[Senate Hearing 111-29]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 111-29
 
                             CYBER SECURITY

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   TO

RECEIVE TESTIMONY ON A JOINT STAFF DRAFT RELATED TO CYBER SECURITY AND 
                  CRITICAL ELECTRICITY INFRASTRUCTURE

                               __________

                              MAY 7, 2009


                       Printed for the use of the
               Committee on Energy and Natural Resources


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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

BYRON L. DORGAN, North Dakota        LISA MURKOWSKI, Alaska
RON WYDEN, Oregon                    RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          SAM BROWNBACK, Kansas
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
ROBERT MENENDEZ, New Jersey          JOHN McCAIN, Arizona
BLANCHE L. LINCOLN, Arkansas         ROBERT F. BENNETT, Utah
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   JEFF SESSIONS, Alabama
DEBBIE STABENOW, Michigan            BOB CORKER, Tennessee
MARK UDALL, Colorado
JEANNE SHAHEEN, New Hampshire

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Hoffman, Patricia, Acting Assistant Secretary, Office of 
  Electricity Delivery and Energy Reliability, Department of 
  Energy.........................................................     4
McClelland, Joseph, Director, Office of Electric Reliability, 
  Federal Energy Regulatory Commission...........................    10
Mosher, Allen, Senior Director of Policy Analysis and 
  Reliability, American Public Power Association.................    21
Owens, David K., Executive Vice President, Business Operations, 
  Edison Electric Institute......................................    27
Sergel, Richard P., President and Chief Executive Officer, North 
  American Electric Reliability Corporation......................    16

                                APPENDIX

Responses to additional questions................................    53


                             CYBER SECURITY

                              ----------                              


                         THURSDAY, MAY 7, 2009

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. Recent newspaper headlines and television 
news coverage have highlighted the serious security threats to 
the electricity system in the country. The Wall Street Journal 
article talked about Soviet and Chinese hackers who may have 
left potentially damaging computer viruses in the control 
systems of electric utilities.
    Just the thought that foreign agents are hacking into our 
control systems is obviously alarming and the potential for 
damage they could do or, in the case of a conflict would create 
a compelling reason to act to prevent that damage.
    We recently sponsored a classified briefing for members and 
staff on this set of issues. Members of security agencies and 
the Department of Energy and the Federal Energy Regulatory 
Commission told us about these threats and about the inadequacy 
of our government's authority to respond to and prevent these 
threats.
    Some thought that we had taken sufficient action to protect 
against these types of threats when we put into place the 
Reliability Protection Structure of section 215 of the Federal 
Power Act which we passed in 2005. More recently however, we 
have come to believe that these provisions do not provide 
sufficient protection against computer attacks. Both the recent 
Republican Chairman of the Federal Energy Regulatory 
Commission, Joe Kelliher, and the current Democratic Chair, Jon 
Wellinghoff, have indicated that they believe they need 
stronger authority to deal with cyber threats and 
vulnerabilities.
    Almost all the witnesses gathered here today agree that we 
need some kind of increased Federal authority, although there 
is disagreement as to exactly what that authority should look 
like and who should exercise it. This hearing is on a bill that 
we intend to include in a comprehensive energy bill that the 
committee is working on to address these gaps in Federal 
authority and to protect against these dangers.
    The proposal is fairly simple. It gives the Secretary of 
Energy authority to order actions to protect against imminent 
threats. When a security agency informs the Secretary that an 
action is about to take place, the Secretary is able to order 
measures to protect against the attack.
    It then goes on to allow FERC to issue rules for longer-
term circumstances that are not immediate threats, but that are 
too dangerous to wait for the development of orders through the 
extremely cumbersome NERC process. This authority does not 
supersede the NERC process. FERC can issue rules that can then 
be replaced by rules developed under the NERC process, when 
those rules finally are such that the Commission can approve 
them.
    [The proposal referred to follows:]

                       Cyber Security Protection
                          staff draft summary
                              may 1, 2009
Definitions
   Cyber Security Threat means the imminent danger of an act 
        that disrupts or attempts to disrupt the operation of 
        electronic devices or communications networks for the control 
        of critical electric infrastructure.
   Cyber Security Vulnerability means a weakness or flaw in the 
        design or operation of any programmable device or communication 
        network that exposes critical electric infrastructure to a 
        cyber security threat.

Authority of the Commission
   The Commission must promulgate rules or orders necessary to 
        protect against cyber security vulnerabilities.
   The Commission may issue such rules without prior notice or 
        hearing if it determines that the rule or order must be 
        promulgated immediately to protect against a cyber security 
        vulnerability.

Emergency Authority of the Secretary
   If immediate action is necessary to protect against a cyber 
        security threat, the Secretary may require, by order, with or 
        without notice, that entities subject to the jurisdiction of 
        the Commission under this section, take such actions as are 
        necessary to protect against that threat.
   The Secretary is encouraged to consult and coordinate with 
        appropriate officials in Canada and Mexico.

Duration of Expedited or Emergency Rules or Orders
    Rules or orders issued either by the Secretary under Emergency 
Authority, or the Commission under Expedited Procedures, remain 
effective for no more than 90 days, unless the Commission gives 
interested persons an opportunity to submit written comments and the 
Commission affirms, repeals or amends the rule or order.
Critical Electric Infrastructure Information
    Critical electric infrastructure information is given the same 
protection as is contained in the Critical Infrastructure Information 
Act of 2002.
                                 ______
                                 
          SEC.__. CRITICAL ELECTRIC INFRASTRUCTURE.

          Part II of the Federal Power Act (16 U.S.C. 824 et seq.) is 
        amended by adding at the end the following:

          ``SEC. 224. CRITICAL ELECTRIC INFRASTRUCTURE.

          ``(a) DEFINITIONS.--In this section:

                  ``(1) CRITICAL ELECTRIC INFRASTRUCTURE.--The term 
                `critical electric infrastructure' means sys tems and 
                assets, whether physical or virtual, used for the 
                generation, transmission, or distribution of electric 
                energy affecting interstate commerce that, as 
                determined by the Commission or the Secretary (as 
                appropriate), are so vital to the United States that 
                the incapacity or destruction of the systems and as 
                sets would have a debilitating impact on national se 
                curity, national economic security, or national public 
                health or safety.
                  ``(2) CRITICAL ELECTRIC INFRASTRUCTURE INFORMATION.--
                The term `critical electric infrastruc ture 
                information' means critical infrastructure infor mation 
                relating to critical electric infrastructure.
                  ``(3) CRITICAL INFRASTRUCTURE INFORMATION.--The term 
                `critical infrastructure information' has the meaning 
                given the term in section 212 of the Critical 
                Infrastructure Information Act of 2002 (6 U.S.C. 131).
                  ``(4) CYBER SECURITY THREAT.--The term `cyber 
                security threat' means the imminent danger of an act 
                that disrupts, attempts to disrupt, or poses a 
                significant risk of disrupting the operation of pro 
                grammable electronic devices or communications net 
                works (including hardware, software, and data) es 
                sential to the reliable operation of critical electric 
                in frastructure.
                  ``(5) CYBER SECURITY VULNERABILITY.--The term `cyber 
                security vulnerability' means a weakness or flaw in the 
                design or operation of any program mable electronic 
                device or communication network that exposes critical 
                electric infrastructure to a cyber security threat.
                  ``(6) SECRETARY.--The term `Secretary' means the 
                Secretary of Energy.

          ``(b) AUTHORITY OF COMMISSION.--

                  ``(1) IN GENERAL.--The Commission shall pro mulgate 
                or issue such rules or orders as are nec essary to 
                protect critical electric infrastructure from cyber 
                security vulnerabilities.
                  ``(2) EXPEDITED PROCEDURES.--The Commission may 
                promulgate or issue a rule or order without prior 
                notice or hearing if the Commission determines the rule 
                or order must be promulgated or issued im mediately to 
                protect critical electric infrastructure from a cyber 
                security vulnerability.

