation, Alcoa comments that the 

Commission must determine whether there are meaningful differences in the functions to 

be performed by each Regional Entity. Alcoa recognizes NERC’s explanation that the 

disparities are, at least in part, the result of differences in each organization’s approach to 

using professional staff or industry volunteers. However, Alcoa does not believe that this 

alone explains the disparity, and further claims that NERC’s filing does not include 

sufficient information for the Commission to evaluate whether the approaches adopted by 

each region reflect a cost-effective way of performing Regional Entity functions. 

 3. NERC Reply Comments

68. NERC agrees that greater consistency among Regional Entity budgets is 

necessary, but notes that there was very little time to make this happen between 

certification as the ERO and the deadline for submittal of the 2007 budget. Further, 

NERC states that because this is the first budget request and addresses the start-up year, it 

is not yet clear which Regional Entity approach is the best for each function. NERC 

commits to making budget presentations more consistent in the future. 

 48 As one example, RFC’s proposed budget is significantly larger than SERC’s 

proposed budget because RFC has a significantly larger staff, including a staff of fulltime independent auditors. SERC, in contrast, intends at this time to place greater 

reliance on industry volunteers for audit functions. 
Docket No. RR06-3-000 - 21 -

4. Commission Conclusion

69. Because the Regional Entity delegation agreements have not been executed and 

approved by the Commission, we will reserve judgment on the proposed business plans. 

Potential overlap between the substance of the Regional Entity business plans and matters 

being negotiated for inclusion in the delegation agreements means that approval of these 

business plans could prejudice consideration of the delegation agreements that have yet to 

be filed with the Commission. We agree with Alcoa to the extent that differences 

between Regional Entity business plans should be minimized, and any that remain should 

be justified. 

F. ERO Budget

1. NERC Application

70. NERC’s proposed budget for 2007 is $22,546,552 for activities in the U.S., 

Canada and Mexico. A portion of NERC’s budget will be funded through fees charged to 

participants and users of certain NERC programs, including the operator certification 

program, and by interest earned on bank balances and short-term investments, resulting in 

a preliminary net funding requirement of $21,682,552. In addition, for contingency 

reserve and working capital purposes, NERC seeks to increase its cash reserves balance 

to a level representing 10 percent of the projected 2007 net funding requirement (before 

provision for cash reserves), thus requiring an additional assessment of $804,779. As a 

result, NERC’s proposed net funding requirement for 2007 is $22,487,331. Of this, 

$19,797,162 is allocated to the U.S. Based on the aggregate NEL of the United States for 

2005, NERC’s proposed total U.S. net funding requirement, including Regional Entities 

and WIRAB, is equivalent to 17 mills per MWh. 

71. NERC states that its business plan and budget were developed and are organized 

based on the following major program elements: 

Program 2007 Budget

Reliability Standards $2,258,433 

Compliance Enforcement and Organization 

Registration and Certification 

$3,436,668 

Reliability Readiness Audits and Improvement $1,650,771 

Training, Education and Operator Certification $1,380,087 

Reliability Assessment and Performance Analysis $2,619,128 

Situation Awareness and Infrastructure Security $3,255,644 

Administrative Services $7,945,821 

 
Docket No. RR06-3-000 - 22 -

72. In addition, NERC proposes that its net U.S. funding requirement of $19,797,162 

be allocated to the Regional Entities49 as follows: 

 ERCOT $1,394,183 

 FRCC $1,190,001 

 MRO $1,245,605 

 NPCC $1,504,824 

 RFC $4,948,769 

 SERC $5,161,805 

 SPP $1,109,871 

 WECC $3,242,103 

73. NERC states that it believes that all the activities in its 2007 business plan and 

budget are FPA section 215 statutory activities necessary and appropriate to carry out the 

ERO’s responsibilities. In order to accomplish its responsibilities as the ERO, NERC 

proposes to increase its total number of full-time equivalent employees (FTEs) from 69 in 

2006 to 85 in 2007 (a 23 percent increase) and its total funding from $17,732,928 in 2006 

to $22,546,552 in 2007 (a 27 percent increase). NERC proposes to devote 12 FTEs and 

$2,258,433 to its Reliability Standards program and 20 FTEs and $3,436,668 to its 

compliance enforcement and organization registration and certification program. It thus 

proposes to devote 37 percent of its total FTEs and 25 percent to its total dollars to these 

two programs. 

2007 FTEs % of total 

FTEs 

2007 budget % of 

total 

budget 

Reliability Standards 12 14% $2,258,433 10% 

Compliance Enforcement & 

Organization Registration & 

Certification 

20 23% $3,436,668 15% 

Reliability Readiness Audits 

& Improvement 

11 13% $1,650,771 7% 

Training, Education, & 

Personnel Certification 

6 7% $1,380,087 6% 

Reliability Assessment & 

Performance Analysis 

9 10% $2,619,128 12% 

Situation Awareness & 4.5 5% $3,255,644 14% 

 49 October 6, 2006 filing at 10. 
Docket No. RR06-3-000 - 23 -

Infrastructure Security 

Administrative50 22.5 26% $7,945,821 35% 

Total Budget 85 FTEs $22,546,552 

 2. Comments

74. EEI states that the Commission should approve the proposed budget because it 

provides for adequate staffing and resources. EEI points out that the 2007 budget and 

business plan clearly reflect a complex transition by NERC into the ERO. As part of the 

transition, NERC is expanding the staffing of the standards and compliance enforcement 

programs, and is purchasing compliance tracking software. However, EEI states that 

future budgets should demonstrate greater transparency and efficiency. EEI recommends 

that the Commission require NERC to clearly define the criteria for making 

determinations as to which expenditures51 are statutory and will be funded, “rather than 

relying on regional self-selection.”52 

75. EEI states that, given the transitional nature and complexities of starting up a new 

organization, the supporting documents of the 2007 budget are adequate for the 

Commission to approve the budget. However, EEI states that the Commission should 

require NERC to further standardize the reporting and formatting of the regional budgets 

for future budgets. EEI requests that the revisions include; (1) a common organizational 

approach or table of contents; (2) descriptions of major budget changes or additions, 

including a detailed description of any major new spending initiative, accompanied by its 

own business plan and budget; (3) highlights of the previous year’s achievements and 

descriptions of the coming year’s priorities; (4) cost allocation methods; and (5) a 

breakdown of the expenditures required to perform the various delegated functions. In 

addition, EEI points out that the filing does not appear to list all of the LSEs53 or the NEL 

calculations for all LSEs, which is a problem since the calculations are the basis for 

allocating budgets. EEI requests that the Commission require NERC to submit a 

 50 The administrative budget recognizes that NERC primarily manages, rather than 

performs, the work of its members. The administrative budget covers staff expenses to 

facilitate Members’ Forums; develop and maintain information technology; internal and 

external legal counsel; human resources; finance and accounting; office related expenses 

and outside professional services. 

51 EEI states that at this time, it agrees with NERC’s list of statutory functions. 

52 EEI at 3. 

53 EEI states that the LSEs are missing for ERCOT, RFC, NPCC and WECC. 
Docket No. RR06-3-000 - 24 -

complete listing of the NEL calculations for all LSEs in all of the regions prior to being 

allowed to issue any bill. Finally, EEI and SCE request that NERC be directed to more 

clearly describe what is meant by the term “LSE or designee” and explain whether this 

term represents an alternative billing formula which requires Commission approval. 

