FERC, CFTC, and State Energy Law Developments

A new report by the National Infrastructure Advisory Council (NIAC) concludes that the nation is not prepared to adequately respond to a catastrophic power outage. The NIAC is a special advisory council composed of representatives from private industry, state and local government, and academia that is tasked with providing the president with advice on issues facing the nation’s 16 federally designated critical infrastructure sectors. The NIAC issued the report after it was tasked with examining the nation’s ability to respond to and recover from a “catastrophic power outage of a magnitude beyond modern experience, exceeding prior events in severity, scale, duration, and consequence.” The NIAC generally considers these to be limited- or no-notice events with a long duration (i.e., lasting weeks or months due to damage) impacting a broad geographic area (e.g., multiple states and affecting tens of millions of people) that could be further complicated by a cyber or physical attack.

Central to the NIAC’s report is examining the extent to which a catastrophic power outage that causes a failure in one critical infrastructure sector could lead to severe cascading impacts and force other critical sectors to operate in a degraded state for an extended period of time. The report reflects the NIAC’s view that, while the roles and responsibilities for emergency authorities are understood generally, the actual implementation of roles and responsibilities in response to a catastrophic power outage (e.g., cyber and physical attacks and larger-scale disasters) is still very much unclear. In this regard, the report stresses the importance of strong federal leadership in responding to and recovering from large-scale emergencies.

The US Department of Homeland Security (DHS) announced the formation of the Information and Communications Technology (ICT) Supply Chain Risk Management Task Force (the Task Force) on October 30. The Task Force is a partnership between government and private sector partners created to “examine and develop consensus recommendations to identify and manage risk to the global ICT supply chain.” The announcement came at the conclusion of National Cybersecurity Awareness Month and follows other government industry initiatives, such as the Oil and Natural Gas Pipeline Cybersecurity Initiative, that have been developed to manage risks posed by increasingly global supply chains.

On October 18, the Federal Energy Regulatory Commission (FERC or Commission) issued Order No. 850, adopting a suite of reliability standards proposed by the North American Electric Reliability Corporation (NERC) to address the cybersecurity risks posed by supply chains for industrial control system assets and services in critical electric utility environments. The final rule largely adopts the proposals from the Commission’s Notice of Proposed Rulemaking (NOPR). But the Commission also directs NERC to expand the scope of the new requirements to include Electronic Access or Control Monitoring Systems (EACMS) and to evaluate the need to further expand the scope of the requirements to include Physical Access Control Systems (PACS) and Protected Cyber Assets (PCAs).

Despite fears that the Commission would shorten the implementation period for the new requirements, the Commission adopted the 18-month implementation period that was originally proposed by NERC.

American national security officials believe that spies working on behalf of an adversarial nation-state successfully carried out an attack against US companies by compromising a key hardware supply chain, according to a report issued October 4 by Bloomberg Businessweek. The report details how the attackers implemented a “seeding” attack by installing tiny, malicious microchips on motherboards—a type of computer circuit board that houses processing and other essential components—that were assembled in Chinese factories. The exploit apparently had a ripple effect, as the compromised motherboards were ultimately installed in commercial servers that are widely distributed in the United States. One official estimates that the attack affected almost 30 companies, including a major bank and government contractors, and may have enabled the attackers to communicate with or infiltrate the sabotaged servers.

The North American Electric Reliability Corporation (NERC) on September 18 requested Federal Energy Regulatory Commission (FERC) approval of a new Critical Infrastructure Protection (CIP) Reliability Standard, CIP-012-1. The proposed standard would require electric utilities with defined “Control Centers” to implement controls that protect sensitive data communicated between any applicable control centers. Driving the standard is a concern that these control centers can only perform their real-time reliability functions if they can receive and transmit sensitive operational data in a secure manner.

The Federal Energy Regulatory Commission (FERC or the Commission) issued Order No. 848 on July 19, directing the North American Electric Reliability Corporation (NERC) to augment the cyber incident reporting requirements under the Critical Infrastructure Protection (CIP) reliability standards. The directive adopts the proposals from the December 2017 Notice of Proposed Rulemaking (NOPR) and reflects the Commission’s view that FERC and NERC need to significantly improve their awareness of the breadth and frequency of the cybersecurity risks that electric utilities encounter.

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Officials at the US Department of Homeland Security (DHS) confirmed yesterday to The Wall Street Journal that state-sponsored hackers successfully gained remote access to the control rooms of US electric utilities and likely had the ability to disrupt power flows. The report describes the activities as part of a long-running campaign targeting US utilities and suggests that the attacks are still ongoing. This is not the first time that a federal government agency has publicly confirmed the actual or potential threat posed by hackers to critical infrastructure (see our previous post on state-sponsored attacks). Instead, it marks yet another confirmed instance of hackers gaining access to the secure networks used by industrial control systems in what has become a disconcerting trend in recent years, and continues to underline the importance of strong vendor and supply chain cybersecurity controls.

On July 19, the Federal Energy Regulatory Commission (FERC) approved most of the revisions proposed by a North American Electric Reliability Corporation (NERC) petition to revise NERC’s rules of procedure (ROP) on operator certification, but rejected certain key changes. FERC concluded that NERC’s proposal to remove those provisions would strip substantive rules from the ROP and move them to NERC manuals, thus defeating the efficacy of FERC review because the ROP is subject to FERC review and approval but NERC manuals are not.

The commissioners from the Federal Energy Regulatory Commission (FERC) and the Nuclear Regulatory Commission (NRC) held a joint meeting on June 7 to discuss grid reliability and cybersecurity. FERC and NRC staff provided presentations on the recent and ongoing activities of both agencies to promote a stable, resilient, and secure grid. The presentations were largely a summary of recent agency activities and served to continue the practice of both independent regulatory agencies meeting to discuss items of common interest.

Revised Reliability Standard clarifies obligations for electronic access controls at less critical assets and places more focus on risks posed by certain portable electronic devices.

The Federal Energy Regulatory Commission (the Commission) issued a final rule (Order No. 843) on April 19, approving proposed reliability standard CIP-003-7. The currently-effective version of the standard, CIP-003-6, contains the cybersecurity requirements applicable to low impact BES Cyber Systems. The low impact category covers the BES Cyber Systems associated with less critical substations, generators, and other BES facilities. The final rule adopts NERC’s proposed reliability standard CIP-003-7, which revises the existing standard by clarifying a utility’s obligations for implementing electronic access controls for low impact BES Cyber Systems, introduces security requirements for certain portable devices, and requires utilities to have a policy for reliability-related emergencies known as CIP Exceptional Circumstances that involve low impact BES Cyber Systems.