          ``(c) EMERGENCY AUTHORITY OF SECRETARY.--

                  ``(1) IN GENERAL.--If the Secretary determines that 
                immediate action is necessary to protect critical 
                electric infrastructure from a cyber security threat, 
                the Secretary may require, by order, with or without 
                notice, persons subject to the jurisdiction of the 
                Commission under this section to take such actions as 
                the Secretary determines will best avert or miti gate 
                the cyber security threat.
                  ``(2) COORDINATION WITH CANADA AND MEXICO.--In 
                exercising the authority granted under this subsection, 
                the Secretary is encouraged to consult and coordinate 
                with the appropriate officials in Can ada and Mexico 
                responsible for the protection of cyber security of the 
                interconnected North American electricity grid.

          ``(d) DURATION OF EXPEDITED OR EMERGENCY RULES OR ORDERS.--
        Any rule or order promulgated or issued by the Commission 
        without prior notice or hearing under subsection (b)(2) or any 
        order issued by the Sec retary under subsection (c) shall 
        remain effective for not more than 90 days unless, during the 
        90 day-period, the Commission--

                  ``(1) gives interested persons an opportunity to 
                submit written data, views, or arguments (with or 
                without opportunity for oral presentation); and
                  ``(2) affirms, amends, or repeals the rule or order.

          ``(e) JURISDICTION.--

                  ``(1) IN GENERAL.--Notwithstanding section 201, this 
                section shall apply to any entity that owns, controls, 
                or operates critical electric infrastructure.
                  ``(2) COVERED ENTITIES.--

                          ``(A) IN GENERAL.--An entity described in 
                        paragraph (1) shall be subject to the jurisdic 
                        tion of the Commission for purposes of--

                                  ``(i) carrying out this section; and
                                  ``(ii) applying the enforcement 
                                authorities of this Act with respect to 
                                this section.

                          ``(B) JURISDICTION.--This subsection shall 
                        not make an electric utility or any other 
                        entity subject to the jurisdiction of the 
                        Commission for any other purpose.

          ``(f) PROTECTION OF CRITICAL ELECTRIC INFRASTRUCTURE 
        INFORMATION.--Section 214 of the Critical Infrastructure 
        Information Act of 2002 (6 U.S.C. 133) shall apply to critical 
        electric infrastructure information submitted to the Commission 
        or the Secretary under this section to the same extent as that 
        section applies to critical infrastructure information 
        voluntarily submitted to the Department of Homeland Security 
        under that Act (6 U.S.C. 131 et seq.).''.

    This is obviously an important issue and one that I hope we 
are able to deal with as part of an energy bill, and I thank 
the witnesses for being here.
    Let me go ahead and introduce the witnesses and then we 
will hear the testimony.
    Patricia Hoffman is Principal Deputy and Acting Assistant 
Secretary in the Office of Electricity Delivery and Energy 
Reliability at the Department of Energy. She's been here before 
our committee recently on other issues as well.
    Joseph McClelland is the Director of the Office of Electric 
Reliability at FERC and thank you for being here.
    Rick Sergel is President and CEO of the North American 
Electric Reliability Corporation in Princeton. Thank you for 
being here. Allen Mosher is a Senior Director of Policy 
Analysis and Reliability with the American Public Power 
Association.
    David Owens is the Executive Vice President of Business 
Operations with Edison Electric Institute. Thank you very much 
for being here.
    If each of you can take 5 or 6 minutes and give us your 
perspective on this set of issues and then we will undoubtedly 
have questions.
    Ms. Hoffman.

  STATEMENT OF PATRICIA HOFFMAN, ACTING ASSISTANT SECRETARY, 
    OFFICE OF ELECTRICITY DELIVERY AND ENERGY RELIABILITY, 
                      DEPARTMENT OF ENERGY

    Ms. Hoffman. Thank you. Mr. Chairman and members of the 
committee. Thank you for this opportunity to testify before you 
on cyber security issues facing the electric industry and on 
emergency authorities to protect critical electric 
infrastructure.
    All of us here today share common concerns that 
vulnerabilities exist within the electric system and that the 
government and private sector must do everything we can to 
address it. This is particularly true for Smart Grid systems 
which, by their very nature, involve the use of information 
technologies in areas and applications on the electric system 
where they not have been used before.
    The mission of the Office of Electricity Delivery and 
Energy Reliability is to lead national efforts to modernize the 
electric grid, to enhance the security and reliability of the 
energy infrastructure, and to facilitate recovery from 
disruptions to the energy supply. To accomplish this mission, 
the Office focuses on long-term system requirements through our 
research investments in the electric delivery system and near-
term energy vulnerability assessments and disaster recovery.
    Our efforts to enhance the cyber security of the energy 
infrastructure have produced results in five areas. We have 
identified cyber vulnerabilities in energy control systems and 
worked with vendors to develop hardened systems that mitigate 
the risks. We have developed more secure communication methods 
between energy control systems and field devices. We have 
developed tools and methods to help utilities assess their 
security posture. We have developed modeling and simulation 
capabilities to estimate the effects of cyber attacks on the 
power grid. Finally, we have provided extensive cyber security 
training for the energy asset owners and operators to help them 
prevent, detect, and mitigate cyber penetration.
    In 2005, the Department worked closely with asset owners 
and operators in the oil, gas, and electric sectors to develop 
a roadmap to secure control systems in the energy sector. The 
roadmap is a detailed, prioritized plan for cyber security 
improvements over the next 10 years including best practices, 
new technologies, and risk management. The Roadmap vision is 
that control systems for critical applications will be 
designed, installed, and operated to maintain and survive an 
intentional cyber assault with no loss of critical function.
    Efforts at the national labs are producing results that 
industry can use today to enhance the security of their control 
systems. For example, Sandia National Laboratories developed an 
Advanced Network Toolkit For Assessments and Remote Mapping 
which aids utility owners in mapping access points to allow 
easy visualization of their control system networks, an 
important critical step in meeting the North American Electric 
Reliability Corporation's critical infrastructure protection 
standard. Through the Department's National Supervisory Control 
and Data Acquisition Test Bed program, we have assessed 90 
percent of the current market offerings of SCADA and energy 
management systems in the electric sector and 80 percent of the 
current market offerings in the oil and gas sector. Twenty test 
bed and offsite assessments of control systems from vendors 
have led to the development of 11 hardened control system 
designs with 31 of these systems now deployed in the 
marketplace.
    The national labs also educate end-users on cyber security 
best practices and implementing methods to better manage 
control system risks. For example, the Idaho National 
Laboratory has released a common vulnerabilities report. This 
report represents the steadily growing understanding of control 
system security issues and methods for mitigating current and 
emerging vulnerabilities. This effort is expanding to new 
technologies; such as substation automation and the Smart Grid, 
as the program seeks a continuing understanding of the systems 
being planned for and developed for the energy sector critical 
infrastructure.
    The Department is also working to implement Smart Grid 
Investment Grand and Demonstration Programs under the American 
Recovery and Reinvestment Act of 2009. These programs are 
authorized under title 13 of the Energy Independence and 
Security Act of 2007 for the Smart Grid. We are hoping to 
implement these programs in a responsible manner and the 
request for proposals for Smart Grid projects will include 
requirements that each applicant will thoroughly and 
systematically address all cyber security risks to their 
systems.
    A key component of the Smart Grid is the Advanced Metering 
Infrastructure, or AMI. AMI requires two-way communications 
between utilities and the end-users. Over the last 10 months, 
DOE has been partnering with the AMI Security Task Force under 
the Utility Communications Architecture International Users 
Group. This task force is comprised of utilities, security 
domain experts, standard body representatives, and industry 
vendors.
    On March 10, 2009, the task force published the AMI 
security requirements which provides critical guidance for 
vendors and utilities to design and procure secure, reliable 
AMI systems. Because of the success of this industry-government 
collaboration, the Department is working with the task force to 
expand the activity and develop a suite of security 
requirements for all critical Smart Grid applications. The 
National Institute of Standards and Technology is responsible 
for developing a framework for interoperability standards 
development for the Smart Grid. These standards will be 
submitted to the Federal Energy Regulatory Commission for 
rulemaking.
    The Department views the development of interoperability 
standards that includes appropriate cyber security protections 
as one of the key milestones toward realizing the goal of 
widespread implementation of Smart Grid technologies, tools, 
and techniques.
    With regard to protecting the electric grid from newly 
discovered vulnerabilities, the Department does not have a 
position on the Draft Joint Cyber Security Text. The Department 
does provide the following technical comment: All 
vulnerabilities must be thoroughly evaluated on a scientific 
basis to determine the impact and risk to the Nation in the 
event the vulnerability was to be exploited. Any decision to 
act or to issue an order by the government must be based on 
sound risk management principles and judgment, considering the 
characteristics of the vulnerability, the capabilities of the 
threat, the likelihood of attack, the consequences to the 
Nation should the vulnerability be exploited, and the cost of 
mitigation.
    This concludes my statement, Mr. Chairman, and thank you 
for the opportunity to speak. I look forward to answering any 
questions you and your colleagues may have.
    [The prepared statement of Ms. Hoffman follows:]