76. EEI states that the ERO Certification Order allows approved Regional Entities to 

propose to allocate funding requirements using a method other than NEL, which the 

Commission has approved. EEI suggests that the Commission exercise caution in 

approving an alternative method. 

77. WIRAB recommends that the Commission approve NERC's proposed allocation 

of costs among the Regional Entities. 

78. Alcoa requests that the Commission hold the ERO and Regional Entities 

accountable for their expenditures. Alcoa questions whether the budget submission has 

provided enough information for the Commission to determine whether the amounts 

being proposed in the budget are specifically related to the identified tasks and represent 

a reasonable expenditure for the tasks. Alcoa urges the Commission to “engage in 

follow-up questioning regarding individual budget items until it is satisfied that what is 

being proposed relates to specific steps necessary to design and implement reliability 

standards.” Alcoa points out that the allocation of ERO funding costs on the basis of 

NEL is still pending rehearing; therefore, it is possible that the allocation figures may 

change depending on the Commission’s decision and that NERC must be prepared to 

revise all the figures proposed in the Application. 

79. Alcoa also comments that, with regard to the training, education, and personnel 

certification activity, NERC could approve college education classes or industry classes 

that meet the criteria for accepted training instead of allocating money to provide such 

training and certification in-house. 

 3. NERC Reply Comments

80. In its answer, NERC requests that the Commission recognize that 2007 is a 

transitional year; that the 2007 budget is the first of its kind and given the limited time 

reflects the manner in which the Regional Entities have historically developed budgets 

and have accomplished their duties. NERC agrees that greater consistency among 

Regional Entity budgets is necessary and will work with the Regional Entities to establish 

a standard method by which the Regional Entities’ budgets are organized and developed. 

NERC commits to continuing to work to make the budgets more consistent and more 

transparent. NERC states that the principal causes of the differences between budgets are 

the one time issues in the start-up year, such as the pending questions concerning the 

scope of the funding mechanism under section 215. 
Docket No. RR06-3-000 - 25 -

 4. Commission Conclusion

81. We agree with EEI and NERC, that the 2007 budget reflects the transition of 

NERC into the ERO; and given complexities of starting up the new ERO and the fact that 

the 2007 budget is the first budget, we accept the proposed budget and find that it is a 

reasonable first submittal. In addition, we note that NERC’s proposed U.S. net funding 

requirement, including funds for Regional Entities and WIRAB, is equivalent to 17 mills 

per MWh. The majority of the requested funding represents expenditures that were also 

made in earlier years and are not incremental. 

82. We accept NERC’s commitment to (1) work with the Regional Entities to 

establish a standard method by which the Regional Entities’ budgets are organized and 

developed; and (2) work to make the budgets more consistent and more transparent. 

However, we are concerned that the proposed budget may be inadequate to permit 

NERC’s active participation in the various audits that will be conducted by the Regional 

Entities as part of their delegated authority during 2007. In its filing, NERC has included 

estimates on staffing and the number of audits in which it will be involved each year. 

However, NERC has not provided enough information on the number of staff that it will 

provide to assist the Regional Entities, the number of ERO staff on each audit team, in 

what percentage of Reliability Standard compliance audits the ERO will participate, or 

how the ERO will select which such audits to monitor. While the ERO may delegate its 

responsibilities to a Regional Entity, it must retain oversight responsibility for any 

authority that is delegated. Thus, while NERC is to a large degree delegating the audit 

process to the Regional Entities, it remains responsible for that process, and we expect 

NERC to actively participate and be present during the audits. 

83. Since this is NERC’s initial budget to fund its responsibilities as the ERO, it is 

appropriate for NERC to continue to evaluate whether the level of funding for its audit 

programs is sufficient to fulfill its audit responsibilities. If NERC determines during 

2007 that it has incorrectly estimated its funding needs to accomplish its statutory 

activities, we will allow NERC to revisit the 2007 budget in order to enable them to 

satisfy their obligations.54 Further, we direct NERC to provide more detail in its 2008 

budget proposal: (1) on its compliance enforcement activities, including comparisons to 

its 2007 accomplishments; (2) on the estimated number of staff it will provide to assist 

the Regional Entities; (3) the estimated number of ERO staff on each audit team; and 

(4) in what percentage of reliability standard compliance audits the ERO will participate 

and how the ERO will select which such audits to monitor. 

 54 See Order No. 672 at P 199. 
Docket No. RR06-3-000 - 26 -

84. We agree with EEI’s comments regarding consistency and direct NERC to provide 

further consistency and standardization in the formatting of its budget and the Regional 

Entities’ budgets for 2008. Consistency and standardization of the formatting will 

provide greater transparency, which, in turn, will facilitate our evaluation of whether the 

ERO’s and Regional Entities’ budgets enable them to meet Order No. 672’s goal of 

“provid[ing] for an appropriate level of uniformity in Reliability Standard development 

and enforcement policies.”55

85. We are not persuaded by Alcoa’s comments NERC should approve college 

education classes or industry classes that meet the criteria for accepted training instead of 

allocating money to provide such training and certification in-house. Training and 

education to help system operators achieve the necessary ability to operate the system 

reliably is an important aspect of the ERO’s proactive compliance efforts. Moreover, we 

note that the ERO indicates that it will charge fees for participation in ERO-sponsored 

training and education to defray the cost of such programs. Further, NERC’s activities 

involve highly specialized programs. That subject matter is unlikely to be generally 

available in college curricula. Alcoa identifies no particular industry sources for such 

training. 

G. Regional Entity Funding

86. Section 39.4(b) of the Commission’s rules requires that the ERO’s annual budget 

filing include “the entire annual budget for statutory and non-statutory activities for each 

Regional Entity, with supporting materials, including . . . each Regional Entity’s 

complete business plan and organization chart, explaining . . . the proposed expenditure 

of funds collected in sufficient detail to justify the requested funding collection and 

budget expenditures . . . .” This section further states that the ERO’s annual budget filing 

“shall include the line item budgets for the activities of each Regional Entity that are 

delegated or assigned to each Regional Entity pursuant to § 39.8.” 

 1. NERC Application

87. NERC’s application includes proposed budgets for the year ending December 31, 

2007, for statutory activities of the following proposed Regional Entities: 

ERCOT, 

FRCC, MRO, NPCC, RFC, SERC, SPP, and WECC. NERC acknowledges that these 

entities are not Regional Entities as defined in FPA section 215(a)(6) and 18 C.F.R. 

§ 39.1 until they have entered into regional delegation agreements with NERC that have 

been approved by the Commission.56 However, NERC states that each of these entities is 

 55 See Id. at P 654. 

56 NERC Application at 1-2 & n.1. 
Docket No. RR06-3-000 - 27 -

actively engaged in the negotiation of a delegation agreement. In support of this, NERC 

has included with its Application a letter of intent from each proposed Regional Entity 

stating that it intends to enter into a delegation agreement with NERC to perform 

delegated statutory functions. 

