[Senate Hearing 105-617]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 105-617


 
                 UTILITIES AND THE NATIONAL POWER GRID

=======================================================================

                                HEARING

                               before the

                        SPECIAL COMMITTEE ON THE
                      YEAR 2000 TECHNOLOGY PROBLEM
                          UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                                   on

   THE READINESS OF THE UTILITY INDUSTRY, INCLUDING ELECTRIC AND GAS 
        UTILITIES, TO DEAL WITH THE YEAR 2000 TECHNOLOGY PROBLEM

                               ----------                              

                             JUNE 12, 1998

                               ----------                              

                  Printed for the use of the Committee


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

_______________________________________________________________________

                   For sale by the Superintendent of 
               Documents, U.S. Government Printing Office
                        Washington, DC 20402


49-393 CC              U.S. GOVERNMENT PRINTING OFFICE
                               WASHINGTON : 1998






                        SPECIAL COMMITTEE ON THE
                      YEAR 2000 TECHNOLOGY PROBLEM

         [Created by S. Res. 208, 105th Cong., 2d Sess. (1998)]

                   ROBERT F. BENNETT, Utah, Chairman
JON KYL, Arizona                     CHRISTOPHER J. DODD, Connecticut,
GORDON SMITH, Oregon                   Vice Chairman
SUSAN M. COLLINS, Maine              JEFF BINGAMAN, New Mexico
TED STEVENS, Alaska, Ex Officio      DANIEL PATRICK MOYNIHAN, New York
                                     ROBERT C. BYRD, West Virginia, Ex 
                                         Officio
                    Robert Cresanti, Staff Director
            Andrew Lowenthal, Acting Minority Staff Director

                                  (ii)


                            C O N T E N T S

                                 ------                                

                 OPENING STATEMENT BY COMMITTEE MEMBERS

Hon. Robert F. Bennett, a U.S. Senator from Utah, Chairman, 
  Special Committee on the Year 2000 Technology Problem..........     1
Hon. Christopher J. Dodd, a U.S. Senator from Connecticut, Vice 
  Chairman, Special Committee on the Year 2000 Technology Problem     4
Hon. Jon Kyl, a U.S. Senator from Arizona........................     6
Hon. Gordon Smith, a U.S. Senator from Oregon....................     8

                             DEMONSTRATION

Lynn K. Hobbie, vice president-marketing, Madison Gas and 
  Electric Co., Madison, WI, and Cole Price, Wisconsin Public 
  Power, Inc.....................................................     9

                    CHRONOLOGICAL ORDER OF WITNESSES

Hon. Elizabeth A. Moler, Deputy Secretary, U.S. Department of 
  Energy.........................................................    11
Hon. James J. Hoecker, Chairman, Federal Energy Regulatory 
  Commission.....................................................    13
Hon. Shirley Ann Jackson, Chairman, Nuclear Regulatory Commission    15
Hon. John A. Koskinen, Assistant to the President, and Chair, 
  President's Council on Year 2000 Conversion....................    17
Louis J. Marcoccia, president, MTS/PeoplesSource; and consultant, 
  Duke Energy, Washington Gas, and Baltimore Gas and Electric....    33
Michehl R. Gent, president, North American Electric Reliability 
  Council........................................................    36
Charles D. Siebenthal, manager of Year 2000 Programs, Electric 
  Power Research Institute; Palo Alto, CA........................    38
James A. Rubright, executive vice president, Sonat Inc. and 
  representative of the Interstate Natural Gas Association of 
  America........................................................    41
Gary W. Gardner, chief information officer, American Gas 
  Association....................................................    43

                                APPENDIX
              Alphabetical Listing and Material Submitted

Bennett, Hon. Robert F.:
    Opening statement............................................     1
    Prepared statement...........................................    53
    Y2K committee survey results measuring Y2K preparedness of 
      Nation's largest utilities.................................    54
Dodd, Hon. Christopher J.:
    Opening statement............................................     4
    Prepared statement...........................................    56
    ``Pentagon Faulted on Year 2000 Reports Investigators Find 
      Unreliable Accounting of Computer System Compliance,'' from 
      the Washington Post, June 12, 1998, by Stephen Barr........    57
Gardner, Gary W.:
    Statement....................................................    43
    Prepared statement...........................................    58
    Responses to questions submitted by Chairman Bennett.........    64
Gent, Michehl R.:
    Statement....................................................    36
    Prepared statement...........................................    64
    Y2K Coordination Plan for the Electricity Production and 
      Delivery systems of North America..........................    68
    Appendix A--Letter to NERC from Secretary and Deputy 
      Secretary of Energy, May 1, 1998...........................    75
    Responses to questions submitted by Chairman Bennett.........    76
Hobbie, Lynn K.: Demonstration...................................     9
Hoecker, Hon. James J.:
    Statement....................................................    13
    Prepared statement...........................................    78
    Responses to questions submitted by Chairman Bennett.........    81
Jackson, Hon. Shirley Ann:
    Statement....................................................    15
    Prepared statement...........................................    82
    Responses to questions submitted by Chairman Bennett.........    91
Koskinen, John A.:
    Statement....................................................    17
    Prepared statement...........................................    93
    Responses to questions submitted by Chairman Bennett.........    96
Kyl, Hon. Jon:
    Opening statement............................................     6
    Prepared statement...........................................    98
Marcoccia, Lou:
    Statement....................................................    33
    Prepared statement--part 1...................................   100
    Prepared statement--part 2...................................   109
    Letter to Chairman Bennett, June 16, 1998                       111
Moler, Hon. Elizabeth A.:
    Statement....................................................    11
    Prepared statement...........................................   111
    Letter to Erle Nye, Chairman of the Board, North American 
      Electric Reliability Council...............................   114
    Responses to questions submitted by Chairman Bennett.........   115
Moynihan, Hon. Daniel Patrick: Prepared statement................   118
Price, Cole: Demonstration.......................................     9
Rubright, James A.:
    Testimony....................................................    41
    Prepared statement...........................................   119
    Responses to questions submitted by Chairman Bennett.........   127
Siebenthal, Charles D.:
    Testimony....................................................    38
    Prepared statement...........................................   127
    Responses to written questions submitted by Chairman Bennett.   134
Smith, Hon. Gordon H.:
    Opening statement............................................     8
    Prepared statement...........................................   135

              Additional Material Submitted for the Record

Statement of the National Rural Electric Cooperative Association.   137

                                 (iii)


                 UTILITIES AND THE NATIONAL POWER GRID

                              ----------                              


                         FRIDAY, JUNE 12, 1998

                               U.S. Senate,
                 Special Committee on the Year 2000
                                        Technology Problem,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:38 a.m., in 
room SD-192, Dirksen Senate Office Building, Hon. Robert F. 
Bennett (chairman of the committee), presiding.
    Present: Senators Bennett, Kyl, Smith, and Dodd.

  OPENING STATEMENT OF HON. ROBERT F. BENNETT, A U.S. SENATOR 
    FROM UTAH, CHAIRMAN, SPECIAL COMMITTEE ON THE YEAR 2000 
                       TECHNOLOGY PROBLEM

    Chairman Bennett. The committee will come to order.
    Good morning. Welcome to the inaugural meeting of the 
Special Committee on the Year 2000 Technology Problem. This 
special committee was formed pursuant to S. Res. 208, 
introduced by both the majority and minority leaders of the 
Senate on April 2, 1998, and which unanimously passed the 
Senate. This bipartisan support is indicative of the fact that 
we in the Senate recognize the serious nature of the Year 2000 
problem and the potentially dire consequences to every citizen, 
not only in this country but throughout the world.
    We have become a highly automated society. Technology has 
made our lives easier on the one hand, but highly dependent on 
automation on the other. If we do not aggressively address the 
Year 2000 problem, the consequences could be devastating.
    Undetected bugs in embedded systems could be in everything 
from microwaves to cars, to power generation facilities. The 
jurisdiction of this special committee extends beyond the 
public sector into the private sector.
    As a result, this committee will hold hearings on important 
business sectors of our economy, beginning today with the 
utility industry, specifically gas and electric utilities this 
morning. At subsequent hearings we will look into the Year 2000 
preparedness of health services, telecommunications, financial 
services, transportation, general government services, and 
general business. We will also look into the legal liability of 
firms that have become the subject of court suits due to Year 
2000 technology problems.
    I have some disturbing news to report this morning. In 
order to prepare for today's hearing, I directed the committee 
staff to conduct a formal survey. It was of modest proportions, 
including only 10 of the Nation's largest electric, oil, and 
gas utility firms. I wanted to know the status of their Y2K 
preparedness.
    Now, the survey, admittedly, is not statistically 
representative of the entire industry, but it does include 
geographically dispersed firms engaged in all aspects of power 
generation and gas and electricity transmission and 
distribution.
    Together, the companies surveyed serve a population of over 
50 million people in more than 3,000 municipalities, including 
20 major airports and 3,000 hospitals.
    I had anticipated that I would be able to provide a 
positive report on the Y2K status of these public utilities, 
which is why we did it. One of the functions of this committee 
is going to be to allay false rumors and concerns as well as 
expose genuine concerns and raise significant issues. However, 
based on the results of the survey, I cannot be optimistic, and 
I am genuinely concerned about the prospects of power shortages 
as a consequence of the millennial date change.
    I will share a few of the survey's findings.
    Only 20 percent of the firms surveyed--since there were 10 
firms, you can figure out how many that is--had completed an 
assessment of their automated systems. One firm did not even 
know how many lines of computer code it had to check. Experts 
have testified before the Banking Subcommittee on Technology--
where Senator Dodd and I first became involved in this issue--
that any major firm that has not already completed its 
assessment cannot hope to be Y2K compliant by January 1, 2000. 
If that holds true with the utilities, we have 8 out of the 10 
that are in serious trouble.
    None of the utilities surveyed was assured after making 
their inquiries that their suppliers, vendors, and servicers 
would be Y2K compliant. Utilities are highly dependent on 
services, suppliers, and other upstream activities to transmit 
and distribute gas and electricity. In fact, many power 
distribution companies are ultimately dependent on foreign oil 
imports.
    None of the firms surveyed had completed contingency plans 
for Y2K-related eventualities. Even though all of these firms 
are required by their regulators to maintain emergency response 
plans, none had completed a Y2K contingency plan. My concern is 
that they probably don't know what contingencies to prepare 
for.
    The last question on the survey asked for recommendations, 
and one respondent, after making several, made the following 
profound statement: ``Whatever actions are taken by Congress, 
they must be done quickly, during this session, or they will 
have no impact on the Y2K problem.''
    I am personally concerned that the Y2K problem is not 
receiving sufficient attention at this point in time except for 
the absolute alarmists who are telling everybody it is too late 
and they must dig up their backyards, bury a propane tank, and 
prepare to become hunter-gatherers for the next 5 years. That 
kind of attention is not going to get us where we need to be to 
get the problem solved.
    I am concerned that when it does become a matter of general 
public concern it will be too late to bring pressure to bear on 
the timely correction of the many Y2K problems that exist. My 
greatest fear is that when it does become a matter of general 
public concern, it will bring with it a measure of panic that 
will be detrimental to effective and efficient remediation of 
the problems that present themselves. That is why we are 
holding this series of hearings, not only to raise the level of 
awareness but at the same time focus on solutions so that the 
panic can be alleviated.
    Now, for the private sector, I define the Y2K problem in 
much broader terms than what I see generally discussed and 
reported in the trade press, where most of the Y2K stories are 
showing up. The problem is more than a computer's ability to 
function on January 1, 2000. It includes not only computers, it 
includes embedded systems, such as process control units.
    I have here a circuit board taken out of a PC, but it could 
be taken out of any one of the process control systems that 
abound in our society. It is a fairly standard circuit board. 
It has in it one, two, three, four, five, six, seven, eight, 
nine obvious chips--chips that were once circuit boards 
themselves, but in the magic of modern technology were shrunk 
down into tiny chips that could then be placed in this circuit 
board.
    Every one of those embedded chips is at risk of having a 
Y2K problem. The estimates that we have of the number of 
embedded chips that will fail because of Y2K go from a low of 2 
percent to a high of 5 percent. We can relax, some people say; 
that is a very small number. When you think of the billions of 
chips that are in circuit boards like this one and say even if 
2 percent of them fail, the impact could be significant. That 
is a problem that has not received the amount of attention that 
it should in the press so far.
    I read a story recently about a major oil company that 
tested one of its oil refineries. They found that the refinery 
had 90 separate systems that used a microprocessor. Many of 
these were key systems. Now, of the 90 systems, they were able 
to come up with detailed documentation on 70. Of these 70, they 
determined that 12 had date-dependent embedded chips, and of 
the 12, 4 failed a Y2K test and will have to be replaced. And 
had any of the 4 been in place on January 1, 2000, they would 
either have completely shut down the plant or have caused a 
high-level safety hazard which would have caused the other 
safety systems to shut it down.
    Now, what is really worrying the company's experts is the 
other 20 systems. They don't know what functions the chips in 
those systems have. They are leaning towards replacing them 
all. This happens to be a relatively modern plant.
    On June 8, U.S. News & World Report ran a story concerning 
a Midwestern electric generation facility that was taken off-
line to test for Y2K compliance. When the test clock was rolled 
forward to January 1, 2000, a safety system mistakenly detected 
dangerous operating conditions and shut the generator down. 
After 3 days, they reran the test, only to have a different 
sector fail, shutting down the generators again.
    USA Today ran an excellent article yesterday describing the 
impact of the Year 2000 problem on other parts of the economy. 
I could go on through the whole morning with these kinds of 
examples, but I assure my colleagues I won't.
    Now, another area of the Y2K problem is interfaces. 
Interfaces sometimes exist between systems within a company, 
and sometimes exist between a servicer, supplier, vendor, and 
customer. It is important that Y2K remediation corrections 
among these parties be compatible. It was possible that every 
computer or chip in the chain be itself Y2K compliant and still 
have the system fail because they can't talk to each other 
properly.
    Infrastructure plays an important supporting role for 
almost any business. Utilities, as I have indicated, are 
dependent on transportation, telecommunications, water and 
sewer facilities, all of which are critical to their continuing 
operations, all of which are open to Y2K problems.
    Government services are frequently taken for granted, but 
they also have challenges, and Senator Dodd pointed out there 
is a story in this morning's paper that raises concerns about 
the Defense Department, where apparently some systems are being 
certified as Y2K compliant when, in fact, according to the 
inspector general, they are not.
    [The prepared statement of Chairman Bennett and the article 
on the Defense Department can be found in the appendix:]
    Chairman Bennett. Well, as I say, I could go on all 
morning. I have probably reached the level of endurance on this 
issue as far as my opening statement is concerned, so I will 
now turn to our vice chairman, Senator Dodd, who has been a 
stalwart in addressing this problem right from the first time 
we uncovered it in the Banking Committee, and we are delighted, 
Senator Dodd, to have you as the vice chair and ranking member 
on this committee.

 OPENING STATEMENT OF HON. CHRISTOPHER J. DODD, A U.S. SENATOR 
FROM CONNECTICUT, VICE CHAIRMAN, SPECIAL COMMITTEE ON THE YEAR 
                    2000 TECHNOLOGY PROBLEM

    Vice Chairman Dodd. Well, thank you very, very much, Mr. 
Chairman, and I am delighted as well to be joining with you in 
this effort and others of our colleagues, Senator Smith, who is 
here this morning, and the other members of the committee. I 
want to thank the leadership of the Senate, Senator Lott and 
Senator Daschle, for their support for the establishment of--
Senator Kyl, Jon, I didn't see you there. I apologize. Senator 
Jon Kyl as well is with us. I thank the leadership for their 
support in establishing this special committee. This to many 
people, I suppose, at the outset seems like an arcane subject 
matter. In fact, it has been the subject of some humor, I 
suppose, along the way. Just the title of it, the Y2K issue, 
and the assumption that Bill Gates or someone else in Silicon 
Valley would come up with a chip at some point here that would 
just solve this problem and it would go away immediately and we 
could all sit back and relax.
    But I think as people now pay more and more attention to 
it, you see stories like the one in the Washington Post this 
morning identifying a very serious problem at the Defense 
Department, and more and more articles begin to emerge. With 
something a little more than 500 days remaining before January 
1, 2000, more and more people are getting a larger sense of the 
magnitude of this problem not only here at home but globally, 
given the inter-reaction, the seamless web in a sense that ties 
our economies together, our telecommunications, our 
transportation systems. So this is a tremendously serious 
subject matter, and we are very fortunate indeed that Senator 
Bennett of Utah has taken this issue on and was certainly in a 
lonely position 1 or 2 years ago in getting the Banking 
Committee to establish a separate subcommittee and technology, 
but really to focus on this question. So I am deeply grateful 
to him, as I think all of our colleagues are, and the Nation 
will be ultimately when we plow through these issues over the 
coming months.
    This is our inaugural hearing, and it is appropriately so 
we are looking at utilities, and this is a very important issue 
for the very simple reason that if we don't get this right, 
nothing else works. If you don't have the power to generate 
electricity, then every other issue we could talk about becomes 
sort of moot.
    I was back in Connecticut last weekend and noticed a fair 
amount of advertising in my State, as I am sure is true around 
the country, by various tourism groups asking the question: 
Where do you want to be on New Year's Eve or New Year's Day the 
Year 2000? What are your plans?
    While I don't know where anyone else plans to be, let me 
suggest three places you wouldn't want to be, in my view, based 
on where we are today: you wouldn't want to be in airplane, you 
wouldn't want to be in an elevator, and you wouldn't want to be 
in a hospital, in my view. Barring some tremendous changes and 
some accelerated dealing with these issues, those three places 
pose some difficulties.
    The fact is that with less than 18 months to go, I am very 
concerned, as the chairman is and others are, that we are going 
to face serious economic dislocations from this problem.
    I am very, very concerned that even as Government and 
business leaders are finally acknowledging the seriousness of 
this problem, they are not thinking about the contingency plans 
that they ought to be thinking about today--not waiting a year 
from now, but thinking about them now--that need to be put into 
place to minimize the harm from widespread failures.
    Senator Bennett is fond of likening this committee to Paul 
Revere. It is a good analogy. He says that we have to sound the 
alarm that the millennium is coming. Well, today's hearing 
should answer the question about whether there is going to be 
any lights shining out of the Old North Church.
    Some people have asked why we are starting our hearings 
with the power industry. As I said a moment ago, it is rather 
simple: Without electricity, nothing else works. And the power 
industry provides a good model for thinking about the Year 2000 
in a lateral rather than a vertical manner. By that I mean that 
a corporate executive or Government official can't simply look 
at the four corners of their business or agency and ignore the 
outside world.
    Say, for example, you took all the necessary steps to make 
your home Year 2000 compliant: You updated your PC and 
software, you replaced your answering machine, you determined 
that the VCR and the microwave would still work, and you put a 
brass knocker on your door as a contingency, just in case your 
new modern doorbell didn't work.
    Even though you were vertically complete, you still have to 
worry about the electricity, your water, the mail, cable and 
phone service, and on and on. That analogy illustrates, I hope, 
the way business and Government must also think about the Year 
2000 problem.
    Since all the utilities are tied together in the power grid 
and are dependent upon a whole series of steps in order to 
function, it is an excellent illustration of how you cannot 
simply focus on one's own company or agency, no matter how big 
or little, and declare it to be Year 2000 compliant.
    Senator Bennett mentioned that the special committee 
conducted a survey of major energy producers, and it revealed 
that we are not in very good shape.
    Quite honestly, I think we are no longer at the point of 
asking whether or not there will be any power disruptions, but 
we are now forced to ask how severe the disruptions are going 
to be.
    Given the brevity of time left before the millennium 
conversion, contingency planning has got to start today--not 
just for the worst-case disaster scenarios but for all the 
medium-sized disruptions that are more likely to occur.
    One thing that I have noticed is that every company, 
Government agency, or trade association that I have met with 
over the past number of weeks has a very nice, neat chart 
showing the timeline for completion of their Year 2000 project. 
My deep concern is that those nice, neat little charts will be 
blown to smithereens the moment they start testing their 
repairs.
    I have been constantly surprised by senior Year 2000 
officials who say with one breath that testing will take just 
as long as fixing the code, and say with the next breath that 
they need only a few months for complete system testing after 
fixing the system took years.
    Now, while it took me a while to figure out the difference, 
unlike the chairman of this committee, between an embedded chip 
and a wood chip, I certainly can do enough math to determine 
that there isn't a single company or Government agency that is 
leaving itself any margin of error in these neat little charts 
they are so fond of showing.
    It has been said before, but I think it bears repeating: 
Failure is simply not an option. If the critical industries and 
Government agencies don't start to pick up the pace of dealing 
with this problem right now, Congress and the Clinton 
administration are to have to make some very, very tough 
decisions to deal with a true national emergency.
    Mr. Chairman, I thank you.
    [The prepared statement of Vice Chairman Dodd can be found 
in the appendix.]
    Chairman Bennett. Thank you very much, Senator Dodd.
    Senator Kyl, we appreciate your joining us. We realize for 
all the Senators this is an additional burden to their regular 
committee assignments, and we are glad to have the committee 
that we do have.

 OPENING STATEMENT OF HON. JON KYL, A U.S. SENATOR FROM ARIZONA

    Senator Kyl. Thank you, Mr. Chairman. A burden we happily 
assume, and I, too, want to commend you for your leadership in 
this vital issue. There has been a fair amount of activity in 
the Congress on the Y2K-related matters up to now, but really 
it hadn't received the prominence that it deserves until you 
brought this committee into being. And I want to thank you for 
recognizing the need for the committee, for taking the time to 
chair it, and for your personal commitment to the welfare and 
security of our Nation.
    In my Judiciary Subcommittee on Technology, Terrorism, and 
Government Information, we have been examining threats to the 
Nation's critical infrastructure, from terrorists and hackers 
and foreign states employing new techniques of information 
warfare. Clearly, at both the national and local level, we will 
need serious and well-founded contingency planning for Y2K-
related disruptions to assure at a minimum the provision of 
essential Government emergency services.
    When on March 6, I asked John Koskinen, Chairman of the Y2K 
Council, what the Government was doing in the area of 
contingency planning, he wrote back that ``FEMA will take the 
lead in assuring that the Federal Government is doing all that 
is necessary to be ready should serious disruptions occur.''
    But I had also written to James Lee Witt, the Director of 
FEMA, the Federal Emergency Management Agency, to inquire about 
their assessments of possible disruptions in the electric power 
grid and their associated contingency plans. The FEMA Assistant 
Director wrote back in May, saying: ``FEMA has performed no 
assessments of the Y2K computer problem on the 
telecommunications and electric power infrastructures. FEMA has 
no contingency plans specifically designed to address network 
interoperability or embedded chip failures in either the 
telecommunications or electric power industries.''
    Mr. Chairman, if the agency charged with the contingency 
planning still has no contingency plans, then I submit either 
the administration does not expect to have any emergency 
preparedness needs that are Y2K specific or the Federal 
Government has been delinquent in fulfilling its responsibility 
to our citizens and needs to correct that deficiency 
immediately. So the hearing you have called today is especially 
timely.
    I would also mentioned that at my urging the Federal 
Communications Commission will be tasking the Network 
Reliability and Interoperability Council to perform an 
assessment of the Y2K readiness of telecommunications 
infrastructure. I hope that the results of their study will be 
available to this committee at our upcoming hearing on 
telecommunications.
    One last point. As the work of this committee progresses, 
we should focus not only on problems but, as you have so often 
reminded us, on opportunities. For example, some computer-
dependent industries and public utilities are getting the 
opportunity to make much needed upgrades, which, if done 
properly, may make them more resilient to other kinds of 
disruptions in the future. Y2K is also prompting both private 
and Government organizations to review their contingency plans 
and improve their readiness against information system 
failures, whether from internal glitches or deliberate attack. 
And as we enter the next century, we will continue to build on 
this vast technological landscape.
    The Y2K problem is the first collective technological 
challenge to our Nation. Like it or not, Y2K provides a 
nationwide test bed for dealing with what the effects of a 
deliberate attack on the infrastructure might look like. We can 
benefit from this opportunity to enhance Government/industry 
cooperation and endeavor to learn about its implications for 
the reliability of our critical infrastructures. With well-
reasoned measures and working together, our Nation can come 
through this challenge stronger, wiser, and better prepared.
    [The prepared statement of Senator Kyl can be found in the 
appendix.]
    Chairman Bennett. Thank you, Senator Kyl.
    Senator Smith, we welcome you also and look forward to your 
opening statement.

  OPENING STATMENT OF HON. GORDON SMITH, A U.S. SENATOR FROM 
                             OREGON

    Senator Smith. Thank you, Senator Bennett. In the interest 
of time, I would just ask that my statement be included in the 
record, and I will make a few brief comments, first to thank 
you and Senator Dodd for your leadership of this committee. I 
agree with the description of you as our Paul Revere on a very 
important issue, and I am honored to be on this committee 
because my State of Oregon, Senator Dodd, produces lots of 
computer chips and wood chips. [Laughter.]
    So in the interest of both of those important industries, I 
am delighted to be here.
    I am particularly interested in the comments our 
distinguished panel might have on issues of rural 
electrification as the computer grid might affect people in 
rural communities. I am anxious that they are not left out of 
this equation.
    And I will end on one final metaphor. I think it is 
attributed to you, Senator Bennett: Even if we fix our problems 
as a country on the Y2K issue, we may find ourselves having 
constructed a modern Tower of Babel when our Nation may not be 
able to communicate very well with other nations who may not be 
addressing this issue. But let's hope they do, and let's get 
started for our country.
    Thank you.
    [The prepared statement of Senator Smith can be found in 
the appendix.]
    Chairman Bennett. We will include in the record the 
statement of Senator Moynihan.
    [The prepared statement of Senator Moynihan can be found in 
the appendix. ]
    Chairman Bennett. Thank you very much. I accept the Paul 
Revere tag, but I must hasten to add the second half. I tell 
people this committee must be Paul Revere, but we cannot be 
Chicken Little. We can't give too much aid and comfort to those 
who say the sky is falling and the problem cannot be solved. 
The reason for the committee is to raise the awareness to the 
point that we do get the problem solved.
    Now, I would like to start today with a demonstration of 
how the electric power industry works. We have a computer model 
that can track power generation, transmission, distribution, 
and demand. And I think it is instructive for us to see the 
interdependency of the power supply system and what happens 
when certain facilities are taken off line.
    I have asked representatives from Wisconsin's utility 
industry who are familiar with the PowerWorld model to provide 
us with this demonstration based on a real power system. I say 
in advance these people are not Y2K experts. We asked them in 
the preview last night, well, what happens when Y2K came along? 
And they said, no, no, no, we can just show you what happens 
when a particular generating plant goes down. But this will 
help us get an understanding of what would happen in the event 
a facility did go down on January 1, 2000.
    Following the demonstration, we will be pleased to welcome 
our witnesses. I apologize for having all of the witnesses 
sitting at the table simultaneously instead of bringing them up 
one at a time. Frankly, we are doing this to save space in the 
room because if we sit you at the table, that means another 
seat for the people that are backed up who want to be here. We 
didn't expect this big a turnout, and next time we will have a 
bigger room.
    But we will welcome the Honorable Betsy Moler, Deputy 
Secretary of the Department of Energy; the Honorable James 
Hoecker, Chairman of the Federal Energy Regulatory Commission; 
the Honorable Shirley Jackson, Chairwoman of the Nuclear 
Regulatory Commission; and pending his arrival, the Honorable 
John Koskinen, who is Chairman of the President's Council on 
Year 2000 Conversion. Mr. Koskinen has told us in advance he 
had another assignment earlier, and we will just slip him in 
when he arrives.
    So, with that, we turn to our friends from Wisconsin, and 
Cole Price and Lynn Hobbie will lead us through this 
demonstration.

   DEMONSTRATION BY LYNN K. HOBBIE, VICE PREIDENT-MARKETING, 
  MADISON GAS AND ELECTRIC CO., MADISON, WI, AND COLE PRICE, 
                  WISCONSIN PUBLIC POWER, INC.

    Ms. Hobbie. Thank you, Mr. Chairman.
    Vice Chairman Dodd. You have to bring that microphone up 
close to you now here.
    Chairman Bennett. These microphones, we will tell you, are 
1950's technology. My father and Senator Dodd's father both 
spoke through these same microphones, for whatever that----
    Ms. Hobbie. Well, let me know if you can hear me when I 
speak. Does that work?
    Vice Chairman Dodd. Senator Thurmond calls them ``speaking 
machines.'' [Laughter.]
    Gives you some idea how old they are. They are Y2K 
compliant, though.
    Senator Kyl. No chips in those.
    Vice Chairman Dodd. No chips in those, I will tell you.
    Ms. Hobbie. Thank you all for the opportunity, for letting 
us use these speaking machines before you today. We appreciate 
the opportunity to be here.
    Again, I am Lynn Hobbie from Madison Gas and Electric 
Company, an investor-owned utility in Wisconsin. With me is 
Cole Price, from Wisconsin Public Power, Inc., a company which 
supplies power to municipal utilities in Wisconsin. Thank you 
also for heeding our claims that we are not experts in the 
problems of Year 2000 compliance. Our expertise is in the 
electric utility industry and how the interrelated electrical 
systems function.
    We are here today to show you a tool to begin your hearings 
that we believe will help you visualize and better understand 
how electric systems work. The tool is called PowerWorld. It is 
a computer simulation model. It was developed by a consortium 
of universities in Illinois.
    You can see before you on the monitor a map of the major 
transmission lines in the United States. And as you can see, it 
is a very complex system. What you cannot see but need to know 
is that this system is highly integrated, which means that 
things that happen in one part of the system can and do impact 
other parts of the system.
    Mr. Price. If we zoom in on the map of the New England 
region, we can see an illustration of how the system works.
    Chairman Bennett. This is done for Senator Dodd's benefit? 
Connecticut is there.
    Mr. Price. An important feature of the electric system as 
compared to the natural gas system is that electricity cannot 
be stored. Electricity is a real-time industry. It must be 
generated at the time it is consumed. A generator somewhere in 
this region is running right now to light the power in this 
room. The area we are most familiar with is Wisconsin. If you 
continue to watch the monitor, it will come right up, 
hopefully.
    So we are going to show you a model of a situation that 
Wisconsin faced last summer. That situation was an extreme case 
and is not typical, but it is useful to demonstrate that the 
system has physical limitations and that different parts of the 
system can be vulnerable in different situations and under 
different conditions.
    The day model is a very hot day. Multiple generating plants 
were out of service in our region for various reasons.
    Vice Chairman Dodd. Pull that microphone close to you now, 
Mr. Price. I am having a hard time hearing you.
    Mr. Price. And we had a limited ability to import power 
into Wisconsin from other States. Because of the location of 
the power plants that were out of operation, combined with the 
physical limitations of the transmission system, we had some 
low voltage problems in the region. Those are shown by the red 
colors around the power lines.
    If during that time we had lost a large power plant in the 
southern part of the State, as I will now demonstrate--now, I 
just turned of a power plant that is on the map as shown in 
Michigan, but it is actually located down here in the southern 
part of the state. I draw it over in Michigan to have easy 
access to the units.
    Our situation would have worsened in this model. You can 
see the deeper red colors representing that worsened situation.
    If instead we had lost a smaller power plant in the 
northern part of the State, we could have experienced 
blackouts. And now I am taking off a unit that is located 
closer to the problem.
    If you can't read that, it says, ``The system can no longer 
supply the load. Blackout.'' This shows why location rather 
than size or fuel of the power plant is a key factor.
    Now, this is just a model and does not reflect the 
automated safety features that electric systems have in place. 
In real life, instead of a complete system collapse, protective 
measures would automatically kick in, and instead we would deal 
with this situation by having rolling brownouts.
    Ms. Hobbie. Again, this is a single example. PowerWorld as 
a tool can demonstrate many different electric system 
situations, and we have shown you only one. But in closing, let 
us leave you with these key points about our industry.
    The electric system is, in fact, very complex. It is highly 
integrated. Events that happen in one location can impact other 
locations. It is a real-time industry, and it has physical 
limitations. And all of these characteristics need to be 
considered in understanding the challenges of Year 2000 
compliance within this industry.
    If you have any questions, we would be happy to take them; 
otherwise, thank you very much for your time.
    Chairman Bennett. Thank you very much. The deepening and 
spreading read area is enough to get our attention.
    Secretary Moler, we appreciate your being here and welcome 
you.
    Vice Chairman Dodd. Could I just ask one question before 
you go? I am curious. You show Wisconsin and you show the 
Connecticut-New England area. Basically, you--are you localized 
to some extent there so that to the extent there is a power 
system that shuts down or fails in the New England area, that 
would really just affect that geographical area? Or is there a 
danger of that spreading across the country in any way 
creating, you know, less serious problems but nonetheless--when 
you say integrated, is it integrated nationally or regionally?
    Mr. Price. It depends on the severity of the outage. For 
the most part, outages are contained and localized to as small 
a region as possible. But if you were to lose control of an 
outage, it could cascade through and to other regions. But that 
is usually unlikely.
    Vice Chairman Dodd. OK.
    Chairman Bennett. Secretary Moler.

 STATEMENT OF HON. ELIZABETH A. MOLER, DEPUTY SECRETARY, U.S. 
                      DEPARTMENT OF ENERGY

    Ms. Moler. Thank you, Mr. Chairman and members of the 
committee. It is an honor for me to appear before you today at 
the committee's inaugural hearing. You have asked me to focus 
on the readiness of the utility industry, including electric 
and gas utilities, to deal with the Year 2000 technology 
problem.
    Before I turn to the specifics of my testimony, let me 
commend you, Mr. Chairman, as well as Senator Dodd, the 
committee's vice chairman, and the other members of this 
special committee, for your willingness to invest your time and 
energy on this important subject matter. Computer technology 
has become a pervasive part of our society and our Nation's 
well-being. Both technologists and leaders in all sectors of 
our society must work together to ensure that we are investing 
adequate energy and resources in addressing this important 
potential problem.
    President Clinton and Vice President Gore have paid 
particular attention to the need to address the Year 2000 
issue. They personally recruited the former OMB Deputy Director 
for Management, John Koskinen to chair the President's Council 
on Year 2000 Conversion, and you will hear from him today. The 
President and the Vice President have spoken repeatedly on the 
need for both Government and the private sector to address this 
issue. Back in February, when the President's Year 2000 
Conversion Council was being formed, the Vice President met 
personally with the members of the President's Management 
Council, on which I serve, to discuss the Year 2000 problem and 
made it very clear that we, as managers, must pay particular 
attention to this issue.
    We have used the Year 2000 Conversion Council as a vehicle 
for the administration to identify the administration's key 
participants who will focus on various sectors of our economy 
and to divide up the work. The Department of Energy has agreed 
to take the lead on the electricity sector, so my testimony 
today will focus on that sector. The Federal Energy Regulatory 
Commission has agreed to take the lead on the oil and gas 
subgroup, so you will hear from FERC Chairman Jim Hoecker on 
that sector.
    Electricity is, of course, one of those ubiquitous things 
that Americans take for granted. It is also the lifeblood of 
our modern economy. Simply put, our Nation depends upon a 
reliable supply of electricity. We cannot afford to have the 
Year 2000 technology issue disrupt our Nation's supply of 
electricity.
    Our domestic electricity industry has a long and proud 
history of bringing reliable, affordable supplies of 
electricity to American consumers. The industry has its own 
reliability organization, the North American Electric 
Reliability Council, which was formed in the aftermath of the 
1965 Northeast power outage. When I think about reliability 
issues, having spent some time as a Government employee 
worrying about this sector, I automatically think of NERC. It 
is the industry organization that has been responsible for 
electric reliability for the past 30 years. NERC is a privately 
chartered, industry-run organization. While the 
administration's Comprehensive Electricity Competition Plan 
calls upon Congress to strengthen the Government's authority 
and oversight of NERC, at present there is little in the way of 
either Federal or State regulatory authority to address 
reliability issues.
    Consequently, when the Department of Energy agreed to take 
the lead in assessing the electricity sector's Year 2000 
readiness, Secretary Pena and I, naturally, turned to NERC. On 
May 1, we wrote to Erle Nye, the current chairman of NERC. We 
asked NERC to undertake a comprehensive assessment of the 
industry's Year 2000 readiness. NERC agreed to our request and 
has taken on the key task of assessing the industry's state of 
readiness and coordinating the industry efforts, including 
contingency planning.
    As the NERC testimony acknowledges, our request prompted 
NERC to coordinate otherwise dispersed industry studies about 
the implications of this issue. Senator Dodd's observations are 
right on the mark. The companies have been thinking 
individually, and in the case of NERC, they had been thinking 
regionally already. But there was no overall coordinated 
nationwide assessment of this issue.
    We expect to receive an interim report in September and a 
complete assessment next July. I want to assure the members of 
the committee that we will monitor NERC's progress along the 
way. Our staff is having weekly meetings at the present time 
with NERC.
    Let me emphasize, however, that the Federal Government 
cannot solve this problem. It is up to the industry itself to 
do so. Every leader, every officer, and every manager in this 
industry must feel a sense of responsibility for addressing and 
solving this problem. That is the only way we will get it done. 
The Government's primary role is to promote industry efforts, 
without getting in the way or creating needless bureaucratic 
hurdles that distract attention rather than add value.
    The American people have the right to expect the 
electricity sector to be prepared for a smooth Year 2000 
transition. People can dream up doomsday scenarios of what 
might happen if the industry is not ready. We need the facts, 
not doomsday scenarios. Once we know what the facts are, we can 
go from there to solve any problems that emerge. Ultimately, 
the electricity industry itself bears the primary 
responsibility for addressing the challenge of assuring a 
smooth transition through the critical dates surrounding the 
Year 2000 issue, as well as the skills and knowledge needed to 
meet that challenge.
    Government's role is to facilitate their efforts by 
promoting the sharing of Year 2000 information within the 
industry, its companies, suppliers, consultants, and State and 
local regulators. We can help disseminate what is known in 
other industries about similar products and problems, and we 
can maintain an awareness about factors external to the 
industry upon which energy depends. We can also help to keep 
Government speaking with a consistent, hopefully calm, voice 
and cooperate with other levels of Government to minimize 
requirements that do not add value.
    This completes my prepared remarks, Mr. Chairman. I would 
ask that my complete testimony be included in the committee's 
hearing record, and I look forward to hearing from my 
colleagues and would be pleased to answer any questions at the 
appropriate time.
    Thank you.
    [The prepared statement of Ms. Moler can be found in the 
appendix.]
    Chairman Bennett. Thank you. Your full statement will 
appear in the record, and we are grateful to you for your 
appearance here today and your preparation.
    Mr. Hoecker, I apologize for mispronouncing your name, and 
we look forward to your presentation and appreciate your being 
here today.

 STATEMENT OF HON. JAMES J. HOECKER, CHAIRMAN, FEDERAL ENERGY 
                     REGULATORY COMMISSION

    Mr. Hoecker. Thank you very much, Mr. Chairman, and thank 
you for the opportunity to appear before this special committee 
to discuss Year 2000 readiness and the energy industry, and the 
oil and natural gas business in particular. Mr. Chairman and 
Senators, it is my view that your leadership will be 
immeasurably helpful in marshaling private resources to address 
this issue. I therefore applaud your efforts to raise awareness 
of the Year 2000 challenge.
    Today I will focus briefly on the state of our 
understanding of what is being done with respect to the Year 
2000 challenge for energy businesses and what this Commission 
is doing in coordination with the President's Council on Year 
2000 Conversion to encourage industry to take steps to ensure 
that our Nation's critical energy services will not be subject 
to unplanned interruption or that any such interruptions will 
not be unduly disruptive.
    Whether the Year 2000 challenge represents a crisis, as GAO 
has characterized it, or a technical matter that can be swiftly 
diagnosed and addressed, a failure to fully understand now the 
potential seriousness of the issue for energy companies may be 
the greatest problem we currently face. Cooperation and 
communication are therefore necessary in order to assess the 
nature and dimensions of the problem, to formulate development 
and testing of solutions, and set in place timely operational 
contingency plans that will avert any loss or prolonged loss of 
service, including electric transmission and sales and 
interstate gas and oil transportation.
    Unfortunately, the extent of completed Year 2000 work 
within the energy industry is largely unknown. To date, most 
available information is anecdotal, with very little empirical 
data being available on completion of conversion and testing. 
Compilation of this information has been inadequate. Larger 
energy companies and some industry associations have promoted 
awareness of Year 2000 issues and in some cases have shared 
information about the readiness efforts. The state of awareness 
and planning of smaller companies, regulated or unregulated, is 
less certain, however.
    The FERC is working cooperatively with other Federal 
agencies as a member of the President's Council on Year 2000 
Conversion. Through participation in the Council's energy 
working group, the Commission has been designated leader for 
the oil and natural gas sector.
    On June 5, 1998, the oil and gas sector of the energy 
working group held a meeting with representatives of trade 
associations and various research and standards boards who 
represent the oil and natural gas industries. The meeting 
participants agreed that Year 2000 Conversion readiness should 
focus on: First, safety; second, reliable delivery of energy 
products; and, third, accurate accounting and billing.
    Separately, FERC is also developing an outreach program for 
the Commission's regulated entities and industry associations, 
in coordination with the energy working group.
    Information about Year 2000 readiness may be difficult to 
obtain. Fear that the information may be commercially 
sensitive, that certain liability issues may arise, or even 
that collaboration on this problem may expose companies to 
antitrust actions is clearly inhibiting disclosure. Moreover, 
it appears that even when companies share operation of common 
delivery networks, information about Year 2000 work is not 
often being disseminated between or among these companies.
    It nevertheless appears to me that gas and oil companies 
are willing to act in good faith to address this issue 
promptly. We hope to encourage companies to make more 
information available to the general public, including their 
assessment of how serious they think the problem is, what is 
being done to address it, and what is expected to happen on 
January 1, 2000. If companies can be persuaded to submit 
information in protected form to third-party organizations like 
the Natural Gas Council, the Gas Industry Standards Board, or 
the American Petroleum Institute, industry participants will be 
able to develop a greater sense of confidence that they are not 
at risk for the inactions of others. The Commission can then 
make information on Year 2000 remediation available through the 
FERC Web site and the energy working group web site.
    In the end, I clearly subscribe to the administration's 
views, as described by Deputy Secretary Moler, that energy 
industry participants have the responsibility for addressing 
this problem. There should be no competitors when it comes to 
this critical issue, critical to the public welfare.
    We believe the Commission has an important role to play, 
however, and I view it as the Commission's responsibility to 
the American people to help alleviate this potential threat to 
the reliability of our energy systems.
    I look forward to your questions, and thank you for asking 
me to be here today.
    [The prepared statement of Mr. Hoecker can be found in the 
appendix.]
    Chairman Bennett. Thank you very much.
    Ms. Jackson, we welcome you. We appreciate your being with 
us.

 STATEMENT OF HON. SHIRLEY ANN JACKSON, CHAIRMAN, U.S. NUCLEAR 
                     REGULATORY COMMISSION

    Ms. Jackson. Thank you. Mr. Chairman, members of the 
special committee, I am pleased to be here to discuss with you 
the status of the U.S. Nuclear Regulatory Commission (NRC) 
response to the Year 2000 computer problem for nuclear power 
plants. I would like to begin by thanking you, Mr. Chairman, 
Mr. Vice Chairman, and members of this special committee, for 
taking on this critical task and for heightening Government, 
business, and public awareness of Year 2000 computer issues.
    In general, NRC efforts on the Year 2000 problem can be 
divided into three basic areas: our efforts internal to the 
NRC; our interactions with our reactor licensees and the 
nuclear power industry; and our broader actions to address the 
issue of a reliable electrical grid.
    The NRC is working to ensure that all of our agency 
mission-critical systems that relate to power reactor 
licensees, seven systems in total, will be Year 2000 compliant 
so that our communications and data interfaces will continue to 
function properly. The one NRC system linked directly to 
operating nuclear power plants is our Emergency Response Data 
System, or ERDS, which transmits near real-time data to NRC 
incident response personnel during declared emergencies. The 
NRC currently is upgrading ERDS to be Year 2000 compliant. The 
upgrade is on schedule for full implementation by March 4, 
1999. Each of our other mission-critical systems also are on 
schedule to be Year 2000 compliant in accordance with OMB 
guidelines, with three systems currently being repaired and 
three being replaced.
    The potential impact of the Year 2000 problem on nuclear 
power plants varies with the types of computer systems in use. 
Our licensees rely upon: First, software to schedule 
maintenance and surveillances; second, programmable logic 
controllers and other commercial off-the-shelf software and 
hardware; third, digital process control systems, such as pump 
or valve controllers; fourth, digital systems for collecting 
operating data; and, fifth, digital systems to monitor post-
accident plant conditions.
    Examples of systems and equipment most likely to be 
affected by Year 2000 problems include plant security 
computers, plant process systems, and radiation monitoring 
systems.
    Since 1996, the NRC has been interacting with industry 
organizations to address the Year 2000 problem. This 
interaction has included issuing an NRC Information Notice in 
1996, holding workshops and numerous meetings on the issue, and 
developing a standard review plan for NRC staff use in 
reviewing licensee Year 2000 readiness.
    In addition, the Nuclear Energy Institute, NEI, has taken 
the lead in developing industry-wide guidance which the NRC 
subsequently reviewed and approved. This guidance presents 
nuclear power plant licensees with an acceptable approach for 
addressing the Year 2000 problem.
    To obtain confirmation of licensee action on the Year 2000 
problem, the NRC has issued a generic letter, which has 
regulatory force, requiring a written response from each 
licensee. A copy of that generic letter is being provided for 
the record. The initial response from each licensee is due in 
August. This response must provide written confirmation that 
the licensee is implementing a Year 2000 program, which 
includes scoping, prioritization, assessment, remediation, 
testing, and contingency planning. Licensees who elect to use a 
different Y2K program than that described in the NEI guidance 
are required to present a description of their programs to 
ensure that their computer systems will be ready for the Year 
2000. In addition, each licensee must submit confirmation in 
writing by July 1, 1999, that its facility is or will be Year 
2000 ready by the Year 2000.
    In addition to these written responses, the NRC will 
conduct special sample inspections at 12 nuclear power plant 
sites to verify that effective actions are being taken. These 
inspections will begin in September of this year and continue 
into early 1999. They will be conducted by instrumentation and 
control system specialists from our Office of Nuclear Reactor 
Regulation, who will receive specific training on the Y2K 
problem. The inspections will be conducted in accordance with 
guidance in a temporary instruction which currently is in draft 
form and will be issued in August. The inspection guidance is 
based on the program described in the NEI guidance document.
    Inspectors will, in fact, verify scoping, prioritization, 
assessment, including testing for Y2K problem susceptibility, 
remediation and modification testing. The inspectors will also 
review licensee-identified contingency plans. The site selected 
for inspection will be determined based upon licensees' initial 
responses to the generic letter, the safety significance of 
known issues, the type of reactor, plant location in order to 
cover all NRC regions, as well as input from observation by our 
site resident inspectors.
    The NRC recognizes, however, that despite every reasonable 
effort by licensees to identify and correct Year 2000 computer 
system problems at their facilities, some software 
applications, embedded systems, equipment, may remain 
susceptible to the problem. Therefore, as I noted earlier, to 
ensure continued safe operation of a facility into the Year 
2000 and beyond, we expect licensees to formulate contingency 
plans for affected systems and equipment.
    Our concept of Year 2000 readiness includes the planning, 
development, and implementation of site-specific contingency 
plans or compensatory actions for items that are not expected 
to be Year 2000 compliant.
    Although our primary interactions with licensees in this 
area have focused on reactor safety, we recognize that the Y2K 
problem also may have the potential to affect the reliability 
of electrical grids. Nuclear power reactors are designed with 
at least two independent sources of off-site power. Even if all 
off-site power is lost due to a transient on the electrical 
grid, on-site power systems are designed to circumvent 
challenges to plant safety systems by providing adequate 
electrical power to safely shut down and cool the reactor.
    I should also add that nuclear power plants, particularly 
the larger ones, are also very robust in terms of being able to 
withstand transience on the grid.
    As you know, NRC regulatory oversight and authority does 
not extend to the off-site electrical grid system. On the other 
hand, we recognize the need to ensure that grid reliability 
concerns are identified and resolved. We support the efforts of 
the President's Council on Year 2000 Conversion and our members 
of the Energy Working Group. We will continue to work closely 
with the Federal Energy Regulatory Commission and the 
Department of Energy on any potential problems associated with 
the Year 2000.
    This concludes my oral testimony. We have submitted a 
complete written statement, and we ask that it be included in 
the hearing record together with the generic letter, and we 
look forward to working with the special committee and to 
addressing any questions this morning.
    Thank you.
    [The prepared statement of Ms. Jackson can be found in the 
appendix.]
    Chairman Bennett. Thank you very much, and your full 
testimony will indeed appear in the record.
    Mr. Koskinen, we are delighted that you have joined us, and 
we look forward to your testimony.

