All bulk power system owners, operators and users, including AEP, are now required to comply with system reliability standards developed by the North American Electric Reliability Corp. (NERC). Operating under the auspices of the Federal Energy Regulatory Commission, NERC is charged with developing and enforcing these standards to ensure the reliability and security of the nation’s electrical grid. NERC standards became mandatory in 2007 and fines for violations can be significant.

AEP has created a cross-functional team of executives from the Transmission, Legal, Regulatory Services, Commercial Operations, Generation, Shared Services, Corporate Planning and Budgeting and Distribution groups to implement new compliance requirements. These include training for all employees in areas such as proper record-keeping procedures, cyber security and physical access rules for critical facilities.

NERC is scheduled to conduct an extensive audit of AEP’s compliance with the reliability standards later in 2011. We expect to be prepared for the audit but also realize that it may uncover system risks. Penalties largely are determined by the risk factor associated with the violation as well as the severity level. Read more about this issue in Energy Security, Reliability & Growth.