88. NERC states that the proposed Regional Entity budgets for statutory activities that 

are to be funded through it are the budgets for the functions and activities that will be 

delegated by NERC to the Regional Entity pursuant to a Commission-approved 

delegation agreement. These activities relate to development of Reliability Standards, 

compliance enforcement, organization registration and certification, reliability readiness 

review and improvement, reliability assessment and performance analysis (including 

necessary data gathering activities), training and education, and situational awareness and 

infrastructure security. NERC states that it anticipates that it will have complete 

delegation agreements to present to the NERC Board of Trustees for approval at its 

November 1, 2006 meeting, and that the delegation agreements will be filed with the 

Commission promptly thereafter. NERC states that although negotiation of the 

delegation agreements has not been completed, the functions that will be delegated to the 

proposed Regional Entities are for the most part well understood, which has permitted the 

proposed Regional Entities to prepare business plans and budgets for 2007 for their 

anticipated delegated statutory activities (as well as non-statutory activities). 

89. NERC states that it initially provided guidance to the Regional Entity candidates 

on the expected scope and content of their budget submissions, and provided a template 

to be used in supplying budget information. The Regional Entity candidates’ budget 

proposals were reviewed by NERC’s finance and accounting staff. NERC states that 

where necessary, it requested additional information. In addition, NERC states that it 

also reviewed the internal processes used by each Regional Entity candidate, in order to 

verify that the internal processes were rigorous. The proposed regional budgets were 

then submitted to the Finance and Audit Committee of the NERC Board of Trustees. 

Further, NERC states that it has satisfied itself that for the transitional year of 2007, each 

Regional Entity’s business plan and budget provide for necessary and adequate resources 

to carry out the Regional Entity’s anticipated delegated functions.57 In addition, NERC 

points out that several of the Regional Entities have other sources of income, such as fees 

for workshops and interest on bank deposits, to offset the costs of performing the 

delegated functions. 

90. NERC states that its review focused on verifying that the Regional Entity’s 

business plan and budget provided sufficient resources to adequately carry out the 

functions expected to be delegated to the Regional Entity under the delegation agreement 

 57 Order No. 672 at P 229. 
Docket No. RR06-3-000 - 28 -

and understanding the basis for any significant differences in the amounts budgeted by 

different Regional Entity candidates for the same function.58 NERC states that at this 

time it does not believe it is appropriate to dictate to the Regional Entity candidates the 

specific methods they should use to carry out Regional Entity responsibilities (e.g., use of 

in-house staff verses industry volunteers for audits). In addition, NERC commits to 

continuing to monitor and compare the different approaches chosen by different regions 

as to the efficiency and effectiveness in maintaining bulk-power system reliability. 

However, NERC states that in the future, it is possible that NERC (and the Commission) 

will determine there is a need to be more prescriptive with respect to the means used by 

Regional Entities to carry out delegated statutory activities. 

91. NERC requests the following ERO funding for U.S. statutory functions of NERC, 

the Regional Entities and WIRAB:59

 NERC 

Funding 

Regional 

Entity 

Funding 

WIRAB 

Funding

Total 

Funding 

Request 

ERCOT $ 1,394,183 $ 4,870,755 - $ 6,264,938 

FRCC $ 1,190,001 $ 2,450,294 - $ 3,640,296 

MRO $ 1,245,605 $ 4,194,826 - $ 5,440,430 

NPCC $ 1,504,824 $ 2,341,915 - $ 3,846,739 

RFC $ 4,948,769 $ 9,372,472 - $14,321,241 

SERC $ 5,161,805 $ 5,518,555 - $10,680,360 

SPP $ 1,109,871 $ 3,176,026 - $ 4,285,897 

WECC $ 3,242,103 $14,301,152 $402,839 $17,946,094 

Total $19,797,162 $46,225,996 $402,839 $66,425,996 

 58 For example, RFC’s proposed budget is significantly larger than SERC’s 

proposed budget because RFC has a significantly larger staff, including a staff of fulltime auditors. SERC, in contrast, intends at this time to place greater reliance on industry 

volunteers for audit functions. NERC states that there are advantages and disadvantages 

to each approach. Application at 13, n. 23. 

59 The dollars for the statutory funding of each Regional Entity candidate are taken 

from the various tables in the Application. Columns do not add to Total Requested in all 

cases because of different degrees of detail submitted and cost allocations performed by 

the Regional Entities. 
Docket No. RR06-3-000 - 29 -

2. ERCOT

92. NERC states that ERCOT proposes to increase its number of FTEs for statutory 

activities from 9 in 2006 to 22 in 2007, with Compliance receiving the greatest increase. 

ERCOT proposes to devote 2.0 FTEs and $288,757 to its Reliability Standards program 

and 15.0 FTEs and $1,180,655 to its compliance program. It thus proposes to devote 77 

percent of its FTEs and 30 percent to its dollars in its filed budget to these two programs. 

In addition, ERCOT has budgeted $350,000 or 7 percent of its budget for contingency 

expenses. Further, ERCOT has budgeted $643,464 in miscellaneous income for nonstatutory functions; however ERCOT has not identified what these functions are. 

93. The funding requests for the Regional Entity candidates are supported with 

varying levels of details. The Commission recognizes that in some cases it is difficult to 

make comparisons between proposed and past budgets because past budgets were not 

necessarily organized along the lines of proposed statutory activities. However, in 

general, the Regional Entity candidates propose increases in both personnel and 

expenditures, with large portions of their budgets devoted to the areas of the Reliability 

Standards program and the compliance program. In addition, some candidates (such as 

ERCOT and SERC), provide estimates of the number of audits they plan to complete in 

2007. Most do not provide that information. 

94. ERCOT states that it is currently leading an effort to register all users, owners, and 

operators of the bulk-power system. The registered entities will be responsible for 

complying with NERC Reliability Standards. ERCOT has already identified some users, 

owners, and operators of the bulk-power system. These entities include ERCOT ISO, 

26 qualified scheduling entities, 16 transmission operators sub-entities, 130 generator 

owners, 26 generator operators, 26 transmission owners/planners, and 4 distribution 

providers with responsibility for complying with the requirements of the under-frequency 

load shedding program. 

95. ERCOT has initially identified approximately 96 potential compliance audits per 

year.60 In addition, ERCOT will provide on a yearly basis, staff for approximately 75 

possible NERC readiness reviews and approximately 123 annual self-certification and 

associated spot checks. ERCOT states that the number of organization certification 

audits is unknown at this time. 

 60 The compliance audits include yearly audits of transmission operations, ERCOT 

ISO and generation owners and operators plus possible compliance audits of qualifying 

scheduling entities that are only purchasing-selling entities. 
Docket No. RR06-3-000 - 30 -

96. ERCOT’s budget did not specify an allocation of monies for readiness reviews;61

however, ERCOT proposes to increase its number of FTEs for compliance from 9 in 

2006 to 15 in 2007. 

3. FRCC

97. NERC states that FRCC’s budget for statutory functions does not conform in all 

respects to NERC’s view of the delegated, statutory activities to be performed by the 

Regional Entity. FRCC has not included in its budget all the activities that NERC 

believes should be included in delegated statutory functions. NERC states that based on 

data supplied by FRCC, it revised FRCC’s budget to include provisions for the additional 

activities which NERC believes should be included in delegated statutory functions.62 

NERC revised FRCC’s budget to include monies for situational awareness and 

infrastructure security ($489,169) and training and education ($41,503). NERC requests 

that the Commission accept NERC’s revised budget for FRCC. 

98. NERC states that FRCC proposes to budget a total of 5.14 FTEs in 2007.63 FRCC 

proposes to devote 0.77 FTEs and $168,568 to its Reliability Standards program and 3.94 

FTEs and $1,033,321 to its compliance program. It thus proposes to devote 91.6 percent 

of its total FTEs and 49 percent to its total dollars to these two programs. In addition, 

FRCC has budgeted $170,344 or 7 percent of its budget for contingency expenses. 