STATEMENT OF HON. JOHN A. KOSKINEN, ASSISTANT TO THE PRESIDENT, 
     AND CHAIR, PRESIDENT'S COUNCIL ON YEAR 2000 CONVERSION

    Mr. Koskinen. Thank you, and good morning, Mr. Chairman and 
members of the panel. I am pleased to appear with this 
distinguished panel before the committee this morning to 
discuss the activities of the President's Council on Year 2000 
Conversion and the Year 2000 problem's implications for the 
energy industry. Let me begin, however, as the other panel 
members have, by expressing my support for the work of this 
committee. I am confident the committee will play a key role in 
helping to address the Year 2000 problem, and I appreciate your 
commitment to focus not only on Year 2000 activities within the 
Federal Government, but in the private sector as well, where it 
is clear we face a real challenge in raising awareness among 
small- and medium-size organizations.
    I would also like to express my appreciation to you, Mr. 
Chairman, and to Senator Dodd for the work you both have done 
through the Senate Banking Committee to increase awareness of 
the problem in the financial services industry.
    As you know, like the financial sector, energy is a key 
part of our Nation's infrastructure. While people in other 
sectors are focused on ensuring that their systems and date-
sensitive embedded chips are ready for the new millennium, that 
work will be irrelevant if we have power failures on January 1, 
2000. To prevent such an outcome, we need to work together in 
an ongoing dialog with the industry to raise awareness of the 
problem and to facilitate information exchanges. Today's 
hearing is a valuable contribution to that dialog.
    As you suggested in your invitation, Mr. Chairman, I would 
like to give you a brief overview of the Council's activities. 
As you know, I returned to the Federal Government in March to 
chair the President's Council. The Council's mission is 
twofold: To assist Federal agencies as they work to prepare 
their systems for the new millennium, and to coordinate agency 
efforts to increase awareness of the problem among private 
sector entities, State and local governments, and international 
organizations.
    While several of the agencies confront significant 
management challenges, I am confident that the vast majority of 
Federal mission-critical systems will be ready for the Year 
2000. Many agencies are already making excellent progress. 
According to the most recent OMB quarterly report, 71 percent 
of mission-critical systems in the nine agencies assigned OMB's 
highest ranking are already Year 2000 compliant--9 months ahead 
of the Government-wide goal.
    An important fact in our favor is that senior managers in 
the Federal Government are very much aware of the Year 2000 
problem. I have met individually with the heads of more than 40 
Federal agencies, and their agencies are working hard to ensure 
that Federal systems are compliant.
    One of the things I emphasized in my meetings with the 
agency heads was that, while it is very important for agencies 
to focus on fixing their own systems, they also have an 
obligation to reach out to organizations within their policy 
areas to increase awareness of the problem and to offer 
support. We decided that, to be most effective, we needed to 
build on existing organizational relationships between agencies 
and outside groups, which in many cases are their normal 
constituencies.
    The Council has organized itself to take advantage of these 
relationships. We have identified roughly 30 economic sectors 
and enlisted agencies that have policy interests in, or 
connections to, those areas to chair working groups for those 
sectors, to increase awareness of the problem, and to offer 
support. In particular, agencies are working with industry 
trade associations, which have unique capabilities for 
communicating with their members about the problem, as well as 
with individual companies, State and local governments, and 
international institutions.
    For example, the Transportation Department will soon be 
holding an Intelligent Transportation Systems summit in 
Washington that will bring together industry leaders, State and 
local transportation officials, and transportation technology 
suppliers to discuss solutions for possible Year 2000-related 
disruptions in the operation of traffic control systems. And 
just last week, the Federal Communications Commission held a 
roundtable of industry leaders to discuss the Year 2000 
problem's implications for public safety systems.
    We are also using other leverage points in our outreach 
efforts. There are organizations that, by virtue of their 
actions or opinions, can be a powerful influence to encourage 
others to ensure that their systems are ready for the new 
millennium. Therefore, I have met with several rating agencies 
and the Year 2000 Task Force of the American Institute of 
Certified Public Accountants to encourage them to reiterate to 
their clients the importance of addressing the Year 2000 
problem.
    The Council has formed working groups to coordinate agency 
outreach activities in several key areas of the Nation's 
infrastructure that require an intensified focus. We have 
working groups that cover telecommunications, financial 
institutions, workforce issues, emergency services, and energy. 
I will address the energy working group's activities in greater 
detail momentarily, but let me begin by noting that the 
telecommunications group, chaired by the FCC and GSA, is 
working with industry groups and the Nation's largest 
telecommunications service providers to minimize any 
disruptions to the communications networks we have all come to 
rely upon.
    For financial institutions, chaired by the Federal Reserve, 
the working group is focusing on addressing the problem not 
only with U.S. banks but with the securities industry, mortgage 
companies, and Government-sponsored entities.
    The Labor Department chairs the workforce issues group, 
which is focused not only on monitoring the Federal 
Government's supply of workers for its Year 2000 remediation 
activities, but on ways to help mitigate some of the potential 
Year 2000 workforce shortages in the economy as a whole.
    The emergency services working group, chaired by the 
Federal Emergency Management Agency, is concentrating on 
ensuring that State and local emergency response officials are 
addressing the Year 2000 problem.
    Because it is such a critical part of the Nation's 
infrastructure, we are very concerned about Year 2000 progress 
in the energy industry. The wide range of companies active in 
the production and transportation of power, which include 
investor-owned utilities, publicly owned utilities, Federal 
power marketing associations, and oil and gas producers, makes 
the challenge of outreach all the more difficult.
    As a result, as you have heard, the Council has taken the 
step of appointing two chairs in the energy area: the 
Department of Energy, as Secretary Moler noted, is chairing 
that portion of the energy working group's activities for 
electric power, and the Federal Energy Regulatory Commission is 
chairing the operations for oil and gas. The entire group is 
working to engage industry in an ongoing dialog about the level 
of awareness, assessment, and remediation that is underway, and 
is offering to coordinate the activities of all Federal 
agencies in this area. Again, as Secretary Moler noted, while 
the Government does not have direct control over most of these 
organizations, we can play an important role in facilitating an 
information exchange on Year 2000 best practices and shared 
experiences among those in the industry.
    We are also very concerned about the implications of date-
sensitive embedded chips for the energy industry. Some of these 
chips help to carry out critical functions in power plants and 
oil production facilities, and we are encouraged that the 
industry recognizes the importance of this issue.
    Thus far, we have been delighted with the response we have 
received from various energy trade associations. As noted, the 
working group has met with the North American Electric 
Reliability Council, which has agreed to be our contact with 
the electric power industry. In a meeting last week, the 
American Petroleum Institute and the Natural Gas Council agreed 
to use their capabilities as umbrella organizations to raise 
awareness of the problem within their industries and to survey 
the progress of their members. While it is difficult to make 
estimates at this stage in the process, the consensus is that 
the largest companies in the energy industry are actively 
working to ensure their ability to function as we move into the 
new millennium.
    There is no doubt that the Year 2000 problem poses a 
significant challenge to the global economy. I am confident 
that Federal agencies will live up to their end of the bargain, 
both in fixing their critical systems and in increasing 
awareness beyond the Federal Government. As I have often said, 
there is no guarantee that every critical system will be fixed. 
But if we work hard and if we work together, I think we will be 
well positioned to achieve our ultimate goal of ensuring that 
any inconveniences caused by the Year 2000 problem will be 
relatively minor.
    I thank the committee again for its interest in this issue. 
You are making a valuable contribution to the public dialog 
about the matter, and I look forward to working with you. I 
would be happy to answer any questions that you may have. And 
as the other witnesses noted, I would appreciate it if my full 
statement could be entered into the record.
    [The prepared statement of Mr. Koskinen can be found in the 
appendix.]
    Chairman Bennett. It will be so ordered.
    Mr. Koskinen and I speak weekly either face to face on or 
by telephone and sometimes both, as we are making every effort 
to see to it that the excellent work he is doing within the 
administration is well-coordinated with the work that we are 
trying to do on the Hill.
    I have a number of questions. Let me first ask all of you 
if you would respond to questions that would be submitted to 
you from the committee.
    You all heard except for you, Mr. Koskinen, my opening 
statement, and the summary of the survey that we took on behalf 
of the committee. I apologize that the survey was not finished 
in time for me to give it to you prior to your attendance at 
the hearing but, nonetheless, I would appreciate it if you 
would respond to what you heard as I opened the hearing.
    To remind you this is not a got'cha-kind of test, were you 
listening. I will repeat the three major findings that we got 
from the survey: A lack of completed assessments, a lack of 
assurances that Y2K compliance would be there from servicers, 
suppliers, and vendors, and a lack of contingency plans.
    First, does this result surprise you? And, second, do you 
have any reactions, contradictions, comments, what have you?
    Secretary Moler, perhaps we begin with you.
    Ms. Moler. The lack of completed assessments surprises me. 
The lack of assurances that particular software and replacement 
chips, if you will, does not surprise me because of the time 
that I have spent on this issue.
    We do not have the knowledge, certainly in the Federal 
Government, whether the software suppliers, in particular, will 
meet the promises they have made for replacement systems. That 
is actually one of the reasons why in Federal circles we have a 
March 1999 deadline for completing things rather than a say, 
November or December 1999 deadline. So, that we have our own 
surveys and we have plans to complete our own work well ahead 
of a time that the issue becomes critical for Federal systems.
    On contingency planning, I think that the recognition is 
just dawning for lots and lots and lots of groups that 
contingency planning is a critical part of preparedness in this 
area.
    Chairman Bennett. If I may, from the visits that I have 
made and I have been into two plants now, a nuclear plant in 
California and then a nuclear plant connected with New York 
Power Authority who are involved with fossil fuel generation as 
well as hydro-generation. There are suppliers other than 
software suppliers that are in the chain that are vital. And I 
would hope, as we talk about their need to check with 
suppliers, we do not just focus on software suppliers.
    The plant in San Onofre that I visited gave me a fairly 
detailed list of all of the suppliers that they had checked, 
including municipal water systems. They said we cannot run this 
plant if we cannot get any water. Checking the people who 
provided their security system, what happens if the Y2K problem 
locks everybody out on New Year's Day and no workers can get 
into the plant? We have had examples of that kind of failure 
occurring from people who have tested for it.
    So, I hope when we use the term, servicers, suppliers, and 
vendors, we realize that it is all across-the-board and not 
just in the computer world.
    Mr. Hoecker, did you have a response or a reaction?
    Mr. Hoecker. Yes, Mr. Chairman.
    Speaking for the Commission, where we believe all our 
systems will be 2000 compliant by this time next year, what we 
have learned in our discussions with the industry is, I think, 
somewhat surprising. It is the lack of information about all 
these areas that is perhaps most troubling to me.
    We have found that even though many natural gas and oil 
companies are moving ahead, particularly larger companies, with 
assessments of the problem and testing, frequently that 
information is not being communicated. And, since we are 
dealing with the integrated networks of companies that provide 
transportation in gas and oil over long distances, it is the 
lack of communication between those companies as to what the 
status of their activity is that is particularly troubling.
    I sense that it may require everyone to reach the same 
degree of readiness or compliance in order for the system to 
work as a whole. And that is why I wanted to emphasize this 
morning that awareness and communication is key and I think the 
energy working group is going to make a major difference in 
that sort of communication.
    Chairman Bennett. Ms. Jackson.
    Ms. Jackson. Thank you.
    My response would be that I would say we are not entirely 
surprised that all the assessments may not have been done. A 
number of the panelists have spoken to the question of lack of 
information but it is because of that, and to address that with 
respect to the limited part of the electricity sector with 
which we deal but an important part, that we issued the generic 
letter that I spoke about and had earlier sent out an 
information notice.
    Because we were not entirely satisfied that there was 
enough attention based on the earlier information notice, which 
was sent out in 1996, we issued the generic letter which 
requires a written response. We will know more specifically in 
August when those responses are due. And because we are a 
regulatory, health and safety, regulatory agency we are able to 
require certain responses from our licensees, and that is the 
way we are getting at it.
    In addition, we do know that the Nuclear Energy Institute 
is developing supplemental guidance specifically on contingency 
planning for the power reactor licensees that would focus on 
issues such as additional staffing, increased on-site oil 
supplies for emergency diesel generators, enhanced 
communication and the communication protocols with reactor 
operators in other countries, particularly in the Pacific Rim, 
which would experience Y2K about 12 hours earlier than our 
licensees, and also enhanced communications with the low-
dispatch centers to have more specific knowledge of the general 
conditions on the network and how they would affect the nuclear 
plants.
    And, so, that, coupled with the specific remediation 
relative to software and embedded chips in the plant, is the 
way that we feel is the appropriate way to get at these issues.
    Chairman Bennett. Thank you.
    Mr. Koskinen, again, we recognize you were not here to hear 
the----
    Mr. Koskinen. Well, as you know, this morning I had a 
previously scheduled meeting with a set of chief financial 
officers from many of the largest companies in the United 
States, and we discussed the point you have hit upon here 
today, which is the endemic problem of the supply chain. 
Everyone has moved to just-in-time inventory controls as an 
efficient way of running their operations. And that means that 
everyone is now interconnected, not just in telecommunications 
matters, but in actual business operations.
    From industry to industry, large companies in many cases 
are confident that they will be ready, but they have concerns 
about whether those upon whom they depend in the supply chain 
will be ready and will be able to operate. As you note, 
suppliers to energy firms are important. Suppliers to 
manufacturers are important as well. As you can see by the 
ongoing General Motors strike, supplier in the chain can, in 
effect, shut down the entire process.
    So, I think that is a common problem. Like Deputy Secretary 
Moler, I too am surprised that the level of assessment is at 20 
percent because that is a much lower level than indicated by 
the feedback we have received. But we should recall, as you 
know, that the embedded chip problem is what I call the growth 
industry of the Year 2000 problem. Most people have only 
recently become aware of the importance of embedded chips. 
Everyone started out 3 or 4 years ago by focusing on this as a 
problem of software applications which are significant in 
financial processing and other areas.
    But it is only in the last 12-to-18 months that industries 
across-the-board have focused on the fact that, while the 
percentage of chips that may fail is very small, the number is 
very large. If you are talking about a 1 or 2 percent failure 
rate in the roughly 5 billion chips we ship in a given year, 
that means you have 100 million chips that have some potential 
to create difficulty. It is that assessment, I assume, that 
these companies in particular are struggling with.
    I don't know about the particulars of this survey, but my 
experience is that it is more likely to be an assessment 
problem of their chips, not their software systems.
    Chairman Bennett. Thank you. The only other comment I will 
make with respect to this, sounding a broken record again and 
Senator Dodd mentioned it in his opening statement, the most 
time-consuming portion of this whole process is the testing 
portion and I always get very nervous when someone says, we 
will have the problem solved by October of 1999. You have to 
have the problem solved on paper by this year because 1999 is 
going to be consumed in testing and then validating the testing 
results.
    And I have other responsibilities that I use with respect 
to the Year 2000 problem. I am chairman of the Legislative 
Branch Subcommittee on Appropriations which means that every 
portion of the legislative branch has to come before my 
committee for their money and I am disturbed by some agencies 
in the legislative branch who said, oh, yes, we are going to 
have this all solved and the new equipment and software program 
that will solve the problem is now on schedule to be delivered 
in the Fall of 1999, which does not give you any testing time 
at all and makes me very nervous.
    Vice Chairman Dodd.
    Vice Chairman Dodd. Thank you very much, Mr. Chairman.
    And I will underscore that point. I mentioned earlier to 
you that I had a conversation. The Gardner Group, as many of 
you may know, is located in my State of Connecticut and the CEO 
of that firm who I met with the other day, they do about 98 
percent of the Y2K compliance issues on Fortune 500 companies 
and their concern is that we are not developing at this point 
contingency plans.
    The fear is that we will start waiting until next year to 
decide that contingency plans may be necessary and their point 
is that they ought to be doing it now because of their fear of 
noncompliance.
    Let me, if I can, Mr. Koskinen--and I thank all of you. We 
are all very thrilled, by the way, that the President has asked 
you to take on this responsibility and you, obviously, know 
this issue well and it is reassuring, quite candidly, that we 
have someone of your talents and ability who will be working 
with us over the coming months on this issue.
    One of the things we find over the years here is that there 
is a tendency and I guess it is the nature of how business gets 
done is we constantly try to put a good face on things. We want 
to talk about things that are happening right and, obviously, 
that is very important. The chairman has made that point. We do 
not want to get into dooms-day scenarios and so forth. That 
does not help in this situation.
    But also we need to get good, candid assessments, 
particularly at this stage because we can do something about 
this now. While it is 18 months, that is a short amount of 
time, but a lot can happen in 18 months to get this on the 
right track.
    And, so, it is very, very important that this committee and 
others know about things that are not working as well as things 
that are working so that we spend our time and attention 
focusing on the questions where some real effort is needed. And 
I say that to you because in looking over this report from the 
Office of Management and Budget, you cite in your statement 
here that 71 percent of our agencies or 71 percent of the 
systems at the Government's most successful agencies are Year 
2000 compliant. What you fail to mention is that these are 
mostly smaller agencies by and large.
    Now, there are some exceptions here. But the National 
Science Foundation, the Small Business Administration, FEMA, 
GSA, are really some of our smaller agencies. Now, there are 
some large ones here: SSA, NASA, and so forth, but if you look 
at this, and you go down further here and you get to the big 
agencies, the large agencies: Defense, Education, HHS, it is 
only 31 percent.
    And, you know, it just seems to me we got to focus on these 
kinds of things here. I mean I appreciate what you are getting 
at here, but we need to know about the big ones. Now, this 
morning the Post has an article on the Defense Department which 
Senator Kyl and Senator Bennett may want to get into a bit more 
with you here. But I think it is critically important that we 
need to know about what is going on.
    The Department of Energy is one of the OMB's categories. 
And they list them, by the way, here as insufficient progress 
is being made in these areas. And at this pace, the OMB says 
that here, ``The Department of Defense will not meet its goals 
and complete its work on time.'' And, candidly, the Department 
of Defense, this is an OBM study now saying this, is pretty 
alarming, quite candidly.
    And it seems to me that we need to get your, when you come 
up here to talk to us here, you need to put us on notice up 
here so that we can be doing smart things from a legislative 
branch to help out with this.
    And, so, I would urge you in your work here, let us know 
where the bad news is here, at this point, not just some of the 
good news.
    Now, let me ask if I can, Ms. Moler, about the Department 
of Energy here, since we have got you. They have got 
insufficient progress. And I wonder whether you can explain 
what is being done to improve that situation and what the 
consequences are for the Nation if the Department of Energy 
fails to meet its millennium requirements?
    Ms. Moler. The Department of Energy has the fourth highest 
number of ``mission critical''--in the jargon--systems. We have 
done a complete survey and there are currently 411 of them. The 
Department of Defense has five times as many.
    But we still have a significant number of systems. We are 
at this point 42 percent compliant. We believe we will have all 
systems except a couple that will be compliant by March of next 
year. We are using a slightly different planning scenario than 
OMB prefers. I am trying to move it up.
    And there are a couple of systems that we know will not be 
fixed by March. They are isolated. I can go into the specifics 
of those if you want. Our progress is picking up. I have just 
instituted an independent audit of--independent, but still DOE 
employees--of our CIO's assessment. A lot of these things are 
in the field and they are at the National Laboratories and we 
are going system-by-system and looking at each and every one of 
them. And we believe that we will be ready----
    Vice Chairman Dodd. OK.
    Ms. Moler [continuing]. Based on the information I have 
now. Now, if I find something else out, I will certainly----
    Vice Chairman Dodd. Please, let us, we want to know about 
it.
    Ms. Moler [continuing]. Let the world now. I mean you 
cannot hide these things, that will not help.
    Vice Chairman Dodd. Let me ask you, Mr. Koskinen, just in 
the seconds or so remaining here on the time clock. Let me read 
you some of the questions that were in the committee's survey 
of the 10 largest energy producers, and one company's responses 
to it, if I can.
    The committee asked the companies, and I am quoting here, 
``How many systems were identified with Y2K implications and 
how many of those were mission-critical?''
    This company which is one of the largest energy companies 
in the United States with more than $20 billion a year in 
revenues and is 1 of the 100 largest U.S. companies, responded 
in the following manner and I quote them in their response: 
``We have numerous systems. It would not be cost-beneficial to 
count them.'' They also gave the exact same answer to the 
question about how many embedded systems were identified.
    The committee also asked how many lines of code were 
reviewed as part of the assessment, and the company responded 
and I quote them here: ``It is unknown how many lines of code 
have been reviewed.''
    Last, the company also stated that, ``No Federal or state 
regulatory body has requested Y2K information of it.'' It is a 
$20 billion company.
    Now, I wonder if you might tell us if a Federal agency were 
to give you that kind of report, would you find it 
satisfactory?
    Mr. Koskinen. Obviously not and, in fact, if you would not 
mind, I will respond to your earlier comment as well.
    Vice Chairman Dodd. Please.
    Mr. Koskinen. I could not agree with you more that all of 
us, as the chairman and I have discussed, need to focus our 
energies as much as we can on where the problems are.
    Vice Chairman Dodd. Let me ask you and then I want you to 
answer that. One, would you be satisfied and, two, is that 
company in your mind, based on what it has answered here, going 
to be compliant by the Year 2000?
    Mr. Koskinen. Clearly, in the OMB rating system that 
company would be a Tier 1 agency, one that is not demonstrating 
sufficient progress. If that is the actual state of play, as 
opposed to their having gotten legal advice to reply very 
generally for fear that it will become public information, then 
I think that organization has a potentially insurmountable 
challenge to complete their work in the next 18 months.
    We need to focus on where the problems are and to be candid 
with one another. It does not totally surprise me that no 
agency has asked them for information as we do not have 
authority in many of these areas to actually require companies 
to give us information. One of the reasons the Council is 
working with umbrella groups is to engage in a candid 
discussion with industry leaders and get them to assess the 
industry with us and give us more information. We need that 
information.
    My point about citing the nine agencies that are doing well 
was not to say that we do not have problems. The OMB report, 
which focuses on the problem agencies in some detail, is a 
public document. I do, however, want to take issue with the 
notion that the Government should get an ``F'' for its work. I 
think we clearly have several agencies that face major 
challenges, but it strikes me that we cannot create a 
stereotype that there are no Federal systems that work.
    The other thing to bear in mind, and the chairman's hearing 
on Wednesday noted this, is that you can find out exactly what 
progress Federal agencies are making. It is all there. They 
will tell you exactly how many mission-critical systems they 
have, and where those systems are in each phase. So, you do not 
have to guess, and creating the stereotype that nothing works 
does not necessarily help in solving the problem.
    We are focused on those areas in which there has been 
insufficient progress. I have announced that I will now attend 
the monthly management meetings with senior managers of the six 
Tier 1 Cabinet agencies, again to work jointly with them to see 
what are the issues that we can try to resolve to make sure 
that they can meet their plans, all of which show that they 
will be compliant.
    But there are major challenges. Some of the Tier 2 agencies 
in the OMB report, such as the IRS, have major challenges as 
well. I am not only troubled by, but surprised at, as everyone 
is, the lack of assessment in the results from your report. 
Clearly, we would consider any agency in the Federal Government 
that has not completed its assessment, or virtually completed 
it by now, to be at high-risk.
    Vice Chairman Dodd. Last on this point and let me ask this 
quickly of the FERC and Department of Energy, and you heard Mr. 
Koskinen's response here. You know, if somebody like this 
company of this size, $20 billion in revenues, 1 of the top 100 
companies in the country, is looking like they are not going to 
make it here, what powers do you have in order to try and put 
some pressure here, if you will, or some authority here to get 
them to move on this or, do you have any at all?
    Ms. Moler. We have limited regulatory authority, limited 
powers. However, we do have the bully pulpit and the power of 
public scrutiny and, frankly, embarrassment.
    But as far as directing them to comply with a particular 
order, it is limited.
    Mr. Hoecker. I agree. Certainly for the FERC, for whom 
reliability of electric and gas service is always a concern, 
our ability to direct companies to assess, to be in compliance 
and so forth is virtually nonexistent.
    I mean we regulate rates and we can deal with 
discrimination issues but beyond that there are some serious 
gaps in the law.
    Vice Chairman Dodd. Mr. Chairman, I have gone way over the 
time, and I apologize.
    Chairman Bennett. No. Thank you.
    I think that was an important point to pursue and let me 
make again the point that when we did the survey we promised 
these companies absolute anonymity. And I would hope that any 
staffers who know the names of these companies will recognize 
that promise because we are grateful to this company for being 
that candid. And we do not want to chill the opportunity to get 
more information by violating that confidentiality.
    Senator Kyl.
    Senator Kyl. Thank you, Mr. Chairman.
    Since the energy system is the primary focus of our work 
today, I would like to ask whether any of you are prepared at 
this time to characterize the degree of Y2K problems in the 
U.S. energy system or the status of remedial actions?
    And I am not suggesting that you came here to do that; I 
just wonder if we can obtain any of that information from you?
    Ms. Moler. We do not have a comprehensive picture of the 
electricity sector which has been our focus. So, we hope to 
have one, at least a better picture, in September.
    Senator Kyl. Thank you.
    Mr. Hoecker. Certainly one of the goals of the energy 
working group and the people who are working on gas and oil 
issues is to flesh out that picture as soon as we possibly can. 
We have trade associations that are serving their members, we 
are engaging in meetings and discussions about this but, 
currently as I said in my testimony, the evidence we have of 
assessment compliance is completely anecdotal.
    Senator Kyl. Ms. Jackson.
    Ms. Jackson. We will be able to provide very specific 
information in August because of the fact that we are requiring 
the written response to our generic letter. Theoretically, we 
could gather some information today but since, in fact, the 
responses have to be very specific to the letter, I think we 
will be able to provide you with a wealth of information at 
that time.
    Senator Kyl. Thank you.
    Mr. Koskinen. This reveals part of the thinking behind our 
strategy at the council. In a number of important industry 
areas the Government has basically no oversight or regulatory 
authority at all, and I am not suggesting we should have that 
authority. Therefore, I think Senator Dodd is right, and your 
question is very appropriate, we and the public need to know 
over time where the problems are going to occur.
    So part of our strategy in creating these sector leaders 
and working groups, and engaging in a constructive dialog with 
industry leaders and umbrella groups, is to try, as the 
chairman noted, to cultivate candid exchanges at the level we 
need to know, which is how industries generally are doing.
    We do not need to know whether a particular company is 
going to make it or not. But we need to know how is the 
industry doing, both as an industry and also geographically and 
regionally. And in the time remaining, 567 days or so, I do not 
think that we are going to be able to yell at people or beat 
the information out of them.
    What we can do is to have them understand that we are 
anxious to work with them constructively. We are anxious to 
have a dialog to see if there is anything we can do to help 
them solve their problem. But, ultimately, it is their problem. 
What we can do, and what you are doing here, is raise the 
visibility of the issue, raise awareness of its importance, and 
encourage people to address the problem in time. Because time 
is the vanishing resource.
    Senator Kyl. But all of the Federal agencies or departments 
that rely upon the energy system--they all do, of course--but 
all of them that rely upon it in significant ways are going to 
have to make that assessment themselves, both in order to 
understand what they will have to do remedially and also to 
provide for contingency planning.
    Mr. Koskinen. That is right. And one of the things we hope 
to do through the council as we move through what I call the 
proselytizing/organizing phase into the monitoring and 
assessment phase, is to begin to coordinate Government 
contingency planning as we move into next year and try to share 
among the agencies our concerns about this area.
    The two major areas that we are obviously concerned about 
are energy and telecommunications because every agency depends 
upon those parts of the infrastructure. And we need to be able 
to collect the information so that we can respond. Senator 
Dodd's point is exactly right in response to the surveys, and 
the chairman noted that contingency planning is not something 
you do at the last minute. Contingency planning has to be done 
in terms of going forward, in terms of how you protect your 
core basic business processes.
    The Council and OMB are working, and GAO has done good work 
in this area as well, to stress to the Federal agencies that 
they must have contingency plans. The point is well taken, and 
Senator Dodd again made it correctly, we need the information 
as early as we can so that we can respond accordingly. The 
response is not necessarily to yell at people, the response is 
to figure out what we are going to do in response to the 
reality. But we need to know what the reality is.
    Senator Kyl. I mentioned in my opening statement that with 
respect to contingency planning, I had written you back in 
March. You indicated that FEMA would be the agency. When I 
heard from FEMA in May and they still had not done any Y2K-
related contingency planning. So, it seems to me that 
recognizing the nature of the challenge is one thing but 
getting on with it is something else.
    I am also concerned that the report that was mentioned 
before in the Washington Post today, an article by Stephen 
Barr, raises a similar kind of concern. I gather that had the 
Inspector General's report not been forthcoming, we would not 
know that the Pentagon's reports were faulty in terms of 
compliance rates.
    What that IG report found was that many systems who 
reported themselves as compliant, apparently, were not, in 
fact, compliant. And the article goes on to note that the 
Agriculture Department also has reported systems compliant that 
were apparently only in developmental stages. That, according 
to the GAO.
    I guess the question here is, do we have to rely upon 
independent studies by GAO or a department's Inspector General 
to find out whether Government agencies, themselves, are in 
compliance or is there an overall plan? Since you are heading 
up the effort--what is the plan we have for verifying whether 
agencies are, in fact, at the stage of compliance that they say 
they are?
    Mr. Koskinen. Testing is an important issue. OMB has 
required the agencies to have an independent verification and 
validation program not only to test the assumptions but to test 
the reality as well.
    As the chairman noted, the reason everybody should be 
pushing to complete work on their systems by the end of this 
year into the first quarter of next year is that while you may 
think you are done at that point, you will then have to go out 
and solve all the unforseen problems.
    Nobody in the private or the public sector has ever had to 
deal with this issue before, and that is why testing is so 
important. And testing is a continuous process; the Inspectors 
General in many of the organizations are right now working very 
closely with the management, continually going out and checking 
whether the information is valid. And it is not that people are 
trying to mislead anyone. If they were, we would have much 
better numbers. The numbers in some areas are very troubling, 
but we are talking about hundreds, in some cases, thousands of 
systems you continually have to monitor and check.
    The bottom line will not be the reports, but whether the 
systems actually operate. But your point is well taken. In 
every agency, we have an ongoing evaluation and verification 
program that will continue to show that things people thought 
were going to work turned out not to work.
    And, as the chairman said, even when everybody signs-off 
and they think they are 100-percent compliant, and Social 
Security is almost there, they are still retesting all of those 
systems to make sure in different configurations they, indeed, 
are compliant. They are actually running and rerunning those 
systems. That takes time, and that is what we have to do.
    Senator Kyl. One final question, if I could?
    On April 1, you testified that you would be joining the 
Vice President and the staff of the National Partnership for 
Reinventing Government as they continue to work to improve 
customer service at the 32 Federal agencies identified as 
having a high impact on our citizens.
    What is the role of the Vice President in meeting the Y2K 
challenge?
    Mr. Koskinen. As you noted, the Vice President has been 
very focused on those agencies that most directly relate to the 
public. He and his staff have been working with them for some 
time and are stressing the importance of solving the Year 2000 
problem in the meetings they are having with each of those 32 
agencies.
    At a late January cabinet meeting, he and the President 
very vigorously stressed to agency heads that this was their 
problem. It was not their division's problem, or their IT-area 
problem, it was their personal responsibility. As I met with 
the Cabinet agencies, all of the Secretaries told me of the 
impact that the President and the Vice President's remarks had 
on them.
    As Deputy Secretary Moler noted, the Vice President has met 
with the President's Management Council where he again 
reaffirmed the importance of this process. But I think the 
ongoing review that he and his staff are having with the high-
impact agencies is sending the right signal that this is a 
matter of the highest importance.
    Senator Kyl. Thank you.
    Thank you, Mr. Chairman.
    Chairman Bennett. Thank you very much. We express our 
gratitude to the panelists for their participation and also for 
the support and assistance that their staffs have provided in 
preparation for this hearing.
    Vice Chairman Dodd. Mr. Chairman, can I ask one more 
question----
    Chairman Bennett. Surely.
    Vice Chairman Dodd [continuing]. And I apologize--is it----
    Mr. Hoecker. Hoecker.
    Vice Chairman Dodd. Hoecker. Thank you. I apologize for not 
picking that up earlier. I want to thank you, Chairman Hoecker. 
You gave a very candid statement this morning here about where 
things are from your standpoint and I appreciate it.
    You say that the state of the Year 2000 readiness of the 
utility industry is not yet fully known. And you go on to 
expand on the point by stating that the extent of completed 
work, Year 2000 work, within the energy industry is unknown. 
The compilation of this information has been inadequate. The 
state of awareness in planning of small utilities and 
cooperatives is less certain. You also stated and I quote you 
here: ``At the present time any failures to fully understand 
the seriousness of the issues must be regarded as a serious 
problem.''
    I just was impressed by that. And, you know, from a Federal 
Government standpoint, we are sort of the clearinghouse in a 
sense here. I guess I agree with Mr. Koskinen, we are not going 
to solve this problem except our own agency issues that we have 
to look at but the broader issue is to sort of be a 
clearinghouse. But I must tell you with less than 18 months to 
go, you know, if we do not have any idea where the utility 
industry is to the point where we do not even know if the 
utilities are even aware of the problem, then have we not 
fallen into that failure to understand the seriousness 
category?
    Mr. Hoecker. Indeed. I am hopeful, more than hopeful that 
the President's Council and the work that we will be able to do 
in the months to come, in the immediate months to come, will 
cure much of that problem. And we are getting very good 
cooperation from individual companies and from trade 
associations. I hope we can bridge this information gap 
quickly. But it is a disturbing phenomenon.
    My CIO has been talking with many people and meeting with 
Mr. Koskinen and the group and reports to me that she cannot 
really get a good handle on where these companies are in terms 
of their activity.
    Vice Chairman Dodd. Well, I would hope--you know, this is 
June and while 18 months is pretty quick, we probably ought to 
hear back from you fairly quickly about how much cooperation 
you are getting on this. I mean I do not know what is available 
to us in this session but it seems to me if we are not getting 
that information then we might want to think about some other 
measures that we might have to take to get it to you.
    In that light, I am curious as well, Chairperson Jackson, 
on the NRC issues, you are surveying 12 out of about over 100 
power plants in the country. You are going to get that generic 
information in August. What are you going to do with the 
information if you find deficiencies in August? What is the 
response of the agency at that point?
    Ms. Jackson. Well, first let me say that the responses to 
the generic letter are 100 percent. It is not 12 percent.
    Vice Chairman Dodd. Oh, all right.
    Ms. Jackson. Using those generic responses, we are going to 
be doing two things. We are going to be doing sampling----
    Vice Chairman Dodd. You cited 12, right.
    Ms. Jackson. That is right. Then that is how we picked the 
12 but then we are having a workshop, participating in a 
workshop with all of the licensees, in the Fall to discuss the 
results of those inspections and the problems that have arisen. 
And that is our way of working with the industry to get the 
word out and then it will also determine what specific follow-
up we have to take.
    We have a drop-dead date of September 30, 1999, in terms of 
making a----
    Vice Chairman Dodd. We have to come up with a better 
description of that date. [Laughter.]
    The language in this debate is not exactly----
    Chairman Bennett. The lights out date.
    Vice Chairman Dodd. Yeah, lights out.
    Ms. Jackson. Well, let me finish my sentence, please.
    Vice Chairman Dodd. Yes.
    Ms. Jackson. We have a final determination date of 
September 30, 1999, to make a decision because that would allow 
time for alternative energy sources to be brought onto line if 
we have to make a determination from a public health and safety 
point of view relative to a nuclear plant shutdown.
    Vice Chairman Dodd. Can I also ask you very quickly, to 
what extent are you coordinating or working at all with foreign 
nations to determine what is being done there? We have seen, 
there is a history now of some very serious health and safety 
problems at certain nuclear power facilities around the world. 
To what extent are you in touch with or is the agency in touch 
with foreign countries that have power plants to determine what 
they are doing?
    Ms. Jackson. OK. Let me answer that briefly in about three 
or four ways. First, we have had very specific interactions 
with the French, the British, and the Canadians, particularly 
the Canadians because of some inter-connectivity of the grids 
on the steps that they are taking.
    Second, we are in the process of working out communication 
protocols because of the 12-hour advance with certain countries 
in the Pacific Rim.
    Third, we have been working with the International Atomic 
Energy Agency to get them to act as a clearinghouse on 
information, particularly relative to testing and problem 
identification and corrective actions.
    And we also will be working with them to try to get them to 
develop a communication protocol for how the different 
countries can communicate as we go up to the actual year turn-
over.
    And, finally, we also work with the OECD Nuclear Energy 
Agency in a comparable effort.
    Vice Chairman Dodd. I notice you did not--I mean 
specifically, what about the plants in Eastern Europe? Let me--
--
    Ms. Jackson. Well, that is why we, in fact, are working 
with the IAEA, the International Atomic Energy Agency because 
they, in fact, work closely with those countries and we feel 
that they are the appropriate clearinghouse and change agent 
relative to those countries.
    Vice Chairman Dodd. Do you want to follow-up on that?
    You mentioned the Canadian--Ms. Moler, what sort of 
interplay is there with the Canadians on this question? We have 
a tremendous interplay, obviously, with the hydro-Quebec power 
production. What coordination is happening?
    Ms. Moler. The Canadian companies are a part of the North 
American Electric Reliability Council and they are included--
let me just add one thing. When the Secretary and I asked NERC 
to play the coordinating role they responded very quickly and 
very positively. They and, indeed, they are going beyond their 
normal realm. They usually look just at what is called bulk 
power issues. They do not usually go to actual distribution 
utilities.
    And I have spoken with their chairman and they have been 
very responsive. I hope that they will also be very candid with 
us as the work unfolds and you are going to hear from them on 
the next panel.
    Vice Chairman Dodd. OK.
    Thank you, Mr. Chairman.
    Thank you all very much.
    Chairman Bennett. Thank you very much.
    Mr. Koskinen, we would be delighted to have you remain to 
listen to the next panel if you have the time. We will 
understand if you have commitments you have to leave. But I 
think we are going to get----
    Mr. Koskinen. I will stay for a few minutes, but I have a 
noon meeting with everybody you ever heard of at the Defense 
Department to talk about this issue.
    Chairman Bennett. I think that may come up overnight. I can 
understand that. [Laughter.]
    Well, we thank you all and appreciate your support and that 
of your staffs as well.
    Thank you.
    All right. We welcome the members of the second panel. I 
apologize to you for making you wait so long, but given the 
nature of the issue I think we had to go in as great a depth as 
we did with the first set of witnesses.
    We will now hear from witnesses outside of Government. You 
can correct all of the errors that were given us in the first 
panel if you found that there were. You can comment on the 
survey and our interpretation of it if you find that it is 
incorrect. We are very grateful that you have been willing to 
come here.
    I will introduce the members of the panel by name, reading 
from right to left, and then let each of you give additional 
biographical information if you feel so moved. We would hope 
that you would make an effort to stay within the time limit so 
that we have time for questions afterwards.
    Mr. Lou Marcoccia, consultant with Duke Energy, Washington 
Gas, and Baltimore Gas and Electric; Mr. Michael Gent, who is 
president of NERC, about whom we have heard so much in the 
first panel; Dr. Charles Siebenthal, who is manager of the Year 
2000 Programs for the Electric Power Research Institute; James 
Rubright, executive vice president of Sonat, Inc.; and Gary 
Gardner, chief information officer of the American Gas 
Association.
    Gentlemen, we are very grateful to you for your willingness 
to participate and look forward to your testimony.
    Mr. Marcoccia, we will start with you.

STATEMENT OF LOUIS J. MARCOCCIA, PRESIDENT MTS/PEOPLESOURCE AND 
 CONSULTANT FOR DUKE ENERGY, WASHINGTON GAS, AND BALTIMORE GAS 
                          AND ELECTRIC

    Mr. Marcoccia. Good morning. I am really glad to be here 
this morning sharing this day.
    First of all, Senator Dodd, you had difficulty calling Mr. 
Hoecker. I have much more of a difficult name, so you can 
certainly call me Lou. That certainly will be fine. [Laughter.]
    Vice Chairman Dodd. We are going to call you Lou. I already 
made that decision. [Laughter.]
    Mr. Marcoccia. Fine. What I would like to do, if I may, is 
provide a brief biography, and then I would like to hit a few 
points that was made by the first panel and get into my written 
testimony if I can.
    I became a project director of the Year 2000 for the New 
York City Transit Authority in 1991, and I have been dealing 
with the Year 2000 for the last 7 years as a practitioner.
    Two years ago I started a consulting firm, and I have 
personally worked at over 38 client sites throughout the United 
States, which includes energy utility organizations, banks, 
school systems from a petitioner putting code back into 
production, both computer systems as well as embedded systems.
    What is very interesting, Senator Dodd, you mentioned the 
Gardner Group comes from Connecticut. According to the first 
panel, if you do an assessment, you are in pretty good shape. 
According to the Gardner Group, which I certainly concur with, 
that the assessment constitutes 4 percent of the total project, 
which means that if we agreed that a major milestone is the 
assessment, and we are basically just getting through the 
assessment now, that means we only have 96 percent left to the 
project. That is one, certainly, point.
    What is really interesting to note is that--and I certainly 
do this with respect and deference--it was noted by the 
representative from the NRC that they initially had their first 
contact in 1996 and, yet, their second response, which is a 
generic letter, comes 2 years later. What happened between 1996 
and 1998? I think, at that point, we should have been in the 
middle of testing and not just sending out a generic letter to 
find out what the status for are for our utilities 
organizations.
    I also noted that we seem to be pleased if we are actually 
in the assessment and inventory phase. As of today, for 
organizations to be confident that they will be complying, 
should have completed 60 percent of their system tested and 
back in production as of today.
    The target date for compliance, which is really 
misunderstood, is not December 31, 1999, and I will walk 
through the details of that, it is December 31, 1998, and I 
will articulate the detailed reasons for that.
    The utility industry has not met the criteria for 
successful implementation of the Year 2000 for the mission-
critical systems. Therefore, they have failed in their 
responsibility to their stockholders, partners, and customers.
    I believe their failure will cause major disruptions here 
in the United States and overseas. I say this based on the 
following analysis: As it relates to criteria for analysis, all 
mission-critical systems and embedded systems must be completed 
by December 31, 1998, and there are five major reasons for 
that.
    No. 1, we must allow for complete year-end process of the 
code and take advantage of the factor shutdown because that is 
when you have the opportunity to test those embedded systems.
    No. 2, to allow for a contingency for unexpected problems 
not resolved in 1998 or if the project is generally running 
late. As we all know in this business, we never have projects 
that run late. Therefore, maybe step 2 is not required. 
[Laughter.]
    No. 3, to allow for integration testing within an 
organization and between external partners, 1999 should be used 
for the integration between external partners and within one 
organization.
    No. 4, to allow for replacement or upgrades of computer 
software, computer hardware, and embedded systems, there might 
be delays, and that may not be complete in 1998.
    No. 5, and this is a technical fact, a 1-year calculation 
which are present in many systems will fail January 1, 1999, 
not January 1, 2000. So if you have an application that does a 
1-year calculation, that will fail in January 1, 1999, and that 
is part of many applications that we have in our industry.
    I have used the following criteria to establish what a 
successful Year 2000 implementation is:
    No. 1, all mission-critical systems that require 
corrections are fixed, tested, implemented in a Year 2000 
production environment.
    No. 2, formally document which systems are going to be 
retired. We seem to talk about retirement, but we never seem to 
retire major applications.
    No. 3, the current software, hardware embedded systems that 
were candidates for replacement have, in fact, been replaced. 
It will take, for major manufacturing type of equipment, 
utility and other manufacturing equipments, 12 to 18 months to 
replace a piece of equipment that will fail. You simply do not 
have enough time if you find that out June or September of next 
year. There is not enough time to replace that piece of 
equipment.
    The strategy for the Year 2000 correction implementation 
has been agreed to and documented. What is the readiness of 
computer systems, as it relates to the utility companies? 
Currently, many large utilities have not defined what needs to 
be corrected. The industry has not yet determined how they will 
fix or test what they have found, both on the application side 
and on the embedded systems side.
    The industry has not yet determined the resource 
requirements for the entire life cycle of finding the problem, 
fixing the problem, and testing the problem. You can have all 
the committees you want, if you are not fixing and testing and 
placing back in production, you are late.
    The industry has not developed contingency plans for its 
mission-critical systems if failure occurs, and failure will 
occur. The industry is not in the triage mode in determining 
what systems must be compliant by December 31, 1999. Most 
organizations or many organizations will not implement the 
entire portfolio and they must decide which will make it and 
which will not. We should have that list today.
    Replacement strategy for noncompliant computer systems with 
compliant software purchases or converting these systems to 
other platforms had to already have been started. To try to 
have a replacement strategy today or even last month on a 
wholesale basis is simply not feasible, in that we have never 
done it before in the past and we will not do it for this 
project.
    Chairman Bennett. Can you summarize? We are running out of 
time.
    Mr. Marcoccia. Oh, really. OK. Wow. It went by fast, huh? I 
apologize for that.
    Chairman Bennett. Not at all. You have been very, very 
responsive, but we will get back to you in the question period.
    Mr. Marcoccia. I really want--embedded systems. Because of 
the slow start in dealing with the computer system, the 
embedded system is the area the industry has fallen far behind 
in their understanding of how to find, fix, and test the 
embedded systems.
    We currently know of systems that will definitely fail. 
Computer systems that are associated with the tankers we know 
will fail sometime in 1999. We have known that--I did a seminar 
in Europe in 1996/1997, and I made those same statements. We 
have known that certain monitoring systems at a utility company 
will fail. We have known that.
    A failure, even though they may be contained within 2, 3, 
or 4 percent, and I do not know how true that number is, the 
problem is not identifying units. What makes an organization 
run is the connection of each of those pieces in a process. So 
if a particular unit or component in that process fails, the 
whole process fails, and we have a problem.
    Since I have taken up more time than I should have, I will 
conclude at this point.
    Thank you for your time.
    [The prepared statement of Mr. Marcoccia can be found in 
the appendix.]
    Chairman Bennett. Thank you very much, and I now apologize. 
Your name is pronounced Marcoccia.
    Mr. Marcoccia. It is going to be tough, Senator. 
[Laughter.]
    Chairman Bennett. But I appreciate it. In the spirit of 
Senator Dodd, thank you, Lou. We appreciate it. [Laughter.]
    Mr. Gent.

    STATEMENT OF MICHEHL R. GENT, PRESIDENT, NORTH AMERICAN 
                  ELECTRIC RELIABILITY COUNCIL

    Mr. Gent. Thank you, Senator Bennett and Senator Dodd.
    I would like to try to summarize my prepared text and have 
the rest of it entered into the record.
    I find myself agreeing with a little bit of what everybody 
has said.
    As you know, the North American Electric Reliability 
Council, of which we have a map up here----
    Chairman Bennett. Could you pull the speaking machine a 
little closer. Thank you.
    Mr. Gent. You just really have to get into this, do you 
not.
    Chairman Bennett. Yes. [Laughter.]
    Mr. Gent. In 1968, we formed NERC, and under NERC's 
leadership we have made the North American electric supply 
system the most reliable in the world. In fact, it is the best 
by any measure that you want to use around the world.
    About a month ago, you have heard Deputy Secretary Moler 
indicate, that the Department of Energy asked NERC to assume a 
leadership role in preparing the electric supply and delivery 
systems in North America for this transition to the millennium. 
Our response to that challenge is actually attached in my 
prepared statement. It is our Phase 1 plan. I want to assure 
you that this is a living plan, and it will be adjusted and 
changed to fit the conditions as we move along.
    I know that you are also aware, as you have inspected 
several facilities, that individual utilities and companies 
have collaborative efforts underway, as well as their 
individual efforts. They are to be commended for attacking this 
problem aggressively head-on. However, I have a concern--and I 
know it is your concern. I have heard it today--that this 
activity may not be coordinated.
    Because of the high degree of interdependence in the 
electric systems, as you saw earlier in the demonstration, it 
is imperative that we have a cooperative plan.
    The plan that NERC has come up with, as I have said 
earlier, is attached to my testimony. There is a map in it that 
is very similar to the one you have on your stand. I would like 
to point out that there are four major Interconnections in the 
United States and Canada.
    The eastern two-thirds of the United States and Canada is 
included in what is called, appropriately, the Eastern 
Interconnection.
    The Western Interconnection is the one-third that is on the 
left of that map. Note also that a huge amount of Canada and a 
little bit of Mexico are included in that portion.
    The two smaller Interconnections are most of the State of 
Texas and the Province of Quebec.
    Within each of these Interconnections, the utilities 
operate synchronously. That is a very big word, but let me say 
it is like breathing together. They all have the same 
heartbeat. A major disturbance caused by one utility in one 
part of the Interconnection affects all.
    For instance, in answer to Senator Dodd's question earlier, 
if we had a disturbance in Miami, it would be felt equally in 
Manitoba, as it is in Tampa. Just remember that an electrical 
disturbance travels at the speed of light. So distance does not 
mean very much on the electical grid.
    NERC intends to provide a coordinated team effort to deal 
with the Y2K issue. We have divided our Y2K transition effort 
into five critical areas. The first, as you can see in the 
plan, is generating facilities. The second encompasses energy 
management systems, which you may wish to think of as control 
computers. The third is telecommunications. The fourth is those 
protection devices we hear so little about, but which are the 
electronic guardians that protect billions of dollars of 
electrical equipment from damage. And the fifth area is 
distribution.
    NERC is focusing on operational security through what we 
call a defense-in-depth concept. It assumes that, although one 
has taken all the reasonable and necessary preventative steps, 
there can never be 100 percent assurance that major system 
failures cannot cause a catastrophic outcome.
    Although most utilities, and vendors, and manufacturers 
eventually will be expected to exercise due diligence, I am 
certain that not all Y2K problems will be identified, fixed, 
and tested. In fact, it may not even be prudent to spend 
unlimited resources on some potential problems.
    The ultimate goal of our plan is to establish a 
coordination process that allows the electric systems in North 
American to maintain operational stability during the Y2K 
transition periods.
    Our program for implementing this defense-in-depth strategy 
focuses on three principal areas. I won't go into them in-
depth, but they are sharing of Y2K solutions, identifying 
additional potential weaknesses in the interconnected systems 
in the way they operate together, and operational preparedness, 
much of which you have been calling contingency planning.
    So behind these simply-stated three lines of solution, 
there are 13 tasks, 3 phases and a plan that spans nearly 2 
years.
    This program, of course, depends on the cooperation of 
electric utilities in North America. Our role at NERC is to 
facilitate this North Americanwide coordination so that the 
collective efforts of the industry will minimize risks posed by 
Y2K.
    The NERC program provides operating entities with the 
opportunity to share Y2K solutions and to prepare coordination 
plans with neighboring systems and regions. To staff for this 
coordination, and it has been said earlier that this requires a 
huge staff, we intend to use the best there is, the utilities 
themselves. We have this knack of being able to get the world's 
leading experts to do things when their actions are important. 
This approach will give us the unparalleled expertise we will 
need to pull this program off.
    Public exchange of information is a cornerstone of this 
program and must not be viewed by utility participants as 
feeding information to potential litigants. We will be 
requesting the support of regulators and public officials to 
support the electric industry's need to exchange information. 
Any restraint that we face in sharing this information will be 
a direct challenge to the reliability of electric supply.
    In conclusion, NERC has taken this leadership role very 
seriously in coordinating the Y2K preparations of the electric 
supply and delivery systems in North America. The industry is 
committed to maintaining a reliable supply of electricity 
through this transition to the new millennium.
    I look forward to answering your questions at the end.
    [The prepared statement of Mr. Gent can be found in the 
appendix.]
    Chairman Bennett. Thank you.
    Dr. Siebenthal?

    SATEMENT OF CHARLES D. SIEBENTHAL, MANAGER OF YEAR 2000 
   PROGRAMS, ELECTRIC POWER RESEARCH INSTITUTE, PALO ALTO, CA

    Mr. Siebenthal. I would like to congratulate you, Senator, 
on getting my name straight. Most people do it backwards.
    I am going to focus my remarks today on the EPRI Y2K 
Embedded Systems Program and the role it plays in the electric 
power industry's Y2K effort.
    Before I do that, I would like to give you a little 
background information about EPRI so you can understand how 
this came about. EPRI was founded in 1973, as the Electric 
Power Research Institute. We are a nonprofit, collaborative 
research organization with headquarters in Palo Alto, CA.
    EPRI membership currently represents about 87 percent of 
the U.S. regulated utility industry, and we have a very large 
number of international members as well now. We have a 25-year 
record of providing very objective and, hopefully, good science 
and technology to address important energy and environmental 
questions. Thus, we were kind of a natural choice for the 
industry's collaborative effort on the Y2K embedded systems 
problem.
    We began our Y2K program on October 1, 1997 to act as a 
forum and a shared source of practical technical information. 
From the beginning, this program has been open to any 
organization, not just electric utilities, which has embedded 
systems problems and is willing to share their information with 
other participants in the program.
    I am pleased to be able to say that even in an electric 
power industry restructuring for competition the overriding 
importance of sharing technical information about Y2K embedded 
systems has been well recognized. Today, we have 74 companies, 
including three major oil companies, participating in this 
program and additional participants join weekly. I believe this 
week's crop raises it to 76.
    And I need to explain what I mean by company. Many of the 
companies who have joined our program are joining as holding 
companies and not regulated utilities. That means that all of 
their power concerns in both the regulated and the nonregulated 
area and internationally as well are sharing the benefits of 
our program.
    U.S. utility participants in the EPRI Y2K program represent 
now more than 70 percent of the electric power generation 
capacity in the United States. Our program has four major 
features.
    First, an Internet-based clearinghouse for participants to 
share their knowledge, real time, on component and system 
testing, which was activated in March of this year. A few weeks 
after that, utilities and vendor organizations began uploading 
their data bases to our electronic knowledge base. Today, we 
have over 300 data uploads from these organizations on-line. 
Our target by mid-August is to raise that to over 1,000.
    Second, we conduct workshops quarterly to provide an 
opportunity for in-depth, face-to-face discussion of problems, 
processes, testing methods, and results. The first and second 
workshops were held in January and May of this year. We are 
currently planning our third workshop for August of this year, 
and we expect between 500 and 600 people at that workshop.
    We plan these workshops to go through 1999 dealing with 
many of the issues that were discussed here already as being 
important for continuing the program.
    Third, and I think this is very important. We are 
organizing industry technical teams to work collaboratively 
with key equipment vendors and to better understand those 
vendors' product, Y2K compliance programs, methods, and 
results.
    Our program participants have identified over 45 major 
vendors in power generation equipment and over 20 major vendors 
in transmission and distribution equipment.
    We are really quite pleased that the vendor organizations 
have recognized the need to work in partnership with us to 
resolve the many questions which have to be addressed.
    Last, we have attempted to identify Y2K embedded systems 
programs in other industries and to develop interindustry 
information sharing, where appropriate. In April of this year, 
EPRI and the American Petroleum Institute co-hosted a meeting 
of industry trade associations to see if other industries were 
having similar collaborative data sharing efforts.
    Unfortunately, at that time, we did not find any other 
similar data bases on an industry basis, other than the one 
that API is putting together, but EPRI has offered to host 
future data bases of other industries on our electronic 
platform.
    I would like to summarize the progress to date. This has to 
be generic, obviously. Many utilities are ahead of this. All of 
our program participants are deeply into the inventory and 
assessment phases of their program as you have heard. Many of 
them have begun component testing, many of them are very 
foreign to component testing.
    Testing results to date have been largely limited, however, 
to off-line tests of individual components. So far these tests 
have identified primarily nuisance-type problems, such as 
erroneous dates on computer screens and computer systems that 
have to be rebooted with new year inputs.
    So far, fortunately, instrument and controller 
functionality appears to be largely unaffected. Now, these 
tests have to be confirmed by on-line testing. They are very 
preliminary, but they are encouraging.
    Some off-line testing of larger integrated systems, such as 
distributed control systems in power plants has been started. 
These tests have produced some conflicting results, and we are 
resolving those through the collaborative efforts in our 
program.
    Initial efforts at contingency planning, a subject which is 
obviously very hot here today, have made us very, very aware of 
the critical dependence of the electronic power industry 
response plans upon electronic communications. We are currently 
designing a pilot program for utilities and their major telecom 
service providers to sit down face-to-face and discuss their 
mutual dependencies, identify areas of common concern and, 
hopefully, joint action.
    Finally, I would like to offer some experience from this 
program for consideration by the committee.
    First, the list of services which are vital to our Y2K 
performance, but which are outside of our direct control, 
continues to grow as we go through the contingency planning 
process.
    At this point in time, we, like you, have very little 
information regarding the degree to which many of these other 
vital services will be able to operate effectively during Y2K 
transition dates.
    Second, utilities trying to develop contingency plans also 
need to understand what their customers are going to do in 
these times in order to prepare both the level of service that 
we have to provide and to prepare for any disruptions that the 
customers may induce by their own Y2K failures.
    The success of these efforts rests on the ability of 
businesses to share information free of litigation concerns. 
EPRI corporate counsel and counsel for our participating 
companies have worked long and hard to overcome their shared 
concerns over the liability issues associated with information 
sharing.
    Those who have weighed these risks and recognize that the 
overriding public interest and the magnitude of the business 
problem is so pressing that it takes precedence over these 
concerns are to be congratulated.
    We believe that the Government could significantly advance 
the Y2K remediation process by stating a public policy, which 
encourages the noncompetitive resolution of Y2K problems and 
acting to address legal liability concerns associated with 
sharing technical information.
    In conclusion, our industry is working very hard to ensure 
that electrical service remains reliable, while the companies, 
themselves, are responsible for actual solutions and 
implementations. Sharing of technical information and 
development of collaborative solutions, where appropriate, 
should be officially recognized and encouraged.
    We are pleased to be part of this program and pleased to 
have been able to testify today. I would appreciate it if our 
written testimony could be incorporated in the record.
    [The prepared statement of Mr. Siebenthal can be found in 
the appendix.]
    Chairman Bennett. It will. Thank you very much.
    Mr. Rubright.

   STATEMENT OF JAMES A. RUBRIGHT, EXECUTIVE VICE PRESIDENT, 
 SONAT, INC., AND REPRESENTATIVE OF THE INTERSTATE NATURAL GAS 
                     ASSOCIATION OF AMERICA

    Mr. Rubright. Thank you, Mr. Chairman. I am Jim Rubright, 
executive vice president of Sonat, with responsibility for our 
pipeline and energy services businesses.
    Sonat owns interests in over 14,000 miles of interstate 
natural gas pipelines serving the southeast and the Gulf of 
Mexico. But I represent here today the Interstate Natural Gas 
Association of America, the trade industry association that 
represents substantially all of the interstate natural gas 
pipelines in the United States, Canada, and Mexico.
    I will report today that the interstate natural gas 
industry has taken the Year 2000 problem very seriously, and we 
are, and have been for some time, working on fixing systems 
well prior to the millennium change.
    Also, as a result of an INGAA membership survey, we are 
pursuing a number of initiatives to foster cooperation among 
industry participants.
    I would also like to address some areas where we think this 
committee and the Congress can be helpful in this effort.
    Clean burning, environmentally friendly natural gas is a 
major energy source for our economy, second only to petroleum 
in energy use. Natural gas currently provides 24 percent of 
this Nation's energy for use in homes, industries, businesses, 
and in electric power generation. In fact, natural gas 
currently fuels about 11 percent of all electric power 
production in America, but that percentage is expected to grow 
substantially.
    The Federal Energy Regulatory Commission, the FERC, which 
regulates interstate natural gas pipelines, has made our 
industry competitive through a number of initiatives over the 
last 15 years, and the changes in our businesses associated 
with competition accelerated the application of computer and 
telecommunications technologies for our operations and our 
customer service.
    Our industry's current high degree of reliance on computer 
and telecommunications technology is one reason why we have 
taken the Year 2000 so seriously. We need to ensure that our 
extremely safe and reliable gas delivery systems remain that 
way on January 1, 2000.
    In March 1998, INGAA conducted a voluntary high-level 
survey of its INGAA membership. All respondents had a Year 2000 
plan in place and were in the process of implementing their 
plans. The survey respondents believe that Year 2000 compliance 
for the pipelines themselves will be completed by October 1999.
    As Chairman Hoecker mentioned, the INGAA members have 
consistent priorities for addressing the Year 2000 issue. In 
order of importance, these are: Protecting people and ensuring 
safety; second, maintaining the flow of natural gas to markets; 
third, accounting for gas flows; and, fourth, maintaining the 
integrity of our internal business systems.
    The first priority for our industry is safety. To operate 
and monitor our pipelines, we make extensive use of automated 
equipment that is replete with embedded chips placed in service 
over long periods of time.
    The diversity and the large quantity of equipment with 
date-sensitive embedded chips makes identifying, testing, and 
fixing these devices very time consuming. Fortunately, from a 
safety perspective, natural gas transmission systems are 
designed with multiple safeguards. In addition to sophisticated 
digital control systems, operating and safety systems use 
automatic analog, pneumatic, and mechanical control devices.
    Also, in the event of an emergency, operating and safety 
systems are equipped with manual override capabilities. 
Therefore, despite extensive work which lies ahead, INGAA is 
confident that the pipeline systems will remain safe on January 
1, 2000, even in the face of digital device failures.
    However, we intend for all of our mission-critical devices 
to function on January 1, 2000. Thus, for Sonat, an example I 
am very familiar with, our Year 2000 Team has already worked to 
identify all of the hardware/software applications and service 
providers that are potentially susceptible to a Year 2000 
problem.
    If the existing electronic device was supplied by a vendor, 
we requested certification of compliance with the Year 2000. We 
quickly realized that relying on certification would be an 
inadequate basis to ensure our own compliance. As a result, we 
implemented a second assessment phase, where we assessed, 
essentially, every device with a mission-critical or mission-
important criteria and have developed testing protocols, with 
which we have begun to test those devices.
    Based on the work that we have done, in addition to 
operating safely, we believe that as a pipeline supported by 
the upstream and downstream segments of our industry and by the 
electronic and telecommunication providers that we rely on, the 
pipelines can operate reliably.
    The other INGAA priorities are maintaining an accurate flow 
of gas accounting and protecting our internal business systems. 
These applications, in most cases, are the easiest to analyze, 
since they tend to involve main frame and PC-based systems. 
However, they can be very expensive for our industry to deal 
with because of the massive amounts of codes that may have to 
be rewritten and the cost and timeframe to introduce new 
systems.
    While the pipelines believe that they themselves can 
achieve Year 2000 compliance as regards their own systems, we 
are very concerned with our interfaces, with our upstream and 
downstream suppliers, and with our customers, as well as the 
utilities and telecommunication providers that we rely on.
    For this reason, we are reaching out to our customers, to 
service providers and to others to ensure that this is a 
coordinated effort and to maximize interface testing.
    INGAA is recommending a natural gas industry conference, 
sponsored by the Natural Gas Council, in September to discuss 
preparedness issues. We will encourage all segments of the 
industry to participate, including service providers.
    We believe sharing information and raising the visibility 
of the Year 2000 problem is the best way to ensure compliance. 
We are also working closely with the FERC to assist it in its 
role.
    Now, what can this committee and the Congress do? Certainly 
raising visibility of the Year 2000 problem will help. It would 
also help if Congress would minimize significant electronic 
commerce initiatives in the next 18 months.
    We all know that solving the Year 2000 problem requires a 
massive effort. We need to be spending our time working on this 
problem, not responding to new Government data requests, which 
require reprogramming and new reporting requirements.
    Our industry is also concerned with the litigation risk 
that we and you foresee. We do not see how our economy can 
possibly benefit from the estimated $1 trillion that may be 
allocated to seeking blame among the blameless for the 
consequences of an eventuality that was simply unforeseeable in 
the early decades of the computer industry.
    In the time left to deal with this problem, we need to 
concentrate our efforts on engineering and systems. We do not 
need to worry about anticipated litigation, and the economy 
will not benefit from defending lawsuits with the plaintiff's 
bar in the aftermath.
    INGAA, thus, suggests that the committee seriously consider 
limiting liability for 2000 events. Moreover, creating new 
sources of statutory liability will simply exacerbate the 
problem.
    Finally, the proposed antitrust exemption for sharing 
information among competitors to address this problem is a very 
important initiative that you can undertake with almost no 
adverse consequences for our economy.
    We congratulate you and thank you for your leadership on 
this critical issue and, together, we can solve this problem.
    [The prepared statement of Mr. Rubright can be found in the 
appendix.]
    Chairman Bennett. Thank you very much.
    Mr. Gardner.