  Prepared Statement of Patricia Hoffman, Acting Assistant Secretary, 
 Office of Electricity Delivery and Energy Reliability, Department of 
                                 Energy

    Mr. Chairman and members of the Committee, thank you for this 
opportunity to testify before you on the cyber security issues facing 
the electric industry and on emergency authorities to protect critical 
electric infrastructure. All of us here today share a common concern 
that vulnerabilities exist within the electric system and that the 
government and the private sector must do everything we can to address 
it. This is particularly true for smart grid systems, which by their 
very nature involve the use of information technologies in areas and 
applications on the electric system where they have not been used 
before. With the funding provided for smart grid activities in the 
American Recovery and Reinvestment Act of 2009, the Department will be 
expanding our partnership with industry to advance the smart grid while 
maintaining security of smart grid devices and systems.
    A smart grid uses information technology to improve the 
reliability, availability, and efficiency of the electric system. With 
smart grid, information technologies are being applied to electric grid 
applications including devices at the consumer level through the 
transmission level to make our electric system more responsive and more 
flexible.
    To be clear, the smart grid is both a means to enhancing grid 
security as well as a potential vulnerability.
    Enhanced grid functionality enables multiple devices to interact 
with one another via a communications network. These interactions make 
it easier and more cost effective, in principal, for a variety of clean 
energy alternatives to be integrated with electric system planning and 
operations, as well as for improvements in the speed and efficacy of 
grid operations to boost electric reliability and the overall security 
and resiliency of the grid. The communications network, and the 
potential for it to enhance grid operational efficiency and bring new 
clean energy into the system, is one of the distinguishing features of 
the smart grid compared to the existing system.
    For example, Wide Area Measurement Systems (WAMS) technology is 
based on obtaining high-resolution power system measurements (e.g., 
voltage) from sensors that are dispersed over wide areas of the grid. 
The data is synchronized with timing signals from Global Positioning 
System (GPS) satellites. The real-time information available from WAMS 
allows operators to detect and mitigate a disturbance before it can 
spread and enables greater utilization of the grid by operating it 
closer to its limits while maintaining reliability. When Hurricane 
Gustav came ashore in Louisiana in September 2008, an electrical island 
was formed in an area of Entergy's service territory. Entergy used the 
phasor measurement system to detect this island, and the phasor 
measurement units (PMU) in the island to balance generation and load 
for some 33 hours before surrounding power was restored.
    The Department understands that the smart grid will be more complex 
than today's grid, with exponentially more access points, both virtual 
and physical through smart grid devices and without proper controls in 
place these factors could result in increasing the electric sector's 
vulnerabilities.

                    DEPARTMENT OF ENERGY ACTIVITIES

    The mission of the Office of Electricity Delivery and Energy 
Reliability is to lead national efforts to modernize the electric grid, 
to enhance the security and reliability of the energy infrastructure, 
and to facilitate recovery from disruptions to the energy supply. To 
accomplish this mission, the Office focuses on long-term system 
requirements through our research investments in the electricity 
delivery system and near-term energy vulnerability assessments/disaster 
recovery. Our efforts to enhance the cyber security of the energy 
infrastructure have produced results in five areas. We have--

   Identified cyber vulnerabilities in energy control systems 
        and worked with vendors to develop hardened systems that 
        mitigate the risks
   Developed more secure communications methods between energy 
        control systems and field devices
   Developed tools and methods to help utilities assess their 
        security posture
   Developed a modeling and simulation capability to estimate 
        the effects of cyber attacks on the power grid
   Provided extensive cyber security training for energy owners 
        and operators to help them prevent, detect, and mitigate cyber 
        penetration.