Further, FRCC has budgeted $3,306,346 for non-statutory expenses which will be funded 

through membership dues. 

99. FRCC’s proposed budget does not include any estimate of the number of users, 

owners, and operators that are required to comply with the ERO Reliability Standards in 

its region or the number of audits which it will perform. 

 61 While NERC failed to identify this information for the Commission, it appears 

that ERCOT may have included it as part of its compliance function, as ERCOT has 

listed readiness reviews under compliance in its business plan. 

62 NERC Application at 11, n.20. 

63 FRCC’s proposed budget and business plan do not include FTEs for 2006. 
Docket No. RR06-3-000 - 31 -

100. FRCC does, however, include an extensive list of non-statutory functions, 

including: the FRCC transmission planning process, FRCC reliability coordinator64, 

readiness audits, FRCC gas study project, multiple working groups,65 subcommittees66

and operating reliability support services. In addition, FRCC states that it has a service 

agreement with Florida Electric Power Coordinating Group to provide administrative 

services. 

4. MRO

101. NERC states that MRO’s budget proposes 20 FTEs in 2007, with 

compliance/enforcement receiving the greatest number of FTEs (5.25). MRO proposes 

to devote 2.25 FTEs and $284,623 to its Reliability Standards program and 5.25 FTEs 

and $1,278,901 to its compliance program. MRO proposes to devote 37.5 percent of its 

total FTEs and 31 percent to its total dollars to these two programs. In addition, MRO 

has budgeted $239,000 or 5 percent of its budget for contingency expenses. 

102. MRO’s proposed budget does not include the approximate numbers of entities 

with responsibility for complying with the ERO Reliability Standards in its region or the 

number of audits which it will be responsible for performing. Further, MRO has not 

included 2006’s budget for each of the functions for comparison.67

103. Other than its work in Canada, MRO does not list any other non-statutory 

functions. 

104. MRO states that it has a coordination agreement with RFC and works closely with 

SPP. In addition, MRO states that in 2007 its budget includes a service agreement to 

provide a non-profit cooperative, MAPPCOR, limited information technology, human 

 64 FRCC uses three agents to perform reliability coordinator functions, including 

backup responsibility. FRCC states that the reliability coordinator agents’ performance is 

monitored and overseen by FRCC’s operating reliability subcommittee and operating 

committee. The reliability coordinator function is included in the operating committee 

budget. NERC Filing, Att. 2, FRCC Business Plan and Budget at 9. 

65 FRCC has listed the following working groups: available transfer; resource; 

stability; transmission; and data exchange. 

66 FRCC has listed the following subcommittees: operating reliability; system 

operator; and telecommunications. 

67 MRO’s budget states that its 2005 financials are attached as Appendix 3.2.1, 

which is not part of the filing. 
Docket No. RR06-3-000 - 32 -

resources and finance services, which is subject to approval later in 2006. MRO states 

that the value of the contract is $463,467. 

 5. NPCC

105. NERC states that NPCC proposes to increase its total number of FTEs supported 

by these budget functions from 16 in 2006 to 24 in 2007, with compliance/enforcement 

receiving the greatest number of FTEs (7.5). NPCC proposes to devote 3.5 FTEs and 

$768,642 to its Reliability Standards program and 7.5 FTEs and $1,382,177 to its 

compliance program. NPCC proposes to devote 45.8 percent of its total FTEs and 41 

percent to its total dollars to these two programs. 

106. NPCC’s proposed budget does not include the approximate numbers of entities 

with responsibility for complying with the ERO Reliability Standards in its region or the 

number of audits which it will be responsible for performing. Further, NPCC has not 

included 2006’s budget for each of the functions for comparison. 

107. In its Budget proposal, NPCC has inserted a placeholder for future reliability 

services agreements between itself and the ERO under each statutory function. NPCC 

states that it would be willing to contract its services to the ERO in order to make 

available regional technical expertise. 

108. NPCC identifies as non-statutory ($2,136,754) its cross border regional activities 

for: personnel certification; readiness reviews; reliability assessment and performance 

analysis; training and education; situational awareness; and infrastructure security. 

6. RFC

109. NERC states that RFC proposes to budget 34 FTEs in 2007, which matches its 

FTEs usage in 2006. Compliance/enforcement receives the greatest number of FTEs 

(10.5). RFC proposes to devote 3.0 FTEs and $1,006,907 to its Reliability Standards 

program and 10.5 FTEs and $2,842,417 to its compliance program. RFC proposes to 

devote 39.7 percent of its total FTEs and 41 percent to its total dollars to these two 

programs. 

110. RFC’s proposed budget does not include the approximate numbers of entities with 

responsibility for complying with the ERO Reliability Standards in its region or the 

number of audits which it will be responsible for performing. However, RFC’s budget 

does include 2006’s total dollars for each of the functions for comparison 

111. RFC states that the ERO will bill all entities in 2007, and it will assist the ERO by 

identifying the balancing authorities within its footprint based on NEL. However, the 

balancing authorities will need to provide all the entity names, contact information and 

NEL information for the LSEs in their area. 
Docket No. RR06-3-000 - 33 -

112. RFC has listed $578,969 or 6 percent of its budget for contingency funds to be 

used at the discretion of its president. In addition, RFC is considering at this time 

whether to also establish a 10 percent “reserves” budget item. RFC states that the saving 

from the 2006 assessments may be used to fund the “reserves” budget. RFC’s budget 

includes $71,500 in interest income. RFC has not listed any monies for non-statutory 

functions. However, RFC states that it is currently evaluating certain heritage regional 

council (ECAR, MAAC and MAIN) activities to determine whether to continue them. 

RFC does not state whether it will propose that the continued activities be statutory or 

non-statutory. 

113. RFC states that the 2007 budget also contains a one time moving cost of $855,000 

associated with relocating its corporate office to a new permanent location, which will be 

funded through the Regional Reliability Organization and not by the ERO. 

7. SERC

114. NERC states that SERC’s budget proposes 28.0 FTEs in 2007, with 

Compliance/enforcement receiving the greatest number of FTEs (10.56). SERC proposes 

to devote 3.66 FTEs and $638,500 to its Reliability Standards program and 10.56 FTEs 

and $1,549,705 to its compliance program. SERC proposes to devote 50.7 percent of its 

total FTEs and 38.7 percent to its total dollars to these two programs. In addition, SERC 

has budgeted for $173,500 workshop income and $10,000 interest income. SERC has not 

budgeted any monies for contingency expenses or non-statutory items. SERC does not 

list any non-statutory activities. 

115. As part of its compliance enforcement audit program, SERC states that they will 

conduct 10 operating audits, 10 planning audits, 10 combined operating and planning 

audits and 15 certification audits. Further, compliance staff will participate in up to 11 

readiness reviews. SERC does not identify the approximate numbers of entities with 

responsibility for complying with the ERO Reliability Standards in its region. 

8. SPP

116. NERC states that SPP’s budget proposes 11.15 FTEs in 2007, with Reliability 

Standards receiving the greatest number of FTEs (2.70). SPP proposes to devote 2.70 

FTEs and $540,135 to its Reliability Standards program and 2.55 FTEs and $690,171 to 

its compliance program. SPP proposes to devote 47 percent of its total FTEs and 38.6 

percent to its total dollars to these two programs. In addition to the ERO funding, SPP 

has budgeted $5,000 in interest income. SPP has budgeted $645,985 for non-statutory 

expenses. SPP has not budgeted any monies for contingency expenses. SPP does not list 

any non-statutory activities. 