   STATEMENT OF GARY W. GARDNER, CHIEF INFORMATION OFFICER, 
                    AMERICAN GAS ASSOCIATION

    Mr. Gardner. Mr. Chairman and members of the special 
committee, good morning. I am Gary Gardner, chief information 
officer of the American Gas Association. I have over 16 years 
of information technology experience--with roots as a 
programmer, I wish we had used four dates instead of two, now 
that I think about it.
    In the interest of time, I plan to summarize my testimony 
and ask that my full statement be included as part of the 
hearing record.
    Thank you for inviting me to speak to you regarding the 
Year 2000 readiness of the natural gas distribution companies. 
AGA represents 181 natural gas utilities that deliver gas to 54 
million homes and businesses in all 50 States.
    Our members distribute 85 to 90 percent of the natural gas 
delivered in the United States. AGA and natural gas utilities 
are fully aware of the issues surrounding the Year 2000 and the 
possible impact on consumers and the economy.
    Our industry views the Year 2000 issue as a serious one and 
has been working hard for the past 3 years to ensure the safe 
and reliable delivery of natural gas in the Year 2000 and 
beyond.
    As with many industries, the issue was first viewed as an 
information technology issue and most activities were focused 
on traditional IT solutions. Over the last 2 years, the main 
focus has shifted to embedded systems and contingency planning.
    With respect to contingency planning, our industry is very 
proud of its record in maintaining reliable service to our 
customers in the face of natural disasters and emergency 
situations.
    Regarding the readiness of the natural gas utilities, we 
have gathered data from two sources within our industry for 
presentation to the committee today.
    First, this spring, the Gas Research Institute conducted a 
survey which focused on natural gas distribution companies. The 
49 companies that responded have customer base ranges from 
35,000 customers to 4.8 million customers and are located in 
all parts of the United States.
    Based on the responses, it was found that 90 percent were 
very confident in their ability to resolve software problems by 
December 1999, with most companies indicating they have been 
working on Year 2000 software issues for the past 2 to 6 years.
    All respondents indicated that a formal enterprisewide 
assessment was being followed. Overall, 93 percent of the 
companies in the survey indicated they had completed the 
initial inventory and assessment phase and were in the 
remediation and testing phase of software code resolution.
    In terms of embedded systems, 71 percent were confident in 
resolving embedded processor issues, with 84 percent indicating 
they are at the remediation testing phase of their embedded 
program.
    And, finally, 80 percent expected their embedded systems 
will be Year 2000 compliant by June of 1999.
    I would like to comment on the use of the term Year 2000 
complaint. Year 2000 ready is probably the better term to 
referring to a company's readiness. For purposes of the survey, 
Year 2000 complaint means that the component is unaffected by 
Year 2000 dates.
    Noncompliance, however, does not indicate a dysfunctional 
system. In the triage and prioritization process, component 
that are not mission critical may be intentionally bypassed 
prior to December 1999. Also important to note is most 
distributions have manual controls as back-ups, so getting 
around an embedded component issue should not be difficult.
    For the distribution companies, the focus for embedded 
systems is to ensure that, on January 1, 2000 mission-critical 
gas delivery systems are working properly.
    Another checkpoint of industry readiness were the 
observations of Stone and Webster, a management consulting firm 
active in the natural gas industry. To date, they have 
conducted 14 assessments for gas, electric, and combination 
companies. These companies have customer bases that range from 
500,000 to 1.5 million customers.
    Areas they have reviewed included utility operations, 
upstream critical service providers, which includes electric, 
water, telecommunications, downstream customers and vendor 
supply chains.
    From the entry point into the distribution system to the 
end-use meter, you will typically find 50 to 100 systems with 
embedded processing. Those are located in such areas as storage 
fields, gas control and management operations, metering and 
facilities, and find embedded processing in systems such as 
compressor controls, flow calculations, supervisor control and 
data acquisition systems, or SCADA systems, control computers, 
correcting devices, mobile devices, instrument calibration 
systems, HVAC, and security systems.
    The process to address and identify embedded systems 
typically involves system identification, determining 
manufacturer compliance, and performing upgrades and 
replacements. Based on complexity, this process could take 12 
to 18 months to complete.
    In terms of specific findings from Stone and Webster, 
systems with embedded processing within large and small gas 
utilities are essentially similar, plus utilities are fairly 
consistent in devices they use. As mentioned before, many 
possess manual override options.
    A number of critical operation systems, those that directly 
affect the delivery of gas that have exhibited weakness in Year 
2000 compliance, have been running between 5 and 10 systems. 
The systems which usually have compliance issues are the SCADA 
systems within an organization.
    In summary, our Nation's natural gas utilities are actively 
and aggressively addressing Year 2000 issues. Segments within 
the natural gas industry, production, transmission, and 
distribution are collaborating and working closely in the 
assessment and resolution of issues.
    While our members are at varying levels of degree of 
compliance, a very high level of confidence is present 
regarding the safe and reliable delivery of natural gas. As 
mentioned, because the success of our industry relies on the 
delivery of services and because we have established proven 
contingency plans to handle crisis and emergency situations, we 
are prepared to handle the issues related to the Year 2000.
    Our industry is totally focused on ensuring the delivery of 
energy to the U.S. consumer, our customer.
    Thank you for the opportunity to testify, and I look 
forward to any questions you may have.
    [The prepared statement of Mr. Gardner can be found in the 
appendix.]
    Chairman Bennett. Thank you very much. We appreciate all of 
you and appreciate your testimony.
    I would like to ask all of the other panelists if they 
would like to comment on Lou's deadline of December 31, 1998, 
and the assessment of the importance and timing required for 
testing and implementation.
    Does anyone wish to respond?
    Mr. Siebenthal. I think it is well-known, Mr. Chairman, 
that certain software systems do have a problem with the 
rollover to 1999. We are not aware at this point in time of any 
embedded systems that suffer from that same problem, but our 
test programs do use that as a critical date.
    Chairman Bennett. Any other reaction to that?
    Mr. Gardner. I would just say, as far as the software side 
of it, again, in the evaluation of what has taken place in the 
environment, that certainly the software issues are ahead of 
the game. As far as where the embedded are, and certainly from 
discussions with our members, as far as where they are with 
software remediation and testing, that I understand of plans 
and testing that they are doing this summer, software testing 
could be completed by that date. On the embedded side, I 
believe it will go past that date.
    Chairman Bennett. Lou, what is your reaction?
    Mr. Marcoccia. I think there is a system--and correct me if 
I am wrong--the GPS system that is associated with the tankers 
that actually has a deadline that will not work in 1999. That 
is certainly my understanding. I am certainly not an engineer, 
but every time I brought that issue up since 1995 or 1996 I 
have not had one engineer or organization tell me I am 
incorrect.
    I visited several organizations on the embedded system side 
that deals with tankers that have agreed with me that, in fact, 
there is a 1999 date that is involved with the tracking of all 
tankers.
    Mr. Siebenthal. Mr. Chairman, it is my understanding that 
that critical date is August 20, 1999. I do not know why that 
date is a problem, but that is supposedly a problem. It is also 
my understanding that the Air Force is supposed to be fixing 
the problem in satellites, but that the people on the ground 
have to fix their own receivers if there is a problem with the 
receiver.
    Mr. Marcoccia. That is correct. The August 20, 1999 date is 
a hard date that is in that system that is real and will stop. 
We have known about that problem for several years, and that 
problem is still not resolved by enough organizations that I am 
concerned about it.
    If they cannot handle, and the way I look at this, if they 
cannot handle a known problem from several years ago, how 
difficult will it be to handle a problem that they are not 
aware of that will creep up sometime in 1999?
    Chairman Bennett. My own sense of things, as I have 
immersed myself in this issue, is that January 1, 1999 will be 
a bigger event than we currently think it will be.
    Mr. Marcoccia. That is right.
    Chairman Bennett. And, in a way, that is good because that 
will trigger the awareness of the fact that this really is 
coming. People who think that nothing will happen until New 
Years Eve are going to get a wake-up call.
    Now, Lou, you are nodding and saying that is correct. Do 
any of the rest of you agree that January 1, 1999 has the 
potential of providing us with a serious jolt along the way? I 
am not suggesting that the power grid is going to go down on 
January 1, 1999, but I think we will have some rude wake-up 
calls on that date in areas that we are not aware of.
    Are you prepared to reassure me or reaffirm me in that 
assumption?
    Mr. Gent. Mr. Chairman, I wish it were black and white like 
that. There are a number of power pools and----
    Chairman Bennett. You have never dealt with the media. It 
is always black and white. [Laughter.]
    Mr. Gent. Well, I read in the media this morning that we 
have a 40 percent chance of making it through the Year 2000, so 
I am comforted by that.
    Chairman Bennett. Do not be. That is my assessment. 
[Laughter.]
    Mr. Marcoccia. And I certainly concur.
    Mr. Gent. There are a number of software programs in play 
right now that deal with planning ahead and trying to commit 
resources for the next hour, the next day, the next month, and 
the next year, and I suspect that we will run into glitches in 
that software all along the way.
    I can tell you that a lot of that software is being tested. 
What we do not know is has every piece of software been tested? 
For instance, I am personally aware of one major power pool 
that has tested, found a problem, and fixed it. I cannot assure 
that the other 50 organizations that operate with their own 
similar software have made that test. But that is what part of 
what the NERC program is intended to do--to coordinate these 
activities so that we are all aware of the problems. We take a 
look, develop checklists, and proceed in an orderly way to 
correct the problem.
    Chairman Bennett. Before I turn to Senator Dodd, let me, 
for those who may not have understood this quick exchange about 
the 40 percent, make it very clear what I have said there.
    If the Y2K problem were this weekend, as opposed to 18 
weekends [sic] away, there is 100 percent probability that the 
grid would fail. I do not think there is really much debate 
there. Fortunately, it is not this weekend. It is 18 months 
away, and we have 18 months to work on it, and when pressed by 
members of the press to come up with a number as to what 
percentage there is that the grid would fail 18 months from 
now, I have said it is less than 50/50, and I have put it at 
40.
    But I make it very clear I am willing to move that peg as 
we get more information. When we get the study from NERC we may 
say, no, the 40 is far too doomsday, and it is really 30 or 25 
or 20 percent the grid will fail or we may say, holy cow, let 
us go back up to 50/50 shot that the grid will fail.
    But I use that to illustrate the challenge we are facing 
here. We have a system right now which, if we had no time, is 
in failure. I think it is important that people understand 
that. There is not a chance that it will fail. There is not a 
percentage that it will fail. It is a certainty that if the 
Year 2000 were to hit us today at the state of readiness we are 
in today, the power grid would fail.
    Now, we have 18 months to work on that, and what can we 
accomplish in that 18 months to get us to the point that we 
have to be? And as Senator Dodd said in his opening statement, 
failure is not an option. So we have to use the 18 months as 
wisely and as in focused a fashion as we possibly can.
    Vice Chairman Dodd.
    Vice Chairman Dodd. Thanks very much, Mr. Chairman.
    Let me, if I can, I want to ask--I think all of you were 
sitting in the room when I raised the issue with Mr. Koskinen 
on the issue of the larger company that very honestly and 
courageously responded to the questions the committee had asked 
about Y2K readiness. I think it is a good suggestion to talk 
about readiness rather than compliance. It is probably a better 
word to use. The public may understand it better as well.
    Let me ask all of you, basically, the same question I asked 
him. You are all knowledgeable people. Some of you work a great 
deal in this area.
    The answer to the question obviously was that it would not 
be cost beneficial to count their systems with a possible Y2K 
problem was the response of the company at the time.
    So I have four questions for you. Is that an acceptable 
answer? Based on these answers, does this company have a chance 
to meet the millennium deadline? What should be done, if we 
know in advance that a major energy producer is not going to be 
Y2K ready? And what contingency plans need to be in place to 
deal, in your view, with such an eventuality?
    Lou, why do we not begin with you.
    Mr. Marcoccia. Sure. The first question is no.
    The second question is no, and what should probably happen, 
the project manager for that organization should probably 
commit suicide, and that is what I certainly would recommend. I 
certainly want to echo the comment about that one firm. I, 
personally, know of several utility organizations that have not 
placed one line of code back in production being Year 2000 
compliant, and they have over 30 million lines of code. So it 
is not one, Senator, it is many utility organizations.
    And for software and embedded systems, and more so 
software, the deadline is 12/31/98 because of the timeframe 
that it takes to test these systems. And if you want to do some 
integration, what happens, if you do not get it done at that 
point, even though it looks good on paper, the risk actually 
goes up tremendously because of that.
    So it is not just one company. I would not be concerned if 
it was one. It is many companies that fall into that category.
    What should happen, one, if that organization has an 
incentive plan that pays bonuses, the bonus plan should be 
based on implementing Year 2000. It is amazing, when I work 
with companies and when I get the CEO to change a bonus plan, 
which I did for a major organization, it is amazing how the 
management of that organization actually are very aware of the 
Year 2000, and it is simply not good enough to be aware and 
concerned.
    Let me give you an analogy, if I can. I am absolutely aware 
and concerned about my weight problem. I have the best gym 
equipment in the basement. It is not good enough to be aware. I 
have to turn that awareness and that concern into action, and 
that is what is missing.
    Awareness and concern is simply not good enough June of 
1998. Action has to occur. What I certainly heard today, based 
on what I heard--I have not read the reports--very little 
action and a lot of awareness, and concern, and reports, and 
meetings, and no real action that people--this is a dirty job. 
This is digging a hole in the back yard, and I have not heard 
any of that. What I have heard was analysis, reports, 
assessments, review, generic letters, and nothing about the how 
and where we are.
    So I would change the management, so that actually changes. 
I would develop a war room, and I would develop a triage that 
says, ``We are not going to get 100 million lines done. What 
can we get done in that operation?'' and then take that hit 
because that organization will not be completely Year 2000 
ready.
    Many firms, also, and it has not been brought up, one of 
the additional problems in the Year 2000 is that firms have 
what is called a legacy clean-up dirty shop problem. So a firm 
that has 40/50 million lines of code probably only has 20 
million lines that is really production, and they can eliminate 
20 million lines of code. The problem is it takes 2/3/4/5 
months to decide and figure out which of those modules and jobs 
are really production, so they can actually work on them. That 
is a big problem that many organizations have.
    Vice Chairman Dodd. Gentlemen, I suspect you might have 
some alternative suggestion for the gentlemen responsible for 
this. [Laughter.]
    But I appreciate your colorfulness, Lou, here.
    Mr. Gent. Under no circumstance, do I want to make this 
sound like it is not a problem, but in direct counter to some 
of my colleague's suggestions, I am aware of a number of 
instances that--it is not up to me to disclose--but a number of 
instances where utilities have tested both code and equipment, 
found them to be incorrect or at fault, corrected the problems, 
and put them back in service. You notice he carefully chose his 
words, placed back in service.
    Starting at the bottom of your list dealing with 
contingency plans, others have discussed how they handle 
contingencies, and I do not want to paint this as just another 
contingency, but I want to remind you that in the operation of 
these Interconnections, we deal with contingencies every day. 
The whole system is planned on the possibility of 
contingencies, credible contingencies. The way that we will 
approach this problem is that it will become a huge 
contingency.
    I almost take issue with the 100 percent probaility of 
failure that you are using, Senator, because we have a time 
zone lag rolling across the country. I think we are quick 
enough to be able to take advantage of time zone lag and learn 
within an hour, if you can believe that.
    NERC recently installed an incredible telecommunication 
system for communications among the 23 security coordinators 
across North America. It has been proven to be Y2 compliant. So 
I am not sure this doomsday scenario is absolutely correct. I 
would not want to go public countering your 100 percent, but I 
just have.
    Senator Dodd, I suggest if you ask that question of that 
company again you would get an entirely different answer after 
this public disclosure of your opinion of the answer and the 
other answers that have been expressed here today. I find it 
inconceivable that a $20 billion revenue company has not 
vigorously attacked this problem.
    Mr. Siebenthal. I cannot add anything to improve Mike's 
discussion of the reliability issue and the 100 percent issue.
    I think, Senator, you have to be careful with surveys. We 
do them all the time to find out how people like our programs, 
et cetera, and the only people who respond are the ones who do 
not like us.
    But, seriously, a $20 billion company probably has many, 
many business units, many, many companies and probably each one 
of those companies is doing that because they are managing the 
budget that way. But the holding company probably does not 
really have any idea over maybe 10 different corporations in 20 
different countries what the sum total are.
    Now, we can argue----
    Vice Chairman Dodd. I hope you are right. But we asked the 
question. They gave us the answer.
    Mr. Siebenthal. Yes.
    Vice Chairman Dodd. If you got that answer, how would you 
react?
    Mr. Siebenthal. I am very surprised. I find it hard to 
believe that that is the correct answer. With Mike, I just 
cannot believe that a company that size----
    Vice Chairman Dodd. I think you are answering my question 
by suggesting you do not believe the answer because if you did 
believe the answer you would be more than surprised, you would 
be shocked, correct?
    Mr. Siebenthal. Yes. Correct.
    Vice Chairman Dodd. Any difference in that? Listen, I am 
just repeating what we have been told. I am not----
    Mr. Rubright. I agree that it strains credibility. I take 
the statement on its face.
    I think that the recommendations that INGAA made are all 
directed toward sponsoring cooperation. What contingency plans 
can you make? We all must realize that there are people who 
will be in various stages of readiness and, apart from 
assessment, as you get into the execution of your plans, no 
matter where you are, there will be people who are surprised by 
their inability to execute as they had intended.
    So as this problem becomes closer to the date, the ability 
of existing industry participants to benefit from the knowledge 
and experience of other industry participants and to focus on 
what is absolutely necessary will become increasingly critical 
if it is not critical today.
    That is why we are suggesting that any impediment that you 
can remove to cooperation between industry competitors, between 
upstream and downstream suppliers, is essential and would be 
extremely helpful.
    Vice Chairman Dodd. I guess I know maybe your answer to 
this. To the extent that the Federal Government, FERC, 
Department of Energy is a clearinghouse for this information, 
we listened to these two representatives of the DOE, the 
chairman of the FERC, say they really did not have any 
authority, any power to do anything about getting information. 
I was a little surprised at that. I probably thought they had 
more. I was sort of stunned that they did not.
    In addition to what other recommendations you are making, 
should they have more authority to be able to get this 
information?
    Mr. Rubright. I think they can request the information, and 
the power of their request, particularly in light of the 
visibility that has developed, will increase the access.
    I do not personally believe that the Government has the 
time to fix this problem itself.
    Vice Chairman Dodd. No, it cannot fix it. I agree.
    Mr. Rubright. It has to motivate private industry to do so 
and remove impediments for it to do so. I think that is the 
approach that our regulatory bodies have taken, and so when 
they have seen us take initiatives, such as the Natural Gas 
Council initiative, they are very quick to support them and 
say, ``What can we do to support your initiatives?'' because 
the solution will only come from the people with the resources, 
and that is private industry.
    Vice Chairman Dodd. Thanks very much.
    Mr. Marcoccia. But, Senator, it is true that maybe they 
have restrictions, but the problem is, if they do not have any 
control, then how can they state that everything appears to be 
fine, and they are OK. You cannot be on both sides of the coin. 
If you do not have control, at least use the bully pulpit and 
articulate what you think the realities are.
    I just find that to be inconsistent. You do not have 
control, but things are great. Well, how do you know things are 
great if you do not have control? I do not understand how you 
can link those two together.
    Vice Chairman Dodd. That is what we are wrestling with 
here, Lou. I appreciate that. I do not disagree. As we heard 
from the Nuclear Regulatory Commission and others, I like the 
fact that they are asking the questions, but it is getting a 
high degree of concern that we come down to a point here where 
we do not know more about it, and what we do know about it is 
alarming in terms of whether or they are going to be ready by 
the Year 2000 to respond to those issues, and then have the 
problem emerge, not only, and I have been sympathetic on 
litigation reform issues, but I do not need to tell you here 
what is going to happen in these ares.
    Mr. Marcoccia. It is going to be the same old story. When I 
started on my crusade in 1991, most people thought I was nuts. 
When I had the plan to implement Year 2000, people thought I 
was nuts. And the last 2 years, as a matter of fact 18 months, 
I have been able to sign up 38 major companies in the United 
States, and the last 18 months I have gone from being in debt 
to being a multi-millionaire. If this flies, there is reason 
why this flies around.
    And what I am here to say, Senator, that it is an issue, 
and I think one of the reasons that it is not being addressed 
because we have not had a national spokesperson take up the 
bully pulpit. What we hear all the time is the Internet and 
everything else, but we have not had a national spokesperson 
that has really grabbed onto it and made the headlines in the 
papers.
    I have, basically, in the last several years, been talking 
to almost every project manager of the major Federal Government 
agencies. I remember being in the DOD's office at a very high 
level, I don't know, about a year ago/year-and-a-half ago, and 
they were very proud. They did an assessment of 3,500 
applications. And then when I asked the question, ``At this 
rate, you would have to implement in production seven 
applications a day, seven applications a day,'' and that was 
over a year ago, and the shift has not occurred. The Federal 
Government has not made the shift, and that only has happened 
in the last few months.
    There has to be a national spokesperson, and I----
    Vice Chairman Dodd. I hear you. That is why we are here 
today.
    Let me, if I can, just quickly, to EPRI, I am impressed 
with the work that you are doing providing a clearinghouse of 
that information. One of the concerns I have is some of the 
manufacturers of these embedded systems are no longer in 
business, as I am told. What can you do about that particular 
problem in terms of getting information from the manufacturers?
    Mr. Siebenthal. Virtually nothing, although the 
manufacturers will work with us on those issues. But one has to 
understand the manufacturers have two problems. They have to 
fix their own manufacturing line, so they can stay in business, 
and they have to help us fix the products which they have sold 
us in the past.
    Legacy products of the kind that you have talked about have 
to be tested by the current owner. There is virtually no 
alternative to that, and that is what we are recommending to 
all of the participants in our program.
    Vice Chairman Dodd. Do you have any sense of numbers on 
this, what we are talking about in terms of the numbers or 
percentages of manufacturers of embedded chips that are out of 
business?
    Mr. Siebenthal. I really do not, sir. In many cases, you 
will find that something you bought 10 years ago has passed 
through the hands of five or six subsequent purchasers, and 
through mergers, and it is almost not worth, if I can use the 
word that your Fortune 500 company said, it is not cost-
effective to try to figure that out. It is better to go test it 
and make your own decision.
    Vice Chairman Dodd. I apologize, again, Mr. Chairman.
    Chairman Bennett. Not at all.
    Vice Chairman Dodd. Thank you all very, very much. I 
appreciate your willingness to be here with us today.
    Chairman Bennett. Yes. Thank you. I will not debate with 
you whether or not a current failure is absolute or whether 
there are contingency plans because we are not going to get a 
failure this weekend. So it would be a worthless kind of 
intellectual exercise.
    But my point, regardless of what number you put on it, is I 
think one that you have helped us make, which is that the 
present system is clearly in jeopardy, the jeopardy is serious, 
the impact on the Nation would be incalculable if it were not 
fixed, and we need to do the very best we can to get it fixed 
and to raise both the awareness and, as Lou points out, the 
level of action that comes as a result of the awareness.
    This hearing was scheduled for that purpose and, if I may, 
I think we have accomplished that purpose, at least to the 
degree that it is possible for any Senate hearing to produce 
that result.
    Thank you all. The committee stands adjourned.
    [Whereupon, at 12:30 p.m., the committee was adjourned.]
                            A P P E N D I X

                                 ______
                                 

              ALPHABETICAL LISTING AND MATERIAL SUBMITTED

                                 ______
                                 

            Prepared Statement of Chairman Robert F. Bennett

    Good Morning, and welcome to the inaugural hearing of the Special 
Committee on the Year 2000 Technology Problem. This special committee 
was formed pursuant to Senate Resolution 208, introduced by the 
Majority and Minority Leaders of the Senate on April 2, 1998 and which 
was passed unanimously by the Senate. The jurisdiction of the special 
committee extends beyond the public sector into the private sector.
    As result, this Committee will be hearing from the utility 
industry, specifically gas and electric utilities, today. Subsequent 
hearings will look into the year 2000 preparedness of health services, 
telecommunications, financial services, transportation, general 
government services, and general business. We will also look into the 
legal liability of firms who become the subject of court suits due to 
year 2000 technology problems.
    I have some disturbing news to report this moring. In order to 
prepare for today's hearing, I directed Committee staff to conduct a 
formal survey. The survey was of modest proportions including only ten 
of the largest electric, oil, and gas utility firms in the U.S. I 
wanted to know the status of their Y2K preparedness. While the survey 
is not statistically representative of the entire industry, it does 
include geographically dispersed firms engaged in all aspects of power 
generation, and gas and electricity transmission and distribution.
    I had anticipated that I would be able to provide a positive report 
on the Y2K status of these public utilities. Instead, based on the 
results of this survey, I am genuinely concerned about the prospects of 
power shortages as a consequence of the millennial date change.
    Let me share a few of the survey findings: Only 20 percent of the 
firms surveyed had completed an assessment of their automated systems. 
One firm did not even know how many lines of computer code it had. 
Experts have testified before my banking subcommittee that any major 
firm that has not already completed its assessment, can not hope to 
become Y2K compliant by January 1, 2000.
    None of the utilities surveyed were assured after making inquiries 
that their suppliers, venders, and servicers would be Y2K compliant. 
Utilities are highly dependent on servicers, suppliers, and other 
upstream activities to transmit, and distribute gas and electricity. In 
fact, many power distribution companies are ultimately dependent on 
foreign oil imports.
    None of the firms surveyed had completed contingency plans for Y2K 
related eventualities. Even though all of these firms are required by 
their regulators to maintain emergency response plans, none had 
completed a Y2K contingency plan. My concern is that they probably 
don't know what contingencies to prepare for.
    The last question on our survey asked for recommendations. One 
respondent, after making several recommendations made the following 
profound statement: ``Whatever actions are taken by Congress, they must 
be done quickly, during this session, or they will have no impact on 
the Y2K problem.''
    I am personally concerned that the Y2K problem is receiving so 
little public attention. I am concerned that when it does become a 
matter of general public concern that it will be too late to bring 
pressure to bear on the timely correction of the many Y2K problems that 
exist. My greatest fear is that when it does become a matter of general 
public concern, it will bring with it a measure of panic that will be 
detrimental to effective and efficient remediation of the problems that 
will present themselves.
    For the private sector, I define the Y2K problem in much broader 
terms than what I see generally discussed and reported in the trade 
press which is where many of the Y2K problems are reported. The problem 
is more than a computer's ability to function on January 1, 2000. It 
includes not only computers, it includes embedded systems, such as 
process control units.
    I read a story recently about a major oil company that tested one 
of its oil refineries. They found that the refinery had 90 separate 
systems that somehow used a microprocessor. Many of these were key 
systems. Of the 90 systems, they were able to come up with detailed 
documentation on 70. Of these 70, they determeined that twelve had date 
dependent embedded chips. Of the twelve, four failed a Y2K test and 
will have to be replaced. Had any of the four failed on January 1, 
2000, they would either have completely shut down the plant or would 
have caused a high level safety hazard which would have caused other 
systems to shut it down.
    What is really worrying the company's experts now is the other 20 
systems. They don't know what functions the chips in these systems have 
and are leaning towards replacing them all. This happens to be a 
relatively modern plant.
    On June 8th, U.S. News & World Report ran a story concerning a 
Midwestern electric generation facility that was taken off-line to test 
for Y2K compliance. When the test clock was rolled forward to January 
1, 2000, a safety system mistakenly detected dangerous operating 
conditions and shut the generator down. After three days, they reran 
the test, only to have a different sector fail, shutting down the 
generators again.
    Another area of the Y2K problem is interfaces. Interfaces sometimes 
exist between systems within a company, and sometimes exist between a 
servicer, supplier, vender, or customer. It is important that Y2K 
remediation corrections among these parties be compatible.
    Infrastructure plays an important supporting role for almost any 
business. Utilities, for example, are dependent on transportation, 
telecommunications, water and sewer facilities; all of which are 
critical to continuous business operations.
    Ripple effects are an important concern. If foreign oil production 
is not Y2K compliant, or if oil tankers' navigation and propulsion 
systems are not Y2K compliant, what effect will that have on our 
electric generation facilities that are dependent on petroleum products 
to generate power?
    Government services are frequently taken for granted, but are an 
area of significant concern. I know of no Federal data bases or 
information systems that are not computerized. We rely heavily on 
government services for mail delivery, transportation, financial 
services, water and waste treatment facilities, just to name a few. If, 
for example, the Coast Guard ships operating in the vicinity of the 
Alaska Pipeline are not Y2K compliant, we could find timely shipments 
of Alaskan oil jeopardized.
    I find these categories useful in evaluating the breadth of the 
Year 2000 problem. I would encourage our witnesses to consider them as 
they make their presentations today.
                                 ______
                                 

 Y2K Committee Announces Survey Results Measuring Y2K Preparedness of 
                       Nation's Largest Utilities

 [Survey conducted by the staff of the Senate Special Committee on the 
                     Year 2000 Technology Problem]

                           executive summary
    The Special Committee on the Year 2000 Technology Problem recently 
completed a survey of ten of the largest oil, gas, and electric 
utilities in the United States. The purpose of this survey was to 
determine the status of the utility industry in terms of its year 2000 
(Y2K) preparedness.
  --Based on the survey results, we conclude that while these utilities 
        are proceeding in the right direction, the pace of remedial 
        efforts is too slow and the associated milestone dates are so 
        distant that there is significant cause for concern.
  --It is also clear from the survey responses that despite substantial 
        completion of initial assessments, firms are not confident that 
        they have a complete and accurate picture of their present Y2K 
        compliance, making assurances of timely Y2K compliance little 
        more than a hope.
  --Experts contend that the most difficult aspects of remediation are 
        in the renovation and testing phases; most of the firms 
        surveyed have not begun these critical phases of remediation.
  --Utilities' ignorance of the Y2K compliance of critical suppliers, 
        vendors, and servicers and their lack of assurances from same 
        create additional uncertainty for utility consumers.
  --Since the firms tested are among the largest utilities in their 
        fields with the most available resources, we are pessimistic 
        about the implications for the rest of the utility sector.
                        purpose and methodology
    We asked survey respondents for information on their automated 
systems used to manage and operate their respective utilities; these 
include both their computers systems and embedded systems such as 
process control units used in their production and distribution 
systems. While the survey is not statistically representative of the 
utility industry at large, the inclusion of 10 of the largest oil, gas, 
and electric utilities, including generation, transmission, and 
distribution facilities, ensures broad representation of the industry. 
Pledges of confidentiality were made to survey respondents in order to 
facilitate honest and candid answers to survey questions.
    Other studies have concluded that smaller utility companies are not 
as advanced in their Y2K preparedness as their larger counterparts. 
Hence, the results presented here probably represent the best prepared 
portion of the industry.
                                findings
    The utilities surveyed generally did not become aware of their Y2K 
problems until 1995 or later. Each of them has since created a formal 
Y2K project within their firm. Unfortunately, only 2 of the utilities 
surveyed reported that they have completed the initial assessments of 
their automated systems, especially on the embedded systems side where 
4 firms were unable to identify how many embedded systems they have in 
service.
    All of the survey respondents reported using outside consultants or 
contractors in combination with in-house personnel in their Y2K 
assessment. All of the companies reported significant numbers of 
automated systems, with one firm reporting over 300,000. The typical 
firm reported about a third to a half of its systems were mission 
critical.
    Of those who had identified their embedded systems, there was a 
wide variation in the number reported. Some firms reported numbers of 
embedded systems by type of application while others reported on a 
detailed inventory basis. In general, embedded systems assessments have 
lagged computer systems assessments. We were told that this is because 
the problem in embedded systems was not apparent until recently.
    Costs for remediation also varied significantly, due perhaps to the 
fact that the companies involved were not homogeneous in terms of 
service provided and the types of assets in place, as well as the fact 
that final assessments are not complete. Two firms were unable to 
report their projected remediation costs. Notwithstanding the variation 
in estimated remediation costs, the total projected cost of remediation 
for the survey firms was over $400 million.
    The typical utility surveyed expects to renovate about 75 percent 
of its noncompliant systems and to replace or retire the remainder.
    All of the firms surveyed were optimistic that they would have 
their mission critical systems renovated or replaced by January 1, 
2000; however, most implied that remediation efforts for non-mission 
critical systems would still be on-going after January 1, 2000. All the 
firms surveyed reported checking with suppliers and servicers, but few 
of them received assurances of uninterrupted service and many are 
having difficulty obtaining responses to their inquiries. This creates 
some additional uncertainty for continuous utility service after the 
millennial date change depending on the criticality of goods and 
services provided by vendors, suppliers, and servicers.
    While most surveyed firms recognized a potential for legal problems 
and/or liability in conjunction with the millennial date change, 
several indicated that they did not anticipate legal or liability 
problems even if suppliers and servicers failed to make timely 
deliveries. Nonetheless, each firm surveyed indicated that it had 
received inquiries regarding its Y2K preparedness from regulators, 
creditors, and/or stockholders/investors.
    None of the utilities surveyed had completed contingency plans, for 
potential eventualities associated with the millennial date change. 
Most of this effort will be done in conjunction with standing disaster 
recovery or emergency response plans.
    One of the more interesting parts of the survey asked about the 
need for congressional action. Fifty percent responded that they needed 
the ability to share Y2K information and best management practices more 
freely among other companies without fear of legal reprisal. Since the 
Justice Department (DOJ) addressed this issue last week, we assume the 
DOJ information has not been widely distributed. Twenty percent 
suggested the need for a liability limit, and 10 percent suggested a 
need to defer Gas Industry Standards Board implementations so that all 
available resources can be focused on Y2K remediation efforts.

                                    SENATE COMMITTEE ON THE YEAR 2000 TECHNOLOGY PROBLEM RESULTS OF UTILITIES SURVEY
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Percent   Status of
                                            Date   Establish   Assessment   systems    service    Legal or  Contingency   Contacts    Contacts  Will you
                 Company                   aware     formal     complete    mission  providers/  liability     plans         by          by       finish
                                                    project                critical    vendors    concerns    complete    creditors  investors   in time
--------------------------------------------------------------------------------------------------------------------------------------------------------
 1......................................    1995        Yes           No        54          ?         Yes           No         Yes   .........      Yes
 2......................................    1995        Yes          Yes         5          ?         Yes           No         Yes        Yes       Yes
 3......................................    1996        Yes           No         ?          ?         Yes           No          No        Yes       Yes
 4......................................    1992        Yes           No        30          ?         Yes           No         Yes        Yes       Yes
 5......................................    1995        Yes          Yes        50          ?          No           No         Yes        Yes       Yes
 6......................................  .......       Yes           No         ?          ?         Yes           No         Yes        Yes       Yes
 7......................................    1996        Yes           No         ?          ?         Yes           No         Yes        Yes       Yes
 8......................................    1996        Yes           No        25          ?          No           No         Yes        Yes       Yes
 9......................................    1996        Yes           No        35          ?         Yes           No         Yes        Yes       Yes
10......................................    1996        Yes           No        18          ?          No           No         Yes        Yes       Yes
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes:
    1. The eight companies that reported cost expect to spend over $400 million collectively on Year 2000 problems.
    2. while no company had completed contingency plans, all but one had begun planning.
Source: Committee staff.

                               __________

        Prepared Statement of Vice Chairman Christopher J. Dodd

    Thank you Mr. Chairman. This is the special committee's inaugural 
hearing and I want to extend my congratulations to you for getting us 
to this point.
    If it weren't for your tireless--and sometimes lonely--efforts to 
raise the Senate's awareness about the Year 2000 problem, I doubt very 
much if we would be here today.
    When I was back in Connecticut last weekend, I noticed a fair 
amount of advertising for New Year's eve 1999 in which the question was 
asked: ``Where do you want to go for New Year's? Make your plans 
today!''
    While I don't know where anyone else wants to be, let me suggest 
three places you don't want to be: In an elevator, in an airplane or in 
a hospital.
    The fact is that with less than 18 months to go, I am very 
concerned that we are going to face serious economic dislocations from 
this problem.
    And I am very, very concerned that even as government and business 
leaders are finally acknowledging the seriousness of this problem, they 
are not thinking about the contingency plans that need to be put into 
place to minimize the harm from widespread failures.
    Senator Bennett is fond of likening this committee to Paul Revere, 
saying that we have to sound the alarm that the millennium is coming; 
well today's hearing should answer the question about whether there's 
going to be any lights shining out of the old north church.
    Some people have asked why we are starting our hearings with the 
power industry. the answer is brutally simple: Without electricity 
nothing else works.
    And the power industry provides a good model for thinking about the 
Year 2000 in a lateral, rather than vertical, manner.
    By that I mean that a corporate executive or government official 
can't simply look at the four corners of their business or agency and 
ignore the outside world.
    Say, for example, you took all necessary steps to make your home 
Year 2000 compliant--you updated your pc and software, you replaced 
your answering machine, you determined that the vcr and microwave would 
still work and you put a brass knocker on your door as a contingency, 
just in case your new, modern doorbell didn't work.
    Even though you were vertically complete, you still have to worry 
about the electricity, your water, the mail, cable and phone service 
and so on.
    That analogy illustrates the way business and government must also 
think about the Year 2000 problem.
    Since all the utilities are tied together in the power grid and are 
dependent upon a whole series of steps in order to function, it is an 
excellent illustration of how you cannot simply focus on one's own 
company or agency, no matter how big or little, and declare it Year 
2000 compliant.
    Senator Bennett mentioned that the special committee conducted a 
survey of major energy producer and it revealed that we are not in very 
good shape.
    Quite honestly, I think we're no longer at the point of asking 
whether or not there will be any power disruptions but we are now 
forced to ask how severe the disruptions are going to be.
    Given the brevity of time left before the millennium conversion, 
contingency planning has to start today--not just for the worst-case 
disaster scenarios but for all the medium-sized disruptions that are 
more likely to occur.
    One thing that I've noticed is that every company, government 
agency or trade association that I've met with has a nice neat chart 
showing the timeline for completion of their Year 2000 project.
    My deep concern is that those nice, neat little charts will be 
blown to smithereens the moment they start testing their repairs.
    I have been constantly surprised by senior Year 2000 officials who 
say with one breath that testing will take just as long as fixing the 
code, and say with the next breath that they need only a few months for 
complete system testing after fixing the system took years.
    Now while it took me a while to figure out the difference between 
an embedded chip and a wood chip, I certainly can do enough math to 
determine that there isn't a single company or government agency that 
is leaving itself any margin of error in these neat little charts 
they're so fond of showing.
    It's been said before, but it bears repeating: Failure is simply 
not an option. If the critical industries and government agencies don't 
start to pick up the pace of dealing with this problem right now, 
Congress and the Clinton administration are to have to make some very 
tough decisions to deal with a true national emergency.
                                 ______
                                 

               [From the Washington Post, June 12, 1998]

  Pentagon Faulted on Year 2000 Reports Investigators Find Unreliable 
                Accounting of Computer System Compliance

                           (By Stephen Barr)

    When it comes to computers and the Year 2000 glitch, the Pentagon's 
compliance checklist doesn't always produce compliance. An 
investigation by the Defense Department's inspector general found that 
computer system managers turned in reports listing critical technology 
systems as ready to accurately process and calculate dates in the next 
century even though the systems had not received such certification.
    The prospect of incorrect information in the Year 2000, or Y2K, 
progress reports has raised concerns about the integrity of the process 
used by top Pentagon and White House officials to track computer 
repairs and to make contingency plans for any possible technology 
crisis on Jan. 1, 2000.
    ``Senior DOD management cannot afford to make Y2K program decisions 
based on highly inaccurate information,'' the office of the inspector 
general concluded in its report on the matter. ``If DOD does not take 
the action that it needs to obtain accurate information as to the 
status of its Y2K efforts, we believe that serious Y2K failures may 
occur in DOD mission-critical information technology systems.''
    Rep. Stephen Horn (R-Calif.) raised the report at a House 
subcommittee hearing Wednesday on Year 2000 computer repairs. ``I 
thought we were past the days of the Vietnam body count,'' Horn said as 
he inquired about Pentagon plans for ``improved honesty of 
compliance.''
    William A. Curtis, a retired Army combat officer recruited by the 
Pentagon 60 days ago to shape up its Year 2000 computer repair program, 
did not dispute the findings.
    ``We have got to have the most accurate data * * * and not be 
shooting the messenger,'' Curtis told Horn.
    Curtis and Sally Brown, a Defense official involved in Y2K 
compliance efforts, said they did not believe system managers were 
trying to intentionally mislead superiors on Y2K progress.
    The Year 2000 problem stems from the use in many computers of a 
two-digit dating system that assumes that ``1'' and ``9'' are the first 
two digits of the year. Without specialized reprogramming, the systems 
will recognize ``00'' not as 2000 but 1900, which could cause computers 
to shut down or malfunction.
    Overall, the Pentagon is running at least four months behind 
schedule on its timetable for Year 2000 computer fixes and estimates 
that it will spend about $1.9 billion on the problem. The department 
has about 25,000 computer systems, with about 2,800 designated as 
``mission critical.''
    They include command and control, satellite, inventory management, 
transportation management, medical and equipment, and pay and personnel 
systems.
    At the Defense Department, Year 2000 policies say that computer 
users cannot assume a system will successfully operate in the next 
century until it has been certified by a system manager. A computer 
system is not certified until the system manager signs a Y2K compliance 
checklist, the inspector general's report said.
    But when the office of the inspector general sampled 430 computer 
systems that the Pentagon had reported as Year 2000 compliant in 
November 1997, it found that defense officials could not provide 
documents to show they had followed proper procedures. Using a 
statistical model, the office concluded ``that between 265 and 338 
systems were not certified,'' although the systems had been reported to 
senior management as certified.
    In addition, investigators found that ``the existence of a 
completed and signed Y2K compliance checklist did not always mean that 
the system was Y2K compliant.''
    They did not identify the systems by name or function, but the 
computers were reportedly being used by large Defense agencies, such as 
the Army, the Air Force, the Finance and Accounting Service, the 
Special Weapons Agency and the Defense Logistics Agency.
    The report, issued last month, underscores the problems federal 
agencies face as they try to define such terms as ``Y2K compliant'' and 
``Y2K ready.''
    The Agriculture Department, for example, recently reported 15 
systems as compliant, even though they were only in developmental 
stages, said Joel C. Willemssen of the General Accounting Office.
    In the Pentagon's case, the report from the office of the inspector 
general said the department's Year 2000 management plan did not clearly 
describe the certification process or the specific requirements for 
systems managers.
    ``The word certified had so many different kinds of meanings that 
it had lost all its meaning,'' Brown said yesterday.
    A new management plan will be published within the next few days to 
clarify procedures and expectations, Curtis said. Some Defense agencies 
also have decided that it is no longer appropriate for only one person 
to sign off on a certification and now require senior managers to 
participate in the decision, he added.
    To help accelerate its repair effort, Curtis said, the Pentagon 
plans to set up a High Risk Systems Board to oversee each computer 
system in Y2K jeopardy and will form a 250-person evaluation force to 
independently validate the fixes and testing for the Pentagon's most 
important systems.
                               __________

                 Prepared Statement of Gary W. Gardner

                            opening remarks
    Mr. Chairman and members of the select committee, Good Morning. I 
am Gary Gardner, Chief Information Officer of the American Gas 
Association. Thank you for inviting me to speak to you regarding the 
status and readiness of natural gas distribution companies as it 
relates to Year 2000 (Y2K) issues. Our industry views the Y2K 
technology issue as a serious one and has been working hard to ensure 
safety and reliability in the natural gas distribution chain.
    The American Gas Association (A.G.A.) represents 181 local gas 
utilities that deliver gas to 54 million homes and businesses in all 50 
states. Our members distribute 85-90 percent of the natural gas 
delivered in the United States. Additionally, A.G.A. provides services 
to member natural gas pipelines, marketers, gatherers, international 
gas companies and a variety of industry associates.
                               background
    A.G.A. and gas utilities have been fully aware of the issues 
surrounding the Year 2000 and the possible impact on U.S. citizens (our 
customers) and the economy. Natural gas utilities have always been 
committed to ensuring the safe and reliable operation of our delivery 
systems. As a result, our industry has been heavily working on Y2K 
issues for the past three years. As with many industries, the issue was 
first viewed as an information technology (IT) problem and most of the 
activities were focused in the internal IT departments of our 
companies. Over the last two years, the major emphasis has shifted to 
the issues surrounding embedded systems and contingency planning.
    With respect to risk management and contingency planning, our 
industry is very proud of its record of maintaining reliable service to 
our customers in the face of natural disasters, extraordinary weather 
conditions and emergency situations. Our contingency planning efforts 
are based on years of experience in operating safe delivery systems for 
consumers.
                            industry survey
    In an effort to provide specific information regarding the 
preparedness of the U.S. natural gas utilities, A.G.A. has gathered 
data for this hearing from active players in Y2K issues within our 
industry. First, the Gas Research Institute, the research, development, 
and commercialization organization of the natural gas industry, 
conducted a survey in May, predominately of local natural gas 
distribution companies. The companies which responded to the survey 
have customer bases that range from 35,000 to 4.8 million. The 
objective was to assess the Y2K status and need for collaborative 
efforts supporting Year 2000 resolution.
    Preliminary results, based on responses of 49 companies of mixed 
size and geographic location are summarized as follows:
  --The confidence level of avoiding significant operating disruptions 
        is high--90 percent responded that they were very confident in 
        their ability to resolve software problems by the end of 1999.
  --The companies are undertaking a structured approach to resolving 
        Y2K issues--all respondents indicated a formal, enterprise-wide 
        assessment has been conducted. The priority areas and issues 
        include operations, finance, IS vendor reliability, supply 
        chain reliability, building systems, and customer service. 
        Nearly half of the companies that responded indicated that Y2K 
        amendments were made to their already existing contingency/
        emergency plans.
  --The vast majority of the companies have been working on the 
        software issue for 2-6 years. At this point, 20 percent of the 
        companies indicated they have completed their software 
        remediation program.
  --Overall, 93 percent of the companies in the survey indicated that 
        they are beyond the initial inventory and assessment phase, and 
        in the remediation/testing/completed phases of software code 
        resolution.
  --In terms of embedded systems, 71 percent were very confident in 
        their ability to resolve the embedded processor issues. This 
        confidence level is expected to increase as they complete the 
        remaining phases of their Year 2000 plan.
  --84 percent of the companies are in the remediation/testing/
        completed phase of their embedded processor program--with 80 
        percent of the companies expecting that their embedded systems 
        will be Y2K compliant by June 1999.
    I'd like to comment on the use of the term ``Y2K compliant''. ``Y2K 
ready'' may be the preferred term when referring to a company's 
readiness. For purposes of the survey, Y2K compliant means the 
component is unaffected by the Y2K dates. Non-compliance, however, is 
not interchangeable with the term ``dysfunctional system.'' In the 
``triage'' or prioritization process, components that are not mission-
critical may be intentionally bypassed prior to Dec. 1999. They may be 
tested and the dysfunction found not to have significant implications 
to operations, or not tested at all, depending on their rank in the 
prioritization.
    For distribution companies, the focus for embedded systems is to 
ensure that on January 1 mission-critical gas delivery systems are 
working properly. Also, it must be noted that most local distribution 
companies have manual controls as backups, so getting around a embedded 
component should not be difficult. Our bottom line emphasis and focus 
is on the remediation of issues that directly affect the delivery and 
proper accounting of natural gas.
                        remediation experiences
    The results of remediation testing by the management consulting 
firm of Stone and Webster should also provide the committee with a 
sense of the general preparedness and the nature of the challenges 
facing the industry. Stone and Webster has conducted fourteen Y2K 
assessments for gas, electric and combination companies. These 
companies have customer bases that range from 500,000 to 1.5 million. 
Their efforts have focused on all aspects of utility Y2K 
vulnerabilities including:
  --Embedded systems within core utility operations
  --Upstream critical service providers (electric, water, 
        telecommunications)
  --Downstream use of gas at customer location
  --Vendor supply chains
    With respect to the issue of embedded systems, the embedded systems 
are defined as systems within a gas utility's operation that contain 
microprocessors and have time/date stamps associated with their normal 
function. From the point of entry to the distribution/transmission 
pipeline of the local distribution company to the meter, you may find 
50-100 systems with embedded processing, such as:

------------------------------------------------------------------------
             Locations                        Embedded systems
------------------------------------------------------------------------
Storage Fields....................  Compressor Control, Flow
                                     calculations.
Gas Control.......................  SCADA (supervisory-controls-data
                                     acquisition) systems Flow and
                                     control computers.
Metering..........................  Transmit and Correcting Devices,
                                     Mobile and Handheld devices.
Gas Management....................  Electronic Bulletin Boards.
Operations........................  Instrument calibration systems,
                                     regulatory compliance tracking.
Facilities........................  Energy management control systems,
                                     HVAC, Security.
------------------------------------------------------------------------

    The process to assess and identify embedded systems typically 
follows an auditable methodology such as system identification, 
determining compliance from manufacturers, and performing remediation 
(replacement, upgrades, contingency plans) and associated testing. This 
process, based on complexity of operation, could take 12-18 months to 
complete.
    Some general findings from the Stone & Webster engagements of 
natural gas utilities include the following:
  --Embedded systems within a gas utility, whether a large or small 
        LDC, are essentially similar.
  --Most utilities are consistent in the type of devices they utilize 
        (i.e. meters) and many have manual override options.
  --The number of critical operational systems--those that directly 
        affect the delivery of gas--are typically less than 10. The 
        systems that predominately have Y2K compliance issues are the 
        gas operation supervisory/control, (SCADA) systems.
  --The critical embedded systems that have Y2K compliance problems are 
        typically fixable through repair, upgrade, or replacement and 
        can be corrected in less than a year.
                                summary
    In summary, the local distribution companies, our nation's natural 
gas utilities, are actively and aggressively addressing Y2K issues. 
Segments within the natural gas industry (production, transmission, and 
distribution) are collaborating and working closely together in the 
assessment and remediation of Y2K issues. Operational and core business 
systems are being identified and remediated. While our members are at 
varying levels of compliance, a very high level of confidence is 
present regarding the safe and reliable delivery of natural gas. 
Because our industry is based on the successful delivery of services, 
and has established, proven contingency plans in place to handle crisis 
and emergency situations, we are prepared to handle the issues related 
to the Year 2000. As we are today, our industry is committed to 
ensuring the safe and reliable delivery of energy to U.S. citizens, our 
customers.
    Thank you for the opportunity to testify this morning. I look 
forward to responding to any questions you may have.