    In 2005, the Department (in collaboration with the Department of 
Homeland Security and Natural Resources-Canada) worked directly with 
asset owners and operators in the oil, gas, and electricity sectors to 
develop the Roadmap to Secure Control Systems in the Energy Sector--a 
detailed, prioritized plan for cyber security improvements over the 
next 10 years, including best practices, new technology, and risk 
assessment. The Roadmap vision states that in 10 years, controls 
systems for critical applications will be designed, installed, 
operated, and maintained to survive an intentional cyber assault with 
no loss of critical function. Industry representatives defined goals, 
milestones, and priorities to guide the industry toward this vision.
    As a result, the Department was one of the first research 
organizations to align its cyber security research activities with the 
Roadmap goals and vision. The Institute for Information Infrastructure 
Protection (I3P) is working to develop several technologies that 
address Roadmap goals including security metrics and trusted devices. 
The Trusted Cyber Infrastructure for the Power Grid (TCIP) (a 
collaboration of universities led by the University of Illinois at 
Champaign-Urbana working with energy sector asset-owners and operators 
and vendors with funding from NSF, DOE, and DHS) is also conducting 
extensive cyber security research that aligns with the Roadmap goals. 
In addition, there are over 50 other public and private organizations 
working on projects that directly address the challenges identified in 
the Roadmap.
    Efforts at the national labs are also producing results that 
industry can use today to enhance the security of their control 
systems. For example, Sandia National Laboratories developed the 
Advanced Network Toolkit for Assessments and Remote Mapping, or 
ANTFARM. This tool aids energy utility owners in mapping critical cyber 
assets and access points to allow easy visualization of their control 
system networks-a critical step in meeting the North American Electric 
Reliability Corporation's Critical Infrastructure Protection (NERC CIP) 
standards. Released in August 2008. The toolkit is open source and 
available online for free.
    Through the Department's National Supervisory Control and Data 
Acquisition (SCADA) Test Bed program, we have assessed 90% of the 
current market offering of SCADA and energy management systems (EMS) in 
the electric sector, and 80% of the current market offering in the oil 
and gas sector. Twenty test bed and on-site field assessments of 
control systems from vendors including ABB, Areva, GE, OSI, Siemens, 
Telvent, and others, have led them to develop 11 hardened control 
system designs with thirty-one of these systems now deployed in the 
marketplace. Vendors also have released several software patches to 
better secure legacy systems. The National SCADA Test Bed (NSTB) is a 
state-of-the-art national resource designed to aid government and 
industry in securing their control systems through vulnerability 
assessments, focused research and development (R&D) efforts, and 
outreach. Over the years the Department has expanded its investments in 
the NSTB and today it includes the resources and capabilities of five 
national laboratories (Idaho National Engineering Laboratory, Sandia 
National Laboratory, Pacific Northwest National Laboratory, Oak Ridge 
National Laboratory, and Argonne National Laboratory) as well as many 
cost-shared projects with the private sector.
    The national labs also educate end-users on cyber security best 
practices and implementing methods to better manage control systems 
risk. For example, the Idaho National Laboratory has released on an 
annual basis a ``Common Vulnerabilities'' report. Using results from 
assessments performed from 2003 to 2007, the November 2008 document 
represents a steadily growing understanding of control system security 
issues and methods for mitigating current and emerging vulnerabilities. 
This effort is expanding to new technologies, such as substation 
automation and Smart Grid, as the program seeks a continuing 
understanding of the systems being planned for and deployed in the 
energy sector critical infrastructure.
    The Department, through a work-for-others agreement with the Idaho 
National Laboratory, is also working with a major vendor of smart 
meters to conduct a cyber security assessment of their device. The 
primary motivation for this work was driven by the utilities--end-users 
of the product.
    The Department has also funded several research and development 
projects with the private sector. The Bandolier project, led by Digital 
Bond, is developing security audit files, which are incorporated into a 
utility's existing network scanners and used to audit the control 
system's security settings against an optimal security configuration. 
Given that large control systems can have over 1000 security settings, 
Bandolier can help a utility enhance its security posture while saving 
time and money at the same time. Audit files are now available for 
Siemens, Telvent, and ABB. Digital Bond has made its product available 
for a nominal subscriber fee on its website.
    The Hallmark project, led by Schweitzer Engineering Laboratories 
(SEL), is another DOE-supported research and development project. SEL 
is working to commercialize the Secure SCADA Communications Protocol 
originally developed by Pacific Northwest National Laboratory. The 
technology will enable utilities to secure critical data communications 
links between remote substations and control centers and is scheduled 
to be launched in the next few months.
    To track progress on implementation the Department designed a 
unique online collaborative tool--the interactive energy Roadmap 
(ieRoadmap)--which can be found online at 
www.controlsystemsroadmap.net. Public-and private-sector researchers 
self-populate the online database with project information and map 
their efforts to specific challenges and priorities identified in the 
Roadmap. The website has become a vital resource for news, information 
sharing, and collaboration.
    Looking ahead, the Department also participates in multi-agency 
information-sharing forums such as the Networking and Information 
Technology Research and Development (NITRD) program, which is the 
primary mechanism for government to coordinate unclassified networking 
and information technology research and development investments. 
Thirteen Federal agencies are formal members (including DOE) of the 
NITRD Program.
    Also in the long-term, the Department seeks to alter the very 
nature of cyber security. During the past two years, the Department's 
Office of Science has brought together a growing community of cyber 
security professionals and researchers from the laboratories, private 
industry, academia, and other government agencies to assess the state 
of cyber security in general and within the Department specifically. 
These experts concluded that the current approach to addressing cyber 
security problems is reactive and the Department should develop a long-
term strategy that goes beyond stopping traditional threats to 
rendering both traditional and new threats harmless.
    In December 2008, the Department released the findings of this 
group in ``A Scientific Approach R&D Approach to Cyber Security,'' 
which outlines a set of opportunities to introduce anticipation and 
evasion capabilities to platforms and networks, data systems to 
actively contribute to their control and protection, and platform 
architectures that operate with integrity despite the presence of 
untrusted components. This approach could not only provide new, game-
changing capabilities to the Department, but could also be directly 
applied to other agencies, industry, and society.

                               SMART GRID

    The American Recovery and Reinvestment Act of 2009 appropriated 
$4.5 billion in funds for electricity delivery and energy reliability 
activities to modernize the electric grid, to include demand responsive 
equipment, enhance security and reliability of the energy 
infrastructure, energy storage, facilitate recovery from disruptions, 
and for implementation of programs authorized under Title XIII of the 
Energy Independence and Security Act of 2007 (Smart Grid).
    The Department is working to implement these new program activities 
in a responsible manner and the request for proposals for these 
activities will include requirements that each applicant thoroughly and 
systematically addresses all cyber security risks to the system.
    A key application of the smart grid is Advanced Metering 
Infrastructure (AMI). AMI requires two-way communication between the 
utility and the end-user. Over the last 10 months, DOE has partnered 
with the AMI Security (AMI-SEC) Task Force organized under the UCA 
International User's Group. The Task Force is comprised of utilities, 
security domain experts, standards body representatives and industry 
vendors. On March 10, 2009, the Task Force published the AMI System 
Security Requirements, which provides critical guidance for vendors and 
utilities to help design and procure secure and reliable AMI systems. 
Because of the success of this industry-government collaboration, the 
Department is working with the Task Force to expand the activity to 
develop a suite of security requirements for all critical Smart Grid 
applications.
    The National Institute of Standards and Technology (NIST) is 
responsible for developing the framework for interoperability standards 
development for the smart grid. The Federal Energy Regulatory 
Commission (FERC) has authority for issuing standards for rulemaking.
    The Department views the development of interoperability standards 
that include appropriate cyber security protections as one of the key 
milestones toward realizing the goal of widespread implementation of 
smart grid technologies, tools, and techniques. DOE-NIST-FERC 
coordination on these standards has been ongoing for more than a year 
through the Federal Smart Grid Task Force, an EISA-mandated group that 
meets monthly and involves agencies from across the Federal government, 
including EPA, USDA, DHS, and DOD.
    Recent progress on two key activities demonstrates the efficacy of 
the coordination effort: (1) Development of the Interoperability 
Standards Roadmap under the leadership of NIST, and (2) Development of 
a policy statement on interoperability standards under the leadership 
of FERC. These activities are critical for the Department in the 
selection of meritorious projects under the Smart Grid Investment 
Grants Program and the Smart Grid Regional Demonstration Program as the 
quality of the approaches for addressing interoperability and cyber 
security will be important evaluation criteria.
    With regard to protecting the electric grid from newly discovered 
vulnerabilities, the Department does not have a position on the Draft 
Joint Staff Cybersecurity Text. The Department does provide the 
following technical comment:

          All vulnerabilities must be thoroughly evaluated on a 
        scientific basis to determine the impact and risk to the nation 
        in the event the vulnerability were to be exploited. Any 
        decision to act or issue an order by the government must be 
        based on sound risk management principals and judgment 
        considering the characteristics of the vulnerability, the 
        capabilities of the threat, likelihood of attack, the 
        consequences to the nation should the vulnerability be 
        exploited, and the cost of mitigation.

    This concludes my statement, Mr. Chairman. Thank you for the 
opportunity to speak, and I look forward to answering any questions you 
and your colleagues may have.

    The Chairman. Thank you very much.
    Mr. McClelland.