117. SPP’s proposed budget does not include the approximate numbers of entities with 

responsibility for complying with the ERO Reliability Standards in its region or the 
Docket No. RR06-3-000 - 34 -

number of audits which it will be responsible for performing. Further, SPP has not 

included its 2006’s budget for each of the functions for comparison. SPP states that its 

budget has not been approved by its Board of Directors, nor has it been reviewed by its 

membership. SPP commits to providing its approved 2007 budget to NERC by 

November 1, 2006. 

9. WECC

118. NERC states that WECC’s budget proposes 46.84 FTEs in 2007, with reliability 

assessment and performance analysis receiving the greatest number of FTEs (12.30). 

WECC proposes to devote 2.21 FTEs and $290,040 to its Reliability Standards program 

and 6.63 FTEs and $919,800 to its compliance program. WECC proposes to devote 

18.8 percent of its total FTEs and 6.7 percent to its total dollars to these two programs. 

In addition to the ERO funding, WECC has budgeted for $528,801 workshop income, 

$352,000 interest income and $8,400 miscellaneous income for statutory functions. 

WECC has budgeted $645,985 for non-statutory expenses and $1,184,732 in income 

received for non-statutory functions from membership dues. WECC has budgeted 

$3,210,000 or 16.8 percent of its total budget for contingency expenses. 

119. WECC’s proposed budget does not include the approximate numbers of entities 

with responsibility for complying with the ERO Reliability Standards in its region or the 

number of audits which it will be responsible for performing. WECC’s budget does 

include the total annual assessments from 2001 through 2007 and the reserves for 2003 

through 2007. However, it does not include the total dollars for each of the functions for 

comparison purposes. 

120. WECC’s budget has adopted all of the statutory functions defined by NERC. In 

addition, WECC asserts that reliability coordination is a statutory function.68 WECC 

identifies as non-statutory: the Market Interface Committee; North American Energy 

Standards Board activities; Western renewable generation Information system; 

compliance enforcement in Canada and Mexico; reliability management system; and staff 

support for non-statutory activities. 

 10. Comments

121. EEI points out that the Regional Entities’ activities reflect NERC’s transition into 

the ERO. The Regional Entities’ budgets reflect additional staffing for the standards and 

compliance enforcement programs. 

 68 We address WECC’s request that the Commission accept reliability 

coordination as a statutory function above in the discussion of the scope of activities 

being funded. 
Docket No. RR06-3-000 - 35 -

122. Alcoa points out that the Regional Entity budgets result in different regions 

funding different charges. For example, the users in MRO would pay the largest funding 

charge, at 25 mills/MWh, while users in SERC would only pay 11 mills/MWh. Alcoa 

argues that the Commission must determine whether these differences are meaningful in 

the functions performed by each Regional Entity. Alcoa points out that NERC states that 

the differences in funding costs are due in part to the staff levels at each Regional Entity. 

Some Regional Entities plan to rely more on volunteers and less on their own staff. 

Alcoa states that the material provided by NERC does not include enough information for 

the Commission to evaluate whether the approach adopted by each Regional Entity 

reflects a cost-effective way of administering Reliability Standards and/or otherwise 

performing the necessary Regional Entity functions. 

123. WIRAB supports WECC's 2007 budget but also recommends that future budget 

submissions by Regional Entities identify “best practices” and “innovations” so that the 

process will encourage Regional Entities to learn from each other's successes and 

continually improve. 

 11. Commission Conclusion

124. We agree with EEI, that the 2007 budget reflects the transition of NERC into the 

ERO and of the regional organizations into Regional Entities. Given the complexities of 

starting up the new ERO, the proposed budgets are reasoned first submittals. Therefore, 

we accept the Regional Entity candidates’ total budget dollars as amended and filed by 

NERC, with the exception of WECC’s proposed $6.9 million dollars for reliability 

coordinator activities, as discussed above. However, we are concerned with the lack of 

consistency among the statutory functions of Regional Entities. We direct NERC and the 

Regional Entities to examine the various activities proposed by each Regional Entity to 

be performed under each statutory function, and to determine what activities need to be 

performed consistently across the Regional Entities. They should develop their budgets 

for 2008 to reflect the best practices found from this examination. We will revisit this 

issue at that time. 

125. We note that FRCC, MRO, NPCC, RFC, SPP and WECC do not state the number 

of audits that will be conducted during a year or the total number of entities that would be 

subject to their oversight. Therefore, once NERC and the Regional Entities have 

obtained Commission approval of the delegation agreements, we direct NERC to file a 

supplement to the budget for each Regional Entity that should state: (1) the total budget 

for statutory and non-statutory activities as required in Order No. 672; (2) the total 

number of entities subject to each Regional Entity’s oversight; and (3) the total number of 

audits to be conducted during the year for each audit type. 

126. In addition, it is appropriate for NERC and the Regional Entities to continue to 

evaluate whether the level of funding for their audit programs are sufficient to fulfill their 
Docket No. RR06-3-000 - 36 -

audit responsibilities. If NERC and the Regional Entities determine during 2007 that the 

Regional Entities have incorrectly estimated its funding needs to accomplish its statutory 

activities, we will allow the Regional Entities to revisit the 2007 budget in order to enable 

them to satisfy their obligations.69

 H. Invoicing

127. In its ERO certification application, NERC stated that it intends to bill LSEs and 

have the Regional Entities serve as intermediary collection agents, but will allow a 

Regional Entity to allocate its funding obligation using an alternative method, including 

billing balancing authorities. The Commission found that this flexibility allows NERC to 

accommodate the specific needs of a Regional Entity. The Commission stated that “Any 

proposed alternative billing formula must be submitted to the Commission for approval in 

either a delegation agreement or other documents.”70 

 1. NERC Application

128. NERC states that it intends to directly invoice assessments to LSEs or their 

designees in all regions except WECC. WECC will invoice LSEs or designees within the 

WECC footprint, collect the assessments and remit the funds to NERC. In addition, 

NERC states that while the members of NPCC initially decided that NERC should 

invoice each ISO or RTO, on July 25, 2006, NPCC notified NERC that NPCC’s U.S. 

members had changed their position and now wanted NERC to directly invoice the LSEs 

within NPCC’s U.S. footprint. NPCC is currently preparing a list of LSEs within the 

New York ISO and the ISO-New England. NERC commits to supplementing the filing 

to show the assessment amounts for each LSE in New York ISO and the ISO-New 

England.71 In addition, NERC states that FRCC, MRO, RFC, SERC and SPP have 

indicated that they will be submitting revised lists of LSEs within their respective 

footprints and NERC commits to filing the undated lists of LSEs and assessments with 

the Commission as soon as possible. 

129. In the October 6 supplemental filing, based on updated information provided by 

FRCC, MRO, RFC, SERC, SPP and WECC, NERC filed revised proposed assessments 

to LSEs or their designees within the footprint of each Regional Entity and revised 

allocations of NERC’s proposed 2007 budget among the United States, Canada and 

Mexico. NERC states that as of October 6, 2006, NPCC has not submitted an updated 

 69 See Order No. 672 at P 199. 

70 ERO Certification Order, 116 FERC ¶ 61,062 at P 168. 

71 NERC Application at 18, n.34. 
Docket No. RR06-3-000 - 37 -

list of LSEs to NERC. NERC states that the total 2007 funding requirements for NERC, 

each Regional Entity and WIRAB have not changed from the values presented in the 

Budget Request; however, the allocations of these amounts to the U.S. and the Regional 

Entities have changed. 