            GRI Y2K Blind Survey Summary--Preliminary 6/9/98

  from gri survey on need for y2k collaborative activity--spring 1998
Participants: Predominately distribution companies.
Respondents: 49 as of 6/9/98.
Questions:
    1. Have you conducted a formal, enterprise-wide assessment of the 
potential financial risks presented by the Y2K problem?
    Responses by percent:
        Yes: 90
        No: 8
        Declined \1\: 2
---------------------------------------------------------------------------
    \1\ ``Declined'': Some respondents indicated they were not the 
right person for the specific question. Several respondents were short 
on time and went directly to specific questions, declining to discuss 
others.
---------------------------------------------------------------------------
    2. What are some of the priority areas and issues?
    Response:
        Operations, finances, IS vendor reliability, supply chain 
        reliability, bids systems, customer service.
    3. Do you feel you have enough information at hand to fully 
evaluate the financial risks associated with your company presented by 
Y2K?
    Responses by percent:
        Yes: 80
        No: 14
        Declined: 6
    4. As a senior executive, how confident are you in your company's 
ability to:
        a. assess and fix Y2K software problems by 12/31/99?
        Responses by percent:
                Very: 90
                Somewhat: 6
                Declined: 4
        b. assess and fix Y2K embedded processor problems by 12/31/99?
        Responses by percent:
                Very: 71
                Somewhat: 22
                Not: 2
                Declined: 4
    5. Has your company developed a contingency plan for Y2K non-
compliance/readiness--e.g. telecomm, public transportation failure?
    Responses by percent:
        Yes: 47
        No: 49
        Declined: 4
    6. How confident do you feel in your contingency plan?
    Responses by percent:
        Very: 31
        Somewhat: 8
        Uncertain: 12
        Declined: 6
        N/A \2\: 43
---------------------------------------------------------------------------
    \2\ ``N/A'': Indicates the question is not applicable. This is 
usually evidenced by other, related responses.
---------------------------------------------------------------------------
    7. Have you discussed having an outside firm conduct an audit of 
your contingency plan?
    Responses by percent:
        Yes: 49
        No: 29
        Declined: 4
        N/A: 18
    8. What department has overall responsibility for your Y2K problem?
    Responses by percent:
        Y2K Team: 27
        IT/IS: 53
        Finance: 10
        Other: 6
        Declined: 4
    9. How long has your company been addressing the embedded processor 
problem--corporately with direct Y2K responsibility?
    Responses by percent:
        2-4 years: 37
        1 year: 33
        Less than 1 year: 29
        Declined: 2
    10. What type of assistance are you currently using or plan to use 
for your Y2K embedded processor problems?
        a. Local Contract Program
        Responses by percent:
                Currently use: 10
                Plan to use: 8
                Will not use: 73
                Declined: 6
                N/A: 2
        b. Consulting Firms
        Responses by percent:
                Currently use: 53
                Plan to use: 12
                Will not use: 27
                Declined: 6
                N/A: 2
        c. Equipment Supplies
        Responses by percent:
                Currently use: 55
                Plan to use: 14
                Will not use: 22
                Declined: 6
                N/A: 2
        d. Manufacturers
        Responses by percent:
                Currently use: 51
                Plan to use: 14
                Will not use 27
                Declined: 6
                N/A: 2
        e. Other
        Responses by percent:
                Trade Assoc.: 2
                Delined: 2
                N/A: 96
    11. Has your company evaluated its major embedded processors for 
Y2K compliance?
    Responses by percent:
        Yes: 86
        No: 12
        Declined: 2
    12. At what stage of Y2K program completion is your company's 
embedded processor program?
    Responses by percent:
        Launch: 0
        Inventory: 2
        Assessment: 12
        Remediation: 31
        Testing: 35
        Completed: 10
        Declined: 2
    13. How probable is it that your company's embedded processors will 
be Y2K compliant by January 2000? \3\
---------------------------------------------------------------------------
    \3\ ``Y2K Compliant'' vs. ``Y2K Ready"
    Y2K Ready is the preferred term when referring to an organization's 
preparedness to function through and beyond 2000.
    Y2K Compliant, as used in this survey, means the component is 
unaffected by Year 2000+ dates.
    Y2K Ready means the critical business functions associated with 
safety and deliverability are expected to continue operating. There may 
be some inconveniences or delays of a non-critical nature, for example 
billing.
    Acceptable non-compliance: Note that in the ``triage'' or 
prioritization process, components that are not mission critical may be 
intentionally ignored during testing prior to 12/31/99.
    Alternatively, testing may reveal a non-compliance that does not 
have significant implications to operations--these could be examples of 
a Y2K ready system with non-compliant components.
---------------------------------------------------------------------------
    Responses by percent:
        Very: 88
        Somewhat: 8
        Not at all: 0
        Declined: 4
    14. When do you expect your company's firmware/embedded systems to 
be Y2K compliant? Prior to 12/31/99?
    Responses by percent:
        Are now compliant: 8
        By 12/31/99: 16
        By 6/30/99: 55
        No: 16
        Declined: 4
    15. What specific Y2K-related problems have you experienced with 
your embedded processors?
    Responses by percent:
        No problems: 35
        Problems identified: 41
        Declined: 24
    16. Have you found solutions to these problems?
    Responses by percent:
        Yes: 27
        No: 14
        Declined: 22
        N/A: 37
    17. During testing, how often were faulty solutions uncovered in 
your embedded processor remediation?
    Responses by percent:
        Never: 18
        Rarely: 24
        Sometimes: 16
        Often: 0
        Haven't tested: 24
        Declined: 16
    18. How long has your company been addressing the software Y2K 
problem?
    Responses by percent:
        5 years+: 6
        2-4 years: 67
        1 year: 18
        Less than 1 year: 6
        Declined: 2
    19. What type of assistance are you currently using or plan to use 
for your Y2K software problems?
        a. Local contract program
        Responses by percent:
                Currently use: 16
                Plan to use: 6
                Will not use: 73
                Declined: 4
        b. Consulting firms
        Responses by percent:
                Currently use: 73
                Plan to use: 6
                Will not use: 16
                Declined: 4
        c. Equipment suppliers
        Responses by percent:
                Currently use: 51
                Plan to use: 8
                Will not use: 37
                Declined: 4
        d. Manufacturers
        Responses by percent:
                Currently use: 41
                Plan to use: 8
                Will not use: 47
                Dedlined: 4
        e. Other
        Responses by percent:
                In-house vendors: 2
                Contract programmers: 2
                Declined: 4
                N/A: 92
    20. Has your company tested its major software for Y2K compliance?
    Responses by percent:
        Yes: 78
        No: 20
        Declined: 2
    21. At what state of Y2K program completion is your company's 
software?
    Responses by percent:
        Launch: 0
        Inventory: 0
        Assessment: 6
        Remediation: 22
        Testing: 51
        Completed: 20
                                 ______
                                 

Responses of Gary W. Gardner to Questions Submitted by Chairman Bennett

    Statement: ``Nearly half of the companies that responded indicated 
that Y2K amendments were made to their already existing contingency/
emergency plans.''
    Question. What types of amendments were made and have they been 
tested?
    Answer. The May 1998 Gas Research Institute (GRI) survey, that was 
presented during A.G.A.'s testimony on June 12, did not address the 
specific types of amendments or whether they have been tested.
    Based on follow up discussions with our member companies, as 
remediation efforts progress, additions are being made to existing 
emergency response plans. Examination of existing contingency plans are 
being conducted in parallel with the execution of Y2K remediation 
plans. The objective is to determine what specific actions would be 
appropriate to minimize risk against unforeseen events. As an example, 
given a systems analysis, what manual override procedures and staffing 
should be in place to manage safety and deliverability issues. The 
process of determining the need for amendments includes analysis of 
assets and processes key to mission critical functions.
    As stated during our testimony, natural gas utilities have very 
detailed emergency response plans (as required by the Department of 
Transportation, Office of Pipeline Safety) in place to address unusual 
operating situations. Most of their current efforts are focused on 
remediation and testing. Results from those activities are needed to 
complete a well-focused and efficient contingency plan.
    Statement: ``84 percent of the companies are in the remediation/
testing/completed phase of their embedded processor program--with 80 
percent of the companies expecting that their embedded systems will be 
Y2K compliant by June 1999.''
    Question. What type of testing is being done? Is it the short 
single type of testing (a short virtual test) e.g. start up the 
machine/system/component, see what happens when the Y2K tests or 
procedures are run and then shut it down? Or, is a longer time frame of 
testing being done such that the item being tested is in the ``constant 
on condition'' (a real virtual test) for a week or month or longer, as 
appropriate? We further understand the longer testing period can show 
if NON-critical errors such as filling up the error buffer will cause 
the system/item to crash. Does it seem prudent for the AGA to encourage 
real virtual testing?
    Answer. The May 1998 GRI survey did not address the specific types 
of testing that was being conducted by the industry. However, based on 
follow up discussions, natural gas utilities are performing testing on 
many different levels including component, system and off-line testing. 
Such procedures include off-line bench-type testing of individual 
components as well as off-line systems testing when possible. Testing 
is being conducted on Supervisory Control and Data Acquisition (SCADA) 
systems, Remote Terminal Units (RTU), modems and various field devices. 
These tests are primarily off-line on spare components or on actual 
plant equipment. Testing is also being conducted on protective devices 
such as line relays, digital fault recorders, and meters. These tests 
have been bench tested on spare equipment under simulated conditions. 
Testing is performed on a component basis first and then end-to-end 
testing with all systems working together is completed. The utilities 
are indicating that they will be conducting on-line testing this fall 
as system conditions permit. Most ``live'' testing will take place 
later this year and early 1999.
    Statement: Regarding a question you asked of your industry members, 
49 percent indicated they have not ``* * * developed a contingency plan 
for Y2K noncompliance/readiness--e.g. telecomm, public transportation 
failure.'' (Question 5 from the GRI survey).
    Question. When will these 49 percent develop such contingency 
plans?
    Answer. As stated earlier, detailed contingency plans already exist 
that cover the core operation areas. As remediation efforts are 
completed, it is anticipated that an increasing portion of an operating 
staff's time will be devoted to contingency planning. This is 
particularly true because collaborative testing efforts between 
utilities, vendors, and suppliers have not been completed. Over the 
coming months, numerous industry discussion forums, conferences, and 
Y2K Task Force meetings (working with the Natural Gas Council's Y2K 
Task Force and the President's Council on Y2k--Energy Working Group) 
will address contingency issues. These meetings will provide the 
opportunity to assess where our members stand in regards to readiness 
and contingency planning.
                               __________

                 Prepared Statement of Michehl R. Gent

    Mr. Chairman and Members of the Special Committee, we appreciate 
the opportunity to express our views on this important topic.
    My name is Michehl Gent. I am here today representing the North 
American Electric Reliability Council. NERC is a voluntary, non-profit 
organization formed in 1968 to coordinate the reliability and adequacy 
of bulk electric systems in North America. NERC consists of ten 
Regional Reliability Councils spanning the United States, Canada, and a 
portion of Mexico. For 30 years, NERC has played a leadership role in 
making the North American electric system the most dependable electric 
supply system in the world.
    The U.S. Department of Energy has asked NERC to assume a leadership 
role in preparing the electric supply and delivery systems of North 
America for transition to the Year 2000, also known as Y2K. The 
Secretary of Energy has requested a status report and Y2K coordination 
plan by September 1998 and a full report of the preparedness of 
electric systems by July 1999. Today I intend to outline NERC's 
activities to coordinate the preparations of the electricity systems 
for Y2K. A copy of NERC's Y2K Coordination Plan is attached to my 
comments.
    Let me begin by noting that Y2K is not a new issue to the electric 
industry. NERC, its ten Regional Reliability Councils, and their 
members recognized the threat posed by Y2K several years ago and have 
been working toward solutions at several levels. Although the effort to 
date may not have been entirely consistent across the industry, most 
electric utilities have established Y2K programs and invested 
substantial personnel and technical resources on identifying and 
resolving Y2K problems. The industry has been testing critical software 
and embedded digital controllers and working with vendors to find 
solutions.
    Nearly all of the detailed Y2K problem identification and 
resolution has been and will continue to be performed by individual 
electric utilities. As an example of work under way, one major utility 
is investing 16 person-years in 1998 alone and expects to have 80 
percent of the conversions done by the end of this year. One utility 
has assigned a Vice President full time to directing Y2K activities. 
That utility is more than 50 percent through known problems and is 
progressing on schedule. There are examples of utility Y2K teams which 
report directly to the CEO. At one utility, 1,400 people across various 
departments are assigned full-or part-time responsibility for Y2K 
activities. There are numerous examples of utilities investing tens of 
millions of dollars in resolving Y2K problems.
    Those electric utilities that are attacking the problem 
aggressively are to be commended. However, NERC's concern is that all 
electric utilities that have a direct reliability impact on North 
American electrical Interconnections must address the Y2K problem in a 
coordinated manner. This concern is due to the high degree of 
interdependence of electric systems within an Interconnection.
    The electric systems of North America are connected within four 
large Interconnections. The largest, the Eastern Interconnection, 
covers the eastern two thirds of North America, including the United 
States and Canada. The second largest, the Western Interconnection, 
covers the western one third of the United States and Canada, as well 
as a portion of the Baja California Norte region of Mexico. The other 
two Interconnections include most of the state of Texas, also known as 
the ERCOT Region, and the Quebec Interconnection, which covers the 
province of Quebec, Canada. I would like to emphasize the international 
nature of the Interconnections.
    Each of these four Interconnections is a highly connected network. 
A major disturbance within one part of an Interconnection has the 
potential to cascade through the entire Interconnection. On the other 
hand, there is very little interaction between the Interconnections, 
with the notable exception being the major high voltage direct current 
tie lines from Hydro-Quebec into the Northeastern United States. Loss 
of these facilities and the power supply from Quebec can have a 
substantial impact on power delivery systems in the Northeastern 
portion of the United States.
    Electrical systems are operated such that the loss of one facility, 
or in some cases two or three facilities, will not cause cascading 
outages. Y2K poses the threat that common mode failures, such as all 
generator protection relays of a particular model failing 
simultaneously, or the coincident loss of multiple facilities could 
result in stressing the electric system to the point of a cascading 
outage over a large area. I must stress this possibility is extremely 
low, but conceivable.
    This high level of interdependence within an Interconnection means 
that the robustness of the overall system needs to be tested against 
this new ``contingency.'' An individualistic approach to the problem 
may, and I stress ``may,'' not cover all potential problem areas, e.g., 
coordination with neighboring utilities, and, thus, could adversely 
affect operations within an Interconnection. An individual electric 
utility that invests tens of millions of dollars in solving Y2K 
problems could be affected in a major way by neighboring systems that 
have not been as diligent. The preparation of the electricity systems 
in North America must be a coordinated team effort by those entities 
responsible for system reliability. All prevention programs do not have 
to be the same, but they do have to be coordinated.
    Let me take a few minutes to explain the specific nature of the Y2K 
problem associated with maintaining a reliable supply of electricity 
during the Y2K transition. There are four critical areas which pose the 
greatest direct threat.
    First, power generating facilities must be able to operate through 
critical Y2K periods without tripping off-line. The threat is most 
severe in power plants with digital control systems, which contain time 
sensitive control and protection schemes. Most older plants operating 
with analog controls will be less problematic. Digital controllers 
built into station equipment may also pose a threat.
    Energy management systems are computers within the electric control 
centers across North America. These computers are used to operate 
transmission facilities and control generating units. Many of the 
control center's software applications contain built-in time clocks 
used to run various power system monitoring, dispatch, and control 
functions. Many energy management systems are dependent on time signal 
emissions from Global Positioning Satellites as a time reference. In 
addition to resolving Y2K problems within utility energy management 
systems, these supporting satellite systems must be Y2K compliant.
    Telecommunications is another critical area. Electric supply and 
delivery systems are highly dependent on microwave, telephone, frame 
relay, and radio communications systems. The dependency of the electric 
supply on facilities leased from telephone companies and commercial 
communications network service providers is a crucial factor. 
Telecommunications systems are the nerve center of the electric 
networks and it is important to address the dependencies of electric 
utility systems on the telecommunications industry.
    The final technical area of concern is in relay protection devices, 
which are used to rapidly isolate a portion of the transmission system 
that may be in trouble. Many protective relays are electromagnetic and 
will not be affected. However, newer relays are digital and may have a 
risk of a common mode failure in which all the relays of a certain 
model fail simultaneously, resulting in a large number of coincident 
transmission facility outages.
    Let me turn now to NERC's program to coordinate preparations for 
Y2K. The ultimate goal of the NERC Y2K program is to establish a 
coordination process that allows the electric systems in North America 
to remain operational during critical Y2K transition periods. The NERC 
Y2K program is focused on three principle areas: (a) sharing of Y2K 
solutions, (b) identifying potential weaknesses in interconnected 
system security, and (c) operational preparedness.
    NERC will initially focus on the bulk electric systems because 
distribution systems are generally radial from the bulk supply network 
and cannot function without a robust bulk supply network or 
Interconnection. The Interconnection can function without reliable 
radial distribution systems. Maintaining the operability of this 
electric supply backbone may be the single most important step toward 
supporting our North American infrastructure during the Y2K transition. 
The Y2K needs of distribution systems will become understandable as 
bulk power supply issues are resolved.
    NERC will work closely with other organizations to address the 
coordination of electricity distribution aspects of the Y2K problem. 
Likely participants in this joint effort include DOE, the Electric 
Power Research Institute, Edison Electric Institute, the National Rural 
Electric Cooperative Association, the American Public Power 
Association, and others.
    NERC is focused on operational security through a ``defense-in-
depth'' concept, which has been well developed in the design and 
operation of nuclear facilities. The defense-in-depth concept assumes 
that although one has taken all reasonable and necessary preventive 
steps, there can never be one hundred percent assurance that major 
system failures cannot cause a catastrophic outcome. Instead, multiple 
defense barriers are established to reduce the risk of catastrophic 
results to extremely small probability levels and to mitigate the 
severity of any such events.
    I am certain that not all Y2K problems have been identified, fixed, 
and tested, nor will they be in the time remaining. It would not be 
prudent to expend unlimited resources on potential problems in search 
of one hundred percent avoidance of component failures. The cornerstone 
of the NERC Y2K plan, therefore, is to coordinate industry actions in 
implementing the following defense-in-depth strategy.
    First, the industry is identifying and fixing known Y2K problems. 
NERC is providing a vehicle for sharing of information on known and 
suspected Y2K problem areas and solutions associated with the 
operation, control, and protection of power production and transmission 
facilities. From this information exchange, a master list of critical 
Y2K problem areas and solutions is being developed and made widely 
available. NERC is initiating a reporting process for key entities to 
report progress against specific criteria designed to address the known 
list of Y2K problem areas. Through its Regional Reliability Councils, 
NERC will review the progress of these entities to verify that 
appropriate measures are being taken by all responsible parties.
    Secondly, NERC intends to coordinate Regional and individual system 
simulations to identify moderate and worst-case scenarios in response 
to various classes of Y2K failures. Specific classes of failures that 
result in the worst conditions will be examined further to determine 
possible fixes and preventive or mitigation measures.
    Thirdly, NERC will coordinate efforts to develop operational 
preparedness and contingency plans. This includes development of 
special operating procedures and the conduct of personnel training and 
system-wide drills.
    Finally, NERC and the Regional Councils will coordinate efforts to 
operate transmission and generation facilities in precautionary 
configurations and loadings during critical Y2K periods. Examples of 
precautionary measures may include reducing planned electricity 
transfers, placing all available transmission facilities into service, 
bringing additional generating units on-line, and rearranging the 
generation mix to include older units with analog controls. Another 
example is increased staffing at control centers, substations, and 
generating stations during critical periods. Fortunately, from an 
electric reliability perspective, New Year's Eve falls on Friday, 
December 31, 1999, and January 1 is a Saturday. Therefore, electric 
system conditions are likely to be favorable with the level of 
electricity transfers at light levels and extra generating capacity 
available during the most critical period.
    Let me move now to the issue of roles and responsibilities. The 
success of the NERC Y2K program depends on unbridled cooperation, full 
sharing of Y2K information, and diligence of effort commensurate with 
the potential consequences of failing to adequately prepare for Y2K.
    NERC's Y2K program depends on cooperation by the electric utilities 
of North America. NERC does not currently have the authority in its 
Bylaws to order electric utilities to take Y2K corrective actions. Nor 
does NERC currently have the authority to conduct inspections or 
enforce compliance. The binding obligations of electric utilities are 
embodied in state and federal laws, filed transmission tariffs, and 
contractual agreements. Electric utility legal responsibilities are to 
shareholders, customers, the public, and state and federal regulators.
    NERC's role is to facilitate North American-wide coordination so 
that the collective efforts of the industry will minimize risks imposed 
by Y2K to a reliable supply of electricity. The NERC Y2K program 
provides operating entities an opportunity to share in Y2K solutions 
and prepare coordination plans with neighboring systems and Regions. To 
facilitate this coordination, NERC is forming a Y2K Coordination Task 
Force with participation by all ten Regional Reliability Councils.
    Let me now turn to an important issue of liability. The NERC Y2K 
program does not address legal liabilities and NERC defers to others in 
resolving these matters. However, NERC is particularly concerned that 
efforts to obtain voluntary disclosure by electric utilities of 
potential Y2K problems and solutions may be met with resistance due to 
the liabilities of exposing this information publicly.
    As an example, one utility communications officer recently noted a 
customer identifying him/herself as ``a concerned citizen'' e-mailed 
the utility to ask what was being done on Y2K. The communications 
officer checked with the utility's Information Services (IS) Department 
and learned that it had been inundated with surveys from customers and 
lawyers about how the utility is preparing for Y2K. The IS staff had 
received a legal opinion from corporate attorneys not to respond, so 
the surveys were piling up unanswered. The communications officer 
prepared a generic, one paragraph statement saying that the utility had 
identified a number of issues and is working on them--that the 
utility's goal is to provide safe, reliable service.
    Public exchange of information is a cornerstone of NERC's Y2K 
program and must not be viewed by utility participants as feeding 
information to potential litigants. NERC requests full support of 
regulators in supporting industry needs in this area. Any restraint in 
sharing known Y2K problems and solutions will be a direct challenge to 
the reliability of the electricity supply.
    In conclusion, the North American Electric Reliability Council has 
taken a leadership role in coordinating Y2K preparations of the 
electricity supply and delivery systems of North America. The industry 
is committed to maintaining a reliable supply of electricity through 
the Y2K transition.
                                 ______
                                 

   Y2K COORDINATION PLAN FOR THE ELECTRICITY PRODUCTION AND DELIVERY 
                        SYSTEMS OF NORTH AMERICA

    Phase 1: June-September 1998 Initial Assessment and Coordination

              North American Electric Reliability Council

                         section 1--background
          The United States Department of Energy has asked the North 
        American Electric Reliability Council to coordinate Y2K efforts 
        so that the electricity power production and delivery systems 
        in the United States maintain a reliable supply of electricity 
        during the Year 2000 transition.
Department of Energy request
    The U.S. Department of Energy has asked the North American Electric 
Reliability Council (NERC) to assume a leadership role in preparing the 
electricity production and delivery systems of the United States for 
the transition to the Year 2000 (Y2K). This transition effort is 
necessary because certain software and hardware in use in the electric 
and other industries use a two-digit code to represent the last two 
digits of the year. As a result, these software and hardware may 
misinterpret the change from 1999 to the Year 2000 as they process 
data. DOE's request is part of a broad initiative by the President of 
the United States to ensure that infrastructure essential to the 
nation's security and well being remains operational during critical 
Y2K transition periods.
    The letter to NERC from the Secretary and Deputy Secretary of 
Energy is provided in Appendix A. DOE requests a status report and 
coordination plan by September 1998 and a full status report by July 
1999. The status reports will review the measures that are being taken 
to prepare the electric power production and delivery systems for the 
transition to Y2K. Because NERC is an international organization and 
the electricity systems of the United States are interconnected with 
those of Canada and a part of Mexico, NERC's plan, of necessity, must 
include all of these interconnected systems. Thus, this document 
defines NERC's initial plan for coordinating the Y2K preparedness plans 
of the electric utilities that operate the electricity systems of North 
America.
Consolidating the prior work of the industry
    Y2K is not a new issue to the electric industry. NERC, its ten 
Regional Reliability Councils, and their members recognized the threat 
posed by Y2K several years ago and have been working toward solutions 
at several levels. Although the effort to date has not been entirely 
consistent across the industry, most electric utilities have 
established Y2K programs and invested substantial personnel and 
technical resources in identifying and resolving Y2K problems. The 
industry has been testing critical software, and embedded digital 
controllers, and working with vendors to find solutions. NERC and the 
ten Regional Reliability Councils have been providing high-level 
coordination of Y2K efforts, principally through technical committee 
activities and information sharing through the NERC web site at http://
www.nerc.com.
    Nearly all of the detailed problem identification and resolution to 
date has been performed by the individual electric utilities. Those 
electric utilities that have attacked the problem aggressively are to 
be commended. However, NERC's concern is that all electric utilities 
with a direct reliability impact on North American electrical 
Interconnections must address the Y2K problem in a coordinated manner. 
This concern is due to the high degree of interdependence of electric 
systems within an electrical Interconnection. One unprepared system has 
the potential to adversely impact the operation of the rest of the 
Interconnection.
    In response to the DOE letter, the NERC Y2K program will focus 
activities in three principal areas: (a) sharing of Y2K solutions, (b) 
identifying potential weaknesses in interconnected system security, and 
(c) operational preparedness. DOE's request provides NERC with an 
opportunity and a challenge to coordinate the efforts of individual 
Regions and electricity providers across North America toward a 
collective goal of maintaining secure operation of the electric systems 
through critical Y2K transition periods.
Importance of meeting the challenge
    More than any other element of the North American economic and 
social infrastructure, the electricity production and delivery systems 
must be dependable during the transition to Y2K. Every other critical 
element of infrastructure depends on the availability of an 
interconnected, reliable supply of electrical power. There is no doubt 
that cascading or even localized outages of generators and transmission 
facilities could have serious short-and long-term consequences.
The weakest link concept
    The electric systems of North America are connected within four 
large Interconnections (Figure 1). The largest, the Eastern 
Interconnection, covers the eastern two-thirds of North America, 
including the United States and Canada. The second largest, the Western 
Interconnection, covers the western one-third of the U.S. and Canada, 
as well as a portion of the Baja California Norte region of Mexico. The 
other two Interconnections include (1) most of the state of Texas--also 
known as the ERCOT Region--and (2) the Quebec Interconnection, which 
covers the province of Quebec, Canada. 
[GRAPHIC] [TIFF OMITTED] T2JU98G.001

    Each of these four Interconnections is a highly connected network. 
A major disturbance within one part of an Interconnection will rapidly 
have an impact throughout the Interconnection and has the potential to 
cascade the effect to the entire Interconnection. The four 
Interconnections are for the most part independent from each other, 
because they are connected by comparatively small high voltage direct 
current (HVDC) electrical ties and do not interconnect synchronously. 
The one notable exception is the major HVDC tie lines from Hydro-Quebec 
into the Northeastern United States. Loss of these facilities and the 
power supply from Quebec can have a substantial impact on power 
delivery systems in the Northeastern portion of the United States.
    Within each Interconnection, power production and delivery systems 
are highly interdependent. In general, systems are operated such that 
the loss of one facility, or in some cases two or three facilities, 
will not cause cascading outages. Y2K poses the threat that common mode 
failures (such as all generator protection relays of a particular model 
failing simultaneously) or the coincident loss of multiple failures may 
result in stressing the electric system to the point of a cascading 
outage over a large area.
    This high level of interdependence within an Interconnection means 
that the robustness of the overall system needs to be tested against 
this new ``contingency.'' An individualistic approach to the problem 
may not cover all potential problem areas, e.g., coordination with 
neighboring utilities, and, thus, could adversely affect operations 
within an Interconnection. An individual electric utility that invests 
tens of millions of dollars in solving Y2K problems could be affected 
in a major way by an outage initiated in neighboring systems that have 
not been as diligent.
    Therefore, preparation of the electricity power production and 
delivery systems in North America must be a coordinated team effort by 
those entities responsible for system reliability. All preventive 
programs do not have to be the same, but they do have to be 
coordinated. The industry will succeed or fail together in its 
readiness for Y2K.
    Although the written request that sparked initiation of the NERC 
coordination program was received from the U.S. Department of Energy, 
NERC recognizes that maintaining grid security during the Y2K 
transition is an international issue requiring coordination with the 
United States, Canadian, and Mexican governments.
Nature of the Y2K problem in electricity production and delivery
    Maintaining a reliable supply of electricity during the Y2K 
transition is not an insurmountable task. There are four critical areas 
that pose the greatest direct threat to power production and delivery:
  --Power production.--Generating units must be able to operate through 
        critical Y2K periods without inadvertently tripping off-line. 
        The threat is most severe in power plants with digital control 
        systems (DCSs). Numerous control and protection systems within 
        these DCS use time-dependent algorithms that may result in unit 
        trips. Most older plants operating with analog controls will be 
        less problematic. Digital controllers built into station 
        equipment, protection relays, and communications also may pose 
        a threat.
  --Energy management systems.--Control computer systems within the 
        electric control centers across North America use complex 
        algorithms to operate transmission facilities and control 
        generating units. Many of these control center software 
        applications contain built-in time clocks used to run various 
        power system monitoring, dispatch, and control functions. Many 
        energy management systems are dependent on time signal 
        emissions from Global Positioning Satellites, which reference 
        the number of weeks and seconds since 00:00:00 UTC January 6, 
        1980. In addition to resolving Y2K problems within utility 
        energy management systems, these supporting satellite systems, 
        which are operated by the U.S. government, must be Y2K 
        compliant.
  --Telecommunications.--Electric supply and delivery systems are 
        highly dependent on microwave, telephone, and VHF radio 
        communications. The dependency of the electric supply on 
        facilities leased from telephone companies and commercial 
        communications network service providers is a crucial factor. 
        With telecommunications systems being the nerve center of the 
        electric networks, it is important to address the dependencies 
        of electric utility systems on the telecommunications industry 
        during critical Y2K transition periods.
  --Protection systems.--Although many relay protection devices in use 
        today are electromagnetic, newer systems are digital. The 
        greatest threat here is a common mode failure in which all the 
        relays of a certain model fail simultaneously, resulting in a 
        large number of coincident transmission facility outages.
                    section 2--objectives and scope
          The ultimate goal of the NERC Y2K program is to establish a 
        coordination process that, when implemented, allows the 
        electric power production and delivery systems in North America 
        to remain operational during critical Y2K transition periods.
Scope is electric power production and delivery systems
    Several key elements are identified in this goal statement. First, 
the initial focus is on power production and transmission facilities. 
The goal is to maintain the ``backbone'' of the electricity supply 
infrastructure. As such, NERC will work closely with entities 
responsible for the operation and security of electric systems. These 
entities include:

  --NERC Regional Reliability Councils
  --Control Areas within the four major electrical Interconnections in 
        North America
  --NERC Security Coordinators
  --Independent System Operators
  --Owners/operators of high voltage transmission facilities
  --Owners/operators of bulk power generating facilities
  --Owners/operators of distribution supply system not included in the 
        other categories
    NERC will initially focus on the bulk electric systems because 
distribution systems are generally radial from the bulk supply network 
and cannot function without a robust bulk supply network or 
Interconnection. The Interconnection can function without reliable 
radial distribution systems. Maintaining the operability of this 
electric supply backbone may be the single most important step toward 
supporting our North American infrastructure during the Y2K transition. 
The Y2K needs of distribution systems will become understandable as 
bulk power supply issues are resolved.
    As discussed in the next section, NERC is likely to work closely 
with other organizations to address the coordination of electricity 
distribution aspects of the Y2K problem. Likely participants in this 
joint effort include DOE, the Electric Power Research Institute, Edison 
Electric Institute, the National Rural Electric Cooperative 
Association, the American Public Power Association, and others.
Defense in depth
    The second key element of the goal statement is that NERC is 
focused on operational security through a ``defense-in-depth'' concept, 
which has been well developed in the design and operation of nuclear 
facilities. The defense-in-depth concept assumes that although one has 
taken all reasonable and necessary preventive steps, there can never be 
one hundred percent assurance that major system failures cannot cause a 
catastrophic outcome. Instead, multiple defense barriers are 
established to reduce the risk of catastrophic results to extremely 
small probability levels and to mitigate the severity of any such 
events.
    It is certain that not all Y2K problems have been or will be 
identified, fixed, and tested in the time remaining. Also, it would not 
be prudent to expend unlimited resources on potential problems in 
search of one hundred percent avoidance of component failures. The 
cornerstone of the NERC Y2K plan, therefore, is to coordinate industry 
actions in implementing the following defense-in-depth strategy:
    1. Identify and fix known Y2K problems.--NERC is providing a 
vehicle for sharing of information on known and suspected Y2K problem 
areas and solutions associated with the operation, control, and 
protection of bulk power generation and transmission facilities. From 
this information exchange, a master list of critical Y2K problem areas 
and solutions will be developed and made widely available. NERC will 
initiate a reporting process for key entities to report progress 
against specific criteria designed to address a known list of Y2K 
problem areas. Through its Regional Reliability Councils, NERC will 
review the progress of these entities to verify that appropriate 
measures are being taken by all responsible parties. This 
identification of problem areas, solutions, and testing of the solution 
is a process that will continue into the millenium.
    2. Identify worst case conditions.--NERC will coordinate the 
conduct of Regional and individual system simulations to identify 
moderate and worst-case scenarios in response to various classes of Y2K 
failures. Specific classes of failures that result in the worst 
conditions will be examined further to determine possible fixes and 
preventive or mitigation measures.
    3. Prepare for the worst.--NERC will coordinate efforts to prepare 
for safe operation of the electric systems under potential worst-case 
conditions. Preparations will include development of special operating 
procedures and conducting training and system-wide drills.
    4. Operate systems in a precautionary posture during critical Y2K 
transition periods.--NERC will coordinate efforts to operate 
transmission and generation facilities in precautionary configurations 
and loadings during critical Y2K periods. Examples of precautionary 
measures may include reducing the level of planned electricity 
transfers between utilities, placing all available transmission 
facilities into service, bringing additional generating units on-line, 
and rearranging the generation mix to include older units with analog 
controls. Another example is increased staffing at control centers, 
substations, and generating stations during critical periods. 
Fortunately, from an electric reliability perspective, New Year's Eve 
falls on Friday, December 31, 1999, and January 1 is a Saturday. 
Therefore, electric system conditions are likely to be favorable with 
the level of electricity transfers at light levels and extra generating 
capacity available during the most critical period.
                 section 3--roles and responsibilities
          The success of the NERC Y2K program depends on unbridled 
        cooperation, full sharing of Y2K information, and diligence of 
        effort commensurate with the potential consequences of failing 
        to adequately prepare for Y2K.

    NERC's Y2K program depends on cooperation by the electric utilities 
of North America. NERC does not currently have the authority in its 
Bylaws to order electric utilities to take Y2K corrective actions. Nor 
does NERC currently have the authority to conduct inspections or 
enforce compliance. The binding obligations of electric utilities are 
embodied in state and federal laws, filed transmission tariffs, and 
contractual agreements. Electric utility legal responsibilities are to 
shareholders, customers, the public, and state and federal regulators. 
NERC's role is to facilitate North American-wide coordination so that 
the collective efforts of the industry will minimize risks imposed by 
Y2K to a reliable supply of electricity.
    The roles and responsibilities of participants in the NERC Y2K 
program are defined below:
          NERC.--NERC staff and support contractors will coordinate the 
        NERC Y2K efforts defined within this plan. This activity 
        includes collecting, consolidating, and distributing 
        information on Y2K problems and solutions, and it includes 
        coordination of system studies and preparedness plans. The 
        information collected will be compiled into a report that will 
        periodically be presented to the NERC Board of Trustees and 
        DOE.
          NERC Regional Reliability Councils.--Regional staff will 
        coordinate NERC Y2K activities within their Regions. 
        Responsibilities are similar to those listed above for NERC, 
        but at the Regional level.
          NERC Operating and Security Entities.--Operating entities, 
        such as Control Area Operators, Security Coordinators, 
        Independent System Operators, high voltage transmission system 
        operators, and power producers, are on the front line of Y2K 
        preparations. The NERC Y2K program provides these operating 
        entities with an opportunity to share in Y2K solutions and 
        prepare coordination plans with neighboring systems and 
        Regions. The responsibilities of these operating entities 
        within the NERC Y2K program are to share information on known 
        Y2K problems and solutions and to report their progress 
        according to the schedule established by the NERC Y2K program. 
        These entities are expected to participate in system studies, 
        coordinated system preparations, and precautionary system 
        operating measures.
          NERC Y2K Coordination Task Force.--NERC is forming a Y2K 
        Coordination Task Force to focus on implementing this plan. The 
        focus of the task force is on maintaining the reliable 
        operation of bulk electricity production and delivery systems 
        during Y2K transitions. The task force will facilitate 
        coordination among the ten NERC Regional Reliability Councils. 
        The task force will be organized around the four key technical 
        areas identified in the previous section: Power Production, 
        Energy Management Systems, Telecommunications, and Protection 
        Systems.
Coordination with external agencies
    NERC Y2K efforts are closely aligned with those of many other 
government and private agencies. Key partners with the NERC Y2K program 
are identified below.
    Department of Energy.--DOE is the principal federal agency with 
oversight responsibility for Y2K issues in electricity supply systems. 
As such, NERC will report the results of the NERC Y2K program to DOE 
and work in close coordination with broader DOE efforts.
    Edison Electric Institute.--EEI has established a program to 
address Y2K technical, regulatory, and liability issues. NERC is 
committed to full cooperation with EEI in identification of Y2K 
technical problem areas and solutions. The NERC Y2K program does not, 
however, address regulatory requirements or legal liabilities. As such, 
NERC defers to EEI's leadership in resolving these issues. NERC is 
particularly concerned that efforts to obtain full disclosure by 
electric utilities of potential Y2K problems and solutions may be met 
with resistance due to the liabilities of exposing this information 
publicly. Public exchange of information is a cornerstone of NERC's Y2K 
program and must not be viewed by participants as feeding information 
to potential litigants. NERC expects full support of EEI in defining 
and promulgating industry needs for protection in this area.
    Electric Power Research Institute.--EPRI has a well established Y2K 
program to identify Y2K problems and solutions in embedded systems. 
EPRI's program spans a full spectrum of electricity production, 
delivery, and end use. NERC is committed to full cooperation with EPRI 
in the exchange of information related to electric power production and 
delivery. NERC encourages all elements of the electric power industry 
to participate in EPRI's Y2K embedded systems program.
    Nuclear Regulatory Commission and Nuclear Energy Institute.--There 
is an obvious need to prepare nuclear facilities for Y2K and the 
remote, but real possibility of interruptions of off-site power. NERC 
will be coordinating efforts to maintain a reliable transmission 
network capable of providing continuous off-site power for nuclear 
facilities. However, NERC expects that the NRC, NEI, DOE, and others 
will take the leadership role in coordinating the Y2K activities of 
nuclear facilities.
    Electric Power Supply Association.--NERC expects to work closely 
with EPSA in coordinating the resolution of Y2K problems in power 
production facilities.
    American Public Power Association.--NERC will coordinate directly 
with APPA's larger members who operate control areas and high-voltage 
transmission systems. APPA is expected to be the primary way of 
coordinating with electric distribution systems that are not members of 
a Regional Council to resolve Y2K problems in state/municipal electric 
distribution systems.
    National Rural Electric Cooperative Association.--NERC will 
coordinate directly with NRECA's larger members who operate control 
areas and high-voltage transmission systems. NRECA is expected to be 
the primary way of coordinating with electric distribution systems that 
are not members of a Regional Council to resolve Y2K problems in 
cooperative electric distribution systems.
    Canadian Electricity Association.--NERC will work closely with CEA 
to assure coordination of Y2K efforts among electric power producers 
and delivery systems in Canada as well as electrical ties that connect 
Canada and the United States.
    Additional Coordination.--NERC will cooperate fully with other 
federal and state government agencies and trade associations working 
toward Y2K solutions.
                          section 4--work plan
          The NERC Y2K program work plan is organized into three 
        phases: (1) information sharing and status review, (2) 
        coordination of preparedness plans and scenario analysis, and 
        (3) coordination of precautionary operations during the Y2K 
        transition.

    Phase 1  (May-September 1998).--NERC will mobilize coordination and 
information sharing efforts and perform a preliminary review of Y2K 
readiness of electricity power production and delivery systems. 
Detailed plans for Phases 2 and 3 will be developed. Phase 1 will 
culminate with an initial report to the NERC Board of Trustees (BOT) 
and to DOE covering the preliminary situation report and a detailed 
work plan for Phases 2 and 3.
    Phase 2  (September 1998-July 1999).--NERC will facilitate efforts 
by the Regional Reliability Councils and responsible operating entities 
to resolve the known Y2K technical problems. A process will be 
established for periodic progress reports using an established list of 
reporting criteria. System simulations and engineering studies will be 
conducted during this phase to understand likely and worst-case 
scenarios. This Phase will culminate in July 1999 with a report to the 
NERC BOT and to DOE on measures being taken to prepare electric power 
production and delivery systems for operation during the Y2K 
transition.
    Phase 3  (July 1999-January 2000).--During this period, NERC will 
review the preparation of contingency plans and operating procedures. 
NERC will assist Regions in the conduct of drills and final 
arrangements to prepare for critical Y2K periods. Although the most 
critical period is expected to be on the dates of December 31, 1999 and 
January 1, 2000, configuring systems in a precautionary posture and 
then restoring normal conditions afterward are expected to require 
several weeks.
Phase 1  Tasks and schedule
    Task 1. Establish an Internet Web Site for sharing of information 
on known Y2K problem areas and solutions related to electric power 
production and delivery systems.--NERC has established a Web Site and 
will continue to add resources and links to other sites. The Web Site 
will include a catalog of resources and an information exchange forum. 
Manufacturers and vendors of software, computer equipment, electronic 
devices, and communications systems who have information on Y2K 
solutions will be identified on the NERC Y2K Web Site, with links to 
those sites. [Established in May 1998 with continued support through 
Phase 3.]
    Task 2. Prepare a list of bulk electric system Y2K key entities and 
contacts.--This list will identify key personnel in each Region and 
note areas of expertise, such as generation, protection, 
communications, energy management systems, etc. As stated previously, 
the key entities include Regional Reliability Councils, Control Area 
Operators, Security Coordinators, Independent System Operators, 
selected Transmission Operators, and selected power producers. The 
lists of entities and contacts will be posted on the Web Site. The key 
entities identified will be responsible for participating in the 
reporting requirements below. [List posted by June 30, 1998 with 
continued updates through Phase 3.]
    Task 3. Establish a NERC Y2K Coordination Task Force.--This task 
force will have at least one representative from each Region who is 
knowledgeable about Y2K technical issues and the activities within his 
or her Region. The task force will establish four technical subgroups 
to focus on identifying known Y2K technical problems and solutions in 
the areas of power production (generation), energy management systems, 
telecommunications, and system protection. System vendors and 
manufacturers will be asked to participate with the technical 
subgroups. The task force and subgroups will coordinate through 
frequent telephonic meetings to ensure high levels of information 
exchange and coordination of efforts. [Task force will be established 
and populated by July 1 and will function until the end of Phase 3.]
    Task 4. Consolidate known Y2K problems and solutions into a master 
checklist.--The NERC Y2K Coordination Task Force will develop and post 
publicly a master list of Y2K problem areas and solutions related to 
electric power production and delivery. The master checklist will be 
categorized for efficient reference. The list will identify down to the 
component or software module level any known or suspected Y2K problems. 
Fixes, available resources, and contacts will be identified for each 
problem area as the information becomes known. The solutions posted 
will draw from ``best practices'' of organizations that have had the 
greatest success in resolving a Y2K bug. Known problems will be rated 
by a simple numbering scheme denoting the criticality of the component 
to Interconnection reliability. This effort is focused on consolidating 
known information into a common reference file for all impacted parties 
to use. [The initial outline of the master checklist will be posted by 
June 30, 1998. The goal is to have a completed list by September 15, 
1998, but the list will continue to be updated as additional knowledge 
is gained.]
    Task 5. Coordinate a preliminary review of Y2K activities by key 
entities.--NERC, along with the Regional Reliability Councils, will 
facilitate reporting of a preliminary status of Y2K activities by key 
operating entities. This report will be consolidated into an industry 
report to DOE in September 1998. [Reporting criteria will be 
established by July 31, 1998, entity reports completed by August 31, 
1998, and the consolidated report completed by September 15, 1998. The 
report will be presented to the NERC BOT and then to DOE.]
    Task 6. Prepare a detailed plan for Phase 2.--NERC will prepare a 
detailed plan for implementing Phase 2 activities. [Presented to NERC 
BOT in September 1998 followed by DOE.]
Phase 2  Tasks and schedule
    Task 7. Conduct system studies and scenario analysis.--NERC, in 
coordination with Regional Reliability Councils, will facilitate the 
conduct of system simulations and engineering studies to understand 
expected and worst-case scenarios. These scenarios will be analyzed to 
determine corrective and mitigation strategies. [Simulations and 
studies will be completed by May 1999, with final scenario analysis 
presented in July 1999.]
    Task 8. Perform Y2K readiness review.--NERC, in coordination with 
Regional Reliability Councils, will facilitate a review of the Y2K 
readiness of operating entities. [Readiness reporting will be conducted 
periodically through Phase 2,with a final report presented to the NERC 
BOT and DOE in July 1999.]
    Task 9. Prepare detailed plan for Phase 3.--A detailed plan for 
Phase 3 will be presented in July 1999.
Phase 3  Tasks and schedule
    Task 10. Facilitate development and implementation of Y2K 
preparedness plans.--NERC, in cooperation with the Regional Reliability 
Councils, will facilitate the development and implementation of special 
procedures and plans for operation during Y2K transition periods. NERC 
will develop the generic elements of a preparedness plan for use by 
operating entities in developing specific plans.
    Task 11. Facilitate conduct of training and drills.--Training and 
system drills will be coordinated by Regional Reliability Councils to 
ensure personnel and systems are ready for operations during the Y2K 
transition.
    Task 12. Coordination of plans to configure electric systems in 
precautionary posture.--NERC and the Regions will coordinate the 
preparation of operating plans to mitigate the consequences of any 
adverse Y2K problems. Examples may include placing all available 
transmission facilities in service, bringing additional generators on 
line, increased use of older analog controlled units, providing 
additional staff at control centers, power stations, and critical 
substations, and operating with reduced electricity transfers. The 
critical Y2K operating period is likely to extend several weeks before 
and after midnight December 31, 1999.
    Task 13. Coordination of system monitoring and rapid response 
during Y2K period.--NERC, the Regional Councils, and Security 
Coordinators will monitor conditions during Y2K critical periods and be 
prepared to implement pre-established contingency plans.
                          section 5--schedule
          The NERC Y2K Program will coordinate activities according to 
        the following schedule. Y2K preparation is a rare activity for 
        which the ``due date'' really cannot change.
        [GRAPHIC] [TIFF OMITTED] T2JU98G.002
        
             Appendix A--Letter to NERC From Secretary and

                       Deputy Secretary of Energy

                                   The Secretary of Energy,
                                       Washingion, DC, May 1, 1998.
Mr. Erle Nye,
Chairman of the Board,
North American Electric Reliability Council,
1601 Bryan Street, Dallas, TX

    Dear Mr. Nye: We are writing to seek the North American Electric 
Reliability Council's (NERC's) assistance in assessing whether the 
Nation's electricity sector is adequately prepared to address the 
upcoming year 2000 computer problem.
    The Administration is undertaking a coordinated effort to assess 
various sectors' readiness to address the issue. The Department of 
Energy (DOE) is taking the lead in working with the electricity 
industry to facilitate actions necessary for a smooth transition 
through this critical period. To this end, we are requesting that NERC 
undertake the coordination of an industry process to assure a smooth 
transition.
    The electric system is such a highly interdependent network, and so 
vital to the security and well-being of the Nation, that there is very 
little margin for error or miscalculation. The Department realizes that 
activities designed to address this issue are already underway in many 
electric utilities, the Electric Power Research Institute (EPRI), and 
in other Federal agencies. We are concerned, however, that these 
activities may not be fully coordinated, or worse, may be incomplete. 
The Nation needs to know that a systematic process is in place to 
ensure that the electric supply system will not experience serious 
disruption.
    This is truly a reliability issue, and NERC has demonstrated over 
the last 30 years that it is capable of coordinating the activities of 
electric market participants to resolve such issues. NERC is the most 
appropriate body to organize this process and report periodically on 
its status. We are confident that NERC will be able to mobilize the 
necessary cooperation from the Regional Reliability Councils, their 
members' utilities, and other industry organizations, to develop and 
implement a process that is both efficient and effective. We are asking 
that you provide us with written assurances by July 1, 1999, that 
critical systems within the Nation's electric infrastructure have been 
tested, and that such systems will be ready to operate into the year 
2000. The DOE is prepared to work with NERC to help overcome any 
obstacles that you might encounter in carrying out this effort. 
Finally, we wish to work with you to provide a suitable public forum in 
the late summer or early fall of this year at which NERC and others 
could report on the industry's assessment of this issue and outline its 
plans to address this challenge.
    Public events on this subject are important and valuable for two 
reasons. First, they will convey to the public and public officials 
that the industry is indeed preparing systematically for the 
transition. Second, they will confirm to the industry that Government 
agencies and the public are depending on them to ensure that the 
transition goes smoothly.
    We are looking forward to further discussions with you on this 
important issue.

            Sincerely,

                                   Federico Pena,
                                           Secretary.

                                   Elizabeth A. Moler,
                                           Deputy Secretary.
                                 ______
                                 

Responses of Michehl R. Gent to Questions Submitted by Chairman Bennett

    Question 1. The Department of Energy seems to be relying almost 
exclusively on NERC to coordinate Year 2000 efforts in the electric 
industry. What do you see as the most difficult challenges facing your 
organization in that quest?
    Answer. The most difficult challenge NERC faces in coordinating the 
efforts of the electric industry for Y2K readiness is the hesitance of 
many organizations to disclose information about the progress of their 
internal Y2K programs. Their fear is that information disclosed can be 
used in litigation against them. We have prepared a self-assessment 
instrument, which, if applied systematically across the industry, will 
provide credible measures of progress toward resolution of Y2K problems 
and contingency preparedness. One element of NERC's Y2K Program is to 
periodically report to the Department of Energy the collective 
readiness of various segments and regions of the industry. We are not 
developing ``report cards'' on individual organizations. We are seeking 
ways to protect the confidentiality of information collected from 
individual organizations. We would welcome any support in obtaining 
legal protections of the confidentiality of this data.
    A second challenge NERC faces is the addition of electric 
distribution systems to the scope of its activities. NERC's 
coordination of reliability has historically focused on the bulk 
electric supply and delivery systems of North America. The addition of 
distribution systems to the program adds an estimated 2,000 entities to 
the coordination effort. These cooperatives, municipalities, and other 
local distribution entities are only partially covered by existing 
trade associations such as the National Rural Electric Cooperative 
Association (NRECA) and the American Public Power Association (APPA). 
In short, the sheer number and diversity of these organizations makes 
Y2K coordination difficult. NERC has enlisted the aid of NRECA, APPA, 
and the Edison Electric Institute to reach these organizations and 
include them in the NERC Y2K Program.
    Question 2. With NERC's broad responsibilities and visibility over 
the electrical power industry, you are probably in the best position to 
know the seriousness of the Year 2000 problem and the overall status of 
remediation efforts. What is your assessment of the readiness of the 
industry for the millenium change? What is the status of remediation 
efforts? What are the biggest problem areas?
    Answer. NERC was very recently asked by the Department of Energy to 
coordinate the Y2K issue for the electric industry. We have developed 
in our Y2K Program a process for systematically measuring progress in 
the areas of inventory, assessment, remediation, testing, and 
contingency preparations. We do not have specific results to report 
now. We do expect to be able to report in greater detail at the 
completion of Phase 1 in September after we have experienced a couple 
of cycles of our monthly Y2K readiness assessments. All indications we 
have received to date are that the industry is taking the Y2K challenge 
seriously. Electric utilities have made significant progress in 
identifying Y2K problems (inventory and assessment) and most have plans 
to complete remediation and testing by mid-1999. Although Y2K problems 
are not trivial in electric systems, most reports indicate that no 
major surprises have been found to date.
    Question 3. Your testimony describes the fragile nature of the four 
North American Interconnection areas or grids as they are popularly 
called; the largest being the Eastern Interconnection covering the 
eastern two-thirds of the country. You describe how a failure in one 
part of the grid can have a cascading effect on other parts of the 
grid. What is NERC's role in helping to quickly isolate failing 
electrical systems within an Interconnection to prevent a major 
blackout?
    Answer. NERC is engaging the Security Coordinators and Regional 
Councils in preparing special contingency plans. System studies and 
simulations will be conducted beyond those that are now performed. 
Operating procedures on critical Y2K dates will assure a heightened 
readiness. Examples may include appeals to reduce non-critical loads, 
reduction of inter-regional transfers, additional generation and 
transmission facilities in service, and others. NERC, the Regional 
Councils, and their members have a long and successful history of 
managing system reliability under challenging conditions.
    Question 4. NERC publishes reliability assessments of bulk electric 
systems periodically, the last of which was issued in October 1997 
covering projections for the years 1997 through 2006. However, there is 
no mention of the Year 2000 problem. Isn't the Year 2000 problem a 
major factor in your reliability assessment? Why was there no mention 
of the Year 2000 in these publications? When did NERC begin working on 
the Year 2000 problem?
    Answer. Until the Department of Energy charged NERC with 
coordinating the Y2K issue for the electrical industry, each individual 
utility had responsibility for addressing Y2K for its facilities. NERC 
began looking at the Y2K problem late in 1996 and early 1997 in 
association with the President's Commission on Critical Infrastructure 
Protection. As a result of those discussions, NERC sought assurances 
from its telecommunications provider that the communications system it 
was installing to connect 23 Security Coordinators across North America 
was Y2K compliant. Y2K coordination has been an issue at NERC, the 
Regional Councils, and their members for more than a year. Certainly 
the Department of Energy's request has helped us formalize our Y2K 
Program. Reliability Assessments historically focus on adequacy of 
supply and transmission facilities. Y2K is a special condition that 
requires a different approach. NERC, through the Security Coordinators 
and Regional Councils, will be performing studies unique to Y2K 
challenges.
    Question 5. Since Hydro-Quebec is a major supplier of electrical 
energy for the U.S. Interconnections, is it involved in NERC's Year 
2000 plans?
    Answer. Hydro-Quebec, as a member of the Northeast Power 
Coordinating Council (NPCC), is directly involved in coordination of 
Y2K efforts at NERC and the Regional Council levels. In fact, NPCC 
(including Hydro-Quebec) has one of the more active Y2K programs.
    Question 6. Does NERC require any legislative assistance in (1) 
sharing information about Y2K problems and solutions? (2) ordering 
electrical utilities to take Y2K corrective action?
    Answer. The answer to this question is in part tied to the response 
to question number one. Legislation that would protect the 
confidentiality of Y2K readiness assessment data at the individual 
organization level would be very helpful. NERC does not believe that 
legislation is necessary to order electric utilities to take Y2K 
corrective actions. NERC, the Regional Councils, and their members are 
committed to addressing the Y2K issues.
    Question 7. Your testimony describes the three phases of NERC's 
Year 2000 work plan. Phase 1 (May-September 1998) will culminate with 
delivery to DOE a situation report and detailed work plans for phases 2 
and 3. Isn't September 1998 pretty late to complete your initial 
situation report? Will there be sufficient time for Phases 2 and 3?
    Answer. If the industry was beginning its Y2K efforts from scratch, 
September might be late. However, substantial progress has and 
continues to be made. NERC is affording an opportunity to report this 
progress at a collective level. The time remaining is tight, but we 
have no indication at this time that preparations will not be 
completed. A more detailed assessment by September will provide 
information as to where to focus efforts in the remaining time for 
remediation, testing, and contingency preparedness.
    Question 8. Similarly, Phase 2 of your work plan is not planned to 
be complete until July 1999 with the issuance of a report on steps to 
be taken to prepare electric power production and delivery systems 
during the Year 2000 transition. This leaves just six months to 
implement the steps called for in this phase and to complete 
contingency planning called for under Phase 3. Is there sufficient time 
to complete Phases 2 and 3 of NERC's work plan? Is there any way these 
phases can be accelerated?
    Answer. We feel the schedule places the appropriate emphasis at the 
right times. The focus of the next 12 months needs to be on inventory, 
assessment, remediation, and testing at the component and system level. 
At that point, we will have a more complete picture of possible 
disturbance triggers and sequences. After July 1999, the major focus 
will shift from fixing the problem to preparing for possible 
contingencies. We believe the time is adequate though certainly tight.
    Question 9. Common mode failure (e.g. specific model of a generator 
protection relay) is a relatively new threat due to the use of digital 
control systems. To your knowledge, has anyone tested the overall power 
system against this threat? What were the results?
    Answer. NERC is encouraged by the electric industry's pursuit of 
testing at the integrated systems level. Although Y2K problems may 
reside at the individual software program or circuit-board level, the 
impacts result from the shared interactions of components and systems. 
We will be looking during our assessments at the level of testing at 
the systems level. We will also be coordinating system studies that 
consider the simultaneous failure of certain types of components. The 
goal will be to have electric systems in a position to withstand a 
higher than typical threat of simultaneous outages.
                               __________