 STATEMENT OF JOSEPH MCCLELLAND, DIRECTOR, OFFICE OF ELECTRIC 
       RELIABILITY, FEDERAL ENERGY REGULATORY COMMISSION

    Mr. McClelland. Mr. Chairman and members of the committee, 
thank you for the invitation to appear before you today to 
discuss the cyber security of the electric grid.
    My name is Joe McClelland and I am the Director of the 
Office of Electric Reliability at the Federal Energy Regulatory 
Commission. I am here today as a Commission staff witness and 
my remarks do not necessarily represent the views of the 
Commission or any individual commissioner.
    Although new section 215 of the Federal Power Act has 
provided an adequate foundation for the development of 
reliability standards to date, the threat of cyber attacks or 
other intentional malicious acts against the electric grid is 
very different. These threats can endanger national security 
and they may be posed by foreign nations or others intent on 
attacking the United States through the electric grid. 
Widespread disruption of electric service could quickly 
undermine the U.S. Government, its military, and the economy, 
as well as endanger the health and safety of millions of our 
citizens.
    Given the national security dimension to this threat, there 
may be a need to act quickly to protect the grid and to act in 
a manner where action is mandatory, rather than voluntary, and 
to protect certain information from public disclosure. Faced 
with the cyber or other national threat to reliability, there 
may be a need to act decisively in hours or days, rather than 
weeks, months, or years.
    The Commission's legal authority is inadequate for such 
action, as it is required to depend upon the Electric 
Reliability Organization, or ERO, to develop and propose 
standards to address cyber security issues. The process 
employed by the ERO typically takes years to develop the 
standard, is open to public review, and may not be necessarily 
responsive to the Commission's directives. This is true of both 
cyber and non-cyber threats that pose national security 
concerns.
    In the case of such threats to the electric system, the 
Commission does not have timely, confidential, or direct 
authority to protect the reliability of the system. As a 
result, I believe legislation is needed. Any new legislation 
should address several key concerns.
    First, the legislation should allow the Commission to take 
action before a cyber or other national security incident has 
occurred. Second, any legislation should allow the Commission 
to maintain the appropriate confidentiality of any security-
sensitive information submitted or developed through the 
exercise of this authority.
    Third, it is important that Congress be aware that if 
additional reliability authority is limited to the ``bulk power 
system'', as defined in the Federal Power Act, it would exclude 
protection against attacks involving Alaska and Hawaii and 
possibly the territories, including any Federal installations 
located therein. In addition, the current interpretation of 
bulk power system also would exclude some transmission and all 
local distribution facilities, including virtually all of the 
grid facilities in large cities such as New York City; thus 
precluding possible Commission action in these population 
centers.
    Finally, legislation should not only address cyber security 
threats, but also other national security threats to 
reliability.
    The Joint Staff favors one approach that would largely 
rectify the inadequacies in existing Federal authority to 
address cyber threats to the electric grid. It gives the 
Commission authority to issue rules or orders that are 
necessary to protect critical electric infrastructure and thus 
allow the Commission to act to protect against damage to the 
grid.
    I will briefly point out a few concerns with the joint 
staff draft. While the draft bill addresses the protection of 
critical infrastructure information, it could be construed to 
provide protection only for information voluntarily submitted 
to the Commission or the Secretary. It does not address other 
information, such as that which may be compelled or developed 
by the Commission or the Secretary, or information that would 
be included in orders issued by either agency. Therefore, I 
recommend that the language be amended to address these issues.
    I also recommend that the legislation address not only 
cyber security threats, but other national security threats to 
reliability. Potential physical acts against the grid can cause 
equal or greater destruction than cyber attacks and the Federal 
Government should have no less ability to act to protect 
against such damage.
    Finally, Congress should be aware that if additional 
liability authority is limited to the areas within the 
Commission's jurisdiction under section 215 of the Federal 
Power Act, it would exclude protection against reliability 
threats in Alaska, Hawaii, and possibly the territories. Again, 
including any Federal installations located therein as well as 
major population areas such as New York City.
    Thank you again for the opportunity to testify today and I 
would be happy to answer any questions they you may have.
    [The prepared statement of Mr. McClelland follows:]

 Prepared Statement of Joseph McClelland, Director, Office of Electric 
           Reliability, Federal Energy Regulatory Commission

    Mr. Chairman and Members of the Committee:
    Thank you for this opportunity to appear before you to discuss the 
cyber security of the electric grid. My name is Joseph McClelland. I am 
the Director of the Office of Electric Reliability (OER) of the Federal 
Energy Regulatory Commission (FERC or Commission). The Commission's 
role with respect to reliability is to help protect and improve the 
reliability of the Nation's bulk-power system through effective 
regulatory oversight as established in the Energy Policy Act of 2005. I 
am here today as a Commission staff witness and my remarks do not 
necessarily represent the views of the Commission or any individual 
Commissioner.
    My testimony summarizes the Commission's oversight of the 
reliability of the electric grid in the area of security, some of the 
Commission's actions to implement section 215 of the Federal Power Act, 
and some of the limitations in the Commission's authority. The 
Commission does not have sufficient authority to provide effective 
protection of the grid against cyber attacks or other security threats 
to reliability. As will be explained in more detail later, this is 
primarily due to three factors regarding the development of reliability 
standards under section 215; lack of timeliness, lack of ability to 
protect security-sensitive information, and lack of ability to control 
the content of proposed cybersecurity standards. Therefore, legislation 
is needed and my testimony discusses the key elements that should be 
included in any new legislation in this area.

                               BACKGROUND

    In the Energy Policy Act of 2005 (EPAct 2005), the Congress 
entrusted the Commission with a major new responsibility to oversee 
mandatory, enforceable reliability standards for the Nation's bulk 
power system (excluding Alaska and Hawaii). This authority is in 
section 215 of the Federal Power Act. Section 215 requires the 
Commission to select an Electric Reliability Organization (ERO) that is 
responsible for proposing, for Commission review and approval, 
reliability standards or modifications to existing reliability 
standards to help protect and improve the reliability of the Nation's 
bulk power system. The reliability standards apply to the users, owners 
and operators of the bulk power system and become mandatory only after 
Commission approval. The ERO also is authorized to impose, after notice 
and opportunity for a hearing, penalties for violations of the 
reliability standards, subject to Commission review and approval. The 
ERO may delegate certain responsibilities to ``Regional Entities,'' 
subject to Commission approval.
    The Commission may approve proposed reliability standards or 
modifications to previously approved standards if it finds them ``just, 
reasonable, not unduly discriminatory or preferential, and in the 
public interest.'' The Commission does not have authority to modify 
proposed standards. Rather, if the Commission disapproves a proposed 
standard or modification, section 215 requires the Commission to remand 
it to the ERO for further consideration. The Commission, upon its own 
motion or upon complaint, may direct the ERO to submit a proposed 
standard or modification on a specific matter. The Commission however, 
does not have the authority to modify or author a standard but must 
depend upon the ERO to do so.
    The Commission has implemented section 215 diligently. Within 180 
days of enactment, the Commission adopted rules governing the 
reliability program. In mid-2006, it approved the North American 
Electric Reliability Corporation (NERC) as the ERO. In March 2007, the 
Commission approved the first set of national mandatory and enforceable 
reliability standards. In April 2007, it approved eight regional 
delegation agreements to provide for development of new or modified 
standards and enforcement of approved standards by Regional Entities.
    In exercising its new authority, the Commission has interacted 
extensively with NERC and the industry. The Commission also has 
coordinated with other federal agencies, such as the Department of 
Homeland Security, the Department of Energy, the Nuclear Regulatory 
Commission, and the Department of Defense. Also, the Commission has 
established regular communications and meetings with regulators from 
Canada and Mexico regarding reliability, since the North American bulk 
power system is an interconnected continental system subject to the 
varied regulatory regimes of three nations.