 2. Comments

130. National Grid requests that the Commission require NERC and NPCC to continue 

the existing billing arrangements through the ISOs until the stakeholders have been 

afforded an opportunity to reach consensus on alternative billing arrangements and until 

necessary tariff revisions have been put in place at the federal and state levels. New York 

Transmission Companies request that the Commission clarify that the role of the 

ISO/RTO in the allocation and collection process should be addressed in the delegation 

agreements between NERC and the Regional Entities. 

131. National Grid and New York Transmission Companies state that the proposal that 

NERC directly invoice and collect monies from the LSE’s raises concerns about the 

compatibility of NERC’s billings with retail access and would result in a new reliability 

cost allocation and could result in unnecessary administrative burdens and risks on the 

part of utilities that may be directly billed by NERC. Previously NPCC and NERC’s 

dues were recovered as part of the administrative costs of New York ISO and the ISONew England through established tariffs approved by FERC and the states; and there has 

been “no substantive discussion within NPCC or New York or New England” as to 

whether or how the reliability cost allocation should be revised. National Grid asserts 

that NPCC should not prepare a list of the LSE’s within New York ISO and ISO-New 

England on its own; instead the preparation of the list will require the effort of all 

stakeholders in order to ensure that all LSEs are appropriately allocated a share of these 

reliability costs. 

132. New York Transmission Owners state that in regions that encompass ISOs and 

RTOs, NERC and the Regional Entities should be permitted to invoice allocated ERO 

and Regional Entity costs to the ISO/RTO, which are well positioned to collect the 

charges from LSEs based on up-to-date load share allocations. Further, the New York 

Transmission Owners request that the Commission clarify that the role of the ISO/RTO 

in the allocation and collection process should be addressed in the delegation agreements 

between NERC and the Regional Entities. 

133. NYISO supports NERC’s proposal. 

 3. NERC Reply Comments

134. NERC agrees that its billing efficiency would be enhanced if NERC billed ISOs 

and RTOs rather than directly billing the LSE members of the ISOs and RTOs. NERC 

points out that it would mean fewer entities for NERC to deal with in the billing and 
Docket No. RR06-3-000 - 38 -

collection process. NERC also points out that billing efficiency would be enhanced from 

the perspective of the LSEs, since the ISOs and RTOs may be better able to bill the 

individual LSEs on more current NEL data. Finally, NERC points out that PJM will be 

acting as the collection agent for the LSEs within its footprint. 

 4. Commission Conclusion

135. We approve NERC’s proposed invoicing of the LSEs or their designees in all 

regions except WECC. In addition, we approve NERC’s proposal to allow WECC to 

invoice LSEs or designees within its footprint, collect the assessments and remit the 

funds to NERC. In the ERO Certification Order, the Commission granted NERC the 

flexibility to allow a Regional Entity to allocate its funding obligation using an 

alternative method, including billing balancing authorities in order to accommodate the 

specific needs of a Regional Entity.72 In the case of NPCC, NERC and the Regional 

Entity may propose a workable arrangement which will accommodate the specific needs 

of the region. This arrangement may be the one proposed by NERC in this filing, or it 

may need to be an entirely new proposal. In response to New York Transmission 

Companies, we do not agree that the ISO/RTO’s role in the allocation and collection 

process in a specific region should be addressed in the delegation agreements. The 

delegation agreements address the relationship between the ERO and the Regional Entity, 

not the ERO and an ISO or RTO. 

136. In response to intervenors’ requests, NERC may contract with an ISO or RTO for 

collection purposes; however, consistent with our direction in the ERO Certification 

Order, NERC must adopt appropriate safeguards to ensure that (1) the collection 

contractor transfers the money to the ERO in a timely manner and (2) the collection 

contractor states that it will not use its position as billing agent and collector to unduly 

influence the ERO’s decisions.73 

I. WIRAB Funding Request

137. As noted above, the Commission agreed in principle that reasonable costs incurred 

by a RAB in performing section 215(j) activities may be paid from mandatory fees 

collected under section 215. However, any approval of a specific RAB funding should be 

part of the overall ERO funding process. 

 72 116 FERC ¶ 61,062 at P 168. 

73 Id. at P 169. 
Docket No. RR06-3-000 - 39 -

1. NERC Application

138. NERC’s application seeks funding for WIRAB. NERC states that WIRAB has 

submitted to NERC an organization chart and a proposed 2007 budget for activities that 

fall under section 215(j). NERC states that it has reviewed WIRAB’s submission and 

believes it complies with the requirements of the WIRAB Order. WIRAB’s overall 

funding request of $477,260 includes $402,839 allocated to the U.S. 

2. Commission Conclusion

139. We approve the requested funding for WIRAB. Order No. 672-A stated that any 

Regional Advisory Body funding request must specify if such funding is for employees 

or consulting fees. The Commission in the WIRAB Order neither approved nor rejected 

these funding categories, instead preferring to evaluate such specific funding requests at 

the time the ERO submits its budget to the Commission for approval. The funding of two 

full-time equivalent employees and consulting fees appears reasonable for the role of 

WIRAB in advising the Commission, the ERO and the Regional Entity. 

J. System of Accounts and Record Keeping Requirements

140. The Commission has not established accounting or record keeping requirements 

for the ERO. Rather, we stated that “. . . we will allow the ERO flexibility to develop a 

reasonable and consistent system of accounts, with a level of detail and record keeping 

comparable to the Uniform System of Accounts and sufficient to allow the Commission 

to compare each Commission-approved ERO fiscal year budget with the actual results at 

the ERO and Regional Entity level.”74 The Commission directed NERC in the ERO 

Certification Order to identify a specific accounting process for the funding of statutory 

and, as necessary, non-statutory activities, including the costs of billing such activities, to 

ensure that funding pursuant to section 215 will support only statutory activities. The 

Commission acknowledged that the compliance filing would occur after NERC filed its 

budget proposal, but it noted that it expected NERC’s budget proposal would answer 

many of these questions.75 

 1. NERC Application

141. NERC’s Application does not identify its specific accounting and record keeping 

processes as required by the Commission. NERC states that it believes all the activities 

 74 Order No. 672 at P 246. 

75 ERO Certification Order, 116 FERC ¶ 61,062 at P 184, 202 & n.83. 
Docket No. RR06-3-000 - 40 -

in its 2007 business plan and budget are statutory activities necessary and appropriate to 

carry out NERC’s responsibilities as the ERO. NERC explains that for this reason it has 

not presented such an accounting process.76 No parties filed comments on this issue. 

 2. Commission Conclusion

142. In the ERO Certification Order concerning accounting issues and the associated 

record keeping requirements, the Commission directed NERC “to identify a specific 

accounting process for the funding of statutory and, as necessary, non-statutory activities, 

including the costs of billing such activities, to ensure that funding derived from section 

215 will exclusively support statutory activities.” 77 The Commission thus directed 

NERC to present an accounting process for statutory activities regardless of whether or 

not it would engage in any non-statutory activities. We therefore reiterate that consistent 

with Order No. 672, NERC should develop a reasonable and consistent system of 

accounts, with a level of detail and record keeping comparable to the Uniform System of 

Accounts and sufficient to allow the Commission to compare each Commission-approved 

ERO fiscal year budget with the actual results at the ERO and Regional Entity level. We 

require NERC to develop its proposed system of accounts and record keeping 

requirements and include it as part of NERC’s 2008 budget filing. In addition, we 

require NERC to make a filing within 60 days of the date of this order explaining the 

organization and structure of its existing accounting and record keeping systems and 

indicating whether its current accounting practices and procedures comply with generally 

accepted accounting principles. 

