FERC, CFTC, and State Energy Law Developments

Earlier this month, the North American Electric Reliability Corporation (NERC) submitted proposed changes to Reliability Standard CIP-003 to modify the cybersecurity protections required for low-impact BES Cyber Systems. In response to FERC’s directives in Order No. 882, the new CIP-003-7 Standard (i) clarifies electronic access control requirements, (ii) adds requirements related to the protection of transient electronic devices, and (iii) requires utilities to have documented cybersecurity policies related to declaring and responding to CIP Exceptional Circumstances for low-impact BES Cyber Systems. The key changes are as follows:

Electronic Access Control Requirements

Utilities will be required to implement electronic access controls to permit only necessary inbound and outbound access to low-impact BES Cyber Systems for certain communications, whether direct or indirect, using routable protocols. This resolves the dispute regarding the existence of Low-Impact External Routable Connectivity (LERC) from an asset with a low-impact BES Cyber System, and the need to implement a Low-Impact BES Cyber System Electronic Access Point (LEAP) for the control of communications into the asset. Under the proposed standard, the LERC and LEAP concepts are discarded, and instead utilities are required to implement certain electronic access controls for all routable connections into and out of assets with low-impact BES Cyber Systems, regardless of whether those connections are direct or indirect.

Protection of Transient Electronic Devices

Under the proposed standard, utilities are also required to implement plans to protect transient electronic devices (e.g., laptops) with the goal of mitigating the risk of malicious code being introduced to low-impact BES Cyber Systems by, for example, a relay technician testing protection systems in a substation. The requirements differentiate between transient cyber assets managed by a utility and those managed by third parties such as vendors and contractors.

CIP Exceptional Circumstances Policy

NERC is also proposing changes that would require utilities to have policies for declaring and responding to CIP Exceptional Circumstances related to low-impact BES Cyber Systems. A CIP Exceptional Circumstance includes, among other situations, a risk of injury or death; natural disasters; civil unrest; imminent or existing hardware, software, or equipment failures; and cybersecurity incidents requiring emergency assistance. During a CIP Exception Circumstance, certain CIP requirements can be waived.

These revisions are the result of a lengthy stakeholder development process, and ultimately received strong support from the industry in stakeholder voting. The revisions also close the gaps in the CIP-003 Reliability Standard identified by FERC. As a result, the revised standard is likely to be approved by FERC. However, to the extent utilities have concerns over the substance or clarity of the proposed language, the upcoming notice and comment process at FERC will provide the last good opportunity to receive binding guidance from the Commission or challenge the language in the new standard.

The North American Electric Reliability Corporation (NERC) recently submitted two proposed Reliability Standards to improve the real-time data exchange capabilities of Reliability Coordinators, Transmission Operators, and Balancing Authorities. The modified Reliability Standards (IRO-002-5 and TOP-001-4) add new obligations requiring Reliability Coordinators, Transmission Operators, and Balancing Authorities to have real-time data exchange capabilities with redundant and diversely routed data exchange infrastructure within their primary control centers. These entities would also be required to test their redundant functionality at least every 90 days. 

The White House’s newly released National Electric Grid Security and Resilience Action Plan contains dozens of directives to various federal agencies for enhancing the electric grid’s resilience in the face of cyber threats, physical attacks, and natural disasters. Many of the directives build on different programs that federal agencies already run, but for the first time, this action plan synthesizes those disparate initiatives and focuses them on three goals: protecting the grid’s vulnerabilities, improving responses to contingencies, and building a more resilient system.

Notably, the action plan realizes that many of these directives can only be achieved with public utilities’ participation and that cost recovery of investments for grid resiliency is essential if the government expects significant private investment to address the existing system vulnerabilities.

Read the full LawFlash: White House Releases Checklist to Improve Grid Resiliency.

On December 7, the Energy Bar Association sponsored a discussion on FERC-led audits of entities’ compliance with the North American Electric Reliability Corporation’s (NERC’s) critical infrastructure protection (CIP) Reliability Standards. Staff members from FERC and NERC led the discussion and fielded questions from industry participants. This session provided the first public peek into the process for the CIP audits.

While FERC has the authority to conduct its CIP audits with or without NERC and the regional entities charged with front-line enforcement of the Reliability Standards, the panelists explained that FERC wanted to coordinate with NERC and the regional entities to leverage their collective compliance and enforcement experience.

On November 17, FERC adopted regulations to enhance the protection of Critical Energy Infrastructure Information (CEII) using its new statutory authority from the Fixing America’s Surface Transportation Act (FAST Act), which added Section 215A to the Federal Power Act.