          CYBER SECURITY STANDARDS APPROVED UNDER SECTION 215

    An important part of the Commission's responsibility to oversee the 
development of reliability standards involves cyber security. Section 
215 defines ``reliability standard[s]'' as including requirements for 
the ``reliable operation'' of the bulk power system including 
``cybersecurity protection.'' Section 215 defines reliable operation to 
mean operating the elements of the bulk power system within certain 
limits so instability, uncontrolled separation, or cascading failures 
will not occur ``as a result of a sudden disturbance, including a 
cybersecurity incident.''
    Section 215 also defines a ``cybersecurity incident'' as a 
``malicious act or suspicious event that disrupts, or was an attempt to 
disrupt, the operation of those programmable electronic devices and 
communication networks including hardware, software and data that are 
essential to the reliable operation of the bulk power system.''
    In August 2006, NERC submitted eight proposed cyber security 
standards, known as the Critical Infrastructure Protection (CIP) 
standards, to the Commission for approval under section 215. Each of 
these standards contains layers of multiple requirements. Critical 
infrastructure, as defined by NERC for purposes of the CIP standards, 
includes facilities, systems, and equipment which, if destroyed, 
degraded, or otherwise rendered unavailable, would affect the 
reliability or operability of the ``Bulk Electric System.'' NERC 
proposed an implementation plan under which certain requirements would 
be ``auditably compliant'' beginning by mid-2009, and full compliance 
with the CIP standards would not be mandatory until 2010.
    On January 18, 2008, after issuing both a staff preliminary 
assessment and notice of proposed rulemaking, the Commission issued a 
Final Rule approving the CIP Reliability Standards and concurrently 
directed NERC to develop significant modifications addressing specific 
concerns, such as the breadth of discretion left to utilities by the 
standards. For example, the standards state that utilities ``should 
interpret and apply the reliability standard[s] using reasonable 
business judgment.'' Similarly, the standards at times require certain 
steps ``where technically feasible,'' but this is defined as not 
requiring the utility ``to replace any equipment in order to achieve 
compliance.'' Also, the standards would allow a utility at times not to 
take certain action if the utility documents its ``acceptance of risk'' 
that might be placed on the bulk-power system. To address this, the 
Final Rule directed NERC, among other things: (1) to develop 
modifications to remove the ``reasonable business judgment'' language 
and the ``acceptance of risk'' exceptions; and, (2) to develop specific 
conditions that a responsible entity must satisfy to invoke the 
``technical feasibility'' exception. NERC and the industry are working 
on proposed modifications to address these two issues. However, until 
such time as the standards are modified by the ERO through its 
stakeholder process, approved by the Commission, and implemented by 
industry, the discretion remains and critical facilities will be left 
unprotected.
    A good example of the discretion implicit in the existing cyber 
security standards involves the utility's ability to determine which of 
its facilities would be subject to them. In the Final Rule, the 
Commission addressed its concerns by requiring independent oversight of 
a utility's decisions by industry entities with a ``wide-area view,'' 
such as reliability coordinators or the Regional Entities, subject to 
the review of the Commission. This revision to the standards is subject 
to approval by the affected stakeholders in the standards development 
process and therefore has not yet been presented to the Commission. 
NERC recently conducted a survey on this issue which seems to validate 
the Commission's concern and original directives by demonstrating that 
a significant percentage of owners and operators do not believe they 
own or operate critical cyber assets. For example, NERC stated that 
only 29% of generation owners and generation operators reported at 
least one critical asset, though it is unclear from NERC's data what 
portion of the Nation's generation capacity that 29% represents, or 
what portion the designated critical assets represent. Thus, it is not 
clear, even today, what percentage of critical assets and their 
associated critical cyber assets has been identified. It is clear, 
however, that this issue is serious and represents a significant gap in 
cybersecurity protection.

  CURRENT PROCESS TO ADDRESS CYBER OR OTHER NATIONAL SECURITY THREATS 
                             TO RELIABILITY

    As an initial matter, it is important to recognize how mandatory 
reliability standards are established under section 215. Under section 
215, reliability standards are developed by the ERO through an open, 
inclusive, and public process. The Commission can direct NERC to 
develop a reliability standard to address a particular reliability 
matter, including cyber security threats or vulnerabilities. However, 
the NERC process typically takes years to develop standards for the 
Commission's review. In fact, the cyber security standards approved by 
FERC took the industry approximately three years to develop.
    NERC's procedures for developing standards allow extensive 
opportunity for industry comment, are open, and are generally based on 
the procedures of the American National Standards Institute. The NERC 
process is intended to develop consensus on both the need for the 
standard and on the substance of the proposed standard. Although 
inclusive, the process is relatively slow, cumbersome and unpredictable 
regarding its responsiveness to the Commission's directives.
    Key steps in the NERC process include: nomination of a proposed 
standard using a Standard Authorization Request (SAR); public posting 
of the SAR for comment; review of the comments by industry volunteers; 
drafting or redrafting of the standard by a team of industry 
volunteers; public posting of the draft standard; field testing of the 
draft standard, if appropriate; formal balloting of the draft standard, 
with approval requiring a quorum of votes by 75 percent of the ballot 
pool and affirmative votes by two-thirds of the weighted industry 
sector votes; re-balloting, if negative votes are supported by specific 
comments; approval by NERC's board of trustees; and an appeals 
mechanism to resolve any complaints about the standards process. NERC-
approved standards are then submitted to the Commission for its review. 
This standards development process requires public disclosure regarding 
the reason for the proposed standard, the manner in which the standard 
will address the issues at-hand, and any subsequent comments and 
resulting modifications in the standards as the affected stakeholders 
review the material and provide comments.
    Generally, the procedures used by NERC are appropriate for 
developing and approving reliability standards. The process allows 
extensive opportunities for industry and public comment. The public 
nature of the reliability standards development process can be a 
strength of the process as it relates to most reliability standards. 
However, it can be an impediment when measures or actions need to be 
taken to address threats to national security quickly, effectively and 
in a manner that protects against the disclosure of security-sensitive 
information.
    The procedures used under section 215 for the development and 
approval of reliability standards do not provide an effective and 
timely means of addressing urgent cyber or other national security 
risks to the bulk power system, particularly in emergency situations. 
Certain circumstances, such as those involving national security, may 
require immediate action. If a significant vulnerability in the bulk 
power system is identified, procedures used so far for adoption of 
reliability standards take too long to implement effective corrective 
steps.
    FERC rules governing review and establishment of reliability 
standards allow the agency to direct the ERO to develop and propose 
reliability standards under an expedited schedule. For example, FERC 
could order the ERO to submit a reliability standard to address a 
reliability vulnerability within 60 days. Also, NERC's rules of 
procedure include a provision for approval of ``urgent action'' 
standards that can be completed within 60 days and which may be further 
expedited by a written finding by the NERC board of trustees that an 
extraordinary and immediate threat exists to bulk power system 
reliability or national security. However, it is not clear NERC could 
meet this schedule in practice. Moreover, faced with a cyber security 
or other national security threat to reliability, there may be a need 
to act decisively in hours or days, rather than weeks, months or years. 
That would not be feasible even under the urgent action process. In the 
meantime, the bulk power system would be left vulnerable to a known 
national security threat. Moreover, existing procedures, including the 
urgent action procedure, would widely publicize both the vulnerability 
and the proposed solutions, thus increasing the risk of hostile actions 
before the appropriate solutions are implemented.
    In addition, the proposed standard submitted to the Commission may 
not be sufficient to address the vulnerability or threat. As noted 
above, when a proposed reliability standard is submitted to FERC for 
its review, whether submitted under the urgent action provisions or the 
usual process, the agency cannot modify such standard and must either 
approve or remand it. Since the Commission may not modify a proposed 
reliability standard under section 215, it would have the choice of 
approving an inadequate standard and directing changes, which 
reinitiates a process that can take years, or rejecting the standard 
altogether. Under either approach, the bulk power system would remain 
vulnerable for a prolonged period.
    Finally, the open and inclusive process required for standards 
development is not consistent with the need to contain security-
sensitive information. For instance, a SAR would normally detail the 
need for the standard as well as the proposed mitigation to address the 
issue. Subsequent drafts of the standard would consider how effectively 
it addresses the cyber security matters and what objections or 
revisions are proposed by the stakeholders resulting in a final version 
that would be filed with the Commission for review. Potential 
adversaries would have the ability to monitor these developments and 
alter their actions as necessary to preserve an effective attack 
vector.