K. Collection of Funds

 1. NERC Application

143. NERC has developed the proposed assessments to recover the ERO funding 

requirement using lists of LSEs and designees and their NELs provided to NERC by each 

Regional Entity candidate. The data used to calculate the allocations and assessments are 

from 2005, which NERC states is the most recent year for which NEL data is available. 

144. NERC states that questions have arisen as to whether it should be required to 

adjust an LSE’s assessment if during the course of the year to which the assessment 

applies, or the preceding year, the LSE’s NEL changes materially from that of year used 

to calculate the assessments. NERC believes that the assessments to each LSE or 

designee should be based on the NEL data NERC receives from the Regional Entities and 

 76 NERC Application at 10, n.19. 

77 ERO Certification Order, 116 FERC ¶ 61,062 at P 184. 
Docket No. RR06-3-000 - 41 -

uses to develop the assessments submitted to the Commission in the annual budget 

filings, and that once the Commission approves an assessment it should not be modified 

to reflect subsequent changes in an LSE’s NEL. NERC also believes that the Regional 

Entities should identify for NERC the LSEs and designees to be billed for assessments 

and the NEL data that is to be used to calculate their assessments, and that NERC should 

be entitled to rely on the information it receives from the Regional Entities. 

145. NERC maintains that consistent with these principles, if changes in an LSE’s NEL 

compared to the Year 1 amount are established to the satisfaction of the Regional Entity, 

then the Regional Entity should be free to reflect the post-Year 1 change in NEL in the 

data that it submits to NERC for use in calculating the Year 3 assessments. In short, it 

would be appropriate for the Regional Entity to adjust Year 1 NEL data consistent with 

the recognized public utility ratemaking principle of “known and measurable changes” to 

“test year” (i.e., Year 1) data occurring or recognized after the end of Year 1 (but before 

NERC must submit the proposed Year 3 assessments to the Commission for approval).”78 

NERC states that in other circumstances the LSE should continue to be responsible for 

the full assessment approved by the Commission, at least from the perspective of 

NERC’s billing and collection activities. On a going forward basis, LSEs can begin to 

address the possibility of such situations occurring through appropriate contractual 

arrangements with their customers. 

 2. Billing Lag

 Comments

146. Exelon states that NERC and the regional entity assessments should be assigned to 

LSEs based on load served during the current budget year. National Grid states that 

NERC’s proposal to build in a two year lag by relying on 2005 load data fails to reflect 

the fact that changes are to be expected in dynamic competitive markets, and, thus, it 

could result in LSEs being overcharged or undercharged. 

147. New York Transmission Owners state that in regions with retail competition, it is 

critical to base the charges on current load share. Failure to charge the LSEs on current 

year load could result in LSEs that are either overcharged or undercharged. Allocating 

costs to LSEs on two year old data is not equitable, and could lead to risks of noncollection in the event that the LSE goes out of business. The New York Transmission 

Owners note that NERC’s budget does not provide NERC or the Regional Entities with 

the flexibility of after-the-fact true-up. 

 78 NERC Application at 41. 
Docket No. RR06-3-000 - 42 -

 NERC Reply Comments

148. NERC states that the list of LSEs and associated NEL figures contained in the 

budget request reflect the best data available to NERC at the time the filing was made on 

August 23, 2006. MRO, RFC, SERC and SPP indicated that they will submit revised 

lists of LSEs to NERC. NERC gave the Regional Entities a deadline of September 30, 

2006 to complete their revisions to the lists of LSEs. NERC stated that it would promptly 

file the updated lists of LSEs with the Commission. On October 6, 2006 FRCC, MRO, 

RFC, SERC, SPP and WECC submitted revised lists of LSEs to NERC; however, NERC 

states that as of October 6, 2006, NPCC has not submitted an undated list of LSEs to 

NERC. 

149. NERC notes that PJM will be acting as the collection agent for the LSEs within its 

footprint, and that the RTO has proposed to use current NEL (on a monthly basis) to 

assess ERO and Regional Entity charges. NERC states that it supports PJM’s proposed 

method for collecting assessments from its LSEs. NERC states that it will allocate its 

overall ERO budget among the U.S., Canada and Mexico and among LSEs (or their 

collection agents or “designees”) on the basis of the most recent NEL data made available 

to NERC, with known and measurable changes provided by PJM up to the time NERC 

makes its annual budget filing. Once the Commission approves the budget and the 

allocations, PJM will collect the amounts allocated to PJM from its LSEs through a tariff 

mechanism based on current NEL. NERC argues that this method seems entirely 

appropriate and consistent with the statutory requirements and it anticipates that other 

large entities having a number of LSEs within their footprints (e.g., ERCOT and certain 

entities in Canada) may eventually use a similar mechanism. 

 Commission Conclusion

150. The 2007 budget reflects the transition of NERC into the ERO, and regional 

organizations into Regional Entities. Previously, as a voluntary organization, NERC 

Council (the predecessor to NERC Corp.) relied on the Regional Reliability Councils 

for support and financing. Now, because it has been certified by the Commission as 

the ERO, the authority of NERC Corp. derives from section 215 of the FPA, while the 

Regional Entities are delegated authority from NERC, are subject to the oversight of 

NERC, and receive funding from NERC. Therefore, given the complexities of 

starting up the new ERO and the fact that the 2007 budget is the first budget covering 

the new financial arrangements, we approve NERC’s proposed allocation of 

assessments to recover the ERO funding requirements; its proposed method for adjusting 

an LSE’s assessment to account for the two year lag in NEL data used to calculate the 

assessments; and its proposal that it rely on the Regional Entities to identify for NERC 

the LSE or designee to be billed. 
Docket No. RR06-3-000 - 43 -

151. NERC chose to use 2005 data because it is the most recent data available. 

Therefore, to the extent an LSE’s NEL changes materially it will need to inform the 

Regional Entity in a timely manner and the Regional Entity will need to be diligent and 

timely in identifying for NERC the new LSE or designee to be billed for assessment 

associated with that load. NERC and the Regional Entities may choose to propose 

language addressing New York Transmission Owners’ concern that the Budget does not 

provide NERC or the Regional Entities with the flexibility to reassess the charges to the 

remaining LSEs within the budget year. Alternatively, Regional Entities can encourage 

LSEs to address the possibility of an exiting LSE in contractual arrangements with their 

customers. In addition, NERC may choose to adjust assessments part way through the 

year in order to reflect the most recent NEL data available for LSEs. In the future, NERC 

may also choose to explore possible alternative assessment methods that use current load 

data to allocate costs; however, we will not mandate it here. NERC must submit any 

proposed alternative billing formula to the Commission for approval. 