                 Prepared Statement of James J. Hoecker

    Mr. Chairman and Members of the Committee: I appreciate the 
opportunity to appear before you to discuss the Year 2000 readiness of 
the utility industry, including electric, oil, and gas utilities. I 
commend you, Mr. Chairman, and the Special Committee for holding a 
hearing on this critical issue. My name is James Hoecker, and I am 
Chairman of the Federal Energy Regulatory Commission (Commission or 
FERC). Some months ago I appointed a Chief Information Officer (CIO) to 
be responsible for information technology issues at the Commission. 
FERC's CIO, Katie Hirning, represents the Commission on the President's 
Council on Year 2000 Conversion.
    The state of Year 2000 readiness of the utility industry is not yet 
fully known. However, FERC acknowledges the importance of the Year 2000 
problem and recognizes that its involvement in solutions may be 
necessary. Because the energy sector is critical to the operations of 
all other sectors of the economy, I believe that it is essential for 
the federal government, along with industry, to promote awareness of 
this problem through cooperation and communication.
    Today I would like to: (1) describe what I understand the industry 
is doing about the problem; and (2) inform you of what the Commission 
is doing to encourage industry to take steps to ensure that our 
Nation's energy infrastructure still functions properly on January 1, 
2000, including its coordination with the President's Council on Year 
2000 Conversion.
    The Year 2000 issue presents an unusual problem for FERC because 
the Commission does not exercise direct authority over internal 
operations of the regulated companies' businesses as a general matter. 
The Commission would have authority over the ability of regulated 
utilities to recover in cost-based rates the costs expended in 
correcting the Year 2000 problem, but not over how utilities implement 
specific measures to correct the problem. Furthermore, FERC's 
regulation does not encompass the entire energy sector or even all 
aspects of the natural gas, electric, or oil pipeline industries. Large 
portions of these industries are subject to the authority of other 
federal agencies or state and local governments, or are self-regulated 
or unregulated.
               year 2000 compliance within the commission
    The Commission is diligently addressing its own computer systems to 
make sure that they work on and after January 1, 2000. A Year 2000 task 
force was established in March 1997 to examine FERC's computer systems 
and identify systems and applications with the potential for non-
compliance, and to suggest a strategy for formulating corrective action 
for each. Of the 12 automated systems that are considered to mission-
critical, one has already been made compliant, one will be upgraded, 
three have already been retired, four more will be retired, and three 
will be replaced. The Commission has developed renovation codes as a 
contingency measure that will enable it to operate even if replacement 
systems are delayed in implementation. However, FERC has a well 
developed implementation schedule for total readiness by January 1, 
2000. Automated equipment associated with the agency's physical plant, 
such as elevators and the security system, were also evaluated. All 
equipment is compliant except for the security system, which will be 
upgraded before March 1999.
                 year 2000 issues for energy businesses
    At the present time, any failure to fully understand the 
seriousness of the issues must be regarded as a significant problem. 
Cooperation and communication is necessary in order to understand the 
severity of the problem. There is a need to identify what effect a 
failed computer, computer software program, or embedded microprocessor 
would have on the production or delivery of electricity, gas, and oil. 
Thus far, available information is anecdotal, with very little 
empirical data on completion of conversion tasks and structured 
testing.
    Year 2000 readiness also includes the operation of not only 
conventional computer systems, but thousands of embedded 
microprocessors as well. Embedded systems are present at plants, 
wellheads, pipelines, control and dispatch centers, headquarters, and 
other energy facilities. Identifying Year 2000 errors in embedded 
systems generally requires significant manual effort. The process 
cannot be automated and is likely to require physical inspection of 
hardware distributed widely throughout an organization. Taking 
inventory, assessing, and fixing embedded systems is especially 
difficult and expensive.
                         the industry response
    The extent of completed Year 2000 work within the energy industry 
is unknown. Compilation of this information has been inadequate. Larger 
utilities and some industry associations have promoted awareness of 
Year 2000 issues and, in some cases, have shared information about 
industry readiness. The state of awareness and planning of smaller 
utilities and cooperatives is less certain.
    One of the largest Year 2000 programs, offered for a fee by the 
Electric Power Research Institute (EPRI) to member companies of 
electric, oil, and gas associations, includes: an electronic system for 
real-time data and information collected from a number of industries, 
government agencies, vendors, and other service providers; and 
workshops for interactive discussion of methods and results among those 
involved in Year 2000 embedded systems efforts and the sharing of 
information among participants. The Edison Electric Institute is 
working closely with the EPRI program, on behalf of investor-owned 
electric utilities.
    The National Association of Regulatory Utility Commissioners' 
(NARUC) has established an educational program and has a session 
scheduled in July to discuss Year 2000 issues.
    Year 2000 managers within the national oil, gas, and electric 
associations are in frequent contact and are working together to 
address these issues. Several Year 2000 programs were initiated in the 
past year by industry associations. Last year the American Petroleum 
Institute (API) formed a Year 2000 task force of representatives from 
industry. They agreed to construct databases from various segments of 
the industry. API has scheduled a meeting for July 1998 to discuss Year 
2000 compliance, information exchanges, and other issues. API also 
sponsored and disseminated a Year 2000 awareness research paper.
    The Interstate Natural Gas Association of America (INGAA) has 
conducted a survey of their member companies' Year 2000 compliance 
status, and the results are currently being analyzed. The Gas Research 
Institute (GRI) is surveying its member companies to help formulate 
Year 2000 strategies. The Natural Gas Council (NGC), which encompasses 
leadership of a number of industry trade associations, is meeting in 
June to address industry coordination for Year 2000 readiness. It will 
focus on segment-by-segment coordination and creation of a coordination 
structure.
            the federal energy regulatory commission's role
    On its own, FERC is developing an awareness program for the 
Commission's regulated entities and industry associations, in 
coordination with the Energy Working Group activities. The purpose of 
FERC's outreach is to promote awareness of the potential seriousness of 
the Year 2000 problem and the need to devote adequate resources to fix 
it. I am working with the other FERC Commissioners, Office Directors, 
and the Commission's CIO to promote awareness of the Year 2000 issue 
and to encourage the cooperation that already exists among energy 
organizations and their customers. Further, we hope to encourage 
companies to make more information available to the general public. The 
public needs specific information on how serious the problem is, what 
is being done to address it, and what they can expect on January 1, 
2000. The Commission will also make information on Year 2000 issues 
available to our regulated companies and to the general public through 
the FERC Website, and we will provide a link to the Energy Working 
Group Website once it is developed.
    We have begun to establish regular channels of communication with 
appropriate Year 2000 experts in industry and to maintain an awareness 
of upcoming events and planned initiatives. We plan to:
  --promote awareness among companies under our jurisdiction;
  --monitor progress within the industry;
  --develop a link on the FERC Website to Year 2000 information;
  --encourage the inclusion of Year 2000 subject matter in future 
        industry seminars, trade events, television programs, and 
        publications;
  --utilize Year 2000 public speaking opportunities; and
  --work with members of the Energy Working Group of the President's 
        Year 2000 Conversion Council.
           the oil and gas sector of the energy working group
    The Commission is also working cooperatively with other federal 
agencies as a member of the President's Council on Year 2000 
Conversion. Through our participation in the Energy Working Group of 
the President's Council on Year 2000 Conversion, FERC is working with 
DOE, Department of Transportation (DOT), Department of Agriculture, 
Nuclear Regulatory Commission (NRC), General Services Administration 
(GSA) and Department of State to develop effective programs for 
facilitating Year 2000 solutions throughout the energy industry. The 
Council's Energy Working Group has been subdivided into two sectors: 
electric, and oil and gas. DOE is the sector leader for electric and 
FERC is the sector leader for oil and gas.
    On June 5, 1998, the oil and gas sector of the Energy Working Group 
held a meeting with representatives of trade associations and research 
institutes representing the oil and gas industries. The meeting was 
facilitated by John Koskenin, Chairman of the President's Council on 
Year 2000 Conversion. Federal agencies present included FERC, as sector 
leader, and DOE, DOT, NRC, and GSA. Participants also included the Gas 
Industry Standards Board (GISB), Independent Petroleum Association of 
America, National Propane Gas Association, INGAA, API, National 
Petrochemical and Refiners Association, American Gas Association, GRI, 
Association of Oil Pipelines, American Public Gas Association, National 
Regulatory Research Institute, and NARUC.
    The meeting participants were asked to join the oil and gas sector 
of the Energy Working Group in developing a focused, coordinated effort 
between the federal agencies and industry associations that would 
prevent redundant efforts and ensure that all companies in the oil and 
gas sectors are reached. The oil and gas sector of the Energy Working 
Group will serve as a point of coordination for all participants and a 
forum for collaborative efforts. The meeting participants agreed that 
it would be valuable to designate umbrella organizations for both the 
oil and gas industries that would be responsible for coordinating the 
collection and sharing of information among all trade associations and 
industry groups within each industry.
    Meeting participants were asked to designate umbrella organizations 
for the natural gas industry and for the oil industry. GISB will focus 
on accounting standards for both oil and gas. Meeting participants 
agreed to compile existing surveys and information that has already 
been collected through the umbrella organizations, assess whether it is 
desirable to update existing surveys, and consider developing a 
comprehensive survey with core questions that could be used industry-
wide in both the oil and gas sectors. An industry-wide survey may be 
distributed through the umbrella organizations, which can present 
summaries of the information that they gather to the Energy Working 
Group. The Energy Working Group is focusing on assessing industry-wide 
and regional readiness rather than examining the readiness of 
individual companies. GISB will ascertain if end users associations 
would be interested in participating in the Energy Working Group. 
Finally, FERC will serve as the oil and gas sector leader, and will be 
the point of contact for the umbrella organizations and facilitate the 
flow of information to a composite Website.
    The meeting participants agreed that the focus of monitoring Year 
2000 Conversion readiness should be: (1) safety, (2) reliable delivery 
of energy products, and (3) accurate accounting and billing.
                               conclusion
    In the end, energy industry participants have the responsibility to 
address this problem. I nevertheless believe the Commission has an 
important role in raising awareness of the issue. I view it as the 
Commission's responsibility to the American public to help alleviate 
this potential threat to the reliability of our energy systems. The 
Commission has special responsibility to focus on the natural gas and 
oil pipeline industry as part of the Energy Working Group of the 
President's Council. I have therefore asked our CIO to promote the 
sharing of Year 2000 information within the industry. She will also 
facilitate dissemination of information about what is known in other 
industries about similar products and problems, as appropriate. Having 
ensured our own systems are Year 2000 compliant, we will continue to 
convey to the industry and its customers the importance of achieving 
solutions to Year 2000 issues promptly.
    I look forward to working with the Senate Special Committee in the 
months ahead, and I welcome your questions.
                                 ______
                                 

   Responses of James J. Hoecker to Questions Submitted by Chairman 
                                Bennett

    Question 1. How does FERC plan to assemble its assessment of the 
oil and gas industry for the President's Year 2000 Conversion Council? 
When will the results be available?
    Answer. FERC plans to assemble its assessment of the oil and gas 
industry for the President's Council on Year 2000 Conversion through 
constructing a database. This database will include responses to a 
survey which will be conducted by the umbrella organizations that have 
been designated by the oil and natural gas sector of the Council's 
Energy Working Group. The umbrella groups are the American Petroleum 
Institute, Natural Gas Council, and Gas Industry Standards Board. This 
database will be made available through the Council's Website 
(www.y2k.gov). The focus of the survey will not be on how individual 
companies are doing, but rather on how the industry as a whole is 
doing, both in the aggregate and also geographically and regionally. 
The survey is expected to be finalized by the end of July, and 
preliminary results are expected to become available in September of 
this year.
    Question 2. What portions of the oil and gas production and 
distribution industry are most susceptible to the Year 2000 problem? 
Does FERC have any specific plans to address these areas of 
susceptibility?
    Answer. It is currently impossible to identify groups of companies 
that may be most susceptible. Virtually all oil and natural gas 
companies have a large number of embedded systems and software 
applications. Oil and gas management software includes contract 
administration, measurement systems, nomination systems, and bulletin 
board systems. Operations include field communications systems, 
Supervisory Control Data Acquisition Systems (SCADA), automated 
compressor systems, automated auxiliary plants, maintenance managements 
systems, and land and easement management systems. However, automated 
systems are not limited to pipelines. Embedded systems and software 
applications occur throughout the sector, including production, 
transportation, distribution, telecommunications links, and back office 
operations. FERC will work with the umbrella organizations of the oil 
and gas sector of the Council's Energy Working Group to ensure that the 
entire sector is reached by industry surveys. The activities of small 
companies and operators at the production and distribution ends of the 
interstate systems may prove the most difficult to assess.
    Question 3. Your testimony describes the difficulty in identifying 
and rectifying automated systems embedded in the production and 
distribution of gas and oil. Could you elaborate on this difficulty? Is 
there sufficient time remaining to find and fix all of the embedded 
processors?
    Answer. Part of the difficulty in identifying and rectifying 
embedded systems is the large number of types of embedded chips used 
within the industry. Systems that are physically difficult to test, 
such as underwater systems in offshore platforms, pose a special 
problem.
    Further, many of these embedded systems were installed over a long 
period of time, and in some cases, without a lot of documentation. A 
major difficulty in identifying embedded systems is the shear number of 
them. Production facilities such as an off-shore drilling platform may 
have ten thousand or more embedded chips. Further, while newer systems 
may not be at risk in isolation, they could be affected because of 
their links to older, ``legacy'' systems which have never been 
replaced.
    Although only 5 percent of these embedded components are expected 
to malfunction by some estimates, a structured program to find and test 
all systems is unlikely. Nonetheless, a component may be non-compliant 
and yet not cause a system to malfunction. In fact, components that are 
not mission-critical, or are found not to have significant implications 
to operations, may be intentionally bypassed as a low priority for 
testing due to time constraints. Further, contingency planning is 
expected to be an integral part of industry Year 2000 strategies. 
Consequently, the main oil and gas delivery system may be considered 
Year 2000 ready without being fully Year 2000 compliant.
    Question 4. You mention that FERC will be monitoring the progress 
of the oil and gas industry. Could you please tell us how you will 
attempt to monitor this progress? For example, will you be using 
surveys or personal interviews?
    Answer. The survey being developed by the oil and gas sector of the 
Energy Working Group is expected to be repeated over time as a means to 
monitor progress and help identify problem areas. A database will be 
used to capture and compare survey results. A Website will be used as a 
vehicle to share information among Working Group members.
    Question 5. The plan to compile survey results from existing 
efforts seems like a wise use of resources. Will this information help 
the energy working group to assess what types of contingency planning 
may be necessary?
    Answer. The survey which is currently being developed by the oil 
and gas sector of the Energy Working Group will include questions 
regarding contingency planning. This survey is expected to be finalized 
by the end of July so it can be sent out to industry members. 
Hopefully, industry members will then be better able to find out what 
kind of contingency planning will work for them.
    Question 6. Do you think that the consumer should begin saving 
their gas and oil bills to be able to demonstrate there would be 
problems with the billing and accounting systems? Or is it too soon to 
tell?
    Answer. It is too soon to tell. From anecdotal information, it 
appears to me that industry has put a lot of effort so far on back 
office operations such as accounting, purchasing, and administration. 
The initial results of the survey being developed by the oil and gas 
sector of the Energy Working Group are expected to be available in 
September of this year, at which time we will have a clearer picture.
                               __________

               Prepared Statement of Shirley Ann Jackson

                              introduction
    Mr. Chairman, members of the Committee, I am pleased to be here 
today on behalf of the Commission to discuss with you the status of the 
U.S. Nuclear Regulatory Commission (NRC) response to the Year 2000 
computer problem for nuclear power plants. Our efforts can be divided 
into three basic areas: our actions internal to the NRC, our 
interactions with our reactor licensees and the nuclear power industry, 
and our broader actions to address the issue of a electrical grid.
         the nrc strategy for addressing the year 2000 problem
Actions internal to the NRC
    With respect to power reactor licensees, the NRC is working to 
ensure that all of our mission-critical systems (seven in total) will 
be Year 2000 compliant so that our communications and data interfaces 
will continue to function properly. The one mission-critical system 
that is directly linked to operating nuclear power plants is our 
Emergency Response Data System (ERDS). This application performs the 
communication and data transmission functions that provide near real-
time data to NRC incident response personnel during declared 
emergencies. The NRC currently is upgrading ERDS to be Year 2000 
compliant in order to maintain the same communication protocol as the 
current system. Once upgraded, either a 2-digit or a 4-digit date field 
will be accepted. The upgrade is on schedule to be completed, tested, 
and implemented by March 4, 1999. This effort is being conducted under 
the NRC Year 2000 effort and is overseen by Mr. Tony Galante, the NRC 
Chief Information Officer. All of our other mission-critical systems 
also are on schedule to be Year 2000 compliant in accordance with OMB 
guidelines, with three currently being repaired, and three being 
replaced.
NRC Interaction with reactor licensees
    Since 1996, the NRC has been working with industry organizations to 
address the Year 2000 problem. After discussions with the Nuclear 
Energy Institute (NEI) in 1997, NEI agreed to take the lead in 
developing industry-wide guidance for addressing the Year 2000 problem 
at nuclear power reactors. Last November NEI sent a framework document, 
which NRC had reviewed, to all power reactor licensees. We believe that 
the guidance in that framework document, ``Nuclear Utility Year 2000 
Readiness'' (NEI/NUSMG 97-07), when properly augmented and implemented, 
presents nuclear power plant licensees with an acceptable approach for 
addressing the Year 2000 problem. We will continue to work closely with 
other Federal agencies and industry groups, and to participate in 
interagency working groups, to ensure that we stay abreast of emerging 
Year 2000 concerns and that we take appropriate action to protect 
public health and safety and the environment. We strongly encourage 
licensees to share information regarding identified remediation and 
implementation activities, so that Year 2000 problems are identified 
early and addressed in a cost-effective manner.
    In order to obtain confirmation that licensees are addressing the 
Year 2000 problem effectively with regard to compliance with the terms 
and conditions of their licenses and NRC regulations, the NRC is 
requiring that all operating nuclear power plant licensees submit a 
written response stating how they plan to address the Year 2000 
problem. The written response is required by a Generic Letter issued on 
May 11, 1998, which has been developed and refined over the past six 
months.
    A copy of that Generic Letter is being provided for the record 
(available at http://www.nrc.gov/NRC/NEWS/year2000.html). This Generic 
Letter refers to the NEI guidance document (NEI/NUSMG 97-07) as an 
example of an acceptable approach for addressing the Year 2000 issue at 
nuclear power plants.
    By the middle of August 1998, the initial written response to the 
Generic Letter is due. In that response, nuclear power plant licensees 
will indicate whether they are pursuing a Year 2000 program based on 
the NEI program or a different program. Licensees who elect to use a 
different program are required to present a brief description of that 
program, to ensure that the computer systems at their facilities will 
be ready for the Year 2000. In addition, all operating nuclear power 
plants are required to submit a written response no later than July 1, 
1999, confirming that the facility is, or will be, Year 2000 ready by 
the Year 2000. If their program is incomplete as of July 1, 1999, their 
response must contain a status report, including completion schedules, 
for work remaining to ensure Year 2000 readiness.
    In addition to the written responses, we plan to conduct 
inspections, on a sampling basis, to assess licensee preparedness for 
the Year 2000. Any Year 2000 program used at a nuclear facility must be 
tailored to meet the specific needs and requirements of that facility 
and should, in general, comprise the following phases: awareness, 
assessment, remediation, validation, and implementation. Completion of 
the Year 2000 program means that the licensee has attained their 
program objectives. These program objectives could range from having 
all computer systems and applications, including embedded systems, 
being Year 2000 compliant, to having some systems Year 2000 compliant 
and the remaining systems retired or having permanent and/or temporary 
compensatory measures in place.
Bounding the year 2000 concern for nuclear power plants
    The potential impact of the Year 2000 problem on nuclear power 
plants varies with the types of computer systems in use. Licensees rely 
upon: (1) software to schedule maintenance and technical specification 
surveillance, (2) programmable logic controllers and other commercial 
off-the-shelf software and hardware, (3) digital process control 
systems, such as a feedwater control or valve control, (4) digital 
systems for collecting operating data, and (5) digital systems to 
monitor post-accident plant conditions.
    In addition to the reporting requirements in the Generic Letter, 
NRC regulations (10 CFR Part 21, 10 CFR 50.72, and 10 CFR 50.73) also 
require licensees to notify the NRC of significant deficiencies, 
significant non-conformances, and failures, such as some of those which 
could result from the Year 2000 problem in safety-related systems. To 
date, the NRC staff has not identified or received notification from 
licensees or vendors that a Year 2000 problem exists with safety-
related initiation and actuation systems. However, some problems have 
been identified in computer-based systems that, while non-safety-
related, are nonetheless important. Such systems, primarily databases 
and data collection processes necessary to satisfy license conditions, 
technical specifications, and NRC regulations that are date driven, may 
need to be modified for Year 2000 compliance.
    Some examples of systems and computer equipment that are most 
likely to be affected by Year 2000 problems include:
  --Plant security computers;
  --Plant process systems (data scan, log, and alarm and safety 
        parameter display system computers); and
  --Radiation monitoring systems.
    Because of the limited time remaining in which to address the 
problem, the majority of the program remediation, validation, and 
implementation activities should be completed at a facility by mid-
1999, leaving only a few such activities scheduled for the third and 
fourth quarters of 1999. In addition, we recognize that despite every 
reasonable effort by licensees to identify and correct Year 2000 
computer system problems at their facilities, some software, 
applications, equipment, and systems may remain susceptible to the 
problem. Additionally, software, data, and systems external to the 
facility could potentially affect the facility adversely. Therefore, to 
ensure continued safe operation of the facility into the Year 2000 and 
beyond, licensees should formulate contingency plans for affected 
systems and equipment. The concept of Year 2000 readiness includes the 
planning, development, and implementation of appropriate contingency 
plans or compensatory actions for items that are not expected to be 
Year 2000 compliant, to address the possible impact that unrecognized 
problems may have on safe plant operation.
Interactions with the nuclear power industry
    The NRC has been involved actively with the nuclear industry in 
addressing the Year 2000 problem, and we are reasonably encouraged by 
industry efforts. We expect continuation of this effort in the response 
to the NRC Generic Letter that I mentioned earlier.
    To ensure that senior level management at nuclear power plant 
licensees were aware of the Year 2000 problem, the first industry-wide 
NRC action was to issue Information Notice (IN) 96-70, ``Year 2000 
Effect on Computer System Software,'' on December 24, 1996. In that 
Information Notice, the NRC staff described the potential problems that 
nuclear power plant computer systems and software may encounter during 
the transition to the new century. The NRC staff also encouraged 
licensees to examine their uses of computer systems and software well 
before the turn of the century, and suggested that licensees consider 
appropriate actions for examining and evaluating their computer systems 
for Year 2000 vulnerabilities.
    At the Nuclear Utilities Software Management Group (NUSMG) Year 
2000 Workshop, an industry workshop held in July 1997, selected nuclear 
power plant licensees described their Year 2000 programs and gave 
examples of areas in which they had addressed Year 2000 issues in order 
to ensure the safety and operability of their plants on and after 
January 1, 2000. Some of the issues discussed included: (1) the 
evaluation of the impact of the Year 2000 problem on plant equipment; 
(2) the assessment process involved in the identification of 
components, vendors, and interfaces; (3) the development of Year 2000 
testing strategies; and (4) the identification of budget needs to 
address the Year 2000 problem.
    In August 1997, the NRC staff incorporated recognition of the Year 
2000 concern in the updated Standard Review Plan, NUREG-0800, Chapter 
7, ``Instrumentation and Control.'' This document provides guidance to 
NRC staff reviewers of computer-based instrumentation and control 
systems, to ensure that the Year 2000 issue was addressed in any new 
systems or modifications proposed by licensees.
    Also in August 1997, the Nuclear Energy Institute (NEI) met with 
NUSMG and nuclear plant utility representatives to formulate an 
industry-wide plan to address the Year 2000 issue. On October 7, 1997, 
representatives of NEI and NUSMG met with the NRC staff to discuss the 
actions that NEI was taking to help utilities make their plants ``Year 
2000 ready.'' NEI presented the framework document discussed earlier. 
That document makes a distinction in terminology between the 
expressions, ``Year 2000 ready,'' and ``Year 2000 compliant.'' ``Year 
2000 compliant'' is defined as those computer systems or applications 
that accurately process date/time data (including but not limited to 
calculating, comparing, and sequencing) from, into, and between the 
20th and 21st centuries, the years 1999 and 2000, and leap-year 
calculations. ``Year 2000 ready'' is defined as a computer system or 
application that has been determined to be suitable for continued use 
into the year 2000 even though the computer system or application is 
not fully ``Year 2000 compliant.''
    NEI/NUSMG issued the framework document to all licensees in 
November 1997. The document recommends methods for nuclear utilities to 
attain Year 2000 readiness and thereby ensure that their facilities 
remain safe and continue to operate within the requirements of their 
licenses. The scope of the document includes software, or software-
based systems or interfaces, whose failure (due to the Year 2000 
problem) would (1) prevent the performance of the safety function of a 
structure, system, or component, or (2) degrade, impair, or prevent 
compliance with the nuclear facility license and/or NRC regulations. 
After reviewing the document, the NRC has endorsed this document as an 
acceptable approach for dealing with the Year 2000 problem at nuclear 
power plants.
    NEI/NUSMG 97-07 also suggests a strategy for developing and 
implementing a Year 2000 program for nuclear utilities. The strategy 
recognizes management, implementation, quality assurance (QA) measures, 
regulatory considerations, and documentation as the fundamental 
elements of a successful Year 2000 project. The document contains 
examples of strategies that licensees currently are using, and also 
recommends that the Year 2000 program be administered through standard 
project management techniques.
    The recommended components for management planning are as follows: 
(1) management awareness, (2) sponsorship, (3) project leadership, (4) 
project objectives, (5) the project management team, (6) the management 
plan, (7) project reports, (8) interfaces, (9) resources, (10) 
oversight, and (11) quality assurance. The suggested phases of 
implementation are awareness, initial assessment (which includes 
inventory, categorization, classification, prioritization, and analysis 
of initial assessment), detailed assessment (including vendor 
evaluation, utility-owned or utility-supported software evaluation, 
interface evaluation, and remedial planning), remediation, Year 2000 
testing and validation, and notification.
    The QA measures specified in NEI/NUSMG 97-07 apply to project 
management QA and implementation QA. Regulatory considerations include 
the performance of appropriate reviews, reporting requirements, and 
documentation. Documentation of Year 2000 program activities and 
results includes documentation requirements, project management 
documentation, vendor documentation, inventory lists, checklists for 
initial and detailed assessments, and record retention. NEI/NUSMG 97-07 
also contains examples of various plans and checklists as appendices, 
which may be used or modified to meet the licensee-specific needs and/
or requirements.
    It should be recognized that NEI/NUSMG 97-07 is programmatic, and 
does not address fully all the elements of a comprehensive Year 2000 
program. In particular, augmented guidance in the area of risk 
management, business continuity and contingency planning, and 
remediation of embedded systems is needed to fully address some Year 
2000 issues that may arise in licensee program implementation. The NRC 
staff believes that the guidance in NEI/NUSMG 97-07, when properly 
augmented and implemented, presents an example of one acceptable 
approach for licensees when addressing the Year 2000 problem at nuclear 
power plant facilities.
The NRC role in ensuring electrical grid reliability
    Although the primary focus with our licensees has been on public 
health and safety related to reactor operations, we recognize the 
concern that the Year 2000 problem may potentially affect the 
reliability of electrical grids. Our regulatory focus in electrical 
grid reliability primarily relates to the challenges to plant safety 
systems that might result from a transient on the electrical grid, such 
as a loss of offsite power. Nuclear power reactors have two independent 
sources of offsite power, and are designed to safely shut down if a 
loss of all offsite power were to occur. In the event of a loss of 
offsite power, onsite electric power systems provide adequate 
electrical power to safely shutdown and cool down the reactors. As you 
know, NRC regulatory oversight and authority does not extend to the 
offsite electrical grid system.
    Notwithstanding our regulatory limits, we recognize the national 
importance of a broader focus that helps to ensure that potential 
concerns with electrical grid reliability are identified and resolved. 
We support the efforts of the President's Council on Year 2000 
Conversion and are members of the Energy Working Group. We are working 
closely with representatives from the Federal Energy Regulatory 
Commission and the Department of Energy to give assistance with, and 
share information on, potential problems associated with the Year 2000.
Conclusions
    The NRC and the nuclear power industry are addressing the Year 2000 
computer problem in a thorough and deliberate manner. To date, we have 
not identified or received notification from licensees or vendors that 
a Year 2000 problem exists with safety-related initiation and actuation 
systems. Further, we believe that we have, through Generic Letter 98-01 
and the planned follow-up inspections, established a framework that 
appropriately assures us that the Year 2000 problem will not have an 
adverse impact on the ability of a nuclear power plant to safely 
operate or safely shut down. We recognize the importance of maintaining 
a reliable electrical grid, and we will continue to work with the 
President's Council on Year 2000 Conversion Energy Working Group, the 
Federal Energy Regulatory Commission, and the Department of Energy to 
give assistance and share information regarding potential problems 
associated with the coming of the Year 2000.
    We look forward to working with the Special Committee and welcome 
your questions.

   Attachment--NRC Generic Letter No. 98-01: Year 2000 Readiness of 
         Computer Systems at Nuclear Power Plants, May 11, 1998

                               addressees
    All holders of operating licenses for nuclear power plants, except 
those who have permanently ceased operations and have certified that 
fuel has been permanently removed from the reactor vessel.
                                purpose
    The U.S. Nuclear Regulatory Commission (NRC) is issuing this 
generic letter to require that all addressees provide the following 
information regarding their programs, planned or implemented, to 
address the year 2000 (Y2K) problem in computer systems at their 
facilities: (1) written confirmation of implementation of the programs 
and (2) written certification that the facilities are Y2K ready with 
regard to compliance with the terms and conditions of their licenses 
and NRC regulations.
                      description of circumstances
    Simply stated, the Y2K computer problem pertains to the potential 
for date-related problems that may be experienced by a system or an 
application. These problems include not representing the year properly, 
not recognizing leap years, and improper date calculations. An example 
of a date-related problem is the potential misreading of ``00'' as the 
year 1900 rather than 2000. These problems can result in the inability 
of computer systems to function properly by providing erroneous data or 
failing to operate at all. The Y2K problem has the potential of 
interfering with the proper operation of computer systems, hardware 
that is microprocessor-based (embedded software), and software or 
databases relied upon at nuclear power plants. Consequently, the Y2K 
problem could result in a plant trip and subsequent complications on 
tracking post-shutdown plant status and recovery due to a loss of 
emergency data collection.
    The Y2K problem is urgent because it has a fixed deadline. It 
requires priority attention because of the limited time remaining, the 
uncertain risk that the problem presents, the technical challenges 
presented, and the scarcity of resources available to correct the 
problem.
    Existing reporting requirements under 10 CFR Part 21, 10 CFR 50.72, 
and 10 CFR 50.73 provide for notification to the NRC staff of 
deficiencies and non-conformances, and failures, such as some of those 
which could result from the Y2K problem in safety-related systems. To 
date, the NRC staff has not identified or received notification from 
licensees or vendors that a Y2K problem exists with safety-related 
initiation and actuation systems. However, problems have been 
identified in non-safety, but important, computer-based systems. Such 
systems, primarily databases and data collection processes necessary to 
satisfy license conditions, technical specifications, and NRC 
regulations that are date driven, may need to be modified for Y2K 
compliance.
    Some examples of systems and computer equipment that may be 
affected by Y2K problems follow:
  --Security computers
  --Plant process (data scan, log, and alarm and safety parameter 
        display system) computers
  --Radiation monitoring systems
  --Dosimeters and readers
  --Plant simulators
  --Engineering programs
  --Communication systems
  --Inventory control systems
  --Surveillance and maintenance tracking systems
  --Control systems

    To alert nuclear power plant licensees to the Y2K problem, the NRC 
issued Information Notice (IN) 96-70, ``Year 2000 Effect on Computer 
System Software,'' on December 24, 1996. In IN 96-70, the NRC staff 
described the potential problems that nuclear power plant computer 
systems and software may encounter as a result of the change to the new 
century and how the Y2K issue may affect NRC licensees. In IN 96-70, 
the NRC staff encouraged licensees to examine their uses of computer 
systems and software well before the turn of the century and suggested 
that licensees consider appropriate actions for examining and 
evaluating their computer systems for Y2K vulnerabilities. The NRC 
staff also incorporated recognition of the Y2K concern in the updated 
Standard Review Plan, NUREG-0800, Chapter 7, ``Instrumentation and 
Control,'' dated August 1997, which contains guidance for the NRC 
staff's review of computer-based instrumentation and control systems.
    At the Nuclear Utilities Software Management Group (NUSMG) Year 
2000 Workshop, an industry workshop held in July 1997, some nuclear 
power plant licensees described their Y2K programs and gave examples of 
areas in which they had addressed Y2K issues in order to ensure the 
safety and operability of their plants on and after January 1, 2000. 
Some of the issues discussed were (1) the evaluation of the impact of 
the Y2K problem on plant equipment, (2) the assessment process involved 
in the identification of Y2K-affected components, vendors, and 
interfaces, (3) the development of Y2K testing strategies, and (4) the 
identification of budget needs to address the Y2K problem.
    The Nuclear Energy Institute (NEI) met with NUSMG and nuclear plant 
utility representatives in August 1997 to formulate an industry-wide 
plan to address the Y2K issue. On October 7,1997, representatives of 
NEI and NUSMG met with the NRC staff to discuss the actions NEI was 
taking to help utilities make their plants ``Year 2000 ready.'' NEI 
presented a framework document that provides guidance for utilities to 
use in readying for the Year 2000. The framework document makes a 
distinction in terminology between ``Y2K ready'' and ``Y2K compliant.'' 
``Y2K compliant'' is defined as computer systems or applications that 
accurately process date/time data (including but not limited to 
calculating, comparing, and sequencing) from, into, and between the 
20th and 21st centuries, the years 1999 and 2000, and leap-year 
calculations. ``Y2K ready'' is defined as a computer system or 
application that has been determined to be suitable for continued use 
into the year 2000 even though the computer system or application is 
not fully Y2K compliant. (These definitions have been adopted by the 
NRC for purposes of this generic letter.)
    NEI/NUSMG issued the framework document NEI/NUSMG 97-07, ``Nuclear 
Utility Year 2000, Readiness,'' to all licensees in November 1997. The 
document recommends methods for nuclear utilities to attain Y2K 
readiness and thereby ensure that their facilities remain safe and 
continue to operate within the requirements of their license. The scope 
of NEI/NUSMG 97-07 includes software, or software-based systems or 
interfaces, whose failure (due to the Y2K problem) would (1) prevent 
the performance of the safety function of a structure, system, or 
component or (2) degrade, impair, or prevent compliance with the 
nuclear facility license and NRC regulations.
                               discussion
    Diverse concerns are associated with the potential impact of the 
Y2K problem on nuclear power plants because of the variety and types of 
computer systems in use. The concerns result from Licensees' reliance 
upon (1) software to schedule maintenance and technical specification 
surveillance, (2) programmable logic controllers and other commercial 
off-the-shelf software and hardware, (3) digital process control 
systems, (4) software to support facility operation, (5) digital 
systems for collection of operating data, and (6) digital systems to 
monitor post-accident plant conditions. The scope of NEI/NUSMG 97-07 
includes the broad range of computers and software-based systems in a 
nuclear power plant. However, NRC Y2K concerns are limited to safety-
related systems and other systems required by the nuclear power plant 
license or NRC regulations.
    One application that is common to all power reactor licensees is 
the link between plant computers and the NRC's Emergency Response Data 
System (ERDS). This application performs the communication and data 
transmission functions that provide near real-time data availability to 
NRC and State incident response personnel during declared emergencies. 
The NRC is currently performing Y2K-related upgrades to ERDS, which 
will maintain the same communication protocol as the current system, 
with the exception that either 2-digit- or 4-digit-year fields will be 
accepted. Those licensees that anticipate changes to their ERDS link 
should allow time in their schedules for retesting their systems. NRC 
contractors will support requests for testing on a ``first-come, first-
served'' basis.
    NEI/NUSMG 97-07 suggests a strategy for developing and implementing 
a nuclear utility Y2K program. The strategy recognizes management, 
implementation, quality assurance (QA) measures, regulatory 
considerations, and documentation as the fundamental elements of a 
successful Y2K project. The document contains examples currently in use 
by licensees and also recommends that the Y2K program be administered 
using standard project management techniques.
    The recommended components for management planning are management 
awareness, sponsorship, project leadership, project objectives, the 
project management team, the management plan, project reports, 
interfaces, resources, oversight, and QA. The suggested phases of 
implementation are awareness, initial assessment (which includes 
inventory, categorization, classification, prioritization, and analysis 
of initial assessment), detailed assessment (including vendor 
evaluation, utility-owned or utility-supported software evaluation 
interface evaluation, and remedial planning), remediation, Y2K testing 
and validation, and notification.
    The QA measures specified in NEI/NUSMG 97-07 apply to project 
management QA and implementation QA. Regulatory considerations include 
the performance of appropriate reviews, reporting requirements, and 
documentation. Documentation of Y2K program activities and results 
includes documentation requirements, project management documentation, 
vendor documentation, inventory lists, checklists for initial and 
detailed assessments, and record retention. NEI/NUSMG 97-07 also 
contains examples of various plans and checklists as appendices, which 
may be used or modified to meet the licensee's specific needs and/or 
requirements.
    It should be recognized that NEI/NUSMG 97-07 is programmatic and 
does not fully address all the elements of a comprehensive Y2K program. 
In particular, augmented guidance in the area of risk management, 
business continuity and contingency planning, and remediation of 
embedded systems is needed to fully address some Y2K issues that may 
arise in licensee program implementation. The NRC staff believes that 
the guidance in NEI/NUSMG 97-07, when properly augmented and 
implemented, presents an example of one possible approach for licensees 
when addressing the Y2K problem at nuclear power plant facilities.
    Another document that provides a useful overview of the elements of 
an effective Y2K program is a guide issued by the Accounting and 
Information Management Division (AIMD), U.S. General Accounting Office 
(GAO), GAO/AIMD-10.1.14, ``Year 2000 Computing Crisis: An Assessment 
Guide,'' September 1997. This guide is a distillation of the best 
practices of the Government and the private sector for dealing with the 
Y2K problem.
    It should be noted that the guidance in NEI/NUSMG 97-07 and GAO/
AMID-10.1.14 provides a framework only. Any Y2K program employed at a 
nuclear facility must be tailored to meet the specific needs and 
requirements of that facility and should, in general, be composed of 
the following phases: Awareness, assessment, remediation, validation, 
and implementation. Completion of the Y2K program means the attainment 
of the program objectives, which could range from all computer systems 
and applications, including embedded systems, being Y2K compliant, to 
some being Y2K compliant and the remaining retired or with permanent 
and/or temporary compensatory measures or work-arounds in place. Also 
to be considered are the future maintenance requirements for keeping 
the systems and applications Y2K ready, for example, when the ``fixed 
date window'' approach is used.
    t is recognized that in spite of every reasonable effort by 
licensees to identify and correct Y2K computer system problems at their 
facilities, some software, applications, equipment, and systems may 
remain susceptible to the problem. Additionally, software, data, and 
systems external to the facility could potentially affect the facility 
adversely. Therefore, to ensure continued safe operation of the 
facility into the Year 2000 and beyond, contingency plans should be 
formulated for affected systems and equipment. The concept of Y2K 
readiness includes the planning, development, and implementation of 
appropriate contingency plans or compensatory actions for items that 
are not expected to be Y2K compliant or ready and to address the 
possible impact of unidentified items and their effect on safe plant 
operation.
    Because of the limited time remaining in which to address the Y2K 
problem, at some facilities it may be necessary that some remediation 
and implementation activities he performed during normally scheduled 
plant outages in order to avoid additional outages to effect these 
activities. Hence, licensees should plan for this work accordingly. The 
NRC staff notes that unless the majority of the Y2K program 
remediation, validation, and implementation activities are completed at 
a facility by mid-1999, leaving only a few such activities scheduled 
for the third and fourth quarters of 1999, the facility may not be Y2K 
ready by the year 2000.
    In the course of implementing the Y2K program, problems could be 
identified that potentially affect the licensing basis of the plants. 
In certain cases, license amendments may be needed to address the 
problem resolution. Licensees should plan to submit such license 
amendments to the NRC on a timely basis. The utility Y2K programs and 
schedules should have the flexibility to accommodate such an 
eventuality. In addition, licensees are reminded that any changes to 
their facilities that affect their current licensing basis must be 
reviewed in accordance with existing NRC requirements and the change 
properly documented. Finally, we strongly encourage licensees to share 
information regarding identified remediation and implementation 
activities in order to maintain the likelihood that all Y2K problems 
are identified. We understand that Owners' Groups are implementing this 
and we encourage this effort.
                           required response
    In order to gain the necessary assurance that addressees are 
effectively addressing the Y2K problem with regard to compliance with 
the terms and conditions of their licenses and NRC regulations, the NRC 
staff requires that all addressees submit a written response to this 
generic letter as follows:

          (1) Within 90 days of the date of this generic letter, submit 
        a written response indicating whether or not you have pursued 
        and are continuing to pursue a Y2K program such as, or similar 
        to, that outlined in NEI/NUSMG 97-07, augmented appropriately 
        in the areas of risk management, contingency planning, and 
        remediation of embedded systems. If your program significantly 
        differs from the NEI/NUSMG guidance, present a brief 
        description of the programs that have already been completed, 
        are being conducted, or are planned to ensure Y2K readiness of 
        the computer systems at your facility(ies). This response must 
        address the program's scope, assessment process, plans for 
        corrective actions (including testing and schedules), QA 
        measures, contingency plans, and regulatory compliance.
          (2) Upon completing your Y2K program or, in any event, no 
        later than July 1, 1999, submit a written response confirming 
        that your facility is Y2K ready, or will be Y2K ready, by the 
        year 2000 with regard to compliance with the terms and 
        conditions of your license(s) and NRC regulations. If your 
        program is incomplete as of that date, your response must 
        contain a status report, including completion schedules, of 
        work remaining to be done to confirm your facility is/will be 
        Y2K ready by the year 2000.

    Address the written reports to the U.S. Nuclear Regulatory 
Commission, Attention: Document Control Desk, Washington, D.C. 20555-
0001, under oath or Summation under the provisions of Section 182a, 
Atomic Energy Act 1954, as amended, and 10 CFR 50.54(f). In addition, 
submit a copy to the appropriate regional administrator.
                           backfit discussion
    This generic letter requires information from addressees under the 
provisions of Section 182a of the Atomic Energy Act of 1954, as 
amended, and 10 CFR 50.54(f). The required information will enable the 
staff to verify that each nuclear power plant licensee is implementing 
an effective plan to address the Y2K problem and provide for safe 
operation of the facility before January 1, 2000, and is in compliance 
with the terms and conditions of their license(s) and NRC regulations. 
The following NRC regulations form a basis for this requirement:
  --10 CFR 50.36, ``Technical Specifications,'' paragraph (c)(3), 
        ``Surveillance Requirements,'' and paragraph (c)(5), 
        ``Administrative controls.'' These sections relate, 
        respectively, to requirements pertaining to testing, 
        calibration, or inspection to ensure that the necessary quality 
        of systems and components is maintained and to provisions 
        relating to management, procedures, recordkeeping, and review 
        and audit necessary to ensure operation of the facility in a 
        safe manner.
  --10 CFR 50.47, ``Emergency Plans,'' paragraph (b)(8), which relates 
        to the provision and maintenance of adequate emergency 
        facilities and equipment to support the emergency responses.
  --Appendix B to 10 CFR Part 50, Criterion III, ``Design Control,'' 
        requires that design control measures shall provide for 
        verifying or checking the adequacy of design, such as by the 
        performance of design reviews, by the use of alternate or 
        simplified calculational methods, or by the performance of a 
        suitable testing program.
  --Appendix B to 10 CFR Part 50, Criterion XVII, ``Quality Assurance 
        Records,'' requires that sufficient records shall be maintained 
        to furnish evidence of activities affecting quality. The 
        records are to include operating logs and the results of 
        reviews.
  --Appendix A to 10 CFR Part 50, General Design Criterion (GDC) 13, 
        ``Instrumentation and Control,'' which addresses the provision 
        of appropriate instrumentation and controls to monitor and 
        control systems and variables during normal operation, 
        anticipated operational occurrences, and accident conditions, 
        as appropriate, to ensure adequate safety.
  --Appendix A to 10 CFR Part 50, GDC 19, ``Control Room,'' which 
        requires the provision of a control room from which actions can 
        be taken to operate the nuclear plant safely.
  --Appendix A to 10 CFR Part 50, GDC 23, ``Protection System Failure 
        Modes,'' which requires that the protection system shall be 
        designed to fail into a safe state or into a state demonstrated 
        to be acceptable on some other defined basis.
                   paperwork reduction act statement
    This generic letter contains information collections that are 
subject to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). These information collections were approved by the Office of 
Management and Budget (OMB), approval number 3150-0011, which expires 
on September 30, 2000.
    The public reporting burden for this collection of information is 
estimated to average 100 hours per response, including the time for 
reviewing the instructions, searching data sources, gathering and 
maintaining the needed data, and completing and reviewing the 
information collected. This estimate assumes a licensee's response 
simply confirms the existence of a Y2K program, similar to that 
outlined in NEI/NUSMG 97-07, and that the program will be completed by 
July 1, 1999. Licensees whose Y2K program significantly differs from 
the NEI/NUSMG guidance or whose Y2K program will not be completed by 
July 1, 1999, must submit additional information to the NRC.
    The NRC is seeking public comment on the potential impact of the 
collection of information contained in this generic letter and on the 
following issues:

          1. Is the proposed collection of information necessary for 
        the proper performance of the functions of the NRC, including 
        whether the information will have practical utility?
          2. Is the estimate of burden accurate?
          3. Is there a way to enhance the quality, utility, and 
        clarity of the information to be collected?
          4. How can the burden of the collection of information be 
        minimized, including the use of automated collection 
        techniques?

    Send comments on the burden estimate and any aspect of this 
collection of information, including suggestions for reducing this 
burden, to the Information and Records Management Branch, T-6 F33, U.S. 
Nuclear Regulatory Commission, Washington, D.C. 20555-0001, and to the 
Desk Officer, Office of Information and Regulatory Affairs, NEOB-10202 
(3150-0011), Office of Management and Budget, Washington, D.C. 20503.
    The NRC may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid OMB control number.
    If you have any questions about this matter, please contact one of 
the technical contacts listed below or the appropriate Office of 
Nuclear Reactor Regulation (NRR) project manager.

                      Jack W. Roe, Acting Director,
                    Division of Reactor Program Management,
                              Office of Nuclear Reactor Regulation.

Technical Contact: M. Chiramal, NRR 301-415-2845, E-mail: [email protected]

Lead Project Manager: Allen G. Hansen, NRR, 301-415-1390 E-Mail: 
[email protected]

         ATTACHMENT--LIST OF RECENTLY ISSUED NRC GENERIC LETTERS
------------------------------------------------------------------------
                                           Date of
   Generic letter          Subject         issuance        Issued to
------------------------------------------------------------------------
97-06..............  Degradation of         12/30/97  All holders of OLs
                      Steam Generator                  for pressurized-
                      Internals.                       water reactors,
                                                       except those who
                                                       have permanently
                                                       ceased operations
                                                       and have
                                                       certified that
                                                       fuel has been
                                                       permanently
                                                       removed from the
                                                       reactor vessel.
97-05..............  Steam Generator        12/17/97  All holders of OLs
                      Tube Inspection                  for pressurized-
                      Techniques.                      water reactors,
                                                       except those who
                                                       have permanently
                                                       ceased operations
                                                       and have
                                                       certified that
                                                       fuel has been
                                                       permanently
                                                       removed from the
                                                       reactor vessel.
96-06, Sup. 1......  Assurance of           11/13/97  All holders of OLs
                      Equipment                        for nuclear power
                      Operability and                  reactors except
                      Containment                      those who have
                      Integrity During                 permanently
                      Design-Basis                     ceased operations
                      Accident                         and have
                      Conditions.                      certified that
                                                       fuel has been
                                                       permanently
                                                       removed from the
                                                       reactor vessel.
91-18, Rev. 1......  Infommation to         10/08/97  All holders of OLs
                      Licensees                        for nuclear power
                      Regarding NRC                    and NPRs,
                      Inspection Manual                including those
                      Section on                       power reactor
                      Resolution of                    licensees who
                      Degraded and                     have permanently
                      Nonconforming                    ceased
                      Conditions.                      operations, and
                                                       all holders of
                                                       NPR licenses
                                                       whose license no
                                                       longer authorizes
                                                       operation.
------------------------------------------------------------------------
OL=Operating License
CP=Construction Permit
NPR=Nuclear Power Reactors

                                 ______
                                 

             Responses of Shirley Ann Jackson to Questions

                     Submitted by Chairman Bennett

    Statement: ``All of our other mission-critical systems are on 
schedule to be Year 2000 compliant in accordance with OMB guidelines, 
with three currently being repaired, and three being replaced'' (page 
2, para.1).
     Question 1. What is the target completion date for the NRC 
mission-critical systems?
    Answer. Two of NRC's seven mission-critical systems have been 
completed. Four of NRC's five remaining mission-critical systems are on 
schedule to be completed on or before January 1, 1999. The final 
mission-critical system is on schedule to be completed by March 1999.

                                         MISSION-CRITICAL SYSTEM STATUS
----------------------------------------------------------------------------------------------------------------
                                           Renovation                Validation              Implementation
                                   -----------------------------------------------------------------------------
            System name              Milestone     Percent     Milestone     Percent     Milestone     Percent
                                        date       complete       date       complete       date       complete
----------------------------------------------------------------------------------------------------------------
              Repair
Emergency Response Data System....     08/1998           66      01/1999           35      03/1999            0
Emergency Telecommunications
 System...........................     08/1998           65      09/1998            0      10/1998            0
Operations Center Information
 Management System................     09/1998           42      12/1998            0      01/1998            0
              Replace
Agency Upgrade of Technology for
 Office Systems...................  ...........  ...........  ...........  ...........     12/1998           76
Licensing Tracking System.........  ...........  ...........  ...........  ...........     10/1998           40
----------------------------------------------------------------------------------------------------------------

    Statement: ``The concept of Year 2000 readiness includes the 
planning, development, and implementation of appropriate contingency 
plans or compensatory actions for items that are not expected to be 
Year 2000 compliant, to address the possible impact that unrecognized 
problems may have on safe plant operation'' (page 5, para. 1).
    Question 2. What contingency plans exist and what types of 
compensatory actions might be taken in the event such problems occur?
    Answer. As part of the programs being pursued by nuclear power 
plant licensees to address the Year 2000 problem, all licensees are 
developing contingency plans in the event unanticipated problems arise. 
The Nuclear Energy Institute (NEI) in conjunction with the Nuclear 
Utilities Software Management Group (NUSMG) is developing additional 
guidance for nuclear power plant licensees on contingency planning. 
This guidance will be available later in the Summer of 1998. We 
currently do not have detailed information on power reactor licensees' 
contingency plans. However, contingency planning is one of the areas 
that licensees are to address in their Year 2000 programs in response 
to NRC's Generic Letter 98-01 Year 2000 Readiness of Computer Systems 
at Nuclear Power Plants. Further, the NRC will review licensees' 
contingency planning as part of the Year 2000 readiness sample 
inspections.
    While contingency plans will be specific to the individual plant 
based on the specific impact of the Year 2000 problem on the facility, 
some general types of compensatory actions will likely be established. 
Examples of these include:

    (1) Provision for access control by augmenting the number of guards 
on site in the event of a failure in the security computer which 
prevents the ability to lock doors.
    (2) Provision for additional technical staff to perform engineering 
calculations in the event computer programs fail to work properly.
    (3) Provision for additional supplies of required materials such as 
fuel oil for backup diesel generators in the event of longer than 
anticipated loss of offsite power.