           NERC'S ``AURORA'' ADVISORY AND SUBSEQUENT ACTIONS

    Currently, the alternative to a mandatory reliability standard is 
for NERC to issue an advisory encouraging utilities and others to take 
voluntary action to guard against cyber or other vulnerabilities. That 
approach provides for quicker action, but any such advisory is not 
mandatory, and should be expected to produce inconsistent and 
potentially ineffective responses. That was the Commission's experience 
with the response to an advisory issued in 2007 by NERC regarding an 
identified cyber security threat referred to as the ``Aurora'' threat. 
While NERC can issue an alert, as it did in response to the Aurora 
vulnerability, compliance with these alerts is voluntary and subject to 
the interpretation of the individual utilities. Also, an alert can be 
general in nature and lack specificity. For example, as Commission 
staff has found with the Aurora alert, such alerts can cause 
uncertainty about the specific strategies needed to mitigate the 
identified vulnerabilities and the assets to which they apply. Reliance 
on voluntary measures to assure national security is fundamentally 
inconsistent with the conclusion Congress reached during enactment of 
EPAct 2005, that voluntary standards cannot assure reliability of the 
bulk power system.
    Damage from cyber attacks could be enormous. All of the electric 
system is potentially subject to cyber attack, including power plants, 
substations, transmission lines, and local distribution lines. A 
coordinated attack could affect the electrical grid to a greater extent 
than the August 2003 blackout and cause much more extensive damage. 
Cyber attacks can physically damage the generating facilities and other 
equipment such that restoration of power takes weeks or longer, instead 
of a few hours or days. The harm could extend not only to the economy 
and the health and welfare of our citizens, but even to the ability of 
our military forces to defend us, since many military installations 
rely on the bulk power system for their electricity. In fact, a recent 
Defense Science Board report concluded that ``critical missions at 
military installations are vulnerable to loss from commercial power 
outage and inadequate backup power supplies.''\1\ The cost of 
protecting against cyber attacks is difficult to estimate but, 
undoubtedly, is much less than the damages and disruptions that could 
be incurred if we do not protect against them.\2\
---------------------------------------------------------------------------
    \1\ Report of the Defense Science Board Task Force on DoD Energy 
Strategy ``More Fight--Less Fuel'', February 2008.
    \2\ As an example, the US Canada Joint Task Force on the August 
2003 Blackout concluded that the outage that affected over 50,000,000 
citizens and was estimated to cost between $4 and $10 billion dollars 
in the United States.
---------------------------------------------------------------------------
    The need for vigilance may increase as new technologies are added 
to the bulk power system. For example, ``smart grid'' technology will 
provide significant benefits in the use of electricity. These include 
the promised ability to manage not only energy sources but also energy 
consumption. However, a smarter grid would permit two-way communication 
between the electric system and a much larger number of devices located 
outside of controlled utility environments, which will introduce many 
potential access points. To some degree, this is similar to the banking 
industry allowing its customers to bank on line, but only with 
appropriate security protections in place. Security features must be an 
integral consideration, as the Commission stated in a recent proposed 
policy statement on smart grid. As the ``smart grid'' effort moves 
forward, steps will need to be taken to ensure that cyber security 
protections are in place prior to its implementation. The challenge 
will be to focus not only on general approaches but, importantly, on 
the details of specific technologies and the risks they may present.

                   KEY ELEMENTS OF NEEDED LEGISLATION

    In my view, section 215 provides an adequate statutory foundation 
for the ERO to develop reliability standards for the bulk power system. 
However, the threat of cyber attacks or other intentional malicious 
acts against the electric grid is different. These are national 
security threats that may be posed by foreign nations or others intent 
on attacking the U.S. through its electric grid. The nature of the 
threat stands in stark contrast to other major reliability 
vulnerabilities that have caused regional blackouts and reliability 
failures in the past, such as vegetation management and protective 
relay maintenance practices. Widespread disruption of electric service 
can quickly undermine the U.S. government, its military, and the 
economy, as well as endanger the health and safety of millions of 
citizens. Given the national security dimension to this threat, there 
may be a need to act quickly to protect the grid, to act in a manner 
where action is mandatory rather than voluntary, and to protect certain 
information from public disclosure. The Commission's legal authority is 
inadequate for such action. This is true of both cyber and non-cyber 
threats that pose national security concerns. In the case of such 
threats to the electric system, the Commission does not have sufficient 
authority to timely protect the reliability of the system.
    Any new legislation should address several key concerns. First, 
legislation should allow the Commission to take action before a cyber 
or other national security incident has occurred to prevent a 
significant risk of disruption to the grid due to such an incident. In 
order to protect the grid, it is vital that the Commission be 
authorized to act before an attack. Second, any legislation should 
allow the Commission to maintain appropriate confidentiality of any 
security-sensitive information submitted or developed through the 
exercise of this authority. It should also allow the Commission to 
protect such information when the Commission issues orders under any 
new authority. Third, it is important that Congress be aware that if 
additional reliability authority is limited to the ``bulk power 
system,'' as defined in the FPA, it would exclude protection against 
attacks involving Alaska and Hawaii and possibly the territories, 
including any federal installations located therein. The current 
interpretation of ``bulk power system'' also would exclude some 
transmission and all local distribution facilities, including virtually 
all of the grid facilities in large cities such as New York., thus 
precluding possible Commission action to mitigate cyber or other 
national security threats to reliability that involve such facilities 
and major population areas. Finally, legislation should address not 
only cyber security threats but also other national security threats to 
reliability.
    The Joint Staff draft bill is one approach that would largely 
rectify the inadequacies in existing federal authority to address cyber 
threats to the electric grid. It gives the Commission authority to 
issue rules or orders that are necessary to protect critical electric 
infrastructure from weaknesses or flaws in the design or operation of 
electric devices or networks that expose critical electric 
infrastructure to a cyber security threat. This authority to address 
cyber security vulnerabilities would apply to all systems or assets, 
whether physical or virtual, used for the generation, transmission, and 
distribution of electric energy that in the determination of the 
Commission are so vital to the U.S. that the incapacity or destruction 
of such systems and assets would have a debilitating impact on the 
security, national economic security, or national public health or 
safety. Thus, it would allow the Commission to act to protect against 
potential damage to the grid, including the grid facilities in New York 
City, which I referenced earlier.
    As I have noted, a key concern with respect to any cyber security 
legislation is that the Commission must be allowed to maintain 
appropriate confidentiality of any security-sensitive information 
submitted or developed through the exercise of its authority. This 
applies to information submitted to the Commission and to orders issued 
by the Commission, which may contain security-sensitive information. 
While the draft bill addresses the protection of critical 
infrastructure information, it could be construed to provide protection 
only for information voluntarily submitted to the Commission or the 
Secretary. Not all information submitted to the Commission or the 
Secretary will be submitted voluntarily, but rather may be ordered to 
be submitted in an agency rule or order. Additionally, the Commission 
or the Secretary may need to include sensitive information in the 
orders they issue and this information similarly should be non-public. 
Therefore, I recommend that the language be amended to address these 
issues.
    I also recommend that the Joint Staff draft be amended to address 
not only cyber security threats but also other national security 
threats to reliability. Intentional physical malicious acts (targeting, 
for example, critical substations and generating stations) can cause 
equal or greater destruction than cyber attacks and the Federal 
government should have no less ability to act to protect against such 
potential damage. This additional authority would not displace other 
means of protecting the grid, such as action by federal, state and 
local law enforcement and the National Guard, but the Commission has 
unique expertise regarding the reliability of the grid, the 
consequences of threats to it and the measures necessary to safeguard 
it. If particular circumstances cause both FERC and other governmental 
authorities to require action by utilities, FERC will coordinate with 
other authorities as appropriate.
    Finally, Congress should be aware of the fact that if additional 
reliability authority is limited to the areas within the Commission's 
jurisdiction under section 215 of the FPA, it would exclude protection 
against reliability threats in Alaska and Hawaii and possibly the 
territories, including any federal installations located therein.

                               CONCLUSION

    The Commission's authority is not adequate to address cyber or 
other national security threats to the reliability of our transmission 
and power system. These types of threats pose an increasing risk to our 
Nation's electric grid, which undergirds our government and economy and 
helps ensure the health and welfare of our citizens. Congress should 
address this risk now. Thank you again for the opportunity to testify 
today. I would be happy to answer any questions you may have.

    The Chairman. Thank you very much.
    Mr. Sergel, go right ahead.