 3. Registry List

 Comments

152. Southern California Edison (SCE) reiterates its belief that NERC should form and 

post a listing of LSEs responsible for funding statutory costs and should not rely on the 

Regional Entities to develop and provide the lists. SCE is concerned that if the Regional 

Entities put together the lists a significant number of LSEs will be left off the list and 

there will not be a public review of the lists. In addition, SCE states the using such a 

publicly available list will ensure that all end users fund the ERO and Regional Entities 

pursuant to section 215(c)(2)(B). SCE requests that NERC be directed to form a 

mandatory funding registry and allow public input on its completeness by posting the 

registry on its website for public access. Further, SCE requests that NERC update the 

funding registry on a continuous basis in order to assure a complete and accurate listing 

of all LSEs or “designees” that must fund ERO and Regional Entity statutory activities. 

153. Exelon points out that NERC has not listed assessments to specific LSEs in RFC; 

instead it has listed assessments by balancing authorities. Exelon requests that the 

Commission require NERC to make a compliance filing listing the assessments by LSE’s 

and the amount billed. 

 NERC Reply Comments

154. NERC states that the list of LSEs and associated NEL figures contained in the 

budget request reflect the best data available to NERC at the time the filing was made on 

August 23, 2006. Since then MRO, RFC, SERC and SPP have indicated that they will 

submit revised lists of LSEs to NERC. NERC has given the Regional Entities a deadline 

of September 30, 2006 to complete their revisions to the lists of LSEs. NERC states that 

it will promptly file the updated lists of LSEs with the Commission. 
Docket No. RR06-3-000 - 44 -

 Commission Conclusion

155. In the ERO Certification Order, the Commission stated that it would not require 

NERC to establish a funding registry listing entities that are responsible for paying dues, 

fees and charges; instead, the ERO could consider whether such a registry has merit. We 

note that NERC’s Application contains tables showing the allocation of the NERC and 

Regional Entity funding requirements to the LSEs or balancing authority within the 

footprint of each Regional Entity.79 In addition, we note that NERC’s Business Plan and 

Budget were noticed and the public was invited to comment. 

156. While the Commission did not require NERC to produce a registry list of assessed 

entities and NERC was given the flexibility to bill either LSEs or balancing authorities, 

the mixed and matched approach and the ambiguity as to the status of certain entities 

(e.g., PJM) lacks clarity and consistency. During 2007, NERC will acquire experience in 

its position as the ERO and should have the knowledge and resources in place to submit a 

more complete budget. The Commission understands that the ERO is in a transition 

period; however, we require NERC to clearly define the roles of LSEs, balancing 

authorities, designees, and collection agents in funding and clearly state which entity fits 

in each category. 

 4. Miscellaneous – File as a Rate Schedule

157. Exelon comments that NERC should be required to file its assessments to recover 

its statutorily permitted costs as a rate schedule under section 215, consistent with the 

statutory notice policy under the filed rate doctrine. 

 NERC Reply Comments

158. NERC argues that the ERO assessment should not be filed as a rate schedule under 

section 215, because the ERO will not be a public utility under the FPA. NERC states 

that neither it nor the ERO is a public utility under the FPA.80 NERC further argues that 

the public notice function that would be served by a filed rate schedule will be served by 

the public process through which NERC’s ERO budget is developed and by public 

posting of the budget filing that lists the entities to which NERC looks for funding. 

 79 NERC Application, Att. 2, section B, App. C. For each Regional Entity, the 

table lists a variety of data inserts including the name of the Entity, country, Entity’s total 

NEL, Entity’s U.S. NEL, percentage of the Regional Entity’s total, percentage of 

Regional Entity’s U.S. total, and percentage of ERO total. 

80 NERC’s Answer at 15. 
Docket No. RR06-3-000 - 45 -

 Commission Conclusion

159. We agree with NERC. The budget filings should not be filed as rate schedules; 

section 215 does not fall under the filed rate doctrine. As NERC points out, rate 

schedules are governed by sections 205 and 206 of the FPA. Sections 205 and 206 apply 

to public utilities, whereas the ERO is not a public utility under the FPA. Thus, its 

budget does not constitute a rate under sections 205 and 206 of the FPA. Instead, the 

budget is a report filed in compliance with section 39.4 of the Commission’s regulations. 

The budget report is similar to refund reports or reports filed consistent with section 8 of 

the Natural Gas Act. Consistent with Commission action on other reports, once the 

budget report has been reviewed by the Commission it will be either accepted, rejected, 

remanded or modified by the Commission. In addition to the public posting of the budget 

filing as NERC develops the budget, there will be public notice of the budget when it is 

filed with the Commission. 

The Commission orders: 

 (A) NERC’s 2007 business plan and budget is hereby conditionally accepted, as 

discussed in the body of this order. 

 (B) The Regional Entities’ 2007 budgets are hereby conditionally accepted in 

part and rejected in part, as discussed in the body of this order. 

 (C) NERC’s proposal for billing is hereby approved, as discussed in the body 

of this order. 

 (D) The proposed WIRAB budget is hereby approved for funding, as discussed 

in the body of this order. 

 (E) NERC is hereby directed to submit its proposed system of accounts and 

record keeping requirements as part of NERC’s 2008 budget filing, as discussed in the 

body of this order. 

 (F) NERC is hereby directed to submit a compliance filing to explain the 

organization and structure of its accounting and record keeping systems and indicating 

whether its current accounting practices and procedures comply with generally accepted 

accounting practices within 60 days of the date of this order, as discussed in the body of 

this order. 
Docket No. RR06-3-000 - 46 -

 (G) NERC is hereby directed to submit compliance filings to address budget 

information for each Regional Entity, as discussed in the body of this order. 

By the Commission. Commissioner Moeller not participating. 

( S E A L ) 

Magalie R. Salas, 

Secretary. 

 
Docket No. RR06-3-000 - 47 -

Attachment A 

Interventions, Protests and Comments81

Alcoa Inc. and Alcoa Power Generating Inc. (collectively, Alcoa) 

Central Hudson Gas & Electric Corporation, Consolidated Edison Company of New 

York, Inc., LIPA, New York Power Authority, New York State Electric & Gas 

Corporation, Orange and Rockland Utilities, Inc., and Rochester Gas and Electric 

Corporation (collectively, New York Transmission Owners) 

Committee on Regional Electric Power Cooperation (CREPC) (filed October 6, 2006) 

Edison Electric Institute (EEI) 

Exelon Corporation (Exelon) 

Florida Reliability Coordinating Council (FRCC) 

ISO/RTO Council (IRC), on behalf of itself and its members (Alberta Electric System 

Operator, California Independent System Operator Corporation, ERCOT, the 

Independent Electricity System Operator of Ontario, ISO New England, Inc., 

Midwest Independent Transmission System Operator, Inc., New York Independent 

Transmission System Operator, Inc., PJM Interconnection, L.L.C., and SPP) 

National Grid USA (National Grid) 

Southern California Edison Company (SCE), Pacific Gas and Electric Company and 

San Diego Gas & Electric Company (collectively, California IOUs) 

Western Electricity Coordinating Council (WECC) 

Western Interconnection Regional Advisory Body (WIRAB) (filed October 6, 2006) 

Interventions Raising No Substantive Issues 

Allegheny Power and Allegheny Energy Supply Company, LLC 

Ameren Services Company, Inc. 

 81 All of the interventions are timely unless otherwise noted. 
Docket No. RR06-3-000 - 48 -

Duke Power Corporation (filed September 14, 2006) 

Consumers Energy Company 

Northern California Power Agency 

Wisconsin Electric Power Company 

Southwest Power Pool (SPP) (filed September 29, 2006)