    Statement: ``In addition to written responses, we plan to conduct 
inspections, on a sample basis, to assess licensee preparedness for the 
Year 2000'' (page 3, para. 3).
    Question 3a. Describe the Year 2000 readiness inspection process. 
How many inspectors are there?
    Answer. The NRC staff has developed a draft Temporary Instruction 
containing guidance for conducting the Year 2000 readiness sample 
inspections. The draft is currently out for comment and will be 
finalized in August. The NRC staff currently plans to use approximately 
4 inspectors to conduct the Year 2000 readiness inspections.
    Question 3b. What are the inspectors' backgrounds?
    Answer. The NRC staff Year 2000 readiness inspectors are 
electrical/electronics engineers with backgrounds and knowledge in the 
review of the design of digital (software) based systems. These 
inspectors will have specific knowledge in the area of potential Year 
2000 problems.
    Question 3c. What time frame is in place regarding the inspections?
    Answer. The NRC staff plans to begin the Year 2000 readiness 
inspections in September 1998 and complete them by March 1999.
    Question 4. To what extent are NRC's nuclear power plant Year 2000 
readiness assessments ``self-verifying.'' Would a greater extent of 
independent verification be more useful?
    Answer. In response to our Generic Letter, power reactor licensees 
will confirm and provide information regarding Year 2000 readiness of 
their facilities. The NRC will review licensee response to the GL 98-
01. The NRC staff assessments and inspection-related activities of 
licensee Year 2000 programs are fully independent of any activities 
performed by the licensee. Therefore, the NRC staff review effort on 
licensee Year 2000 readiness is sufficiently independent to permit 
decisions to be made on the need for any subsequent actions. If the 
results of the sample inspections described in response to Question 3 
identify generic concerns, either additional inspections will be 
conducted or additional guidance will be issued.
    Statement: ``It should be noted that NEI/NUSMG 97-07 (Nuclear 
Utility Year 2000 Readiness framework document prepared by the Nuclear 
Energy Institute) is programmatic and does not address fully all the 
elements of a comprehensive Year 2000 program. In particular, augmented 
guidance in the area of risk management, business continuity and 
contingency planning and remediation of embedded systems is needed to 
fully address some Year 2000 issues that may arise in licensee program 
implementation'' (page 8, para. 2).
    Question 5. Who will be the source of this guidance, and how can it 
be best coordinated across the nuclear power industry?
    Answer. As mentioned above in the response to Question 2., NEI/
NUSMG is developing additional guidance for the nuclear power industry 
on contingency planning. Guidance on risk management, business 
continuity and remediation of embedded systems is provided in the 
General Accounting Office (GAO) document, GAO/AIMD-10.1.14, ``Year 2000 
Computing Crisis: An Assessment Guide'', September 1997 which is 
referred to in the NRC Generic Letter 98-01, ``Year 2000 Readiness of 
Computer Systems at Nuclear Power Plants'' dated May 11, 1998. 
Additionally, the NRC plans to participate in an industry-sponsored 
workshop to be offered later this year on industry Year 2000 progress. 
The NRC will use this opportunity to discuss its initial findings from 
the Year 2000 inspections it will begin in September.
    Statement: ``Notwithstanding our regulatory limits, we recognize 
the national importance of a broader focus that helps to ensure that 
potential concerns with electrical grid reliability are identified and 
resolved'' (page 9, para. 1).
    Question 6. What can be done to assure this broader focus?
    Response: A broader focus for nuclear power plant Year 2000 
readiness beyond nuclear safety is provided in NEI/NUSMG 97-07. This 
document addresses Year 2000 readiness of all nuclear power plant 
systems including not only safety-related systems, but those necessary 
for continued plant operation in order to maintain supply to the 
electrical grid. Moreover, NRC is fully supporting the broader focus as 
a member of the Energy Sector Working Group of the President's Council 
on Year 2000 conversion.
    Statement: ``To date, we have not identified or received 
notification from licensees or vendors that a Year 2000 problem exists 
with safety-related initiation and actuation systems'' (page 9, para. 
2).
    Question 7. What are the exact reporting requirements of 10 CFR 
Part 21, 10 CFR 50.72, and 10 CFR 50.73, which mandate that the NRC be 
notified of such instances? How do these regulations relate to the 
vendors?
    Answer. 10 CFR Part 21, Reporting of Defects and Noncompliances, 
specifically requires nuclear power plant licensees and vendors 
providing safety-related equipment or equipment providing safety 
functions to report defects and noncompliances identified in that 
equipment to the NRC. A Year 2000 problem in a safety-related 
initiation and actuation system is an example of such a reportable 
defect. 10 CFR 50.72, immediate notification requirements for operating 
nuclear reactors, requires nuclear power plant licensees to immediately 
notify the NRC of emergency situations and promptly notify the NRC of 
other non-emergency events such as deviations from plant technical 
specifications including unanalyzed conditions that significantly 
compromise plant safety or could prevent the fulfillment of a safety 
function.
    10 CFR 50.73, Licensee Event Report System, requires licensees to 
submit a Licensee Event Report (LER) within 30 days after discovery of 
an event which is prohibited by plant technical specifications or 
results in the plant being in an unanalyzed condition that 
significantly compromises plant safety or was outside the design basis 
of the plant. Events covered by 10 CFR 50.72 and 10 CFR 50.73 include 
equipment failures and design errors such as may result from a Year 
2000 problem in a safety-related initiation and actuation system. 10 
CFR 50.72 and 50.73 do not apply to vendors.
                               __________

                 Prepared Statement of John A. Koskinen

    Good morning, Mr. Chairman. I am pleased to appear before the 
committee to discuss the activities of the President's Council on Year 
2000 Conversion and the year 2000 problem's implications for the energy 
industry.
    Let me begin, however, by expressing my support for the work of 
this committee. I am confident the committee will play a key role in 
helping to address the year 2000 problem, and I appreciate your 
commitment to focus not only on year 2000 activities within the Federal 
Government, but in the private sector as well, where it is clear we 
face a real challenge in raising awareness among small and medium-sized 
organizations. I would also like to express my appreciation to you, Mr. 
Chairman, and to Senator Dodd, for the work that you both have done to 
increase awareness of the problem in the financial services industry. 
The Council has formed a financial institutions group to work with 
industry leaders in this important area, and we look forward to working 
with you as well.
    As you know, like the financial sector, energy is a key part of our 
Nation's infrastructure. While people in other sectors are focused on 
ensuring that their systems and date-sensitive embedded chips are ready 
for the new millennium, that work will be irrelevant if we have power 
failures on January 1, 2000. To prevent such an outcome, we need to 
work together in an ongoing dialogue with the industry to raise 
awareness of the problem and to facilitate information exchanges. 
Today's hearing is a valuable contribution to that dialogue.
                  council structure--economic sectors
    As you know, I returned to Federal Government in March to chair the 
President's Council on Year 2000 Conversion. The Council's mission is 
two-fold: To assist Federal agencies as they work to prepare their 
systems for the new millennium and to coordinate agency efforts to 
increase awareness of the problem among private sector entities, State 
and local governments, and international organizations.
    The Council is made up of senior executives from more than 30 major 
Federal executive branch, regulatory, and independent agencies who were 
personally chosen by their agency heads and have the authority to 
commit their agencies to action on the spot. The full Council meets at 
least monthly to discuss not only agency efforts to increase awareness 
of the problem outside of the Federal Government, but agency progress 
in ensuring that Federal mission-critical systems will be year 2000 
compliant.
    While several of the agencies confront significant management 
challenges, I am confident that the vast majority of Federal mission-
critical systems will be ready for the year 2000. In the ongoing 
discussion about the Federal response to this problem, we often 
overlook the fact that many agencies are making excellent progress. 
According to the most recent OMB quarterly report, 71 percent of 
mission-critical systems in the nine agencies assigned OMB's highest 
ranking are year 2000 compliant--nine months ahead of the government-
wide goal.
    An important fact in our favor is that senior managers in the 
Federal Government are very much aware of the year 2000 problem. I've 
met individually with the heads of more than 40 agencies, and their 
agencies are working hard to ensure that critical Federal systems are 
compliant. I wish I could be as certain that is the case in every 
organization outside of the Federal Government. Unfortunately, many 
organizations are not paying appropriate attention to the problem. That 
is why our outreach efforts are so important.
    One of the things I emphasized in my meetings with the agency heads 
was that, while it is very important for agencies to focus on fixing 
their own systems, they also have a responsibility to reach out to 
organizations within their policy areas to increase awareness of the 
problem and to offer support. The agencies have accepted that 
challenge, but that does not mean the Federal Government has the 
authority or the responsibility to fix others' systems. The Government 
has no such authority in many areas of our economy, and getting people 
to take personal responsibility for ensuring that their systems work is 
key to the success of the Nation's year 2000 preparations.
    So how can we most effectively reach out to organizations outside 
the Federal realm? This was one of the first questions the Council 
addressed. We decided that, to be most effective, we needed to build on 
existing organizational relationships between agencies and outside 
groups, which are in many cases their normal constituencies. We asked 
the agencies to also consider reaching out to important sectors we 
don't regularly contact and to coordinate outreach efforts to ensure 
there are no gaps in coverage. Fortunately, our normal working 
relationships reach into many important areas of the economy. The 
Federal Reserve, for example, has an ongoing relationship with the 
Nation's banks. The Federal Aviation Administration has an ongoing 
dialogue with the airline industry. And there were obvious industries 
we could initiate contact with, such as having the Environmental 
Protection Agency discuss the year 2000 problem with the operators of 
local wastewater treatment plants.
    The Council has organized itself to take advantage of these 
relationships. We have identified roughly 30 economic sectors and 
enlisted agencies who have policy interests in, or connections to, 
these areas to serve as ``coordinators,'' to increase awareness of the 
problem and to offer support. In this role, agencies are also getting 
feedback on organizations' progress in addressing the problem, which 
will help us identify areas of concern. In particular, agencies are 
working with industry trade associations, who have unique capabilities 
for communicating with their members about the problem, individual 
companies, State and local governments, and international institutions.
    For example, the Transportation Department will soon be holding an 
Intelligent Transportation Systems summit in Washington that will bring 
together industry leaders, State and local transportation officials, 
and transportation technology suppliers to discuss solutions for 
possible year 2000-related disruptions in the operation of traffic 
control systems. The Federal Communications Commission last week held a 
roundtable of industry leaders to discuss the year 2000 problem's 
implications for public safety systems. The Small Business 
Administration will run a series of public service announcements on the 
problem aimed at small business owners. The Department of Health and 
Human Services and the Veterans Administration are working with 
hospital trade associations and the American Medical Association to 
increase awareness of the problem among the Nation's hospitals. And the 
Food and Drug Administration is again surveying medical device 
manufacturers about the year 2000 compliance of their equipment.
    We are also using other ``leverage points'' in our outreach 
efforts. These are organizations who, by virtue of their actions or 
opinions, can be a powerful influence to encourage others to ensure 
that their systems are ready for the new millennium. This is 
particularly important for small and medium-sized organizations that 
seem to be the least aware of the problem's significance to their 
operations. Therefore, I have met with several rating agencies and the 
year 2000 task force of the American Institute of Certified Public 
Accountants to encourage them to reiterate to their clients the 
importance of addressing the year 2000 problem.
                   council structure--working groups
    The Council has formed agency working groups to coordinate agency 
outreach activities in several key parts of the Nation's infrastructure 
that require an intensified focus. We have working groups that cover 
telecommunications, financial institutions, workforce issues, emergency 
preparedness, and energy. I will address the energy working group's 
activities in greater detail momentarily.
    The telecommunications group, which the FCC chairs, is working with 
industry groups and the Nation's largest telecommunications service 
providers to minimize potential disruptions to the communications 
network we have all come to rely upon. One of the real challenges in 
this area is international telecommunications. In countries that have 
thus far done very little to address the problem, there is a 
significant chance for telecommunications failures on January 1, 2000.
    For financial institutions, I did not initially plan to form a 
working group because of the good progress being made, thanks to hard 
work of agencies like the Fed, the Office of Thrift Supervision and 
other members of the Federal Financial Institutions Examination 
Council, and the Securities and Exchange Commission. Recognizing this 
is an area of unparalleled importance to the Nation's economy, however, 
the Council decided we should form a working group. This Fed-chaired 
group is now working to address the problem not only with U.S. banks, 
but with the securities industry, mortgage companies, and government 
sponsored entities.
    The Labor Department chairs the workforce issues group, which is 
focused not only monitoring the Federal Government's supply of workers 
for its year 2000 remediation activities, but on ways to help mitigate 
some of the potential year 2000 workforce shortages in the economy as a 
whole. Labor has electronic job and talent banks that will be modified 
to contain a special section devoted to the year 2000 problem. This 
will enable job-seekers to connect with organizations that are in need 
of assistance. The group is also working to form relationships with 
outside parties such as the American Association of Retired Persons 
that have unique capabilities for reaching those retirees with special 
skills for addressing the problem.
    The emergency services working group, chaired by the Federal 
Emergency Management Agency, is concentrating on ensuring that State 
and local emergency response officials are addressing the year 2000 
problem. Emergency response agencies need to assess their own systems 
to make sure they are year 2000 compliant. But they also need to 
prepare for potential problems caused by failing computer systems and 
embedded chips in their communities just as they would a major storm or 
earthquake, since the year 2000 problem has the potential for causing 
disruptions in key infrastructure segments.
                                 energy
    Because it is such a critical part of the Nation's infrastructure, 
we are very concerned about year 2000 progress in the energy industry. 
The wide range of companies active in the production and transportation 
of power, which include investor-owned utilities, publicly owned 
utilities, Federal power marketing associations, and oil and gas 
producers, makes the challenge of outreach all the more difficult.
    As a result, the Council has taken the step of appointing two 
chairs--the Energy Department for electric power, and the Federal 
Energy Regulatory Commission for oil and gas. The entire group is 
working to engage industry in an ongoing dialogue about the level of 
awareness, assessment, and remediation that is underway, and is 
offering Energy and FERC to coordinate the activities of Federal 
agencies in this area. Again, while the Government does not have direct 
control over most of these organizations, we can play an important role 
in facilitating an information exchange on year 2000 best practices and 
shared experiences among those in the industry.
    We are also very concerned about the implications of date-sensitive 
embedded chips for the energy industry. Some of these chips help to 
carry out critical functions in power plants and oil production 
facilities, and we are encouraged that the industry recognizes the 
importance of this issue.
    Thus far, we have been delighted with the response we have received 
from various energy trade associations. The working group has met with 
the North American Electric Reliability Council, which has agreed to be 
our contact with the electric power industry. In a meeting last week, 
the American Petroleum Institute and the Natural Gas Council agreed to 
use their capabilities as umbrella organizations to raise awareness of 
the problem within their industries and to survey the progress of their 
members. While it is difficult to make estimates at this stage in the 
process, the consensus is that the largest companies in the energy 
industry are actively working to ensure their ability to function as we 
move into the new millennium.
                             moving forward
    There is no doubt the year 2000 problem poses a significant 
challenge to the global economy. I am confident that Federal agencies 
will live up to their end of the bargain, both in fixing their critical 
systems and in increasing awareness beyond the Federal Government. We 
will continue to reach out to public and private organizations--
particularly in key infrastructure areas such as energy--to encourage 
people to take personal responsibility for solving their year 2000 
problems. As I have often said, there is no guarantee that every 
critical system will be fixed. But if we work hard, and if we work 
together, I think we will be well-positioned to achieve our ultimate 
goal of ensuring that any inconveniences caused by the year 2000 
problem will be relatively minor.
    I thank the committee for its interest in the year 2000 problem. 
You are making a valuable contribution to the public dialogue about 
this matter. I look forward to working with you, and I would be happy 
to answer any questions that you may have.
                                 ______
                                 

   Responses of John A. Koskinen to Questions Submitted by Chairman 
                                Bennett

    Question 1. You stated several times that sector groups will be 
both raising awareness and trying to develop assessments. What 
deadlines are being placed on the working groups to finish these 
assessments and at what point do they begin contingency planning?
    Answer. The Council's sector groups are working closely with 
industry trade associations, companies, State and local governments, 
and international entities to raise awareness and gain an understanding 
of the state of year 2000 preparedness in various sector areas. While 
there is no deadline for this work, we expect to be able to make 
assessments in many areas by the end of this year. In Federally 
regulated areas, such as banking, many oversight agencies already have 
information available from preliminary and ongoing assessments.
    With regard to contingency planning, the Council's sector groups 
will not be drawing up plans for each sector. Instead, as part of their 
efforts to increase awareness of the year 2000 problem, agencies are 
encouraging organizations outside the Federal Government to focus on 
contingency planning as part of preparing for the year 2000. (Federal 
agencies have already been required to begin contingency planning for 
their activities.) The Council itself will begin to consider 
appropriate contingency plans for a Federal response to possible third-
party failures as we move toward the end of this year, when those 
organizations have a better sense for which of their systems are 
unlikely to meet the January 1, 2000 deadline.
    Question 2. Could you please elaborate on the role the Vice 
President is playing in the Y2K challenge? What exactly is his level of 
involvement?
    Answer. The Vice President is actively involved in the 
Administration's year 2000 efforts. He and the President have spoken to 
the Cabinet and emphasized to the agency heads that they must take 
personal responsibility for ensuring that their agency's mission-
critical systems are ready for the year 2000. The Vice President has 
also worked to focus the President's Management Council, a group 
composed of agency deputy secretaries, on the issue, meeting with them 
to stress the importance of agencies preparing their systems for the 
new millennium. In addition, the Vice President receives briefings and 
reports from me, and he and his staff are working closely with the 32 
``high impact'' agencies that most directly relate to the public, to 
emphasize that solving the year 2000 problem is critical to their 
ability to deliver services to the American people.
    Question 3. What do you see as the greatest national and economic 
security risks associated with the Year 2000 computer problem?
    Answer. The greatest risks both to national and economic security 
come from outside the United States. We truly live in a global economy 
that is increasingly interrelated and dependent upon the electronic 
exchange of information for financial and other transactions. 
Unfortunately, a large number of countries have thus far paid little or 
no attention to the year 2000 problem. Part of our concern is based on 
the fact that we have little control over other countries' year 2000 
preparations. Thus, while we are actively reaching out, through 
international organizations as well as our embassies, to encourage 
other countries to address the problem in areas such as finance and 
national security, there is little we can to do ensure that their 
critical systems will be ready.
    We are also concerned that countries take appropriate actions to 
ensure the safety of weapons systems that could be affected by the 
problem, and we have been working through the Defense Department, State 
Department, and other channels to encourage foreign governments to 
address this critical area. Council members from the State Department 
recently met in London with the international year 2000 experts from 
other G-8 countries to discuss trans-boundary aspects of the problem in 
areas such as defense and finance. Finally, we have discussed with the 
National Security Council and other security agencies our concern about 
possible problems raised by work done abroad on U.S. systems.
    Question 4. You stated that FEMA will be chairing the emergency 
services working group. How will this group facilitate contingency 
planning when there are no accurate assessments of the potential Y2K 
problems? How will the emergency services group interface with the 
other working groups?
    Answer. As chair of the emergency services sector group, FEMA is 
working to increase awareness of the year 2000 problem among State and 
local disaster officials and to stress the importance of contingency 
planning for failures that are likely to occur in systems that support 
key segments of the infrastructure. The FEMA-led group includes a wide 
range of Federal agencies, such as the SBA, the Defense Department, and 
GSA, with experience in responding to State requests for assistance. 
The group is reviewing what, if any, additional work is needed to 
prepare for possible infrastructure failures, since the effect of year 
2000-related infrastructure failures will be similar to that created by 
natural disasters such as hurricanes and earthquakes. As noted above, 
we expect to begin to have better assessments of where the country may 
have difficulties by the end of this year, and FEMA and its working 
group will have full access to such information.
    Question 5. In your testimony you mentioned that you asked agencies 
to consider reaching out to sectors they would not normally contact to 
ensure that there are no gaps. Could you give an example of such a 
sector?
    Answer. As noted in my testimony, I have asked agencies ``to reach 
out to organizations within their policy areas to increase awareness of 
the problem and to offer support.'' Some of these organizations will be 
outside of the agency's normal contacts. The food supply sector 
provides an excellent example of an agency reaching out to 
organizations with whom it would not normally have contact. The 
Agriculture Department, the sector group's lead agency, has a 
longstanding relationship with farmers and other producers in 
implementing food safety regulations. But since this sector group is 
looking at the concept of food distribution from farm to table, the 
Department is now reaching out to shippers, grocers, and others with 
whom they would normally have very little contact to increase awareness 
of the problem and offer support.
    Question 6. Has the Council considered a public awareness campaign 
to educate and inform the general public about how to prepare for Y2K? 
For example, would you recommend people keep copies of their previous 
utility bills and bank statements in case there are problems with 
billing and accounting systems?
    Answer. At this time, our major focus in terms of public campaigns 
is on raising awareness of the problem among small and medium-size 
businesses. The SBA has a major national campaign underway, supported 
by a series of private sector partners from several industries, that 
includes public service announcements, a web page, and distribution of 
printed materials. As we move forward, an important part of our 
communications efforts will be to ensure that the general public has 
available information about what works and what doesn't. On the Federal 
level, we have an obligation to advise the public directly about 
Government services that are year 2000 compliant, as well as those that 
are not. We will also be working with the private sector and State and 
local government to encourage them to share similar information about 
their services and products on an organization-by-organization basis. 
With regard to retaining bills and statements, information is not 
available at this time that would indicate the public should be advised 
that such actions are necessary, although many individuals already 
preserve such records for future reference.
    Question 7. You briefly touched on the global implications of Y2K. 
Have you seen any indications that we could suffer disruptions in our 
oil imports?
    Answer. Thus far, we do not have indications that Y2K will disrupt 
our oil imports. But energy generally, and oil and gas in particular, 
is an area of great concern to the Council. The Transportation 
Department is working to reach out to worldwide insurers and shippers, 
because there may be substantial risks in the embedded chips area to 
ports and ships' ability to operate effectively. Also, the oil and gas 
portion of our energy sector group is working closely with the industry 
on the problem, and part of their efforts will be to reach out to 
foreign counterparts as well.
    Question 8. Some Year 2000 experts have pointed to other dates 
which could be problematic such as September 9, 1999. What attention is 
being paid to the possibility that this date could trigger disruptions 
in the different infrastructures?
    Answer. While use of the date, September 9, 1999 (9/9/99), in 
programming could be a problem in specific instances, it is not likely 
to be a widespread problem. Unlike using a two-digit year, which was 
accepted programming practice, programmers' use of 9s to do things such 
as signal an end of a file or table have been viewed as bad programming 
practice. Furthermore, where a programmer used such a marker, it is 
much more likely they would use 99/99/99, instead of 9/9/99, since it 
is both logically higher than any possible date field and does not 
represent an actual date. Nevertheless, the problem could occur, and 
agency technicians are looking for it as part of their year 2000 fixes.
    The fact that 2000 is a leap year also may be a problem in a few 
cases. But again, this should not be a widespread problem. The same 
logic (i.e., this system will not be in place when the year 2000 
arrives) that caused programmers not to use a four-digit year, also 
works to mitigate the leap year problem. If the program was not 
expected to be running in 2000, there was little likelihood that there 
would be a focus on a complex way to calculate a leap year. The easiest 
way to calculate a leap year is: if the year is divisible by four, it 
is a leap year. Therefore, most programmers would have coded that 
logic. That logic will work in the year 2000 because, unlike 1900 or 
2100, 2000 actually is a leap year. Programmers that were meticulous, 
and coded their programs to address the leap year in 2000, would have 
investigated the rules for 2000 and accommodated it. Here again, 
however, notwithstanding all of the above, the problem may occur and 
agency technicians are checking for it and testing to be sure that 
systems will work through the leap year.
    Question 9. I understand that you have two assistants and a 
secretary. Is that the extent of your staff? If so, do you really think 
this is sufficient staff for this daunting management task?
    Answer. My direct administrative staff, at this time, consists of 
two professionals, an administrative assistant, a senior-level 
detailee, and an intern. I believe that is an appropriate level of 
administrative staff in light of the structure we have created. We also 
receive direct support from several professionals at OMB and GSA, which 
provides logistical support for the Council. More significantly, each 
of the Council's 34 sector groups is chaired and supported by senior 
executives and support staff from the agencies heading up the groups. 
Thus, hundreds of individuals are working under my direction on the 
year 2000 problem as part of the Council's operations.
    Question 10. What are the long-term effects of the Year 2000 
computer problem? Will we suffer from the increased vulnerabilities of 
patched systems? Or will we benefit from strengthened and updated 
infrastructures?
    Answer. I think the most important positive long-term effect of the 
problem is that it has forced organizations to conduct extensive 
inventories of their systems. This is leading to greater efficiency 
because, in the process, they are discovering new and better ways for 
carrying out business processes, in addition to retiring systems they 
no longer need. Unfortunately, one of the problem's negative effects is 
that, in some areas, organizations are delaying much-needed 
modernizations and upgrades just to ensure that they can keep their 
core business processes operating. These organizations are making 
investments, but they are investments to stay in business, not to 
improve productivity. On the latter point, we could suffer from 
increased vulnerabilities of patched systems, but we are just as likely 
to benefit from strengthened and updated infrastructures.
    Question 11. What is the greatest challenge you face in reaching 
out to the public sector?
    Answer. Our greatest challenge in reaching out to the public sector 
is increasing awareness among local governments. While I am reasonably 
confident that most States have a good handle on the problem, I am not 
as confident about county and town governments. However, we are working 
with groups such as the National Governors' Association, the National 
Association of Counties, and the National League of Cities to increase 
awareness of the problem among local officials.
                               __________

                 Prepared Statement of Senator Jon Kyl

    Mr. Chairman, let me begin by commending you on your leadership on 
this vital issue. While there has been some activity in the Congress on 
Year 2000 related matters, up until now it has not received the 
prominence or the sustained focus it deserves. I want to thank you for 
recognizing the need for this Committee, for taking on the time 
consuming and difficult task of chairing this Committee, and for your 
personal commitment to the welfare and security of our nation.
    As we begin today's hearing, I am reminded of a statement Henry 
Kissinger made in 1975 ``Competing pressures tempt one to believe that 
an issue deferred is a problem avoided: more often it is a crisis 
invented.'' \1\ Kissinger's statement is particularly true of the Year 
2000 Technology Problem (Y2K). Y2K is an issue which has been deferred, 
and a problem that has been largely avoided. Now it may well escalate 
into a national crisis.
---------------------------------------------------------------------------
    \1\ Henry Kissinger, TIME Magazine 1975.
---------------------------------------------------------------------------
    In fact, we do not know the scope or the severity of the problem. 
Right now speculation about the consequences of Y2K runs the gamut from 
a low of doomsday thinking to a high of reckless optimism. The 
empirical data needed for accurate infrastructure assessments and 
development of broad-based contingency planning does not exist.
    I can only say two things for certain about the Y2K problem. The 
deadline is fixed and the litigation could be fierce. The Y2K 
environment is already a highly charged legal atmosphere. As we will 
hear, fears of liability and litigation are impeding some efforts to 
share information about Y2K readiness.
    The Y2K problem is simple to state. Some software and computer 
chips interpret ``00'' of 2000 as the year 1900 which may result in 
miscalculations and even system failures. Fixing the problem is 
straightforward, but also time consuming and expensive, because it 
requires the careful correction, testing and replacement of affected 
software and chips. So for companies and government agencies alike, 
coordinating the Y2K readiness of computerized and embedded systems is 
principally a management problem.
    But on a national level, Y2K is not simply a management problem. We 
need clear leadership from the White House, and effective public policy 
initiatives to prepare the country for the far reaching ramifications 
of Y2K requirements and effects.
    With the establishment of the President's Council on Year 2000 
Conversion, we are seeing some of that much needed leadership emerge. 
But the Clinton Administration has come surprisingly late to this task.
    One of the hallmarks of the Clinton Administration has been its 
focus on the ``information superhighway.'' In 1993, the President 
established an Advisory Council on the National Information 
Infrastructure (NII) to examine a wide-range of NII relevant issues. 
Despite the Council's three committees, seven interagency working 
groups, and countless meetings and reports, no attention was paid to 
the coming Y2K challenge. Early assessments of the potential effect of 
Y2K on the NII may have helped prevent the growing frenzy we are 
witnessing today.
    The President's Commission on Critical Infrastructure Protection 
(PCCIP) was formed in July, 1996 to address new threats and 
vulnerabilities emerging in the information age. While tasked to 
formulate a national strategy for protecting the infrastructures 
critical to our national life, the Commission was not asked to examine 
the implications of Y2K on those systems. And yet, the Commission 
warned that Y2K corrections could provide an opportunity for would be 
hackers and cyber terrorists to ``design a subtle or comprehensive 
attack'' against critical systems.\2\
---------------------------------------------------------------------------
    \2\ Critical Foundations: Protecting America's Critical 
Infrastructures. The President's Commission on Critical Infrastructure 
Protection, October 1997.
---------------------------------------------------------------------------
    In my Judiciary Subcommittee on Technology, Terrorism and 
Government Information, we have been examining threats to the nation's 
critical infrastructures from hackers, terrorists, and foreign states 
employing the new techniques of information warfare. At our March 17 
hearing, Senator Sam Nunn testified in his role as Co-Chair of the 
Advisory Committee to the PCCIP:

        The Year 2000 problem is a specific threat deserving immediate 
        attention. Clearly, there is nothing hypothetical about this 
        problem--we know that it is coming and we know when--and its 
        effects will be far-and wide-ranging in both the private sector 
        and the government.\3\
---------------------------------------------------------------------------
    \3\ Senator Sam Nunn, Testimony Before the Senate Committee on 
Judiciary Subcommittee on Technology, Terrorism and Government 
Information, March 17, 1998.

    Clearly, at both the national and local level, we will need serious 
and well founded contingency planning for Y2K related disruptions, to 
ensure, at a minimum, the provision of essential government emergency 
services. When I asked John Koskinen, Chairman of the Y2K Council what 
the government was doing in the area of contingency planning, he wrote 
back that ``FEMA will take the lead in assuring that the Federal 
government is doing all that is necessary to be ready should serious 
disruptions occur.'' \4\
---------------------------------------------------------------------------
    \4\ Letter from John Koskinen, Chairman of the Year 2000 Conversion 
Council, April 23, 1998.
---------------------------------------------------------------------------
    But I had also written to James Lee Witt, the director of the 
Federal Emergency Management Agency (FEMA), to inquire about their 
assessments of possible disruptions in the electric power grid and 
their associated contingency plans. The FEMA Assistant Director wrote:

        FEMA has performed no assessments of the Y2K computer problem 
        on the telecommunications and electric power infrastructures. 
        FEMA has no contingency plans specifically designed to address 
        network interoperability or embedded chip failures in either 
        the telecommunications or electric power industriesd.\5\
---------------------------------------------------------------------------
    \5\ Letter from Kay C. Goss C.E.M., Associate Director for 
preparedness, Training and Exercises.

    If the agency charged with contingency planning has no contingency 
plans, then either the Administration does not expect to have any 
emergency preparedness needs that are Y2K specific, or the federal 
government is failing in its responsibility to our citizens and needs 
to correct that deficiency immediately.
    Mr. Chairman, the hearing you have called today is especially 
timely. The purpose of today's hearing is to allow us to gain insight 
into the electric power infrastructure and the special challenges Y2K 
poses to generation, transmission, and distribution systems. The 
electric power industry is very complex because there are no standard 
control center system configurations. They range from isolated, 
mainframe-based systems developed in-house more than 20 years ago to 
off-the-shelf, commercially developed, networked, client/server 
systems. These system are also tied to automated substations and a 
variety of intelligent electronic devices which are all susceptible to 
Y2K problems with software and embedded chips.\6\
---------------------------------------------------------------------------
    \6\ Electric Power Risk Assessment. The President's National 
Security Telecommunications Advisory Committee, March 1997.
---------------------------------------------------------------------------
    It would also be extremely helpful to hear an accurate assessment 
of the effects of Y2K on the electric power infrastructure, and to 
examine how disruptions could impact national and economic security. 
Unfortunately, what we will learn today is that no such reliable 
assessment exists. Throughout our proceedings we will hear an all too 
familiar refrain in the world of Y2K: ``Nobody really knows.''
    Earlier this year, the Electric Power Research Institute (EPRI) 
took the lead in beginning to examine the possible effects of embedded 
chip failures in the electric power industry. We are very fortunate to 
have Dr. Charles Siebenthal, Director of EPRI's Y2K Embedded Systems 
Program testifying before us today. According to EPRI:

        Embedded systems perform mission-critical functions in all 
        parts of utility operations, communications, and business. 
        Therefore it is important, particularly for infrastructure 
        industries, to recognize the linkages upstream and downstream 
        of their own operations. Failure to address the problem in one 
        part of the larger system can have repercussions elsewhere. 
        Because of the characteristic interconnectivity of the 
        Information Age, Year 2000 problems experienced by major 
        suppliers, vendors, and customers could also affect crucial 
        business and infrastructure functions.\7\
---------------------------------------------------------------------------
    \7\ Electric Power Research Institute http://www.epriweb.com/
year2000/power.html

    There is clear reason for concern, as we will discuss today. But I 
also want to point out that despite difficulties, fears, and rising 
costs, the Y2K problem may also provide some unexpected benefits. For 
example, some computer dependent industries and public utilities are 
getting the opportunity to make much needed upgrades, which, if done 
properly, may make them more resilient to other kinds of disruptions in 
the future. Y2K is also prompting both private and government 
organizations to review their contingency plans and improve their 
readiness against information system failures, whether from internal 
glitches or deliberate attack.
    As we enter the next century, we will continue to build on this 
vast technological landscape. The Y2K problem is the first collective 
technological challenge to the nation. Like it or not, Y2K provides a 
nation-wide test bed for dealing with what the effects of a deliberate 
attack on the infrastrucutres might look like. We can benefit from this 
opportunity to enhance government/industry cooperation and endeavor to 
learn about its implications for the reliability of our critical 
infrastructures With well reasoned measures, and working together, our 
nation can come through this challenge stronger, wiser, and better 
prepared.
                               __________

                Prepared Statement of Louis J. Marcoccia

                                 Part 1

                              introduction
    The year 2000 is an event that will impact a large percentage of 
existing software. Most of the existing software has the year 
represented as a two character field (i.e. 1996=96). This will cause a 
problem for all dates that start in the year 2000. For example, the 
year 1999 is stored as 99 and the year 2000 will be stored as 00. Any 
comparisons between the two dates will cause inaccuracies within the 
existing systems. The year 2000 date change is one of the most 
significant changes ever faced by the Information Technology Industry, 
and will have an enormous impact on business applications, package 
solutions, and systems software, even putting some companies out of 
business. Also be aware that this problem also effects elevators, test 
equipment, personal computers, and pre-packaged software. All 
Information Technology and Business Units should be reviewing all 
applications in its enterprise. All applications that will not be 
replaced or retired by the year 2000 will have to be reviewed in 
detail. The applications that will exist past the year 2000 will have 
be modified to correctly handle dates in the Year 2000 and beyond. Most 
of the required changes should be completed by the end of 1998. This 
will allow for a complete year-end processing of all applications that 
have became Year 2000 compliant and to allow for additional work on 
applications not completed by December 1998, and most one year 
calculations will fail in January 1999 and not December 1999.
    There are two primary ways of correcting the year 2000 problem. The 
first is to expand all date fields to a four character representation 
and leave the existing software logic intact. The second is to leave 
the date fields as two characters but modify the software logic to 
handle the two character representation correctly. Organizations should 
look at each application separately and determine which approach is 
suitable and most cost effective. Within most organizations, there are 
``client developed'' systems that the Technology Division does not 
support. These systems were developed or purchased over a period of 
years by the business units. It is important that Department Heads have 
their representatives produce a list of all software they are 
responsible for supporting.
    A decision must be made to either retire, replace, or modify each 
system to handle the Year 2000. In addition, plans for each application 
must be made, detailing the time frame and resources necessary for 
analysis, program changes, testing, conversion, and implementation. 
This includes all in-house developed and purchased software. The 
planning has to be done now or there may not be enough time to correct 
the year 2000 problem. In addition, since this problem is so widespread 
the resources necessary to make the appropriate changes will become 
more expensive and less available as the year 2000 approaches. The 
Technology Divisions should coordinate and assist client organizations 
in developing the appropriate cost matrix for estimating the resources 
needed for this project.
                              the problem
    All application code modules that deal with date oriented 
calculations must be identified for legacy system applications. Most of 
these modules deal with the six digit date field, of which the last two 
digits represents the year. This will cause the Year 2000 to be less 
than the Year 1999. These modules must be changed to accommodate the 
processing of the four digit year. All current and historical data 
files and databases must be converted and reformatted to reflect the 
expanded four digit year. There are alternatives that can be 
implemented:
  --Year field expansion from `00' to `2000'
  --Add century field--add one digit
  --Introduce logic algorithm--change program logic, not data
  --Retire existing system with a Year 2000 compliant software package
  --Rewrite system
  --Retire system
  --Do nothing and let systems fail--NOT A VIABLE ALTERNATIVE
    In order to easily see and convince people how the Year 2000 effect 
everyone we will perform a simple test using your home computer. This 
is just a test. It'll only take five minutes. It won't be painless, but 
the results may save a lot of anguish in the not too distant future. 
Set the date on your Personal Computer to December 31, 1999.
    Set the time to 11:59 pm and then turn your computer off (power-
down). Wait several minutes to allow the PC clock to go beyond the Year 
2000. Power-up your computer and check to see what is the date and time 
is now displayed. If your computer does not reflect the Year 2000 than 
all calculation used within your computer applications will be 
inaccurate.
    This will apply to spreadsheets, software packages, utilities, etc. 
The current date formats stored in computer environments exist in 
several different two digit year formats: MM/DD/YY, YYDDD, MMYY, YYMM, 
YYMMDD, etc.
    In the past, in order to save computer storage and save on data 
entry keystrokes the computer industry standard for storing the year 
field was to use a two digit field. All computer systems must be 
changed to process the two digit Year. Either the year digit must be 
expanded to four digits or a logical translation that is coded to 
recognize the differences between centuries.
                         why systems will fail
    When computer systems clocks reaches the Year 2000 computer 
programs will recognize the date as 1900 because of the current two 
digit format: Incorrect calculations. If we do not change the computer 
logic to recognize the new the Year 2000 software will assume the year 
field to be 00 to be the 19 hundreds, an erroneous answer will result:
Problem A
Current    Should happen    Will happen

  99              2000            00
  55              1955            55
  --              ----            --
  44                45            55
Problem B
Should happen    Will happen

    2000              00
    1996            -96
Erroneous comparisons
    Computer comparisons will produce an incorrect results.

Should happen          Will happen

 2000 > 1996            00 < 1996

    What has to be changed:
  --Computer programs with date routines for (in-house programs and all 
        third party software packages)
  --Data Storage (files), Current and Historical?
  --Data Display (screens, reports)?
  --Interfaces (system to system)
  --External Interfaces
  --Data Center Operations
                tape management systems
                scheduling systems
                operating environment (CICS, MVS, etc.)

  --Computer Hardware (mainframe, mid-range, personal computers)
  --Embedded Systems
  --It is a multi-platform/multi-language problem
  --IT IS A BUSINESS PROBLEM
                      why isn't addresses already
    Impacted systems are old and not state of the art technology 
therefore, IS industry does not see glory in doing this project. Dates 
are distributed throughout the enterprise and locating and correcting 
these dates are an enormous task. This project for most organizations 
will be costly with no Return of Investment, except that the billions 
of dollars invested in our legacy systems will not operate properly. As 
with all legacy systems, this problem is messy, expensive, and 
unromantic. No one wants to go in and tell management ``they have a 
multi-million dollar requirement just to keep the business running and 
that they really have no options.'' For the last thirty years, 
programmers have been writing programs which calculate dates for most 
business applications such as; pension checks, social security checks, 
mortgage calculations, credit card processing, etc. As the year 2000 
creeps upon us, organizations across the world have been ignoring the 
Year 2000 problem. The IT community as well as senior management are 
still in denial and apparently expects a magic pill to be developed to 
solve this problem. It is not that the programmers do not know how to 
fix the date problem, or that current programming languages are 
incapable of handling dates in the next century. The problem is that 
millions of lines of old, legacy code, primarily on the mainframe, is 
still in use in business around the world processing mission critical 
systems. These systems have been around for the last ten to thirty 
years, were coded in a non-structured spaghetti code, and changes to 
these systems over the years have made them very difficult to modify 
these programs and maintain in good shape. The programmers that coded 
these programs are no longer around, or third-party software is no 
longer maintained by the vendor or organizations have taken over the 
responsibility of the third-party software. The world has a business 
disaster, that is well known, be predicted, and we know how to fix it. 
The time and date on which the meteor will hit earth is known. Like a 
``Legal Virus'' ( receiving data from another system that was 
calculated incorrectly from another system that was not processing the 
Year 2000 correctly). It will descend upon us like a plaque. When I 
testified in front of the first United States Congressional Hearing, as 
an expert witness on the Year 2000 on April 16, 1996, I said that the 
only way we can delay the implementation of this problem was to 
``Legislate the Year 2000 away.'' This is only dead line that cannot be 
pushed back and still the Business and IT community continues to ignore 
it.
    I also stated that the Year 2000 is a management problem, not a 
technical problem. There is plenty of technology issues that IT needs 
to help senior management solve this business problem. And if we 
haven't address this problem now--we are now late to avoid some degree 
of severe business problems by the year 2000 and even earlier. Many 
business systems will fail much earlier than January 1, 2000.
                          year 2000 realities
    As the Year 2000 approaches and organizations starts to address 
this problem IT organizations will experience high turn-over rates. As 
the worlds gears up for the battle, the old Mainframe Cobol Programmer 
will be the most desired creature in IT. Forget about Visual Basic, 
Oracle, Client-Server--Learn Cobol. Consultant firms and the company 
across the street will offers huge salary increases to your staff to 
change jobs. Expect all computer programmer salaries to EXPLODE as the 
deadline approaches. Many firms may have large numbers of computer 
tapes and files unexpectedly erased due to automated systems that 
haven't been told that time has reversed! Fallout from this is 
difficult to predict. Probably these same firms will try to hire more 
of those overpriced programmers. Look for possible quick fixes for some 
systems The cleanest way of applying the four-digit fix is to expand 
all date fields in every program, data-file, and database. The 
difficulty in making these changes is the size of how many fields and 
files that needs to be changed, assuming you can easily identify where 
these date are located (this is no easy task). Getting there. Think 
about researching the following organization:

        number of modules = 25,000
        number of jobs = 7,000
        number of lines of code = 15,000,000
        number of dates = 200,000
        number of interface files = 250
        platfomms = IBM mainframe, AS/400, System/38, PC, Client-Server
        languages = Cobol II, SAS, Culprit, Assembler, etc.
        file structures = IMS, CICS, VSAM, Flat Files, Third-party 
        Software
        embedded processes = 175 embedded processes

    Data is passed among hundreds of files dealing with thousands of 
programs both batch and on-line. Data is also sent to and from outside 
applications and organizations via magnetic tape, cartridges, 
diskettes, Internet, Intranet, EDI, Local Area Networks, etc. If a 
company applications, that you do business with, does not work properly 
after the Year 2000 then your company may suffer financially, fails to 
sell or ship any product; fails to bill for your product; or may place 
your employees life or health at risk. The U.S. has thousands of 
lawyers and they will be in a position to put your organization liable 
for failed applications. Auditors, and Outsourcers, financial backers, 
and software suppliers, and their consultants would potentially become 
liable. Data files (current, historical), computer programs, interface 
files, and all other programs and files affected, from the same or 
other systems, would have to be syncrinized, tested and implemented at 
the same time into production or bridges must be developed and 
implemented for the transitional period.
    Their are two Basic approaches for fixing code: Expansion and 
Windowing Expansion: The Expansion of two digit year field to four 
digit year field (MM/DD/YY/CC). It is the most cleanest and straight 
forward solution. For the long term and for maintaining those 
applications in the future. It will be very difficult to control 
downstream impact on sorts, DASD, file sizes, etc.
    Advantages of the Expansion Approach:

          1. Will be a long term viable solution.
          2. Application will not be dependent on different algorithm.
          3. Single technique for all modules.
          4. Conversion of many modules might simply require a 
        recompile.

    Disadvantages of the Expansion Approach:

          1. Requires conversion of ALL program modules.
          2. Conversion of programs and data may have to occur 
        simultaneously.
          3. Many business application's can not afford to be down the 
        required time for such massive, simultaneous conversions, 
        especially database systems.
          4. Because interfaces between systems are significant, 
        (foreign keys, referential integrity issues), there would have 
        to be one mass conversion of segment of work would have to be 
        partitioned.
          5. Change Control, Version Control, would have to be tightly 
        controlled and managed since programs need to be implemented 
        simultaneously. Changes to the source code, keeping the 
        converted Year 2000 code in sync with updates to the current 
        code will be difficult to control and manage. The alternative 
        is to freeze all maintenance and enhancements until conversion 
        is completed. This option is very difficult for organizations 
        with market pressures.

    The Windowing Approach becomes a viable alternative for some 
systems. The Windowing approach ignores the expansion of all date 
fields and will code standard copy routines, per application 
requirement, several standard date routine using date window to 
represent the century in performing calculations on 2-digit years. No 
expansion of current or historical files, except for some system 
interfaces, dates used in key files, and fields that span over 100 
years.
    Advantages of the Windowing Approach:

          1. No physical conversion of data (current or historical). No 
        required synchronization of data and program conversion.
          2. Program conversion can be phased in--one program at a 
        time.
          3. Some modules will require no conversion while other 
        modules will require only minor changes
          4. Only dates used in calculations will have to be dealt 
        with. Dates used in display or definition are not required to 
        be corrected.

    Disadvantages of the Windowing Approach:

          1. Many program modules will require extensive code changes 
        for date fields used in calculations.
          2. Will not handle cases where 100 year span is involved. 
        Those applications will have to be expanded to a eight digit 
        date. This is typical with birth date, land acquisition date, 
        etc.
          3. All programming staff will have to be made aware of the 
        subroutines for determining century by each application.
          4. Each application in your organization can have different 
        number for it's logic comparison.
                     major steps to implementation
       I. Legacy System Clean-Up
      II. Change Control Environment
     III. Successful Year 2000 Implementation
     IV. Testing

                   I. Legacy System Clean-Up Process

                                overview
    This process, or any piece of it, will be required for many 
organizations dealing with the Year 2000 in which these deficiencies 
exist in their organizations. If any part of these conditions exist in 
your shop, they will have to be resolved before the Year 2000 project 
is implemented.
Description
    This process requires a number of tasks to be performed 
housekeeping/repair function involving all systems. The purpose of the 
project is to establish a stable production environment by installing a 
Corporate Change Control process at the application level, cleaning-up 
production jobs while maintaining functionality, developing standards 
on-line, and monitoring the changes on an ongoing basis. These 
activities are to prepare systems for correction of deficiencies in 
Applications.
Background, statement of problem
    Examination of the current environment should determined what 
percent of the production jobs had adequate operating instructions also 
determine duplication of software modules in multiple development 
libraries was extensive, and the manpower needed to support production 
in the applications.
    An analysis of the production log should be examined to determine 
what production jobs are being run from development libraries, by non-
operations personnel. A protracted, round-robin implementation cycle 
which forces the applications to circumvent industry accepted 
production migration routes. The primary users of several major 
applications insist that the time has come for either an extensive 
improvement of their application, or, a complete re-write, because of 
the lead time necessary to change a function within these systems. This 
is a symptom of old program code.
Deficiencies identified
    Listed below are problems that may exist in production systems 
which require analysis and re-certification during the execution of the 
Legacy System Clean-Up:
    Application Environment Deficiencies:
          1. Normal migration routes are being circumvented.
          2. There exists a duplication of software modules within 
        multiple development libraries.
          3. There is a low level of program update activity resulting 
        in extensive lead time for maintenance changes.
          4. Insufficient system documentation.
          5. Latent error conditions exist in Production Jobs.
          6. Inadequate and non-existing job operation documentation.
          7. Production Jobs being run from non-production libraries.
          8. `Dirty coding' exists in Production programs.
          9. There is an absence of documentation which identifies 
        Interface files.
          10. A lack of a data dictionary which is a repository for all 
        applications components and elements.
Legacy system clean-up deliverables
Task 1: Installation of a single production module
            Task 1  General approach
    All Production programs in a System must be researched for 
compliance to the above Task 1 General Approach. It is not intended 
that is render an opinion on the quality, effectiveness, or suitability 
of a given module with regard to its intended business function.
    Must check for multiple modules of a Program, determine which is 
the current version running in production or quasi-production status 
conduct testing to confirm that said determination is correct, and 
install that current version into the Production Library. To the 
maximum extent possible, freeze windows for each Application will be 
established and agreed to by IT and the client. Once a single 
Production module has been identified, it will be necessary to match it 
to its source code and to place the source code into protected archive. 
This ensures that future modifications will be applied to the correct 
source code.
            Task 1  Deliverable
    A Production library containing a single version of Production 
Programs for each application. Programs for each application must be 
installed into a Production Library.
Task 2: Document all interfaces
            Task 2  General approach
    Identify each data file that enters and/or leaves and application 
from/to another application. Define all external interface files.
            Task 2  Deliverable
    Deliverable: A report produced for each system, in control document 
format, that identifies and describes all interface files existing in 
all Production systems, containing:
  --The System and Job names that created the file.
  --The Systems(s) and Job Name(s) and/or foreign designation of the 
        file.
  --The data set name of the file.
  --The data field content of the file.
  --The media on which the file resides.
  --Timing of file creation.
Task 3: Analyze and prioritize production systems
    Determine whether an Application should undergo major rewrite, 
partial rewrite, revision, or acceptance.
            Task 3  General approach
    The reports must address all production applications and highlight 
those programs or current business functions supported by an 
application, that are candidates for revision, and their type. The 
Company Strategic Plan should provide the starting point for assessing 
each application's ``candidacy'' for replacement, re-write or revision.
            Task 3  Deliverable
    Deliverable: Systems/Programs Evaluation Reports that states which 
Production Application should undergo major re-writing, minor revision, 
or require no revision. Also, recommendations will be made about 
whether certain applications can be reengineered or right-sized.

                     II. Change Control Environment

                                preface
    The Corporate Change Control Management System (CCM) process as 
controls the migration of source modules, load modules, execute JCL, 
production PROCS, file definitions, and screen maps, executables, etc. 
for each application from test environments to production for all 
platforms. This process is also intended to provide line-item level 
change tracking in test or production environments, and is designed to 
track items in non-source-editable form (e.g., RACE changes, CICS RDO 
table changes). Vendor supplied updates to package software is 
facilitated by using a distinct ``language type'' value to identify 
package source.
    The previous version would be archived during this process. 
Maintenance of customized software package modules should follow the 
standard change control procedures defined in this process.
                                overview
    Continual change is a characteristic of nearly all application 
software systems. Management and effective control of the change 
process is key to ensuring that systems are developed and maintained to 
provide their users with the service they require at an acceptable 
cost. The procedures defined in any CCM procedure is to promote 
effective control of the changes made to applications during the course 
of new development, routine maintenance, and emergency modifications. 
The CCM procedures are derived from a number of specific objectives for 
the CCM process, and embody a number of design principles.
    The OBJECTIVES of the change control management process are:

          1. Consistency.--There should be a standard set of 
        environments through which applications are migrated during 
        development and maintenance. Although every application will 
        not necessarily make use of every defined environment, the set 
        of environments should be the same for all systems.
          2. Flexibility.--Some applications may use a subset of the 
        full set of environments. However the migration rules should be 
        consistent for all applications.
          3. Audibility.--It should be possible to trace the history of 
        and the reasons for any changes made, including emergency 
        fixes.
          4. Ease and Speed of Operation.--The procedures for effecting 
        migrations should be such as to enable applications to be moved 
        through the required stages of development or maintenance 
        quickly. The activities needed to perform a particular 
        migration should be carried out automatically by the system 
        following receipt of such input.
          5. Uniqueness.--A given source module should exist in only 
        one of the Development environments at any one time, in 
        addition to Production.
          6. Concurrency.--The system must permit the emergency repair 
        of a given module without jeopardizing ongoing maintenance of 
        that module.
          7. Access Control.--Access to entities and activities should 
        be emulated according to the appropriate authority levels 
        (i.e., only staff assigned to a given Applications group may 
        access module types for that group, and only Project Leaders 
        may initiate forward migrations).
          8. Recoverability.--Back out procedures must exist to cover 
        cases where an attempted activity is not completed 
        successfully. Information relating to the system must be clear 
        and statement of rules published should be kept up to date and 
        preferably on-line. To enable these objectives to be achieved, 
        the following PRINCIPLES have been incorporated into the design 
        of the CCM system:

                  Library Control.--A software product should be used 
                to provide the basic facilities used to implement the 
                Change Control Management system. The facilities 
                provided will be supplemented by other automated/manual 
                procedures.
                  Security Software.--Will be used to control access to 
                an activity or entity not under control of Library 
                Control software product.
                  Environment.--Specific environments will be 
                recognized by Change Control Management, and will apply 
                to all applications. These are comprised of 
                Development/Test, System Test (optional), User 
                Acceptance Test, Quality Assurance, Production and Post 
                Production Support.
                  Migration Rules.--For the transfer of applications 
                between environments will be incorporated within the 
                Change Control Management system.
                  Module Versions.--The software system source archival 
                facility will be used to store prior versions of a 
                given module release level while it exists in a given 
                environment. Although this facility is available in all 
                environments, its use outside of Production is not 
                necessary.
                  Other Environments.--(e.g., Training) which may be 
                created for specific applications, will be controlled 
                by the Change Control Management system.
                  Existing Operating Environment.--Existing operating 
                environment like, should be used wherever possible, to 
                enter and initiate Change Control Management (CCM) 
                activities.

                III. Successful Year 2000 Implementation

                           phase 1--analysis
Purpose
    To estimate the cost and resources needed to implement all 
application software on diverse software/hardware platforms, including 
in-house developed and third-party vendor software and hardware.
Steps
    1. Establish a Year 2000 project manager and team.
    2. Develop a communications network with the organization.
    3. Establish a date standard for all in-house and package software.
    4. Develop a portfolio of all third-party software and hardware. 
Formally notify and coordinate with software providers for their plans 
to become Year 2000 compliant.
    5. Have all business units within an organization agree on one 
overall strategy, recognizing that the tactical implementations might 
be different.
    6. Secure consulting services, if required, by class for all 
platforms or perform analysis with internal staff.

        class 1--turn-key solution
        class 2-project management firm
        class 3--body shop firm

    7. Produce the Phase I analysis for all systems by category.

        category 1--applications retained and to be converted
        category 2--current ACTIVE plan to replace application's
        category 3--applications already year 2000 compliant
                 phase i--technical reports (analysis)
1. Impact estimates
  --resources required for the Year 2000
  --identification of each computer module impacted
  --total number of impacted lines per program
  --total work hours/cpu time required for conversion
2. Where dates are located
  --locate and print out every impacted line in each impacted program 
        module
                 phase i--management reports (analysis)
3. Business impact statements
  --describes what the business impact will be for each application if 
        not Year 2000 compliant
4. Project schedule
--enterprise detail schedule for all category 1 applications
5. Cost matrix report
--cost estimate for all resources needed for all category 1 
    applications--hardware, software, testing, staffing, data center 
    upgrades, etc.
  --preliminary cost estimate for category 2 applications
  --listing and confirmation of category 3 applications
                      ii. phase 2--implementation
Purpose
    To implement the tactical plan developed in Phase 1 analysis.
Steps
    1. Secure and mobilize the necessary resources defined in Phase 1 
(Analysis).
  --in-house team fixing and testing
  --consulting services
  --software purchases
    2. Select a pilot application to verify the cost model developed in 
Phase 1--Make the necessary cost adjustments based on the pilot 
results.
    3. Resolve the necessary legal /procurement issues.
  --third-party providers questionnaire
  --third-party software and hardware
  --Year 2000 compliant statement in contracts

                              IV. Testing

                              definitions
    Year 2000 Compliant Application.--The application has been 
successfully tested (included century tests) on compliant operating 
system software in all test regions. It has also been moved to 
production and is running on the same compliant platform that was 
tested upon.
    Year 2000 Capable Application.--The application has been 
successfully tested (including century tests) and moved to production. 
At least one test platform and/or the production platform is non-
compliant. It is assumed that the test and production platforms will be 
made compliant at some point. Century testing will take place again for 
critical applications to ensure the application is compliant. If 
testing is successful, the application becomes Year 2000 compliant when 
the application is replaced in production.
    Year 2000 Non-Compliant Application.--The application has not been 
tested, or the application has failed to test successfully.
                              introduction
    The Testing approach should describes the Year 2000 overall testing 
approach. It should be noted that this is a planned approach, not an 
absolute approach, and may need to be adjusted per application based on 
such factors as application criticality, who converts the application, 
and other project impacts upon an application. Several early 
conversions will help ``prove out'' the direction specified in this 
document. Corrections or adjustments to the plan should be made as 
appropriate.
    Conversions to supported applications may be made either in-house, 
by the vendor owning the code (which potentially means upgrades to 
compliant releases for packages), or by a third-party vendor. 
Regardless of who actually converts and tests the applications, the 
Year 2000 team will need verification that all applications are year 
2000 compliant. An overall test plan, test specifications, test 
scripts, and test report will be required for each application to be 
certified as compliant. The amount of detail within these deliverables 
will vary according to the application. Test scripts will be automated 
as much as possible to provide a repeatable test process.
                              century test
    The Test team will generate the test material needed for Century 
Test. This will be a set of test cases to test specific date related 
functions extending into the next century or back into the previous 
century. The Test team will also create separate processing ``Jobs'' to 
``age'' test data as the system date is rolled forward. At this time, 
century testing will be accomplished using a date simulation tool or 
advancing the system date manually. The `basic' Century Test is to take 
the test data produced for system testing and repeat the test in the 
next century with a range of system clock settings. Applications may 
have additional dates, beyond the core set of dates to check, which 
must be tested. These additional dates will depend on what is critical 
to each application. The depth of century testing must be decided on an 
application by application basis. Testing is resource and man-hour 
intensive and the effort required to achieve close to 100 percent level 
of confidence may not be commensurate with business risk.
                        steps to implementation
    These steps will be used for all platforms and embedded systems for 
the Year 2000 project. Included are assumptions, and the strategy to be 
used for testing applications after the code is modified for year 2000 
compliance. While some applications may choose not to follow this 
approach, this is the preferred approach.

    1. At the time that an application (or bundle of applications) is 
sent out for actual modification, a copy of this application is 
``saved'' as the Baseline code.
    2. The code is ``checked out'' using the change control process and 
process code for modification. Ideally, this would be a freeze point 
for code modifications. An ``emergency fix'' process will be in place 
to ``get around'' the freeze.
    3. When the source is returned, the first test executed should be a 
``no damage'' test. This test is to establish that the application 
still functions as it did before changes were made.

          3.4  Compile the Baseline code on the test system (new 
        machine or LPAR).
          3.5  Establish data for testing the application.
          3.6  Run the application and unload results to a file for 
        comparison.
          3.7  Re-establish the same data in step 3.2.
          3.8  Compile the modified code on the test system (new 
        machine or LPAR)
          3.9  Run the application using the modified code and unload 
        results to a file for comparison.
          3.10  Electronically compare the results from step 3.3 and 
        3.6. Any discrepancies will have to be researched and possibly 
        logged as a problem to be fixed.

    4. Year 2000 century tests should be done to ensure that the code 
handles year 2000 correctly. After this test, you can be reasonably 
assured that year 2000 changes were correctly applied. Parts of this 
testing can occur in the ``no damage'' test--if the scripts include 
simple date testing. An official acceptance of the code should be done 
by if all test results are acceptable to this point.

    Retrofits should be applied. Any changes to code and moved to 
production while the code was out for modification will have to be re-
applied to the modified code.
    Note: This does NOT include changes that were in development at the 
time baseline was created that have not already moved to production.

                Prepared Statement of Louis J. Marcoccia

                                 Part 2

                              introduction
    The Utility Industry has not met the criteria for a successful 
implementation of a Year 2000 project for their mission critical 
systems. Therefore they have failed in their responsibility to their 
stockholders, partners, and customers. The Industry regulators have 
also failed in their responsibility to the American people. I believe 
their failure will cause major disruptions here in the United States 
and overseas. I say this based on the following analysis.
Criteria for my Analysis
    All mission critical computer and embedded systems must be 
compliant by 12/31/1998. There are 5 major reason why the Industry 
needs to be compliant by this date:

          1. To allow for a complete year-end process of corrected code 
        and take advantage of factory shutdowns before the Year 2000.
          2. To allow for a contingency for unexpected problems not 
        resolved in 1998 or if the project is generally running late.
          3. To allow for Integration testing within an organization 
        and between external partners.
          4. To allow for replacement or upgrades of computer software, 
        computer hardware and embedded systems that were delayed and 
        not completed in 1998.
          5. A one year calculation, which are present in many systems, 
        will fail in 1/1/1999 and not 1/1/2000.
    I used the following criteria to establish a successful Year 2000 
implementation:
  --All mission critical systems that require corrections are fixed, 
        tested, implemented into a Year 2000 production environment.
  --Formally document which systems are going to be retired.
  --The current software, hardware, and embedded systems that were 
        candidates for replacement have in fact been replaced.
  --All major external interfaces have been identified and contacted.
  --The strategy for the Year 2000 correction and implementation has 
        been agreed to and documented.
Readiness of Computer Systems
  --Currently, many large Utilities have not identified what needs to 
        be corrected.
  --The Industry has not yet determined how they will fix or test what 
        they have found.
  --The Industry has not yet determined the resources requirements for 
        the entire life cycle. (finding the problem, fixing the 
        problem, testing the problem)
  --The Industry has not developed contingency plans for it's mission 
        critical systems if failure occurs.
  --The Industry is not in a Triage mode in determining what systems 
        must be compliant by 12/31/1998.
  --Replacement strategies for non-compliant computer systems with 
        compliant software purchases or converting these systems to 
        another platform have started to late to avoid fixing the 
        existing systems. It is risky for these companies that are not 
        in the implementation phase to begin a replacement project.
  --The Industry is finding it extremely difficult to Retire systems. 
        They have not identified all elements of a system in-order make 
        the retirement decision.
  --Many Utility companies have found it extreme difficult to identify 
        it's entire portfolio of systems and all the elements that make 
        up that system. This type of environment is called a `dirty 
        shop'. The clean-up process of a dirty shop must be done before 
        the Year 2000 process begins. This activity can take anywhere 
        between on week to six months to complete.