In addition to finalizing the new protections for CEII promised in the initial notice of proposed rulemaking, the final rule also adopts a prohibition on the disclosure of CEII under the Freedom of Information Act (FOIA). The FAST Act had, for the first time, exempted CEII from FOIA disclosure. In the past, FERC had taken the position that it would not disclose CEII in response to FOIA requests, but there was no explicit statutory basis for doing so. With the new statute and implementing regulations, there is no longer any legal doubt regarding the FOIA-exempt nature of CEII.

Despite the apparent strict nature of these protections, the degree to which CEII will be protected remains to be seen. Although CEII is FOIA-exempt under the FAST Act, FERC continues to provide procedures whereby interested parties can submit requests for CEII and be granted access if such interested parties show a legitimate need and commit to non-disclosure. In the past, FERC has generally been willing to share CEII upon request; the new regulations provide modest additional regulatory procedures for such requests, but it is possible that FERC will continue its policy of making CEII easily available to interested parties. The language in the FAST Act does allow FERC to decline to disclose CEII, but—so far—FERC has not chosen to take that route.

In a final rule issued on September 22, the Federal Energy Regulatory Commission (FERC) established requirements for certain entities to assess the vulnerability of their transmission systems to geomagnetic disturbance (GMD) events. Such events occur when the sun ejects charged particles that interact and cause changes in the earth’s magnetic fields.

Reliability Standard TPL-007-1 (Transmission System Planned Performance for Geomagnetic Disturbance Events) sets requirements for certain transmission and generator owners, planning coordinators, and transmission planners to assess the vulnerability of their systems to a benchmark GMD event, described as a “one-in-100-year” event. Those entities are required to develop

  • system models necessary to complete the vulnerability assessments at least once in every 60 calendar months and
  • criteria for acceptable steady state voltage performance during a benchmark GMD event.

On July 21, FERC directed NERC to develop a new or modified “forward-looking, objective-driven” Reliability Standard that addresses supply chain risk management for industrial control system hardware, software, and computing and networking services (“cyber controls”) associated with BES operations. FERC required the standard to address

  • software integrity and authenticity;
  • vendor remote access;
  • information system planning; and
  • vendor risk management and procurement controls.

FERC is concerned that a “gap” exists in the CIP Reliability Standards, which has been highlighted by recent events where malware campaigns have targeted supply chain vendors in BES cyber control systems.

FERC expressed concern that vulnerable systems may be attacked either through hardware or software components of a cyber-control system or a third-party service provider may be attacked who has access to sensitive IT infrastructure or that holds or maintains sensitive data.

On July 21, prompted by cyberattacks highlighting cyber system vulnerabilities that may be exploited to attack the operation and maintenance of interconnected networks, FERC sought comment from industry participants on possible modifications to the CIP Reliability Standards that could address the cybersecurity of control centers used to monitor and control the BES in real time.

The Commission seeks comment on the following:

  • The operational impact of forming a separation between the internet and BES control center cyber systems performing transmission operator functions through use of physical (hardware) or logical (software means).
  • Whether rules should be implemented concerning “application whitelisting,” computer administration practices that would prevent unauthorized programs from running on a system network. FERC believes that application whitelisting could be a more effective mitigation tool than other mitigation measures because whitelisting allows only software applications and processes that are reviewed and tested before use in the system network.

In a final rule issued on June 16, the Federal Energy Regulatory Commission (FERC) directed the North American Electric Reliability Corporation (NERC) to make available to FERC staff certain databases developed by NERC that contain detailed, entity-specific information on transmission and generation assets as well as protection system misoperations.

FERC concluded that it needs access to the information in these databases to carry out its reliability responsibilities under section 215 of the Federal Power Act, including the identification of needed new or modified reliability standards and a better understanding of NERC’s periodic reliability and adequacy assessments. The only changes from FERC’s initial proposal were to limit FERC staff’s access to information about US facilities and to exclude any information voluntarily provided to NERC.

On March 21, 2016, the North American Electricity Reliability Corporation (NERC) submitted an informational filing to update the Federal Energy Regulatory Commission (FERC or Commission) on the implementation of the Risk-Based Registration (RBR) initiative—a program NERC launched to reduce unnecessary compliance and registration burdens through the use of risk-based assessments. The filing is an example of NERC’s continued push towards implementing a risk-based approach to reliability and focusing compliance and enforcement efforts on high-risk areas. As reflected in the filing, certain low-risk entities have been dropped from the NERC Compliance Registry, removing the reliability compliance obligations to which those entities were previously subject.