    There are several major Utility companies that have not even placed 
one line of compliant computer code into a Year 2000 production 
environment or have a complete documented understanding of a process 
that will allow them to implement a lot of computer code in the 
shortest period time. Many of these companies have over 25 million 
lines of code to be made compliant. At this point in time they should 
have implemented 60 percent of their application into a Year 2000 
production environment. If history is a predictor of the future, it 
will take approximately 10-15 months, for a committed company, to make 
10 million lines of mainframe code Year 2000 compliant.
Embedded Systems
    Because of the slow start in dealing with the computer systems the 
embedded systems is the area the Industry has fallen far behind in 
their understanding on how to find, fix, and test these embedded 
systems. We currently know that there are embedded systems that will 
either fail or not work for a period of time. For example, we have 
known for years that many systems associated with oil tankers will not 
work beyond the Year 2000. The Industry will probably tell us that they 
have done an inventory and/or assessment of their embedded systems. The 
Industry have not answered the following questions:
  --They have not identified those individual components that will 
        fail.
  --They have not identified unknown or obsolete components.
  --They have not developed a fix or test solution for those components 
        that have a problem.
  --They have not identified all the resources required to find, repair 
        and test a component, process or system. The IEEE organization 
        have identified approximately 34 different types of tests that 
        can be performed on an embedded system.
  --They have not identified the lead time requirements and cost for 
        replacing existing non-compliant components with new purchased 
        components.
  --They have not developed a contingency plan in case the replacement 
        strategy is not executed in time.
  --They have not associated individual components with their 
        processes. One component that fails in a process, that uses 
        several components, can bring down an entire system.
Interfaces
    Since the Industry and the Regulators started late in the Year 2000 
process their efforts to effectively communicate with their partners, 
suppliers and customers have been hampered. Most attempts of 
communication have been legally sanitized at best. Many Utility 
companies depend on suppliers for raw material and if there is a delay 
in the flow of that material disruptions will occur. As late as the 
United States is in dealing with this problem overseas companies are in 
worse shape. For example, if an Oil company depends on crude oil 
shipments from overseas companies and that company has not corrected 
it's Year 2000 a ripple effect of delays will occur that will result in 
effecting the American consumer.
    The fallout of the Industry self protection mode has resulted in 
the following:
  --The most mission critical suppliers and customers have not been 
        notified in a meaningful way as to the status of the Year 2000 
        as it relates to them.
  --The integration testing required between supplier and customer has 
        not been fully communicated, understood or documented.
  --The two basic interface question that are not yet answered:
                  1. When will you be Year 2000 compliant for each 
                interface that exist?
                  2.What format will you use for each interface that 
                exist?
Regulators
     The NRC, FERC, State Regulators, and others have and continue to 
be missing-in-action in helping to solve this problem. The Regulators 
have lagged behind in taking a more proactive role. The Regulators have 
failed at the following activities:
  --Gathered appropriate level information and the right information.
  --Determine or understood how the Industry plans to test and 
        implement the their solution.
  --They do not have a effective way of analyzing the information they 
        received.
  --They cannot determine the accuracy of the information they 
        received.
  --Appropriate level of audits are not being done.
  --And finally, regulators did not insist that the Industry complete 
        it's Year 2000 solution by 12/31/1998.
Conclusion
    There are pockets of successes that exist within the Industry. But, 
when I take a pragmatic look at the information I have seen, things I 
have experienced and people I have talked to in this Industry I can 
only conclude that the readiness of the Utility Industry is not 
acceptable.
                                 ______
                                 
                                                     June 16, 1998.
Senator Robert F. Bennett,
Chairman Special Committee on the Year 2000 Technology Problem
    Dear Senator Bennett: I appreciate the opportunity to appear before 
your committee last Friday concerning the Year 2000 issue as it relates 
to Utilities. As I testified, many utilities face serious obstacles in 
reaching an appropriate state of readiness before we reach the 
millennium date. My comments were based on comprehensive discussions 
and knowledge with numerous utility companies.
    Upon reflection, I want to clarify one potential area for 
misunderstanding related to the hearing. During the opening remarks, I 
was associated with several of my utility clients. I want to assure you 
that my testimony did not reflect my views on the state of Year 2000 
readiness of these companies. For example, Duke Energy, where I have 
served in a technical consulting capacity for the past 19 months, is 
regarded by me and several other knowledgeable outside expert as an 
industry leader in terms of Year 2000 readiness. They will have 
substantially completed their needed Year 2000 readiness efforts by the 
end of the year.
    In addition to Duke Energy, there are many other utilities that are 
successfully addressing the Year 2000 issue. However, I still remain 
concerned that the industry as a whole has not yet taken sufficient 
steps to meet this serious problem.
    If you need additional information, please let me know.
            Yours very truly,
                                                Louis J. Marcoccia.
                               __________

                Prepared Statement of Elizabeth A. Moler

    Mr. Chairman and Members of the Committee: It is an honor for me to 
appear before you today at the Committee's inaugural hearing. You have 
asked me to focus on the readiness of the utility industry, including 
electric and gas utilities, to deal with the Year 2000 technology 
problem.
    Before I turn to the specifics of my testimony, let me commend you, 
Mr. Chairman, as well as Senator Dodd, the Committee's Ranking Democrat 
and the other Members of this Special Committee for your willingness to 
invest your time and energy on this important subject matter. Computer 
technology has become a pervasive part of our society and our Nation's 
well being. Both techologists and leaders in all sectors of our society 
must work together to insure that we are investing adequate energy, and 
resources, in addressing this important potential problem.
    President Clinton and Vice President Gore have paid particular 
attention to the need to address the Year 2000 issue. They personally 
recruited the former OMB Deputy Director for Management to Chair the 
President's Council on Year 2000 Conversion. You will hear testimony 
from Mr. Koskinen later today. The President and the Vice President 
have spoken repeatedly on the need for both Government and the private 
sector to address the issue. Back in February, when the President's 
year 2000 Conversion Council was being formed, the Vice President met 
personally with the Members of the President's Management Council on 
the Year 2000 and stressed the importance of the issue. He made it very 
clear that we, as managers, must pay particular attention to the issue.
    We have used the Year 2000 Conversion Council as a vehicle for the 
Administration to identify the Adminstration's key participants who 
will focus on various sectors of our economy. You will hear more about 
that management structure in Mr. Koskinen's testimony later today. The 
Energy Working Group of this Council includes all relevant agencies. 
The Department of Energy has agreed to take the lead on the electricity 
sector, so my testimony will focus on that sector. The Federal Energy 
Regulatory Commission (FERC) has agreed to take the lead on the oil and 
gas subgroup, so you will hear from FERC Chairman Hoecker on that 
sector.
    Electricity is one of those ubiquitous things Americans take for 
granted. It is also the lifeblood of our modern economy. Simply put, 
our Nation depends upon a reliable supply of electricity. We cannot 
afford to have the Year 2000 technology issue disrupt our Nation's 
supply of electricity.
    Our domestic electricity industry has had a long and proud history 
bringing reliable, affordable supplies of electricity to American 
consumers. The industry has its own reliability organization, the North 
American Electric Reliability Council (NERC), which was formed in the 
aftermath of the 1965 Northeast power outage. When I think about 
reliability issues, I automatically think of NERC. It is the industry 
organization that has been responsible for electric reliability for the 
past 30 years. NERC is a privately chartered, industry run 
organization. While the Administration's Comprehensive Electricity 
Competition Plan calls upon Congress to strengthen the government's 
authority and oversight of NERC, at present there is little in the way 
of either Federal or State regulatory authority to address reliability 
issues.
    Consequently, when the Department of Energy agreed to take the lead 
in assessing the electricity sector's Year 2000 readiness, Secretary 
Pena and I turned to NERC. On May 1, 1998 we wrote to Erle Nye, 
Chairman of the Board and Chief Executive of Texas Utilities Company, 
who is also the current Chairman of NERC. We asked NERC to undertake a 
comprehensive assessment of the industry's Year 2000 readiness. Our 
letter is attached to my testimony. NERC agreed to our request and has 
taken on the key task of best assessing the industry's state of 
readiness, and coordinating the industry efforts. We expect to receive 
an interim report this fall, and a complete assessment next July. We 
will closely monitor progress along the way.
    Let me emphasize that the Federal government cannot solve this 
problem. It is up to the industry itself to do so. Every leader, every 
officer, and every manager in this industry must feel a sense of 
responsibility for solving this problem. That is the only way we'll get 
it done. The Government's primary role is to facilitate industry 
efforts, without getting in the way or creating needless bureaucratic 
hurdles that distract attention rather than add value.
    With these introductory remarks in mind, let me describe the 
industry and the Year 2000 technology issue in a little greater detail.
                       the y2k technology problem
    The Year 2000 challenge facing energy utilities is in some respects 
comparable to that in other sectors. As in other sectors, noncompliant 
software in a computer can affect a company's back office operations, 
such as financial control, human resources (payroll, benefits, etc.), 
purchasing, inventory, plant maintenance, and other administrative 
operations, and can impact direct operations and exchanges of 
information. Energy companies use computers to connect plants, 
refineries, district offices, and major administrative and operational 
systems that interface with large data centers. Computers are also used 
to remotely control transmission system breakers, coordinate power 
generation schedules, compensate for transmission line outages, and 
provide protection against voltage, current, and frequency 
fluctuations.
    Year 2000 readiness for energy utilities and other sectors also 
necessitates attention to the performance of embedded microprocessors. 
Embedded systems are present at plants, pipelines, control and dispatch 
centers, headquarters, and other energy facilities. Identifying Year 
2000 problems in embedded systems can require significant hands-on 
effort. Inventory, assessment, and remediation of embedded systems can 
be difficult, expensive, and time consuming. Many experts believe that 
embedded hardware systems pose the most significant Y2K readiness 
challenge to energy utilities.
                    the electricity industry and y2k
    The electric industry includes entities that generate, transmit, or 
distribute power, or do all three. Although security and reliability 
are also very important to natural gas and oil pipeline operations, 
electricity has some extraordinary features that make it somewhat 
unique as a commodity. Electricity flows across large regional networks 
according to physical laws and cannot be routed by switches or stored 
in large quantities. Supply and demand for electricity must be kept in 
balance at each instant in time on a continuous basis. Reliability is 
essential and can be maintained only through constant cooperation among 
many parties. Grid control is decentralized into approximately 150 
power control areas within the contiguous 48 states that are 
interconnected and must coordinate their activities to maintain 
reliability. There are three large transmission grids: one in the 
Eastern part of the United States, one in the Western part of the 
United States, and one in Texas.
    In addition to its unique characteristics as a commodity, 
electricity also has a unique importance in the economy and the lives 
of our citizens. The $212 billion domestic electricity industry is a 
backbone industry, one on which all other industries and the general 
population depend.
    Business and personal activities across our nation rely on billions 
of daily applications involving electric devices, that, in turn, depend 
on a reliable source of electricity. Experience with major 
interruptions in electricity supplies due to this past winter's ice 
storms in upstate New York, Maine, and Quebec graphically illustrates 
the disruption and dislocation that can arise from extended outages.
               y2k readiness for the electricity industry
    The operators of the electricity system and the vendors who supply 
it, together with industry-wide organizations such as the North 
American Electric Reliability Council and the Electric Power Research 
Institute (EPRI), are the main sources of the skills and resources 
needed to assure a smooth transition. While many components of the 
industry are ``attending to business'' with respect to their individual 
Y2K preparations, it is important that individual companies' 
preparations be recognized as contributing to the totality of all such 
preparations. It is for this reason, that Secretary Pena and I 
specifically asked that NERC undertake the leadership role within the 
electric power industry to assure that the Y2K problem is resolved in a 
comprehensive way so that no serious electrical disruption occurs. We 
also asked that NERC report to the Department by July 1, 1999, that 
critical systems needed to maintain the integrity of the interconnected 
grid have been tested and will be ready for the Year 2000.
    The Department and the Y2K Energy Working Group felt strongly that 
NERC was the natural focal point for this activity for several reasons. 
First, as I mentioned earlier, NERC was established in the aftermath of 
the major Northeast power disruption in 1965. It is the industry's 
organization that has been responsible for electric reliability for the 
past 30 years. We believe this to be truly a reliability issue and NERC 
has both an excellent record and a well-deserved reputation for 
resolving reliability issues. Second, NERC includes all segments of the 
industry from large to small, from generation to consumer, and from 
region to region. This initiative must be coordinated so as to embrace 
the entire community. (A membership list of NERC's Board of Trustees 
and Observers has been provided to the Committee.) NERC's Board of 
Directors agreed to undertake the assessment and coordinating role; we 
appreciate their very positive, enthusiastic response. Of course, it 
goes without saying that we stand ready to assist NERC in every way 
possible.
    I understand that NERC's President will appear before this panel 
later today, so I will not address their plan in detail. NERC's Y2K 
program will focus both on the interconnected grid of major generating 
stations, substations, and high voltage transmission lines and on 
distribution networks. Clearly, protecting the bulk power system is a 
top priority in the electric sector. However, Y2K readiness needs to 
extend beyond this system, to the distribution networks that serve 
America's electric consumers. Distribution systems are extremely 
diverse in nature. While large investor-owned utilities serve the 
majority of customers, municipal utilities and electricity 
cooperatives, including both large and small entities also play an 
important role. These parts of the electricity supply system will also 
need to address the Y2K issue.
               the y2k issue and electricity competition
    We do not see Y2K concerns as an impediment to efforts to promote 
greater competition in electricity markets. Progress on federal 
legislation will help to provide appropriate institutional structures 
for protecting reliability that are compatible with the emerging 
competitive marketplace for electricity. Many of the toughest Y2K 
issues concern embedded hardware, which involves different resources 
than software. In any event, I do not believe that the Y2K issue should 
be viewed as a competitive issue; it should instead be viewed as a 
reliability issue.
    Early updates already being planned to make industry information 
systems consistent with competition can actually advance our Y2K 
interests. Some industry sources have commented to me that they think 
that California's investment in systems compatible with competition, 
all of which are Y2K compliant, have put them ``ahead of the game'' in 
terms of their Y2K response.
                   beyond electricity: the y2k issue
    As I mentioned earlier, the President has established a Council on 
Year 2000 Conversion, under the Chairmanship of John Koskinen, which is 
looking at the Y2K issue from an economy-wide perspective. Clearly, the 
energy utilities cannot assure their Y2K readiness in a vacuum. It is 
clear, for example, that electric utilities will need access to timely 
and accurate assessments regarding the likely status of their fuels and 
transportation infrastructure, as well as the situation in industries 
that account for a major portion of electricity demand, as they plan 
for a smooth transition. Like other enterprises where industry-wide 
information-sharing can play an important role in Y2K planning, energy 
utilities will also be interested in ways that government might provide 
assurance that legitimate activities to promote Y2K readiness will not 
run afoul of antitrust rules or increase liability exposure.
                               conclusion
    The American people have a right to expect the electricity sector 
to be prepared for a smooth Year 2000 transition. People can dream up 
doomsday scenarios of what might happen if the industry is not ready. 
We need the facts, not doomsday scenarios. Once we know what the facts 
are, we can go from there to solve any problems that emerge. 
Ultimately, the electricity industry itself bears the primary 
responsibility for addressing the challenge of assuring a smooth 
transition through critical dates surrounding the Y2K issue, as well as 
the skills and knowledge needed to meet that challenge. Government's 
role is to facilitate their efforts by promoting the sharing of Year 
2000 information within the industry, its companies, suppliers, 
consultants, and state and local regulators. We can help disseminate 
what is known in other industries about similar products and problems, 
and we can maintain an awareness about factors external to the industry 
upon which energy depends. We can also help to keep government speaking 
with a consistent, calm, voice and cooperate with other levels of 
government to minimize requirements that do not add value.
    We look forward to working with the Special Committee in the months 
ahead and we welcome both your input and your questions.
                                 ______
                                 
                                   The Secretary of Energy,
                                       Washingion, DC, May 1, 1998.
Mr. Erle Nye,
Chairman of the Board,
North American Electric Reliability Council,
1601 Bryan Street, Dallas, TX

    Dear Mr. Nye: We are writing to seek the North American Electric 
Reliability Council's (NERC's) assistance in assessing whether the 
Nation's electricity sector is adequately prepared to address the 
upcoming year 2000 computer problem.
    The Administration is undertaking a coordinated effort to assess 
various sectors' readiness to address the issue. The Department of 
Energy (DOE) is taking the lead in working with the electricity 
industry to facilitate actions necessary for a smooth transition 
through this critical period. To this end, we are requesting that NERC 
undertake the coordination of an industry process to assure a smooth 
transition.
    The electric system is such a highly interdependent network, and so 
vital to the security and well-being of the Nation, that there is very 
little margin for error or miscalculation. The Department realizes that 
activities designed to address this issue are already underway in many 
electric utilities, the Electric Power Research Institute (EPRI), and 
in other Federal agencies. We are concerned, however, that these 
activities may not be fully coordinated, or worse, may be incomplete. 
The Nation needs to know that a systematic process is in place to 
ensure that the electric supply system will not experience serious 
disruption.
    This is truly a reliability issue, and NERC has demonstrated over 
the last 30 years that it is capable of coordinating the activities of 
electric market participants to resolve such issues. NERC is the most 
appropriate body to organize this process and report periodically on 
its status. We are confident that NERC will be able to mobilize the 
necessary cooperation from the Regional Reliability Councils, their 
members' utilities, and other industry organizations, to develop and 
implement a process that is both efficient and effective. We are asking 
that you provide us with written assurances by July 1, 1999, that 
critical systems within the Nation's electric infrastructure have been 
tested, and that such systems will be ready to operate into the year 
2000. The DOE is prepared to work with NERC to help overcome any 
obstacles that you might encounter in carrying out this effort. 
Finally, we wish to work with you to provide a suitable public forum in 
the late summer or early fall of this year at which NERC and others 
could report on the industry's assessment of this issue and outline its 
plans to address this challenge.
    Public events on this subject are important and valuable for two 
reasons. First, they will convey to the public and public officials 
that the industry is indeed preparing systematically for the 
transition. Second, they will confirm to the industry that Government 
agencies and the public are depending on them to ensure that the 
transition goes smoothly.
    We are looking forward to further discussions with you on this 
important issue.
            Sincerely,

                                   Federico Pena,
                                           T3Secretary.

                                   Elizabeth A. Moler,
                                           Deputy Secretary.
                                 ______
                                 

Responses of Deputy Secretary Elizabeth A. Moler to Questions Submitted 
                          by Chairman Bennett

    Question 1. Prior to this request, what had been done in the 
industry and by DOE in the Y2K area?
    Answer. Prior to the Department's May 1, 1998 letter to the North 
American Electric Reliability Council (NERC), most large electric 
companies appear to have been working on their own on Y2K issues. In 
terms of collaborative efforts, the Electric Power Research Institute 
had launched a series of workshops and a shared information database on 
embedded chips, the Nuclear Energy Institute and the Nuclear Utilities 
Software Management Group had prepared documentation on year 2000 
readiness for nuclear utilities, and the Edison Electric Institute 
worked with its members on other software issues related to Y2K 
readiness.
    In terms of the Department's own energy sector operations, the Y2K 
issue has been actively addressed by the Power Marketing 
Administrations, such as the Bonneville Power Administration and the 
Western Area Power Administration. The Tennessee Valley Authority, an 
independent federal agency that generates more electricity than any 
other company or entity in the United States, has also been actively 
engaged in Y2K preparations.
    Question 2. What leadership or responsibility roles does the 
Department of Energy see itself taking in order to help NERC guide the 
power utilities to achieve year 2000 compliance?
    Answer. As indicated in our letter to Chairman Nye of the North 
American Electric Reliability Council (NERC), we believe that the most 
productive role for the government is to facilitate the efforts of 
industry to address the Y2K issue. We believe we can contribute best by 
concentrating our efforts in two areas: (1) a clear vesting of 
authority in NERC to take responsibility for organizing and 
coordinating the national campaign to achieve Y2K readiness in the 
electric power industry; and (2) coordinating with other industry 
sectors through the President's Council on Year 2000 Conversion 
(PCY2KC) on crosscutting issues or intersectoral linkages. The latter 
role focuses on efforts to address issues which industry is not likely 
to be able to resolve for itself, but which have the potential to 
significantly slow progress toward Y2K readiness. This is clearly an 
example of government/industry teamwork in which each partner 
contributes what it does best.
    In this role, we will work especially closely with the PCY2KC so 
that the energy sector can benefit from the work and accomplishments of 
other sectors. For example, two of the earliest ``barriers'' we 
discovered (through NERC) to information sharing among industry Y2K 
technical teams involved their concerns over anti-trust and liability 
exposure. The PCY2KC had already identified these as very real and 
significant ``barriers'' to information sharing in a variety of sectors 
and was working with the Department of Justice in those areas. Since 
that time, the Department of Justice has issued a ruling that 
cooperative efforts to address Y2K issues on an industry-wide basis 
would not be construed as a violation of antitrust laws.
    In terms of intersectoral linkages, it is clear that the 
electricity industry does not function in isolation from the rest of 
the economy. In assuring its own Y2K readiness, the electricity sector 
will need reliable information regarding the state of preparedness 
among its major customers, fuel transportation systems, and 
telecommunications systems. The PCY2KC can serve as an important 
clearing house for information sharing across sectors.
    Question 3. The Office of Management and Budget has set a date of 
March 31, 1999, for all Federal agencies to have fully implemented 
their year 2000 compliance programs. They also require contingency 
plans for those critical systems that will not make OMB's March 31, 
1999, deadline. Given OMB's requirements for all Federal agencies, why 
has the Department of Energy ``lowered'' the requirements on NERC as 
they have been in the reliability business for more than thirty-three 
years?
    Answer 3. We have asked the North American Electric Reliability 
Council to undertake and complete a national Y2K leadership and 
coordination effort and to provide us with written assurances of 
industry Y2K readiness, all in a period of 14 months. We consider this 
to be an ambitious undertaking that would not be served by adopting 
unrealistic deadlines.
    Question 4. What actions can the Department of Energy take now to 
speed up the process of NERC's phases so that this critical national 
infrastructure does not end up on July 1, 1999, (the currently reported 
end of NERC's Phase 3) finding out that things don't work as heretofore 
reported?
    Answer 4. We have asked the North American Electric Reliability 
Council (NERC) to develop and implement a plan which represents 
industry's best efforts to deal effectively and efficiently with Y2K 
preparations. Since May 1, 1998, the day the Department asked NERC to 
take on this responsibility, we have seen a commitment by them and do 
not think there is a need for us to request a change in their planned 
schedule.
    Given the complexity of the nation's electric system, neither we 
nor NERC are depending on all aspects of industry Y2K preparations 
working flawlessly on January 1, 2000. Instead, NERC has included in 
its Y2K program plan a significant amount of attention to the study and 
development of contingency plans to be in place during the transition 
in order to deal with problems that may arise in spite of everyone's 
best efforts. For our part, we have begun working with the Federal 
Emergency Management Agency and other federal agencies with various 
connections to the electric power sector (e.g., the Army Corps of 
Engineers, the Tennessee Valley Authority, the Power Marketing 
Administrations, the Rural Utilities Service, and the Bureau of 
Reclamation) to assure that contingency plans for electric power are in 
place at the transition.
    Question 5. Does the Department of Energy plan to independently 
verify and validate the year 2000 compliance status of the electrical 
national infrastructure as they go through their three phases, which 
concludes with the reported implementation to the Department of Energy 
of year 2000 compliant systems? If so, when and how?
    Answer. We have asked the North American Electric Reliability 
Council (NERC) for written assurances by July 1, 1999, that critical 
systems will be ready to operate into the year 2000. From now until 
then the Department will receive interim reports on their activities. 
We have defined critical systems to encompass activities within the 
transmission, generation, and distribution segments of the industry. 
With NERC's access to virtually all the resources of the industry, it 
would be impossible for the Department to duplicate their assessment, 
much less improve upon it. It is important for the Department and the 
federal government to remain focused on facilitating industry's Y2K 
readiness efforts in this critical sector, and to avoid duplicative 
reporting requirements that can only serve to distract attention from 
the task at hand rather than add value.
    Question 6. What mechanisms will be utilized to monitor (NERC's) 
progress?
    Answer. We are in contact with North American Electric Reliability 
Council (NERC) staff regarding their progress on the Y2K project on a 
regular basis, typically with one or more contacts each week. In 
addition, we are meeting with federal agencies participating in the 
electricity working group on a monthly schedule to see that they, too, 
are making satisfactory progress.
    Question 7. What is DOE doing to team with NERC and others to 
actually be involved in leading this critical effort?
    Answer. We are meeting periodically with the North American 
Electric Reliability Council, the Electric Power Research Institute, 
the Edison Electric Institute, the American Public Power Association, 
the National Rural Electric Cooperatives Association and others to 
assure that no barriers to progress have been encountered and that all 
segments of the industry are making satisfactory progress toward Y2K 
readiness. We are including the Y2K issue in the remarks of senior 
Administration officials, such as those of former Secretary Peha at the 
American Public Power Association national convention in San Antonio in 
the week following the June 12 hearing. The September 1998 National 
Electricity Forum, co-sponsored by the Department and the National 
Association of Regulatory Utility Commissioners (NARUC) will include a 
session at which NERC and others will review the industry status on Y2K 
preparations and discuss lessons-learned so that others might take 
advantage of them.
    Question 8. Do you have any recommendations regarding this Plan's 
implementation regarding how it might be used to impact on Y2K issues?
    Answer. It is our view that the industry has the resources, 
expertise and incentives to deal with the Y2K challenge. If the 
electric power industry needed additional motivation, over and above 
their own business interests, we believe the Department provided it by 
formally and publicly asking the North American Electric Reliability 
Council, the pre-eminent reliability organization in the country, to 
undertake a leadership role in assuring Y2K readiness. We recognize 
that it is possible for legal barriers or resource barriers to slow 
progress and have asked NERC to identify these potential barriers. As 
noted earlier, the President's Council on Year 2000 Conversion is 
dealing with legal issues involving anti-trust and liability exposure.
    Question 9. When will DOE be in a position to inform this Special 
Committee on the Year 2000 Technology Problem if any additional funding 
or legislation is needed to speed up the electrical utilities' year 
2000 compliance?
    Answer. We have noted above that the electric sector and other 
industries have raised concerns regarding the potential for 
information-sharing activities regarding Y2K preparations to increase 
corporate liability exposure. This issue is not specific to the 
electric utility sector, and the appropriate response, which may 
involve narrow legislation, is under consideration within the 
Administration. The President's Council on Year 2000 Conversion is 
taking a leading role in this effort. Clearly, it is important to 
``open up'' the sharing of Y2K information and lessons learned so 
everyone doesn't have to reinvent the same wheel to attain readiness.
    In terms of financial resources, there may be an appropriate role 
for the federal government to play in assuring the widest possible 
participation in information-sharing consortia, such as the Electric 
Power Research Institute program on embedded hardware issues. There may 
also be a role in providing support for some of the information-sharing 
activities that will take place as part of the response of the North 
American Electric Reliability Council to the Department's May 1, 1998 
request. We are not aware of other legislative needs at the present 
time. We would plan to identify any additional issues or financial 
needs at least by the time NERC reports to us in September 1998 on the 
results of their initial assessment of industry status on Y2K 
preparations.
    Question 10. Has DOE asked the Bonneville and Western Area Power 
Administrations (that report to DOE) for inputs on year 2000 problems 
they have encountered with their Supervisory Control and Data 
Acquisition Systems (SCADA) or other systems that would help other 
components of the electrical utility industry?
    Answer. In the normal course of conducting their business, the 
Power Marketing Administrations function as integral parts of the 
electric power industry and, as such, are participating members of the 
appropriate North American Electric Reliability Council (NERC) regions. 
They abide by NERC standards, guidelines and reporting requirements 
and, consequently, will report their experiences with Y2K problems and 
fixes in the NERC survey of all industry experiences. We are also 
considering the possibility of having the Tennessee Valley Authority 
share some of its Y2K experience with the wider industry.
    We do, of course, have our own discussions with these federal 
entities as part of our federal sector electricity activities and are 
concerned that they have and are applying adequate resources to the 
problem. We are doing our best to avoid any duplication of work being 
done by NERC.
    Question 11. How can this best be promoted? (Refers to following 
statement on page 8, paragraph 1 : ``I do not believe that the Y2K 
issue should be viewed as a competitive issue; it should instead be 
viewed as a reliability issue.'')
    Answer. Having the North American Electric Reliability Council 
(NERC), the industry association with responsibility for and expertise 
in reliability, take a leadership role in the Y2K effort will provide 
for the widest possible sharing of information among federal and non-
federal elements of the electric power industry and assure that 
reliability considerations dominate.
    Question 12. Can you provide specifics on the legislation? (Refers 
to following statement on page 8, paragraph 1: ``Progress on federal 
legislation will help to provide appropriate institutional structures 
for protecting reliability that are compatible with the emerging 
competitive marketplace for electricity.'')
    Answer. With respect to reliability, the Administration's 
Comprehensive Electricity Competition Plan Act proposes creation of a 
self regulating reliability organization with authority to mandate 
compliance with standards and guidelines. This is important because 
competitive market participants will not have the same incentives to 
participate in voluntary activities to protect reliability were 
sufficient for a regime in which the costs associated with protecting 
reliability could be passed through to consumers on a virtually 
automatic basis as a part of the cost of service.
    A copy of the legislation can be downloaded from the DOE Home Page 
at the following address--www.doe.gov/ceca/ceca.htm
    Question 13. Which agencies are included, and can you discuss their 
individual roles if any have been identified? (Refers to the following 
statement on page 2, paragraph 2: The Energy Working Group includes all 
relevant agencies.'')
    Answer. Individual federal agencies included in the electric power 
portion of the Energy Working Group are, in addition to the Department, 
the Nuclear Regulatory Commission (NRC), the Federal Energy Regulatory 
Commission (FERC), the General Services Administration (GSA), the 
Department of Defense (Army Corps of Engineers) (DOD/ACE), the 
Department of Interior (Bureau of Reclamation) (DOI/BR), the Department 
of Agriculture (Rural Utilities Service) (USDA/PUS) and the Tennessee 
Valley Authority (TVA). Regular meetings provide opportunities for 
sharing status and progress updates among the participants and to 
assure that no obstacles have been encountered which could effect 
readiness. Roles are fairly self-evident. Each agency either 
participates directly in some aspect of the electricity sector or has 
oversight responsibilities for some component of the sector: NRC, over 
nuclear power plant licensees; FERC, over rates for wholesale electric 
sales of electricity and transmission in interstate commerce for 
private utilities, power marketers, power pools, power exchanges and 
independent system operators; GSA, over federal procurement of utility 
services and vendor lists of Y2K compliant utility equipment; DOD 
(Corps of Engineers), over dams and hydropower operations; DOI (Bureau 
of Reclamation), over dams and hydropower operations; USDA (Rural 
Utilities Service), over nonprofit and cooperative associations, public 
bodies, and other utilities; and, the TVA, the nation's largest 
electric-power producer, a regional economic-development agency, and a 
national center for environmental research. We have added the Federal 
Emergency Management Agency (FEMA) to cover the contingency planning 
and response areas of Y2K preparations.
                               __________

         Prepared Statement of Senator Daniel Patrick Moynihan

    I am delighted to see that the Special Committee on the Year 2000 
Technology Problem is getting off to a brisk and productive start. This 
is largely due to the hard work and dedication of Senator Bennett on 
this issue. Let this first hearing mark the beginning of the Special 
Committee's efforts to bring awareness, debate, and activity to 
addressing the year 2000 computer problem.
    It was almost two years ago that I wrote the President to warn him 
about the ``Year 2000 Time Bomb.'' The Year 2000 Time Bomb has the 
potential to ripple through all parts of our society--it could cause 
everything from the failure of weapons systems, widespread disruption 
of business operations, the miscalculation of taxes by the Internal 
Revenue Service, possible misdiagnosis or improper medical treatment 
due to errors in medical records, to incorrect traffic signals at 
street corners across the country. And today, Senator Bennett and the 
Special Committee will address the impact of the year 2000 computer 
problem on the electric, gas, and nuclear industries.
    Our utilities are all deeply dependent on software and embedded 
microprocessors to operate smoothly. In order for gas and electricity 
to be delivered to customers, a series of integrated parts--production 
facilities, transportation networks, and distribution systems--all must 
function properly. If one of this integral parts is not year 2000 
compliant, then gas and electricity will not be delivered to such 
crucial entities as hospitals, businesses, and homes. We must all work 
together in an open and honest manner to avoid this dismal and 
dangerous scenario.
    As a Member of the Special Committee, I will continue with my 
efforts to make the public aware of this problem. Senator Bennett has 
asked me to focus my attention on the financial sector with regard to 
the millennium bug. There is little doubt that the year 2000 computer 
problem could greatly affect the economy--some put the likelihood of 
recession at 60 percent. I am anxious to start working on this facet of 
the year 2000 computer problem and will soon hold a field hearing in 
Manhattan--the Financial Capital of the world--on this aspect of the 
millennial malady.
                               __________

                Prepared Statement of James A. Rubright

    Mr. Chairman: I am Jim Rubright, Executive Vice President of Sonat 
Inc. Sonat owns interests in 13,852 miles of interstate natural gas 
pipelines that serve the Southeastern United States and the state of 
Florida and that transport gas from the offshore continental shelf to 
the onshore interstate pipeline grid. Sonat also is a large independent 
producer of oil and natural gas, a wholesale marketer of natural gas 
and electric power, and owns interests in electric generation capacity 
in the United States. I am here today representing the Interstate 
Natural Gas Association of America (INGAA), the trade association that 
represents substantially all interstate natural gas pipelines in the 
United States, as well as Canada and Mexico.
    I am here today to report that the natural gas interstate pipeline 
industry has taken the issue of the Year 2000 (Y2K) problem seriously, 
that we are moving forward on fixing systems prior to the millennial 
change, and that we have surveyed our industry to help determine 
progress in this area. As a result of that survey we are pursuing a 
number of initiatives to foster cooperation in various segments of the 
energy industry. I also want to point out some areas where I think this 
Committee and the Congress can help to expedite the effort.
                   the natural gas pipeline industry
    Before getting into some specifics on Year 2000, I thought it would 
useful to describe our industry to the Committee. Natural gas is a 
major energy source for our economy, second only to petroleum in total 
energy usage (see Appendix A). Natural gas provides 24 percent of the 
nation's energy, for use in homes, businesses, industrial facilities, 
and electric power plants. Clean burning natural gas currently fuels 
about 11 percent of all electric power production in America, but that 
percentage is expected to grow sharply in the future. Industry experts 
generally agree that current domestic consumption of 22 Trillion cubic 
feet (Tcf) will increase to 30 Tcf in the next decade.
    The natural gas industry can be thought of as consisting of several 
segments, each of which is regulated differently (see Appendix B). 
Natural gas production takes place throughout North America, primarily 
in the Gulf of Mexico, the Southwest, northern Appalachia and western 
Canada. Congress removed the economic regulation of natural gas 
production a decade ago. From production areas, natural gas moves 
through small gathering pipelines (regulated, if at all, at the state 
level) to central collection points. Gas is then placed into interstate 
(or in some cases, intrastate) transmission pipelines for transport to 
market areas (see Appendix C). The Federal Energy Regulatory Commission 
(FERC) has economic regulatory authority over interstate transmission 
pipelines based on their ``open access'' rules. Pipelines do not own 
the gas that moves through their systems; rather, customers contract 
with the pipelines to move gas that they have purchased from producers 
or marketers. Local gas utilities what we call local distribution 
companies or LDCs are one of the major customers of pipelines that are 
regulated by state governments just like other utilities.
    The FERC recently completed a major restructuring of our industry 
intended to increase competition in the markets for natural gas. The 
principal component of this restructuring involved changing pipelines 
from merchant sellers of bundled gas and transportation services to 
open-access transporters of gas owned by others. This change in our 
business has forced pipelines to accelerate the application of computer 
and communications technology to our industry, as the demands for 
flexible and responsive gas transportation service have increased as 
our markets have indeed become more competitive. This high degree of 
reliance on computers is one reason why our industry takes the Year 
2000 problem so seriously. We want to ensure that our reliable and 
customer-friendly systems remain so on January 1, 2000.
                    surveying the potential problem
    Toward that end, in March 1998 INGAA conducted a voluntary high-
level survey of the INGAA membership to determine the progress of the 
membership. Seventy-five percent of INGAA members responded to the 
survey, which represent over 80 percent of the U.S. interstate natural 
gas transmission capacity. Since the survey was directed to members, it 
did not include upstream or downstream partners or service providers 
(electricity, telecommunications, etc.). All respondents had a Year 
2000 plan in place and were in the process of implementing their plan. 
The survey questions asked respondents to address the following 
business functions: accounting, purchasing, administration, gas 
management, operations, engineering, and general services. An analysis 
of the survey responses concluded that respondents believed that they 
would complete their own Year 2000 plans, including analysis, 
modification, implementation, and testing by October of 1999 (see 
Appendix D). Although the major pipelines, including Sonat's, that I am 
familiar with had begun to prepare for the Year 2000 well before this 
issue began to rise, our trade association undertook in early 1998 to 
conduct an assessment of pipeline preparedness to determine the need 
for industry coordination.
    Discussions that INGAA has had with individual companies revealed 
consistent trends in priorities for addressing the problem. In order of 
importance, these priorities are:

          (1) Protecting People and Ensuring System Safety
          (2) Maintaining the Flow of Natural Gas to Markets
          (3) Accounting for the Flow of Gas
          (4) Maintaining Internal Business Systems

    The first priority for our industry is ensuring public safety. 
Based on survey results, the operations area had the most work to be 
done. This is largely because the automated equipment that the industry 
uses to operate and monitor pipeline facilities are replete with 
embedded chips placed in service over very long periods of time. The 
diversity and large quantity of such equipment with date sensitive 
embedded chips makes implementation and testing very time consuming. In 
many cases, the digital equipment monitors rather than controls the 
operation of the pipeline. While a tremendous amount of operational and 
safety systems also contain embedded chips, fortunately, they are, by 
design, the functional areas that have the most redundancy, including 
extensive use of non-electronic equipment. Natural gas transmission 
systems are designed with multiple safeguards to avoid the escape of 
gas from the pipelines. In addition to sophisticated digital control 
systems, operating and safety systems use many systems and 
applications, automatic-analog, pneumatic and mechanical control 
devices. Also, in the event of an emergency, operating and safety 
systems are equipped with manual override capabilities. The federal 
Pipeline Safety Act and the U.S. Department of Transportation define 
these minimum design, maintenance and operating procedures for our 
pipelines. Therefore, despite the work ahead, INGAA is confident that 
pipeline systems will safeguard our people in January of 2000 even in 
the face of digital device failures.
    At Sonat, taking the one example I am most familiar with, our Year 
2000 team has worked to identify hardware, software applications, and 
service providers that are potentially susceptible to a Year 2000 
problem. As part of our hardware assessment, we are not only looking 
exhaustively at our computing infrastructure, but also at our pipeline 
and monitoring control systems and other hardware components. We have 
categorized electronic devices in our pipeline systems by business 
criticality and asset type. If the existing electronic device was 
supplied by a vendor, we have requested certification that the device 
is Year 2000 compliant. We require all new devices to be certified as 
compliant. In addition, we are performing on-site certification testing 
to the maximum extent feasible. We are also developing contingency 
plans for our systems based on their business criticality.
    INGAA's second priority is continuity of service. Many customers 
depend heavily on the availability of natural gas. The millennial date 
change just so happens to occur during the middle of winter always the 
busiest season of the year for the natural gas industry. Again, the 
primary functional area within a pipeline system to ensure gas 
deliverability is operations. As we make upgrades due to safety 
considerations, we also help to maintain the reliability of the gas 
delivery system.
    As with safety, redundant systems are the key to continuity of 
service. The supply system is dispersed among tens of thousands of 
wells geographically spread throughout the U.S. and Canada. These wells 
are backed-up with numerous storage sites that can increase or decrease 
natural gas in the system. Many pipelines use on-site natural gas to 
self-generate electricity and operate extensive private communications 
systems. All of these systems are designed for major natural and/or 
man-made disasters. In many cases local distribution companies (LDCs) 
are supplied by several pipeline systems and have their own storage 
facilities. This system provides significant flexibility for customers.
    The third INGAA priority is maintaining an accurate accounting of 
gas flows and management. In this area, a significant amount of Year 
2000 work has already been completed. Most survey respondents expect to 
have Year 2000 work in this area, including testing, done by the first 
quarter of next year. The present natural gas transmission business 
system relies heavily on electronic transactions for business 
activities such as nominations, confirmations, and actual flows. The 
smooth operation of this system is key to the competitive marketplace 
that has been created over the last decade.
    The last priority is maintaining internal company business systems. 
These applications are, in most cases, the easiest to analyze and 
repair, since they tend to involve mainframe and PC-based systems, 
rather than field-based or embedded controller components. These 
systems are typically back-office applications for such functions as 
payroll, purchasing, and e-mail. In many cases, these solutions are 
dependent on software vendors and the diligence of business partners.
    At Sonat, we have identified all software applications and defined 
their business criticality. Since we are heavily dependent on vendors 
to ensure that their applications are Year 2000 compliant, we have 
asked for certification from each vendor on their product. In addition, 
we are performing certification testing based on defined test criteria 
for all applications.
                       where do we go from here?
    Now that we have assessed the progress of our Year 2000 efforts, 
our plan of action is the following. First, we will continue to work on 
fixing the problems associated with Year 2000 and increasing 
coordination on the problem areas.
    Second, we are reaching out to our customers, service providers and 
others, to ensure that this is a coordinated effort. As you might 
expect, many of the potential risks associated with the Year 2000 
problem may very well come from parties and systems beyond our control. 
Our energy delivery system is like a chain, and as the old saying goes, 
a chain is only as strong as its weakest link. With this in mind, INGAA 
is recommending a natural gas industry conference in September to 
discuss our preparedness. We will encourage all segments of the 
industry to participate, including service providers such as 
electricity and telecommunications. Sharing information and raising the 
visibility of the Year 2000 problem, is the best way to ensure that 
every interested party is taking the steps needed while there is still 
time.
    Finally, INGAA is working to develop Year 2000 contingency plans, 
similar to the contingency plans currently in place to deal with 
natural or man-made disasters. We want to work with our partners in the 
natural gas industry to develop a more extensive Year 2000 contingency 
plan that ensures the smooth operation of the natural gas delivery 
system.
                         what can congress do?
    Congress can play a role in addressing the Year 2000 problem. 
Perhaps the most important role is the one this Committee is engaging 
in today raising the visibility of the issue and searching for 
solutions before Year 2000 becomes a serious national crisis. I want to 
acknowledge the foresight of the Senate leadership, and of Special 
Committee Chairman Bennett, in fighting to put this issue on the 
national agenda. This problem has the potential to do serious harm to 
our national economy in ways that would affect every American.
    I would encourage you to continue reaching out to various sectors 
of the economy. Our energy system, and indeed our entire national 
economy, is so interconnected that a problem in one sector may very 
well have a ripple effect throughout other sectors. For example, 
interstate pipelines rely heavily on both the electric and 
telecommunications industries. Natural gas pipelines depend on electric 
utilities to power many of our compressor stations and other pipeline 
systems; telecommunication companies help us track and record the gas. 
Failure by any of these service providers could impact the transmission 
of natural gas. The Year 2000 effort needs to be coordinated across 
industries.
    As part of developing a government response to the Year 2000 
problem, we encourage the Committee to look at ways to streamline the 
amount of reporting that needs to be made to governmental entities, and 
minimizing significant electronic commerce mandates until after the 
millennium. We all know this is a time-sensitive problem. Private 
industry employees working on this problem need to be spending their 
critical time working on solutions not responding to multiple 
government data requests and reporting requirements. A coordinated 
government effort would be helpful in this regard.
    Our industry is also concerned with the litigation risk that we all 
foresee. It is a huge problem for America. We do not see how our 
economy can possibly benefit from devoting the estimated one trillion 
dollars to allocating blame among the blameless for the consequences of 
an eventuality that was simply not foreseeable in the infancy of the 
computer industry. In the finite amount of time left to deal with the 
Year 2000 problem, we need to concentrate our efforts at the 
engineering and systems level, instead of worrying about anticipated 
litigation, and then doing battle with the plaintiff's bar later. INGAA 
thus respectfully suggests to the Committee that Congress needs to 
seriously consider limiting liability for Year 2000 events. Few things 
Congress could do would be more beneficial to expediting the national 
response to this potential crisis. Needless to say, we believe that new 
laws creating new statutory liability where none now exists is 
counterproductive and will lead to further enormous waste.
    On a more encouraging note, the Administration has proposed an 
anti-trust exemption for those industry parties who want to work 
together on solving the Year 2000 problem. This would be an excellent 
idea; the more resources that are pooled together to correct this 
problem, the faster and more effective the overall response will be. 
INGAA encourages Congress to work with the Administration on an anti-
trust exemption.
                               conclusion
    Once again, INGAA congratulates the Special Committee for its 
leadership on a crucial national economic issue. Our society has grown 
to depend on instantaneous computing and communications to perform the 
most important, as well as the most mundane, of tasks. If we all do our 
jobs right, the general public will wake up on New Years Day 2000 and 
go about their lives normally, without ever appreciating the amount of 
effort that has been undertaken to address to Year 2000 problem. The 
alternative, of course, is what motivates us all to make sure we do a 
thorough job. I thank the Committee for giving me the opportunity to 
testify today.

       APPENDIX A.--TOTAL U.S. ENERGY CONSUMPTION, BY SOURCE, 1996
------------------------------------------------------------------------
                             Source                              Percent
------------------------------------------------------------------------
Coal...........................................................       22
Natural Gas....................................................       24
Petroleum......................................................       38
Nuclear........................................................        8
Hydroelectric..................................................        4
Renewable......................................................        4
------------------------------------------------------------------------
Source: Energy Information Administration, U.S. Department of Energy,
  1998.

  [GRAPHIC] [TIFF OMITTED] T2JU98G.003
  
  [GRAPHIC] [TIFF OMITTED] T2JU98G.004
  

                                                      APPENDIX D.--INGAA YEAR 2000 COMPUTER SURVEY
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Identified  Identified  Identified    Average    Standard      Average                   Standard
                                                        problem     problem   problem (N/   percent    deviation      date       Latest date   deviation
                                                         (yes)       (no)         A)       complete    (percent)    complete      complete      (days)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                     Accounting
Accounts Payable....................................         10           4           0          52          27      11/30/98      09/01/99         111
Accounts Receivable.................................          9           4           1          48          36      12/04/98      09/01/99         111
Gas Accounting......................................          9           4           0          49          37      12/22/98      09/01/99         130
Regulatory Accounting...............................          6           5           2          46          36      11/30/98      09/01/99         120
Tax Accounting......................................          9           4           1          39          34      11/23/98      09/01/99         127
                     Purchasing
Purchasing..........................................          8           5           1          44          33      12/30/98      09/01/99         130
Materials Management................................          8           5           1          43          37      12/07/98      09/01/99         142
                   Administration
Human Resources.....................................         10           4           0          34          27      12/21/98      09/30/99         154
Payroll.............................................         11           3           0          40          30      11/24/98      09/01/99         129
Training............................................          5           6           3          32          28      12/30/98      09/01/99         160
                   Gas Management
Contract Administration.............................         11           2           1          44          36      11/16/98      12/31/99         213
Gas Measurement Systems.............................         11           2           1          35          32      01/15/99      12/31/99         188
Nomination Systems..................................         12           2           0          46          37      12/26/98      12/31/99         188
Bulletin Board Systems..............................          8           4           1          36          32      02/06/99      12/31/99         167
                     Operations
Field Communication Systems.........................          9           0           3          26          27      01/30/99      12/31/99         134
Gas Control SCADA Systems...........................         11           1           1          24          21      03/17/99      12/31/99         145
Automated Compressor Systems........................         11           1           2          30          25      03/02/99      12/31/99         133
Automated Auxiliary Plants..........................          5           1           6          29          28      02/14/99      12/31/99         146
Maintenance Management Systems......................          6           6           1          27          27      03/15/99      12/31/99         145
Land & Easement Management Systems..................          7           4           1          40          31      12/25/98      12/31/99         174
                     Engineering
Government Permit Management Systems................          4           4           4          23          22      02/14/99      12/31/99         157
Drafting & GIS Systems..............................          4           6           3          27          28      01/27/99      12/31/99         154
Engineering Record Management.......................          6           4           2          31          32      01/09/99      12/31/99         167
Design Software.....................................          3           6           3          26          30      12/23/98      09/01/99         110
Construction Project Management Systems.............          3           5           3          30          32      02/05/99      12/31/99         154
                       General
E-Mail Software.....................................          6           6           1          25          27      12/10/98      09/01/99         120
Phone Systems.......................................          8           2           3          37          33      11/03/98      09/01/99         178
Computer Backup Systems.............................          7           4           2          31          30      12/25/98      09/01/99         113
Office Systems (Word Processing)....................          6           5           2          49          37      11/23/98      09/01/99         136
Server Operating Systems............................          9           3           2          36          27      01/07/99      09/01/99          79
PC Operating Systems................................          9           3           2          41          31      12/23/98      09/01/99          97
Mainframe Operating Systems.........................          8           1           3          60          29      12/16/98      09/01/99         157
Mini-Computer Operating Systems.....................          6           3           4          42          29      01/09/99      09/01/99          87
Other Systems.......................................          1           1           2          50           0      12/31/98      12/31/98           0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Miles of Pipe in Survey: 232,435.
Number of Survey Respondents: 16.
Year 2000 Compliance Plan: Yes-16--No-0.

  Responses of Jim Rubright to Questions Submitted by Chairman Bennett

    Question. Describe in more detail the results of this study. How do 
you define ``a significant amount of work?'' What continuing efforts 
are being made to further monitor industry-wide progress in the Y2K 
area?
    Answer. Further details of the survey results are enclosed. Note 
that the completion dates include testing. By ``significant amount of 
work'' we mean that many companies have been addressing this issue for 
up to four years. This work includes identification of the problem, 
analysis of solutions, correction, and testing. INGAA will continue to 
coordinate the interstate natural gas pipeline Y2K effort. Since our 
testimony, I have agreed to head up the Natural Gas Council's Y2K Task 
which will work with FERC and other government agencies as we go 
forward. This effort will include the gas and oil industries. (See 
Appendix D of the prepared statement.)
    Question. What is the expected time frame for completion of work in 
this critical area? Does it allow for sufficient time for adequate 
testing of the systems?
    Answer. As shown in the survey results enclosed, pipelines 
responded that they intend to have solutions in place by March 1999 for 
operational areas. This timing is designed to allow time to test the 
solutions during our less busy off-peak months.
    Question. Have you experienced any difficulty in attempting to get 
vendors to certify compliance? If so, describe those difficulties and 
explain what steps may be taken to overcome them.
    Answer. I can respond to this question only as to Sonat's 
experience in requesting certification. Some vendors responded that 
systems were not compliant and that no actions would be taken. Also, 
some vendors were not able to identify precisely which models of a 
certain product were compliant. As a result, Sonat will not rely solely 
on vendor certification but will be performing on-site certification to 
the maximum extent possible. Sonat will focus on those devices critical 
to our business.
    Question. What is the long-term viability of operations if running 
under such redundant systems? How long could a pipeline operate in a 
self-sustaining mode?
    Answer. Redundant power systems are built into pipeline facilities 
so if we lose our commercial power, we have standby resources to 
perform the necessary functions. Our redundant systems are quite 
robust. For instance, adverse weather conditions sometimes take out 
essential facilities, yet the gas industry's reliability has remained 
excellent. Some of the backup systems, such as self-sustaining 
generators, can perform their function for an extended period of time. 
While other forms of backup, such as battery power, are generally more 
limited in time, their duration can be extended in certain 
circumstances (e.g., by recharging or replacing batteries).
    Question. How can the government most effectively monitor industry 
progress without becoming a source of interference?
    Answer. The government can be a constructive force by holding or 
participating in industry-wide meetings to obtain progress reports. By 
calling such meetings from time to time, the industry is strongly 
encouraged to step back from the day-to-day detail of implementing 
solutions and check the overall path. These checks, if not too 
frequent, are helpful in keeping us focused. Such meetings allow the 
industry to allocate resources in a planned manner and will not unduly 
interfere with industry efforts. Surveys are burdensome, labor-
intensive, and generally involve tight deadlines. Industry would prefer 
to organize its own survey and administer it as needed to provide 
progress reports.
    Question. What limits do you suggest be placed on liability, and in 
what ways could such limits speed Y2K readiness if adopted?
    Answer. First, limit the liability that may be imposed on those 
providing information about the Y2K problem. Doing so will stimulate 
the transfer of information among companies. Second, companies that 
make good faith efforts at solving the Y2K problem should at most be 
faced with liability based on actual costs incurred, rather than vague 
liabilities such as business lost.
                               __________

              Prepared Statement of Charles D. Siebenthal

                              introduction
    Mr. Chairman, it's a privilege to address this Special Committee on 
a subject of vital importance to our country. All economic sectors, 
including the electric utility industry, are preparing their business 
operations to be Year 2000-ready. Since this is a complex topic, a 
number of government and private organizations are briefing you today 
on the steps being taken by the electric power industry in response to 
the Year 2000 (Y2K) problem. We all share the goal of having this 
essential industry well prepared for the Year 2000 transition. The 
cooperative efforts of everyone involved are necessary to attain the 
objective.
    The specific role of EPRI in the Y2K effort is to serve as a focal 
point for the electric power industry's sharing of information about 
embedded systems technical issues.
                                  epri
    A little background information about EPRI will help you understand 
why industry leaders chose EPRI for this particular collaborative 
assignment. EPRI was founded in 1973 as the Electric Power Research 
Institute. We are a nonprofit collaborative science and technology 
consortium with headquarters in Palo Alto, California. Members of EPRI 
represent about 87 percent of the U.S. regulated electric power 
industry and international participation is growing significantly. EPRI 
has a twenty-five year record of providing highly respected and 
objective science and technology to address important energy and 
environmental questions.
            origin of the epri y2k embedded systems program
    EPRI staff became aware in mid 1997 of growing concern among 
utility staff about the embedded systems aspects of the Y2K problem. 
EPRI quickly held a problem assessment workshop in September 1997, 
which was attended by nearly 200 people, representing 42 U.S. and 
Canadian utilities, and one middle eastern utility. The oil, pulp and 
paper, and printing industries were also represented.
    Three major concerns emerged from this workshop: (1) the technical 
nature of the embedded systems problem was poorly understood, (2) the 
extent to which we could depend on our vendors to help solve this 
problem was not clear, and (3) there was confusion as to how to design 
and carry out a cost effective and timely program to achieve Y2K 
readiness. EPRI was asked to create a program which would address these 
concerns based upon the assumption that participating companies would 
agree to share information.
         epri y2k embedded systems information sharing program
    EPRI launched a Y2K Program on October 1, 1997 to act as a forum 
and shared source of practical technical information for organizations 
able and willing to share their data about embedded systems. I am 
pleased to be able to say that even in an electric power industry 
restructuring for competition, the overriding importance of sharing 
technical information about Y2K embedded systems was recognized. Today 
we have 74 companies including 3 major oil companies participating in 
the program. Additional utilities and organizations in a number of 
different industries are considering joining. From the beginning, 
participants have been actively involved in designing the scope, 
schedule and content of the program as well as the content and 
functionality of our electronic data base.
    U.S. utility participants in the EPRI Y2K program represent more 
than 70 percent of the electric power generation capacity in the U.S. 
As a result of deregulation, a significant portion of the nation's 
electric generation capacity is owned and operated by independent power 
producers. Some of the largest of these companies are subsidiaries of 
utilities participating in our program. However, there are still major 
blocks of independent power outside of the program. They are welcome 
and encouraged to join this collaborative program and share their data.
    Major features of the EPRI program are:
  --Facilitation of open communications and technical information 
        sharing between program participants, electronically and in 
        workshops.--Workshops that provided interactive discussion of 
        problems, processes, testing methods and results were held in 
        January and May of 1998. The next one will be held August 24-
        28, 1998 in San Diego. We are currently selecting the date and 
        location for a January 1999 workshop. We expect the workshops 
        to continue through 1999.
  --Development and operation of an internet-based clearinghouse for 
        participants to share their knowledge on component and system 
        testing.--EPRI's internet web site for program participants was 
        activated March 15, 1998. Utilities began up-loading their data 
        to our electronic knowledge-base in early April 1998. Currently 
        most of this information consists of equipment inventories, 
        program plans, and document templates. During May 1998 utility 
        test data began appearing and we expect growth of the test 
        result information in the knowledge-base to accelerate 
        significantly during the third-quarter of 1998. This is based 
        upon our expectation that by the end of third quarter 1998 most 
        participants in our program will have identified and initiated 
        testing on the mission critical elements of their systems.
      Testing results to date have been largely limited to off-line 
        testing of individual components. On-line testing requires that 
        the off-line results be understood in order to minimize the 
        potential for equipment damage and/or shut-downs which might 
        impact electrical service. Component testing to date has 
        identified primarily nuisance type failures such as erroneous 
        dates on computer screens. To date, instrument and controller 
        functionality appears to be largely unaffected. Some testing of 
        larger integrated systems such as distributed control systems 
        in power plants has been started. These tests have produced 
        some conflicting results which are being resolved through 
        collaborative efforts within our program.
      All testing information is being produced and provided by 
        participating companies and the vendor organizations. It is 
        expected that participating companies will use the information 
        which they obtain from the program web site to check their own 
        inventory, assessment, and test results. All program 
        participants must carefully evaluate the test procedures and 
        results they obtain from the EPRI program data base to 
        ascertain the applicability and reliability for their own 
        particular situation. Each company must make its own decisions 
        based on its particular configurations and the results of its 
        own test programs.
      During mid-May, those vendor organizations which have agreed to 
        provide information to the program began to up-load their 
        information into the data base. We look forward to the 
        continued growth of the vendor knowledge-base and very much 
        appreciate the willingness of those organizations to provide 
        and maintain information.
  --Facilitation of the utility teams to work collaboratively with key 
        equipment vendors to document programs, methods and results.--
        This program is currently underway. Program participants have 
        identified over 45 major vendors in power generation and over 
        20 major vendors in transmission and distribution. A number of 
        meetings have already been held with vendors. We expect to 
        expand this to include vendors of electronic communications 
        hardware as well. This part of the program is intended to 
        improve industry understanding of vendor statements regarding 
        product Y2K compliance. Groups of utilities have met with 
        individual vendor organizations to discuss exactly what was 
        tested, how it was tested, what result was obtained and how 
        that result was interpreted to mean Y2K compliance. Vendors 
        have also been requested to work with the utilities to develop 
        a test plan for each of their products which can then be used 
        by utilities in field tests.
    To date the great majority of vendor organizations which have been 
        asked to participate in such meetings have agreed to do so. We 
        are quite pleased that the vendor organizations recognize the 
        need to work in partnership with us to resolve the many 
        questions which must be addressed.
  --Development of collaborative relationships with Y2K embedded 
        systems programs in other industries to facilitate inter-
        industry information sharing.--EPRI and the American Petroleum 
        Institute (API) are discussing possible ways of sharing 
        information between their embedded systems programs. On April 
        15, 1998, EPRI and API hosted a meeting of industry trade 
        associations to see if other industries have similar 
        collaborative data-sharing efforts. Unfortunately, no similar 
        data bases were discovered. We will continue to monitor this 
        situation and hope that other industries will be able to 
        mobilize as we did and that we will be able to arrange 
        information sharing protocols with them.
      The telecommunications industry will be a primary objective of 
        our effort to achieve inter-industry cooperation. While many 
        utilities have their own internal electronic communications 
        systems, all utilities depend to some degree upon 
        telecommunications service providers for inter-utility 
        communications within individual reliability regions. Initial 
        efforts at contingency planning for Y2K induced events have 
        made us very aware of the critical dependence of electric power 
        industry response plans upon electronic communications. We are 
        sure that reliable electric power is a critical feature of the 
        contingency plans of the telecommunications industry. To begin 
        the dialog, we are currently designing a pilot program for 
        utilities and their telecom service providers to sit down and 
        discuss their mutual dependence and identify areas of common 
        concern and possibly joint action.
      Contingency planning work has also identified many other 
        dependencies on events and services outside of the direct 
        control of utilities and their subsidiary companies. In 
        addition to telecommunications, Y2K preparedness of local 
        governmental service providers is important. For example, local 
        governments need to be sure that vehicular traffic control 
        measures are in place to enable utility workers to respond to 
        contingency plan requirements and customer service requests. 
        Additionally, Y2K preparedness of coal transport railroad and 
        gas pipeline operations are essential to the electric power 
        industry's ability to provide uninterrupted electric service. 
        As we analyze all facets of the industry's operations, the list 
        of important services outside of the electric power industry's 
        direct control grows. We continue to have concerns about the 
        degree to which many of these other vital services will be able 
        to operate effectively during Y2K transition dates. We are 
        actively seeking electronic linkages to other internet-based 
        information sources and expect this feature of our program web 
        site to be activated before the end of this month.
                   additional related considerations
    I have given you an overview of the EPRI program. Some additional 
comments are in order to more fully understand the situation:
  --Legal considerations.--The importance of sharing information to 
        resolve this technical problem in a timely fashion is difficult 
        to overstate. It is our opinion that there is additional 
        valuable information regarding embedded systems which exists 
        within individual companies (utilities, vendors and other 
        companies in other industries) but is not being shared, often 
        due to fears about future litigation. From our own experience I 
        can state that the legal system and the concerns of those who 
        elect to guard their litigation position have impeded efforts 
        to populate the EPRI Y2K data base. EPRI corporate counsel and 
        counsel for participating companies have worked long and hard 
        to overcome these shared concerns. Those who have weighed these 
        risks and recognized that the overriding public interest and 
        the magnitude of the business problem is so pressing that it 
        should take precedence over the litigation concerns are to be 
        commended.
      We believe the government could advance the remediation process 
        by stating a public policy which encourages the noncompetitive 
        resolution of Y2K problems and acting to address legal 
        liability concerns associated with sharing Y2K technical 
        information.
  --Readiness of suppliers to the electricity industry.--More work 
        needs to be done to understand the state of Y2K readiness of 
        key suppliers for the electric power industry. For example, 
        will the providers of the necessary raw materials for making 
        electricity, such as coal transport railroads and gas pipeline 
        suppliers be Y2K ready and able to provide service at the level 
        necessary to sustain electric power production?
  --Readiness of major users of electric power.--More work needs to be 
        done on the necessary communications between major users of 
        electricity and their major electricity suppliers to understand 
        the likely power demand at the critical times. Some industries 
        may decide to shut down their business operations during Y2K 
        transition events. Others which co-generate electric power may 
        decide to shut down their electric power generation equipment 
        and take power off the grid during Y2K transition events. Still 
        others may simply decide to try to ``ride through'' the Y2K 
        transition dates and hope for the best. Utilities trying to 
        plan their Y2K event management programs and develop 
        contingency plans need to understand what major electricity 
        customers are going to do during these potential critical time 
        periods.
  --Regional and National Grid Operations Planning and Management.--
        This topic has been discussed in depth in the NERC testimony 
        and is outside of the EPRI program scope.
    In conclusion, I would like to make the following points:
  --The electric power industry is working hard to ensure that electric 
        service remains reliable through the critical Y2K transition 
        periods.
  --Significant additional work remains to be done. The EPRI embedded 
        systems information sharing program is only one of the 
        important components of the industry's work to prepare for Y2K. 
        Other issues include software remediation, legal constraints, 
        readiness of power industry suppliers, each individual 
        companies' own actions, readiness of power users and 
        consideration of the operation of the grid.
  --The companies themselves are responsible for the actual solutions 
        and implementation.
  --The sharing of technical information and collaboration where 
        appropriate should be officially recognized and encouraged.
  --EPRI views its role as one of public interest and is pleased to 
        have been invited to brief the committee on our Y2K embedded 
        systems activities.
                              attachments
  --Lists of members of EPRI Y2K Embedded System Information Sharing 
        Program
  --Frequently Asked Questions About the EPRI Program
  --Milestones of the EPRI Program

                        EPRI's Y2K Members List

        y2k agreements finalized and/or in process as of 6/5/98
Alberta Power (Canada)
Allegheny Power System
Ameren Union Electric
American Electric Power
Arizona Public Service
Baltimore Gas & Electric
Boston Edison
Carolina Power & Light
Central Hudson Gas & Electric
Central & Southwest
Chevron
Chugach Electric Association
Cinergy
Commonwealth Edison
Consolidated Edison
Consumers Energy
Dairyland Power Coop
Dayton Power & Light
Detroit Edison
Dominion Resources
Duke Energy
Duquesne Light Company
East Kentucky Power Coop
Edmonton Power (Canada)
Entergy
Eskom (So. Africa)
First Energy Corp.
Florida Power Corp.
Florida Power & Light
GPU Generation, Inc.
Houston Industries
Illinois Power Company
Indianapolis Power & Light
Israel Electric
IVO (Finland)
Kansas City Power & Light
Long Island Lighting Co.
Los Angeles Dept. of Water and Power
LG&E Energy Corp.
Lower Colorado River Authority
Manitoba Hydro (Canada)
MidAmerican
Minnesota Power
Montana Power
Nebraska Public Power District
Nevada Power Company
New York Power Authority
Niagara Mohawk
Northeast Utilities
Northern States Power
Nuclear Electric (England)
Omaha Public Power District
Orange & Rockland
PacifiCorp
Pacific Gas & Electric Co.
PECO Nuclear
Potomac Electric Power Company
Public Service Co. of New Mexico
Public Service Electric & Gas
Salt River Project
SASK Power (Canada)
Shell
Southern California Edison
South Carolina Electric & Gas
Southern Company
Tennessee Valley Authority
Texaco
Texas Utilities Electric Company
Trans Alta (Canada)
Washington Public Power Supply System
Western Resources
Wisconsin Electric Power
Wisconsin Power & Light
Wisconsin Public Service Corp.

  Frequently Asked Questions From Utilities About EPRI's Y2K Embedded 
                            Systems Program

    Question 1. What is the purpose of EPRI's Y2K Embedded System 
Program?
    Answer. EPRI's program is designed to serve as a focal point for 
systematically collecting, assembling, organizing, sharing and 
discussing technical information about embedded systems that will help 
participants inventory, assess and mitigate potential problems. EPRI is 
also facilitating meetings with vendors leading to coordinated field 
testing and the sharing of test information and lessons learned. 
Participants in EPRI's Y2K program will share their own, vendor, and 
other industry information and take advantage of the lessons learned by 
participants. This non-competitive approach to solving the problem has 
also been adopted by other industries such as oil, gas and chemicals. 
The EPRI program is focused on embedded systems and will not address 
back-office equipment such as mainframe and PC software.
    Question 2. What is an embedded system and what is different about 
EPRI's Y2K Program versus others?
    Answer. For this program, embedded systems are taken to be any 
system that utilizes a microprocessor.
    EPRI's program is unique in several ways:
  --It is vendor and solution provider independent. There is growing 
        evidence that generic vendor testing upon which compliance 
        certifications are based often yields results that are 
        different from testing within a specific field environment.
  --The focus is on collecting test data rather than a web search of 
        existing data like many existing commercial databases.
  --EPRI is facilitating vendor-utility interactions and in some cases 
        getting answers utilities have not been able to obtain 
        themselves. All vendors contacted to date have agreed to share 
        information.
  --EPRI is facilitating collaborative field testing.
  --The EPRI program is working with many other industry groups 
        (utility and non-utility) to maximize testing information 
        available to participants.
  --The EPRI program includes contingency planning to provide extensive 
        information relating to the full range of Y2K efforts.
    Question 3. Will EPRI develop generic solutions to industry Y2K 
problems?
    Answer. EPRI will not develop solutions. The nature of each 
company's problems depends on its specific applications and electronic 
hardware. Consequently, each company will have to make its own 
decisions about priorities, risks and remediation. But, the EPRI 
program will serve as a clearinghouse for Y2K information which will 
provide value by freeing utility resources from the data gathering 
steps to focus on problem identification and solution instead.
    Question 4. How does the EPRI Program help me?
    Answer. EPRI's program can help in a number of ways:
  --The overall EPRI program is designed to help participants utilize 
        their resources in the most effective manner. By participating 
        in a collaborative program, duplication of effort can be 
        minimized. Test results from participants, vendors, and service 
        providers will be centralized and conveniently available via a 
        searchable electronic database. EPRI is facilitating the 
        formation of collaborative utility test teams who will obtain 
        vendor specific test information and share it with all 
        participants. Test teams will use this information to perform 
        field testing and these results will also be shared. First hand 
        experiences and lessons learned (both good and bad) will be 
        shared and may be used by others to avoid costly mistakes or to 
        capitalize on successful results. Member interactions at 
        periodic workshops will provide invaluable networking for all 
        participants.
  --If your organization is about to begin its Y2K embedded systems 
        project, you will benefit from interacting with and learning 
        from others who have developed successful Y2K programs. The 
        database and lessons learned will help speedup your program and 
        minimize expenditure of scarce resources.
  --If your organization has already begun the inventory you will be 
        able to benchmark your inventory results against those of 
        others. Most program participants are learning that initial 
        inventories find on the average only about 70 percent of the 
        potentially Y2K impacted items.
  --If your organization is in the assessment or testing phase, you 
        will be able to compare your program and results to those of 
        others as part of your effort to exercise due diligence. The 
        vendor interactions and field testing will provide valuable 
        input. Evaluation of embedded systems testing tools will be of 
        immediate value. Contingency planning will also be of value.
    Question 5. What do I get for my money? What are the deliverables? 
When?
    Answer. The $75,000 participation fee will provide the following:
  --A database presenting extensive test results of components and 
        systems (Operational March 17th and continuously updated)
  --A web site for rapid dissemination and discussion of results
  --System and component testing guidelines (Some available now and 
        others under development)
  --Reporting of lessons learned developed by others including those of 
        other industries (Ongoing)
  --Workshops for discussion of approaches and results (Jan. 28-29 
        Atlanta, May 4-8 Dallas, Aug. 24-28 San Diego & Q4-TBA).
  --Contingency plans and reactive strategies (To be established in 
        August/San Diego Workshop)
  --Facilitation of the formation of collaborative test teams for 
        vendor specific components and systems (Ongoing-Approximately 
        30 teams formed to date)
    Question 6. Who can join? Do you have to be an EPRI member? Are 
there any exclusions?
    Answer. EPRI's database and workshops are focused on the equipment 
and systems used in the generation and/or transmission and/or 
distribution of electric power. Therefore, any organization having 
embedded systems and equipment that are similar to those found in the 
electric power enterprise would find immediate value in becoming a 
participant and would be eligible to join. The only other requirement 
is that the joining organization agree to share its Y2K information 
with the other participants. It is not necessary to be an EPRI member 
to join. The only exclusions would be those organizations who are not 
in the process of addressing embedded systems Y2K issues and therefore 
do not have their own technical information to share.
    Question 7. How many participants do you have?
    Answer. At the present there are approximately 74 participants. We 
anticipate that the eventual membership will be close to 100.
    Question 8. Can I use the EPRI program to help my customers become 
Y2K ready?
    Answer. The database information is designed to address the needs 
of the electric utility enterprise and is not designed to develop Y2K 
readiness in utility customers. However, the database, vendor 
information, and testing methodologies developed by the electric power 
industry will have information of value to other industries that share 
common equipment (many of whom are key customers). We recommend that 
you encourage such customers to join the program.
    Question 9. If I join the EPRI program will I still have to test my 
own equipment and develop my own solutions?
    Answer. The nature of each company's problems depends on its 
specific applications and electronic hardware. Every utility should 
test its mission critical equipment. Non-mission critical equipment 
might be tested by groups of utilities; however, utilities must make 
their own decisions on what and how much testing will be done based on 
their own risk-based evaluations. Contingency plans for potential 
failures also should be developed by each organization. To encourage 
the candid production of valuable data, information provided through 
the program is not warranted for any particular purpose within another 
participant's organization. Testing of any equipment by EPRI is not 
within the scope of this program.

            EPRI's Year 2000 (Y2K) Embedded Systems Program

                           program milestones
09/97:
  --Meeting with 42 utilities held in Scottsdale Arizona. EPRI asked to 
        put together a collaborative program of information sharing to 
        address Y2K embedded systems issues.
10/97:
  --EPRI provides $200,000 ``seed money'' to initiate program.
  --Program organization formed. Project plan and budget developed.
  --Program announcement sent to all electric utilities and placed on 
        EPRI's public web site. Announcement stated that program was 
        open to any organization having information and willing to 
        share.
12/97:
  --First Advisory meeting held in Atlanta, at Southern Company 
        offices. EPRI's project plan and budget approved. Web site and 
        data base schedule accelerated. Quarterly workshops requested.
  --Web site and data base specification developed.
  --Approximately 15 members.
01/98:
  --Web site and data base design initiated. Web site activated in late 
        January.
  --First Y2K Workshop and Seminar held in Atlanta, approx. 250 
        attendees.
  --Second Advisory meeting held. EPRI's workscope expanded to include 
        vendor test teams (teams to visit key equipment suppliers to 
        develop consistent testing methodologies).
  --Vendor Test Teams formed.
  --Marketing brochure published.
  --Approximately 45 members.
02/98:
  --Data Acquisition Teams formed to secure utility and vendor 
        information for data base.
03/98:
  --Data base fully functional. First data sets populated.
  --Letter from EPRI's CEO Kurt Yeager sent to CEOs of utilities 
        encouraging them to collaboratively share technical information 
        about Y2K.
04/98:
  --Over 100 data sources in database.
  --Texaco, Chevron & Shell join Program as first non-utility 
        participants.
  --EPRI and the American Petroleum Institute held inter-industry 
        discussions.
05/98:
  --Second Y2K Workshop held in Dallas. Over 450 attendees.
  --Third Advisory meeting held. EPRI asked to look into natural gas 
        issues, utility related telecommunications issues and to 
        increase emphasis on contingency planning.
Today:
  --Approximately 74 members (see attached listing) representing over 
        70 percent of the electric sales in the USA and approximately 
        65 percent in all of North America.
  --Advanced search capabilities fully implemented in data base.
  --Y2K web site drawing over 6500 ``hits'' per month.
Future:
  --6/98-8/98--Regional training on web site and data base usage.
  --6/98--Web site chat rooms and bulletin boards on line.
  --6/25--Workshop on Y2K legal issues, San Francisco.
  --8/24--Third Y2K Workshop, San Diego: Over 600 attendees expected.
  --8/27--Advisory meeting to approve EPRI's 1999 scope of work and 
        budget.
  --Continuing--Add to and update information in data base.
--Continuing--Vendor Test Team meetings with key equipment suppliers.
                                 ______
                                 

       Responses of Charles Siebenthal to Questions Submitted by

                            Chairman Bennett

    Question 1. You mentioned that the testing of larger more 
integrated systems such as distributed control systems have produced 
conflicting results. Could you explain what you mean by conflicting 
results?
    Answer. We have knowledge of several utilities that have tested 
their distributed control systems and associated control consoles for 
Y2K readiness and experienced different results. Some have found no Y2K 
impacts and others, using similar tests, have found problems. Since 
these systems are of various software and hardware vintages and are 
configured differently, software and hardware, more investigation is 
necessary. Therefore, within the EPRI program, the utilities conducting 
these tests are working together with the provider to understand the 
differences in test results and the actions necessary.
    Question 2. You noted the mutual dependence of the electric power 
industry and the telecommunications industry. Do you have any thoughts 
on how these two industries could work together to facilitate cross-
industry sharing?
    Answer. All utilities have extensive private communications 
systems. Utilities either own and operate their own systems, own part 
and lease the remainder from others, or lease all of their 
communications systems from other providers. Utilities will be testing 
and correcting any Y2K problems within their own telecom systems just 
as the telecom providers are doing. The industries could share test 
data and vendor response data to insure that remediation processes are 
based on the same perception of the problem. This collaborative 
approach would benefit the nation. It is critical that at the 
interfaces between the telecom service providers and the utilities, the 
Y2K remediation actions of both sectors are compatible. This requires 
that these two industry groups share remediation plans and mutually 
agreed upon standards to minimize interface compatibility problems. 
Within the EPRI program we are having technical meetings between 
utilities and their telecom service providers to understand the 
technical issues and identify potential joint actions.
    Question 3. You made reference to the difficulties of sharing Y2K 
issues within the industry because of fears about future litigation. Do 
you have any suggestion on how the government might help facilitate 
this problem?
    Answer. The government could help facilitate information sharing 
with regard to Y2K technical information by taking appropriate steps to 
assure companies:
          a. That sharing of such information in good faith will not be 
        construed as anti-competitive conduct under state and federal 
        antitrust laws. (We note that the Justice Department's approval 
        of the plan presented by the securities industry has 
        substantially alleviated these concerns with respect to 
        industry-wide programs such as EPRI's, provided the information 
        exchanged is limited as set forth in the ruling).
          b. That technical and factual information about specific 
        products/vendors which is reasonably believed to be correct and 
        exchanged in good faith among those with a common interest in 
        remediating systems utilizing such vendors products cannot be 
        used as the basis of a trade libel claim by a vendor;
          c. That technical and factual information about specific 
        products which is reasonably believed to be correct and 
        exchanged in good faith between vendors and customers with a 
        common interest in remediating systems utilizing such vendors 
        products cannot be used as the basis of a lawsuit against such 
        vendor (or some other action which will encourage greater 
        cooperation by vendors of products with embedded systems);
          d. That technical and factual information about specific 
        devices, test plans and results, contingency plans and project 
        management techniques exchanged in good faith among those with 
        a common interest in remediating similar Y2K technical problems 
        cannot be used against the company providing the information to 
        establish lack of due diligence; and
          e. That technical and factual information about specific 
        devices, test plans and results, contingency plans and project 
        management techniques exchanged in good faith among those with 
        a common interest in remediating similar Y2K technical problems 
        cannot be introduced into evidence against the company 
        providing the information by another who relied on that 
        information and suffered a negative event allegedly caused by a 
        Y2K failure.
    We believe these measures would facilitate the exchange of 
necessary technical information industry-wide and cross industries 
without prohibiting the use of otherwise available evidence to prove 
any of the types of claims mentioned.
    Question 4. What types of embedded systems did the EPRI study focus 
on?
    Answer. The EPRI Y2K program is not a study conducted by EPRI, but 
is a shared compilation of utility experience in finding, testing, and 
remediating embedded systems problems. This body of information 
includes all microprocessor based equipment normally found in electric 
power generation, transmission and distribution systems, and 
facilities. Generically it includes ``smart'' sensors, digital controls 
and data acquisition systems, receivers, actuators, remote meter 
reading systems, ``smart'' protective relays, environmental controls, 
and timing devices of all kinds.
    Question 5. Could you explain the legal complications that EPRI 
encountered in trying to facilitate the sharing of information?
    Answer. EPRI has encountered difficulty with the perception of 
legal risk created by the possibility of each of the types of events 
described in Question 3 above. We applaud those companies and their 
legal counsel who determined that the need to share Y2K technical 
information (subject to appropriate confidentiality agreements) 
outweighed the legal risks--but it is likely that even these companies 
would exchange a greater volume of information if they were afforded 
the protections mentioned above.
    Question 6. Concerns have been expressed that some utilities may 
shutdown prior to the date change in order to protect their equipment 
from potential Y2K related damage. How probable do you think this might 
be?
    Answer. I have no personal knowledge of any utilities planning to 
shutdown generating, transmission, and/or distribution systems due to 
Y2K. At this point it would seem to me that such a decision would be 
premature. Shutdown of a base-load power plant is a time-consuming, 
expensive action. Reliability and system implications need to be 
understood. The North American Reliability Council is tasked by the 
Department of Energy with looking at system-wide implications of such 
decisions.
    Question 7. Some utilities claim that their generation and delivery 
systems are purely reactive to sensors and are not date sensitive. 
However, critics maintain that even some chips which do not have a date 
function can still experience Y2K related problems due to built-in 
logic problems. Can you please comment on this?
    Answer. It is possible for chips to have a built-in time function 
which includes a year date, regardless of whether the year date is used 
in the application. At this point, we believe that there is no reason 
to assume that lack of explicit use of time in an application is 
grounds for assuming the application is Y2K ready. We would recommend 
that any such device considered to be mission critical should be 
evaluated.
                               __________

             Prepared Statement of Senator Gordon H. Smith

    Mr. Chairman, I would like to first commend you and Senator Dodd on 
your leadership on the Year 2000 problem.
    The need to provide solutions for all Americans is urgent and I am 
proud to have the opportunity to serve on this committee with you.
    Today's hearing on the year 2000 preparedness of our nation's power 
grid is extremely important. Everything is powered by our electricity 
and gas industries--from the heat in our homes to the bright lights in 
Times Square.
    I look forward to the testimonies of our distinguished witnesses 
about their year 2000 problem contingency plans and am hopeful that 
these organizations can assure us today that they will be ready on 
January 1, 2000.
    Our witnesses are leaders on this issue and I would be particularly 
interested in finding out how the energy sector is reaching out to our 
small and rural power plants who desperately need resources to prepare 
for this problem.
    The large power plants are undoubtedly in the process of evaluating 
their systems and preparing for renovations, but what about small rural 
cooperatives? How will small rural towns, like Fossil and Depoe Bay in 
my state of Oregon, be able to operate without any power? Are there 
enough resources available? Is there a network of utility sectors 
sharing information to begin implementing solutions now? Is there a 
coordinated outreach program to educate and prepare everyone?
    Whatever the operating systems are, whether they may be embedded 
microprocessors in power generators or desktop computers, we need to be 
sure we are ready for the worst case scenarios and begin testing our 
systems now. There are just 567 days left. Let's work together and 
answer these questions before the unthinkable happens.
    Thank you Mr. Chairman.
                               __________

                                          

              ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

                                 ______
                                 

   Statement of the National Rural Electric Cooperative Association--
                 Computers and the Electric Power Grid

    The National Rural Electric Cooperative Association (NRECA) 
appreciates the opportunity to provide information on the Year 2000 
computer problem as it affects electric utility systems. We appreciate 
and commend the leadership of Chairman Bennett and the members of the 
Committee on this critical issue.
                    nreca and electric cooperatives
    The National Rural Electric Cooperative Association (NRECA) is the 
national service organization dedicated to representing the national 
interests of cooperative electric utilities and the consumers they 
serve. NRECA's 1,000 member cooperatives serve 30 million people in 46 
states (about 11 percent of the U.S. population). Most of the more than 
900 distribution systems are consumer-owned cooperatives; some are 
public power districts. NRECA membership includes other organizations 
formed by these local utilities: generation and transmission 
cooperatives for power supply, statewide and regional trade and service 
associations, supply and manufacturing cooperatives, and data 
processing cooperatives.
    Electric cooperatives are:
  --private, independent electric utility businesses,
  --incorporated under the laws of the states in which they operate,
  --established to provide at-cost electric service,
  --owned by the consumers they serve,
  --governed by a board of directors elected from the membership, which 
        sets policies and procedures that are implemented by the 
        cooperatives' professional staff.

                                          ELECTRIC UTILITY COMPARISONS
----------------------------------------------------------------------------------------------------------------
                                                      Investor      Publicly
                                                        owned         owned      Cooperatives \1\     Industry
----------------------------------------------------------------------------------------------------------------
Number of Organizations...........................          243         2,010                 960         3,213
Size (median number of customers).................      341,300         1,700               9,600   ............
Customers, percent of total.......................           75            14                  11   ............
Revenues, percent of total........................           79            13                   8   ............
kWh sales, percent of total.......................           76            14                   8   ............
Sales (billions kilowatt hours):
    Residential...................................          751           149                 142         1,042
    Commercial....................................          713           111                  38           862
    Industrial....................................          766           148                  54           968
    Other.........................................           62            24                   6            92
                                                   -------------------------------------------------------------
      Total.......................................        2,292           432                 240         2,964
Density (consumers/mile of line)..................        34.85         47.76                5.76   ............
Revenue/mile of line (dollars)....................      $59,355       $72,255              $7,038   ............
Distribution plant investment per consumer
 (dollars)........................................       $1,549        $1,503              $1,975   ............
Assets (dollars in billions)......................         $587          $158                 $62         $807
----------------------------------------------------------------------------------------------------------------
\1\ 900 Distribution, 60 Generation & Transmission cooperatives.
kWh = kilowatt hour.
Source: 1996 Dept. of Energy/Energy Information Agency/NRECA Strategic Analysis. March 1998.

      how electric co-ops are organized to get power to the people
    There are two distinct types of electric cooperatives: generation 
and transmission cooperatives (G&Ts) and distribution cooperatives.
G&Ts
    As their name implies, G&Ts generate and/or transmit electric power 
on the bulk, or wholesale, level of the market. G&Ts are cooperatives 
whose members are electric distribution cooperatives. Those members are 
the owners of the G&Ts. Most G&Ts own transmission lines and 
substations. Some own or operate electric generating plants. Almost all 
buy and sell power on the wholesale level to ensure that electric power 
flows to ultimate customers safely and reliably.
    There are 66 G&Ts whose membership comprises all but 250 rural 
electric distribution cooperatives. Together, they own approximately 
60,000 miles of transmission or distribution lines, 4,451 substations 
and 53 own or have an interest in electric generation facilities.
Distribution Cooperatives
    Distribution cooperatives ensure that electric power gets delivered 
locally. Their members are families, individuals, and businesses of 
every size and type, from campgrounds to doctors' offices to automobile 
manufacturers. Distribution cooperatives build and maintain the 
electric lines that reach to homes and businesses, ensure that rights-
of-way stay clear of growth that could affect power distribution, 
ensure that power flows from a G&T or another source to the 
distribution system's delivery points and on to consumers, meter and 
bill for the service.
    Distribution lines owned by rural electric cooperatives cover 
seventy-five percent (75 percent) of the land mass of the continental 
United States. Some distribution systems own substations or other power 
delivery points.
    More information on how electric cooperatives are organized and 
operate is provided in Appendix A.
                how the electric utility industry works
    We have provided a non-technical attachment (Appendix B) that 
outlines how electricity is created and provided to homes and 
businesses nationwide. Briefly, there are three broad components: 
generation, transmission and distribution.
    Generation.--Facilities generate electricity using a variety of 
fuels--the power of flowing water (hydroelectric facilities), nuclear 
power, thermal plants that burn some type of fuel (coal, natural gas, 
diesel, biomass), or renewable resources such as wind. Electricity 
cannot effectively be stored in large quantities. It must be created in 
real time, to meet immediate needs. Generation facilities are designed 
with differing capacities to compensate for variations in electric 
demand.
    Transmission.--Facilities are wires that conduct electricity from 
generating plants to substations and other delivery points. Their 
voltages range from about 115 kV to 500kV. They are designed to carry 
large volumes of electricity, often over long distances. Transmission 
lines and substations are often referred to as ``the grid.'' Actually 
there are four (4) regional grids in North America--the Eastern 
Interconnection, the Western Interconnection, the Texas Interconnection 
and the Quebec Interconnection.
    Utilities within each grid buy and sell bulk power on both the spot 
market and through longer-term contacts to ensure a reliable supply of 
electricity to their customers. Transmission systems within each grid 
are interconnected to facilitate such transactions. The 4 grids have 
limited direct current (DC) interties and isolated back-to-back AC-DC-
AC interties to help facilitate elasticity between the large regions.
    Distribution.--Systems generally operate at voltage below 
transmission voltages, stepping the voltage down gradually through a 
series of transformers until it is suitable and safe for end-use. 
Distribution systems receive electricity at transmission or sub-
transmission voltages at substations and pass it along to the 
distribution wires, either overhead or underground, that deliver the 
electricity to the customer. Distribution systems often have load 
management capabilities installed at substations or end-user facilities 
including Supervisory Control and Data Acquisition (SCADA) systems and 
peak shaving systems.
                  the year 2000 and electric utilities
    At this time, the year 2000 (Y2K) problem breaks down into 3 basic 
areas for electricity utilities: embedded chips, software and the 
upstream/downstream supply chain.
    However, the severity of the problem is not dictated by a utility's 
corporate structure. Rather, the magnitude of the problem in each 
utility will be defined by the number of digital controllers in its 
facilities, the number of computer-controlled processes (billing or 
power plant control, for instance), and the number and type of 
interactions it has with customers and suppliers upon which the utility 
relies for mission-critical materials and services.
    All electric utilities are required, by virtue of the business they 
are in, and in some cases by regulators, to plan for contingencies. 
Hurricanes, tornadoes, ice storms, wind storms, blizzards, power plant 
outages (both scheduled and unscheduled) as well as transmission 
outages (scheduled and unscheduled) all continually test electric 
utilities' ability to plan for and mitigate situations that affect 
system reliability. Facilities are generally engineered to have manual 
overrides or resets and may have redundancy built in to ensure that 
``the lights stay on.'' Y2K, although a new challenge for the industry, 
is not completely insurmountable--utilities can and are testing, 
mitigating and ensuring that workarounds are in place.
    Each electric utility has a different mix of facilities for which 
it is responsible--some operate generation assets; others own no 
substations. Each has a different mix of mission-critical software 
applications, often dependent upon the facilities owned or operated.
    Finally, all have some kind of interconnection with other utility 
systems. Electric utilities are interdependent to ensure reliability in 
the delivery of electric power. In order to be Y2K ``ready,'' each 
utility will have to work with those who buy power from it, those from 
whom it buys power, and the entities that supply the transmission or 
distribution capacity that ensure that electricity gets where it's 
supposed to.
    NRECA agrees with The North American Electric Reliability Council's 
(NERC) assessment regarding the reliability of the bulk power system: 
``* * * distribution systems are generally radial from the bulk supply 
network and cannot function without a robust bulk supply network or 
Interconnection.'' \1\ Most NRECA members are electric distribution 
cooperatives. No matter how prepared they are, if power suppliers 
selling power to them experience extreme Y2K difficulties, these rural 
electric distribution systems will be left high and dry and their 
consumer-owners will be freezing in the dark come January 1, 2000. G&Ts 
report that their Y2K mitigation efforts, including system and/or 
controller replacement are well under way as of June 1998. However, it 
is difficult to discern at this writing how much coordination has 
occurred in the bulk power market. NRECA also agrees with NERC's 
assessment that the nature of distributions systems' Y2K challenges 
will become more apparent as NERC's bulk power project ramps up.\2\
---------------------------------------------------------------------------
    \1\ Testimony of Michehl Gent, President, North American Electric 
Reliability Council, before the Senate Special Committee on the Year 
2000 Technology Problem, June 12, 1998, page 3.
    \2\ Ibid., page 3.
---------------------------------------------------------------------------
    What follows immediately are brief descriptions of points of 
vulnerability to Y2K that could be experienced by rural electric 
cooperatives and other electric utilities. To learn what steps 
cooperatives are taking to meet the challenge, see ``What Rural 
Electric Cooperatives Are Doing'' below.
    Embedded Chips.--Date-sensitive chips are found in a variety of 
electric utility facilities, including but not limited to:

  --power plant control systems of various kinds
  --electronic transmission/distribution relays
  --substation meters
  --Supervisory Control and Data Acquisition (SCADA) Remote Terminal 
        Units (RTUs)

    Software.--At this writing NRECA's understanding of the software 
aspect of Y2K is threefold: SCADA; load management systems and 
automatic generation control; and billing/CIS.
SCADA
    A SCADA system, or Supervisory Control and Data Acquisition system, 
can control an entire distribution substation system. The automation is 
controlled by a main terminal in the headquarters office, which works 
with remote terminal units or RTUs. These RTUs communicate information 
continually exchange information with the main terminal, giving real-
time data and immediate control. SCADA systems allow continuous 
monitoring of the system to look for unusual patterns, receive 
instantaneous load profiles or note the highs and lows of the day. This 
allows load rotation as conditions dictate.
    SCADA systems can also be used to open or close breakers or reroute 
power as well as automate substation transformers, breakers, regulators 
and switch stations. A SCADA system operator can monitor all of the 
controls at the substations, check the status of communication 
channels, and, most importantly, can open switches and back-feed the 
substation from other sources to get most consumers on immediately when 
an outage occurs.
Load Management Systems (LMS) and Automatic Generation Control (AGC)
    Load management systems are used on a daily basis to plan and 
schedule generation and transmission resources. Automatic generation 
control adjusts generation levels across a system to compensate for 
variations in demand. Both LMS and AGC are used by control areas and 
the reliability councils to coordinate generation and transmission 
resources. Many of those systems are not under the direct control of 
rural electric cooperatives. Therefore, we will be relying heavily on 
NERC's Y2K program to ensure that they are Y2K ready. Control areas 
that are maintained by rural electric G&Ts will be participating 
actively in NERC's program.
Billing/CIS
    About 400 rural electric distribution cooperatives employ the 
services of data processing cooperatives. They provide such services as 
billing, accounting, payroll, automated meter reading, computer 
hardware and software. While data processing and information technology 
entities were the first to broach the Y2K problem, these systems are 
not mission critical to the delivery of electric power. The lights 
would stay on if billing or automated meter reading systems failed, but 
consumers would eventually face billing and accounting difficulties if 
Y2K problems in these systems were not solved. One data processing 
cooperative stated that a possible solution to this would be to 
estimate bills based on usage and billing history.
    Upstream/downstream supply chain.--``Upstream'' suppliers for the 
electric utility industry include coal companies, transportation 
companies and equipment manufacturers. Each of these suppliers will 
have to be coordinated with to ensure that supplies of fuel and 
equipment are readily available to generating plants. Again, bulk power 
reliability is the keystone of electric system reliability. Customers' 
and suppliers' impacts on a given electric system can vary. A large 
industrial load's suddenly entering or departing the local distribution 
system can have severe consequences. Fortunately, utilities and large-
load customers plan for such events. Rural electric cooperatives will 
need to coordinate management of such loads during critical times in 
the Y2K rollover period.
                          specific y2k impacts
The ``Grid''
    As mentioned previously, there are actually 4 grids. NERC, at the 
request of the U.S. Department of Energy (DOE), has taken on the 
challenge of Y2K in coordinating the electric utility industry's 
reliability. We commend NERC for their swift, thorough response in 
drafting the implementation plan presented to the Special Committee. 
NRECA expects that its G&T members with generation obligations, 
transmission responsibilities and control areas will also work closely 
with NERC. Further, we pledge to work with NERC to ensure that rural 
electric distribution systems are Y2K ready. However, NRECA cannot fix 
the problem for individual distribution systems.
Upstream Suppliers of Bulk Power and Transmission
    We expect that suppliers of bulk power and transmission also will 
work cooperatively with NERC, their customers and suppliers to ensure 
reliability. Y2K is not a competitive issue, nor should it be used as a 
tool to advance a competitive agenda. As Deputy Secretary Moler stated 
in her testimony, ``I do not believe that the Y2K issue should be 
viewed as a competitive issue; it should instead be viewed as a 
reliability issue.'' \3\ NRECA agrees.
---------------------------------------------------------------------------
    \3\ Testimony of Elizabeth Moler, Deputy Secretary, U.S. Department 
of Energy, before the Senate Special Committee on the Year 2000 
Technology Problem, June 12, 1998, page 8.
---------------------------------------------------------------------------
    The Nuclear Regulatory Commission's (NRC) thorough program of 
communication, testing and inspection of nuclear generating facilities 
seems well placed to ensure the safety and reliability of that 
particular type of generating plant during the critical Y2K period.
    With regard to power suppliers, NRECA member G&Ts report that 
contacts are under way and ongoing to ensure that appropriate planning 
for generation resources. We are encouraging all of our members to 
contact power and transmission suppliers and engage them in planning 
for Y2K as well as to seek assurances that power supply and 
transmission capacity will be maintained. This will also necessitate 
contacts with the Power Marketing Administrations (DOE), the Tennessee 
Valley Authority, the Bureau of Land Management (Department of the 
Interior) and the Corps of Engineers (Department of Defense) to ensure 
that their respective generation and transmission facilities will be 
Y2K ready and that appropriate contingency plans are in place.
    In addition, NRECA will contact the Federal Energy Regulatory 
Commission (FERC) and the National Association of Regulatory Utility 
Commissioners (NARUC) to discuss power supply issues.
               what rural electric cooperatives are doing
    NRECA has initially focused on the G&Ts because of their intrinsic 
role in the nation's bulk power system.
    A ``snapshot'' survey of G&Ts was undertaken by NRECA in May and 
June 1998, targeted specifically on the embedded-chip question. The 
overall results show that G&Ts are aware of the Y2K issue, are 
surveying equipment and facilities and making replacements as needed. 
Contingency planning efforts also are under way. We consider this an 
informal survey, and have assured our members that their 
confidentiality will be protected. In addition, it is reasonable to 
assume that legal counsel has advised rural electric cooperatives to be 
circumspect in their responses to surveys and public statements 
regarding Y2K due to the litigation threat.

                            SNAPSHOT RESULTS
  [Aggregate results covering all 66 G&Ts, including those that own no
                               facilities]
Number of interconnections with power suppliers/  795 at a minimum.
 wheeling entities.
ESTIMATED Y2K budget 1998 ONLY..................  $17.7 million.
Number of substations owned by G&Ts.............  4,451.
Number of substations owned by distribution       3,373.
 members of G&Ts.
Y2K inventories completed for transmission        51 percent.
 equipment.
Necessary replacements made.....................  44 percent.
------------------------------------------------------------------------

    Completion dates for transmission system Y2K projects range from 
already completed in two cases throughout 1998 and 1999, with many G&Ts 
planning for completion early to mid-1999.
    48 percent of G&Ts operate power plants. Of those, 33 percent have 
completed Y2K inventories, with replacements 26 percent complete. Y2K 
projects at these power plants have completion dates ranging from 
December 1998 throughout 1999. One power plant project has been 
completed.
    49 percent have contingency planning under way with completion 
dates ranging from December 1998 throughout 1999.
    It is important to keep in mind that not every embedded chip must 
be replaced in order for a system to be considered ``Y2K ready.'' 
Different utilities have differing mixes of analog and digital 
controls. Power plants and transmission systems with analog controls, 
by definition, do not have ``embedded chip Y2K'' problems in those 
systems. Therefore, no replacements are necessary. Further, it may be 
more reliable and cost-effective for a given plant or transmission 
owner to implement a manual override on a digital control system or 
other ``analog'' workaround than to embark on a wholesale replacement 
of digital controllers. Replacing chips prior to 1999 is not always the 
only solution to a Y2K problem. Each G&T is different, and it is 
reasonable to assume that they each will have a different Y2K 
mitigation plan and contingency plan.
    FERC Chairman Hoecker stated in his testimony before the Special 
Committee during the hearing on June 12, 1998, that, although some 
utilities and associations have promoted awareness and have shared 
information about Y2K industry readiness, ``[t]he state of awareness 
and planning of * * * cooperatives is less certain.'' \4\
---------------------------------------------------------------------------
    \4\ Testimony of James Hoecker, Chairman, Federal Energy Regulatory 
Commission, before the Senate Special Committee on the Year 2000 
Technology Problem, June 12, 1998, page 4.
---------------------------------------------------------------------------
    We assume that the Chairman's stated uncertainty resulted merely 
from being unaware of what rural electric cooperatives are doing, and 
was not intended to suggest a belief that cooperatives are less aware 
of the Y2K issue or are unwilling to share information similar to the 
information shared by other industry segments. NRECA nevertheless 
intends to contact Chairman Hoecker to assuage his concerns, if any.
    NRECA and its members will be contacting other federal agencies 
outlined above and will be recommending to its members that they 
contact state regulators and lawmakers regarding Y2K readiness. While 
many co-ops are not subject to state regulation, we feel that is 
prudent for rural electric cooperatives to share their information with 
public officials in order to help dispel fear-mongering by ill-
informed, possibly unscrupulous parties. Public officials have some 
tools at hand with which to assist utilities in achieving Y2K 
readiness, the most important being the ``bully pulpit.'' However, to 
use that tool effectively public officials need reliable, balanced 
information. We intend to be such a source of information.
    NRECA intends to provide updates to the Special Committee and other 
Congressional committees as the need arises. We look forward to 
continuing our work with the Special Committee.
    To that end, NRECA is developing a snapshot of distribution 
cooperative readiness as well as guidelines and checklists that will be 
provided to all NRECA members. The guidelines and checklists will be 
targeted at distribution systems. We anticipate having these resources 
in place later this summer. Coupled with the wealth of information 
provided by NERC, EPRI and other reputable sources, we hope that these 
guidelines and checklists will make Y2K readiness a thorough and timely 
process for our member systems.
    In addition, NRECA is featuring reporting on Y2K in its 
publications, conferences and meetings targeted at members. We are 
working with allied organizations and insurers. We have posted a page 
of Y2K resources on our web site (www.nreca.org).
    Finally, NRECA is in discussions with EPRI regarding an 
``aggregation plan'' for their embedded chip program. We applaud their 
efforts in this area and are attempting to find a solution so that even 
the smallest cooperative with the smallest budget can have access to 
EPRI's Y2K embedded chip knowledge base.
    NRECA cannot solve individual co-ops' Y2K problems. However, we can 
and will provide them with information, contacts, opportunities to 
share knowledge and to inform consumers, legislators, regulators and 
other important groups.
                          what congress can do
    As Deputy Secretary Moler stated, government cannot solve the Y2K 
problem for industry.\5\ Only industry can prepare itself to be ready 
for the millenium. NRECA's members, as a vital part of the nation's 
infrastructure, intend to meet the Y2K challenge.
---------------------------------------------------------------------------
    \5\ Moler, page 3.
---------------------------------------------------------------------------
    Congress can play several instrumental roles in making it easier 
for utilities and others to meet the Y2K challenge.
    The bully pulpit first occupied by Senator Bennett and now, under 
his leadership, the entire Senate Committee, is a unique and powerful 
forum. We are encouraged by the balanced approach taken by the Special 
Committee in its inaugural Y2K hearing on utilities. Congress can help 
dispel rumor, calm hysteria and disseminate reliable information on Y2K 
through its everyday activities including hearings, web sites, press 
conferences, speeches both on the floor and before constituent groups, 
town meetings and other constituent communications.
    We are also encouraged by recent reports out of the Department of 
Justice indicating antitrust waivers for industries and segments of 
industries that wish to work together on the Y2K challenge. We will 
pursue discussions with other electric industry groups and the 
Department on this subject.
    Congress can help smooth the path to Y2K readiness by enacting 
liability protections specific to Y2K for critical infrastructure 
industries like all electric utilities. Fear-mongering as well as 
outlandish reports of some in the legal community yearning for Y2K 
lawsuits can have only a chilling effect on the all-important 
cooperation and information-sharing that will be necessary for Y2K 
readiness. As NERC President Michehl Gent said, ``Any restraint in 
sharing known Y2K problems and solutions will be a direct challenge to 
the reliability of the electricity supply.'' \6\ It seems to us that 
any threat to electric system reliability, especially one embodied in 
lack of communication on Y2K, should not be tolerated by Congress or 
regulators. We therefore respectfully request that Congress enact 
liability protections for the electric utility industry including 
electric cooperatives.
---------------------------------------------------------------------------
    \6\ Gent, page 6.
---------------------------------------------------------------------------
    Further, Congress can, through its oversight powers, act to 
investigate competitive roadblocks thrown up by companies that directly 
impinge on any electric utility's ability to be Y2K ready. While 
regulators have similar oversight responsibilities, there is nothing 
like the glare of the Congressional spotlight to discourage nefarious 
activity. It is entirely possible that Congress could enact special 
penalties for companies and organizations that refuse to supply or drag 
their feet on supplying vital Y2K information to critical 
infrastructure industries and for companies within those industries who 
are reluctant to share information with possible competitors. Again, 
such reluctance would be a direct threat to system reliability and as 
such, cannot be tolerated.
    While the outlook is unclear that this point, it is entirely 
possible that Congress might need to enact a special supplemental 
appropriation to deal with its own Y2K readiness, or that of specific 
federal agencies. During such legislative consideration, it might be 
appropriate to ensure that lead agencies under the President's Council 
also have an Y2K fund that would lapse shortly after the critical Y2K 
transition period expires.
    Finally, Congress can help ensure that additional, onerous, time-
consuming regulations or certification requirements regarding Y2K are 
not put in place by well-meaning regulators. Regulators cannot solve 
industry's Y2K problems, but they can require paperwork, proceedings, 
certifications, conferences and other activities that will merely 
reduce the time, money and energy needed by industry to meet this 
challenge.
                               conclusion
    Y2K is a serious challenge for all electric utilities based on 
their usage of software and digital controllers on generation, 
transmission and distribution systems. The industry as a whole, and 
rural electric cooperatives in particular, are working hard to ensure 
that the nation's electric supply is ``Y2K ready.''
    Bulk power system reliability, both generation and transmission is 
the keystone on which distribution system reliability relies. A great 
deal of coordination, spearheaded by NERC, will be necessary to ensure 
that reliability is maintained. Rural electric cooperatives will play a 
role in that coordination, both through their ownership of generation 
or transmission assets and their use, as customers, of such assets.
    Y2K work at co-ops has been under way, in some cases since 1996 and 
will continue through the critical period. Rural electric cooperatives 
are aware of the problem, are doing or have completed inventories, are 
designing and implementing solutions and are or will be testing 
solutions, all to do their part to meet the overall Y2K challenge.
    While neither Congress nor regulators can solve Y2K problems they 
can take some helpful actions:
  --Continue to spotlight the Y2K issue for the country at large. 
        Congress, and more specifically, the Special Committee has a 
        highly visible forum on this issue. Congress can help dispel 
        rumor, calm hysteria and disseminate reliable information on 
        Y2K.
  --Congress can help smooth the path to Y2K readiness by enacting 
        liability protections specific to Y2K for critical 
        infrastructure industries like all electric utilities. It seems 
        to us that any threat to electric system reliability, 
        especially one embodied in lack of communication on Y2K should 
        not be tolerated by Congress or regulators.
  --Further, Congress can, through its oversight powers, act to 
        investigate competitive roadblocks thrown up by companies that 
        directly impinge on any electric utility's ability to be Y2K 
        ready.
  --It is entirely possible that Congress could enact special penalties 
        for companies and organizations that refuse to, or are 
        reluctant to, supply vital Y2K information to critical 
        infrastructure industries and for companies within those 
        industries who are reluctant to share information with possible 
        competitors.
  --It might be appropriate for Congress to ensure that lead agencies 
        under the President's Council also have an Y2K fund that would 
        lapse shortly after the critical Y2K transition period expires.
  --Congress can help ensure that additional, onerous, time-consuming 
        regulations or certification requirements regarding Y2K are not 
        put in place by well-meaning regulators.

         Appendix A--Additional Information About Cooperatives

                           facts at a glance
  --About 900 electric co-ops serve 31 million people in 46 states.
  --Electric co-ops serve more than 13 million businesses, homes, 
        schools, churches, farms, irrigation systems, and other 
        establishments in 2,600 of 3,128 counties in the U.S.
  --Electric co-ops serve 11 percent of the nation's population, 
        accounting for 7.9 percent of kilowatt-hours sold and 5 percent 
        of electricity generated by the electric utility industry.
  --Electric co-ops own and maintain nearly half the electric 
        distribution lines in the U.S., covering three quarters of the 
        nation's land mass.
  --Electric co-op assets exceeded $67 billion in 1996.
  --Co-ops serve an average of 5.8 consumers per mile of line and 
        collect annual revenue of approximately $7,000 per mile of 
        line.
  --Investor-owned utilities average 35 customers per mile of line and 
        collect $59,000 per mile of line.
  --Publicly owned utilities, or municipals, average 48 consumers and 
        collect $72,000 per mile of line.
  --There are 900 distribution cooperatives.
  --There are 60 G&Ts, owned collectively by their member distribution 
        systems.
                    net margins and capital credits
    Cooperatives are operated to provide at-cost electric service to 
the consumer-owners. Investor-owned utilities are operated to maximize 
profit for the shareholders. A co-op's net margin above expenses and 
reserves does not belong to the utility; it belongs to the individual 
consumer-owners of the co-op. The margins must either be used to 
improve or maintain operations, or be distributed to those who use the 
co-op's products or services.
    An individual co-op member's share of each year's net margin is 
proportional to the amount of electricity that member purchased and is 
booked to that member in a capital credit account. A member's total 
capital credit is his or her ownership equity in the cooperative. 
Capital credits can be returned to members in cash. Total yearly 
capital credit payments of some larger co-ops may amount to several 
hundred thousand dollars, a substantial return to the local economy.
                            rate regulation
    In 16 out of the 46 states where there are distribution 
cooperatives, approximately 250 co-ops are subject to some form of rate 
regulation and approximately 636 are not rate-regulated. Regulation is 
offered to protect the consumers' interest. Where co-ops are not 
regulated, the states accept that electric cooperatives already have 
effective regulation because the consumer-owners elect or defeat co-op 
boards of directors, which have rate-setting authority. The Rural 
Utilities Service also has rate approval authority over those co-ops 
that are borrowers from RUS-administered loan programs.
                         cooperative principles
    Cooperative businesses adhere to seven guiding principles:

          1. Voluntary and Open Membership.--Cooperatives are voluntary 
        organizations, open to all persons able to use their services 
        and willing to accept the responsibilities of membership, 
        without gender, social, racial, political, or religious 
        discrimination.
          2. Democratic Member Control.--Cooperatives are democratic 
        organizations controlled by their members, who actively 
        participate in setting policies and making decisions. The 
        elected representatives are accountable to the membership. In 
        primary cooperatives, members have equal voting rights (one 
        member, one vote) and cooperatives at other levels are 
        organized in a democratic manner.
          3. Members' Economic Participation.--Members contribute 
        equitably to, and democratically control, the capital of their 
        cooperative. At least part of that capital is usually the 
        common property of the cooperative. Members usually receive 
        limited compensation, if any, on capital subscribed as a 
        condition of membership.
          Members allocate surpluses for any or all of the following 
        purposes: developing the cooperative, possibly by setting up 
        reserves, part of which at least would be indivisible; 
        benefiting members in proportion to their transactions with the 
        cooperative; and supporting other activities approved by the 
        membership.
          4. Autonomy and Independence.--Cooperatives are autonomous, 
        self-help organizations controlled by their members. If they 
        enter into agreements with other organizations, including 
        governments, or raise capital from external sources, they do so 
        on terms that ensure democratic control by their members and 
        maintain their cooperative autonomy.
          5. Education, Training, and Information.--Cooperatives 
        provide education and training for their members, elected 
        representatives, managers, and employees so they can contribute 
        effectively to the development of their cooperatives. They 
        inform the general public, particularly young people and 
        opinion leaders, about the nature and benefits of cooperation.
          6. Cooperation Among Cooperatives.--Cooperatives serve their 
        members most effectively and strengthen the cooperative 
        movement by working together through local, national, regional, 
        and international structures.
          7. Concern for Community.--While focusing on member needs, 
        cooperatives work for the sustainable development of their 
        communities through policies accepted by their members. 
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