 STATEMENT OF RICHARD P. SERGEL, PRESIDENT AND CHIEF EXECUTIVE 
    OFFICER, NORTH AMERICAN ELECTRIC RELIABILITY CORPORATION

    Mr. Sergel. Thank you, Chairman, and members of the 
committee. I appreciate the opportunity to testify today and I 
commend you and your staffs for your attention to this 
important issue.
    NERC is committed to ensuring the reliability of the bulk 
power system in North America in the face of cyber security 
threats and assuring that NERCs efforts will complement those 
of the government and industry in regard to cyber security 
protection and assuring that there are no gaps, and that that 
responsibility is clear for execution of cyber security 
protection initiatives.
    Now, as the international regulatory authority for the 
reliability of the bulk power system in North America, NERC is 
responsible for developing reliability standards applicable to 
all users and owners of the system, ensuring that each of the 
nearly 2,000 entities that own and operate components of the 
system understand cyber security and the efforts needed to 
adequately protect the security of the bulk power system, and 
this has been a priority for us.
    Now, my written testimony details the steps NERC has taken 
to enhance protection of the system from cyber security 
vulnerabilities and threats. I'm not going to talk about those 
here today. We do have eight of the mandatory and enforceable 
reliability standards in effect today, focus on cyber security, 
and fill a specific role in the protection of the system. Now, 
these standards were developed under the process established in 
section 215, a process that worked to put those standards in 
place for securing the grid and and we are working today to 
improve those standards.
    But reliability standards are not enough. NERC agrees that 
new specific authority for emergency response to cyber threats 
is necessary. In the case of an imminent cyber security threat, 
authority to direct action should be vested in the Federal 
Government in the United States and, as appropriate, in Canada.
    The Joint Staff Draft addresses what we see as the 
principle gap in the current law. The Federal Government lacks 
sufficient authority to act to address an imminent and specific 
cyber security threat to the critical infrastructure of the 
United States. NERC believes that authority to act in such 
emergencies should be assigned to a single Federal agency.
    The Draft would give the Secretary of Energy the authority 
to act in such circumstances. The provisions of the Draft to 
encourage consultation and coordination with officials in 
Canada and Mexico are, we believe, very important in 
recognition of the international nature of the interconnected 
North American power system.
    Now, in addition to the new authority in the Department of 
Energy, the Draft would also give new authority to the Federal 
Energy Regulatory Commission to establish standards to address 
not only emergencies, but cyber security vulnerability. 
Moreover, FERC would be authorized to adopt rules or orders 
without notice or hearing.
    NERC believes it would be unwise to supplant section 215, 
with respect to the establishment of cyber security standards 
and, whatever occurs, we need to make sure that it's 
complementary to what we do today. Hopefully we will be able to 
do that.
    The NERC standard setting process brings together industry 
and security experts to develop standards that must apply to 
the international, interconnected grid. Developing long-term 
standards that apply to the more than 1,800 diverse entities 
that own and operate the grid is a complex undertaking.
    Standards must apply equally to companies with thousands of 
employees and to those with only 20. Additionally, the 
standards must do no harm. They must take into account the 
unique component configurations and operational procedures that 
differ widely across the grid. Given the industry's extensive 
experience in standard development, NERC firmly believes that 
the level of expertise necessary to create standards that 
achieve security objectives and ensure liability can best be 
found within the industry itself. But I emphasize again, that 
is only if we have emergency authorization in place.
    Now, we are also concerned that the draft sets up 
potentially competing emergency authorities between the 
Secretary of Energy and FERC.
    Now in closing, I'd like to reiterate our primary message. 
In the case of an imminent cyber security threat, the U.S. 
Government should be authorized to act immediately. With 
emergency responsibility in the hands of government, NERC would 
be better able to do what it does best, develop and implement 
cyber security reliability standards that will harden the grid 
against intrusion and aid in responding effectively to cyber 
security incidents.
    Thank you.
    [The prepared statement of Mr. Sergel follows:]

Prepared Statement of Richard P. Sergel, President and Chief Executive 
        Officer, North American Electric Reliability Corporation

                              INTRODUCTION

    The cyber security of the bulk power system in North America 
remains an important concern for our nation. When I last spoke in front 
of a Congressional committee in September 2008, my organization, the 
North American Electric Reliability Corporation (NERC), had just 
launched a major initiative to improve its response to cyber security 
challenges. I am pleased to report significant progress on this front, 
which is a clear indication that the framework established under 
Section 215 of the Federal Power Act is producing results. But I remain 
firm in the message I communicated nine months ago: the Federal 
government should be given additional, carefully crafted, emergency 
authority to address specific, imminent cyber security threats.
    My testimony today will focus on the steps NERC has taken to 
enhance protection of the North American bulk power system from cyber 
security threats, and offer NERC's views on the Joint Staff Draft, 
which would provide the needed federal authority.

     I. ROLE OF NERC STANDARDS IN PROTECTING THE BULK POWER SYSTEM 
                           FROM CYBER ATTACK

    As the international regulatory authority for the reliability of 
the bulk power system in North America, NERC is responsible for 
developing Reliability Standards applicable to all users, owners and 
operators of the Bulk Power System. In the United States, NERC was 
certified as the Electric Reliability Organization by the Federal 
Energy Regulatory Commission (FERC) under Section 215 of the Federal 
Power Act in July 2006. NERC is similarly recognized in much of Canada, 
with the goal of ensuring that the entire interconnected power system 
operates from a single platform of sound reliability practices and 
procedures. NERC's over 100 Reliability Standards cover long-term 
reliability issues ranging from vegetation management to system 
operator training to modeling of the bulk power system.
    Eight of NERC's standards are focused on cyber security and fill a 
specific role in the protection of the bulk power system. The standards 
are comprised of roughly forty specific requirements designed to lay a 
solid foundation of sound security practices that, if properly 
implemented, will develop the capabilities needed to secure critical 
infrastructure from cyber security threats. Audits of compliance with 
certain requirements included in the standards currently in effect, as 
approved by FERC on January 18, 2008 in Order No. 706, will begin on 
July 1, 2009.
    NERC and its stakeholders recognize that the cyber security 
standards currently in effect can be improved and are actively working 
to do so in an expedited manner. As part of these efforts, NERC has 
worked with industry, consumer representatives and regulators to 
strengthen the standards both in the short-term by means of an initial 
six-month revision phase, and the longer-term, through a concurrent 18-
month revision phase. Phase I revisions are already complete--they were 
adopted by the electric industry with an 88% approval rating last week 
and approved by NERC's Board of Trustees yesterday. The enhanced cyber 
security standards will be filed with FERC for approval promptly. We 
will also be filing those standards with authorities in Canada. Our 
work to further strengthen the cyber standards will continue, and we 
look forward to bringing these revisions to FERC for approval in early 
2010.
    One of the areas NERC and its stakeholders are working to address 
in the longer-term revisions was the subject of an April 7 letter from 
NERC Chief Security Officer Michael Assante to industry stakeholders. 
The letter addressed the identification of Critical Assets and 
associated Critical Cyber Assets that support the reliable operation of 
the bulk power system, as required by NERC Reliability Standard CIP-
002-1.\1\ In the letter, Mr. Assante called on users, owners, and 
operators of the bulk power system to take a fresh look at current 
risk-based assessment models to ensure they appropriately account for 
new considerations specific to cyber security, such as the need to 
consider misuse of a cyber asset, not simply the loss of such an asset. 
The letter is part of the iterative process between NERC and industry 
stakeholders as we work together to improve reliability. In this case, 
NERC gathered information about the status of implementation of the 
critical infrastructure protection standards and fed that information 
and its own insights back to the industry as part of a cycle of 
continuous improvement.
---------------------------------------------------------------------------
    \1\ The letter is available from the NERC website: http://
www.nerc.com/fileUploads/File/News/CIP-002-Identification-Letter-
040709.pdf.
---------------------------------------------------------------------------
    This effort demonstrates that NERC is working to address a critical 
element of the cyber security challenge: the educational learning curve 
and resulting compliance-related challenges that must be addressed to 
improve the cyber security of the Bulk Power System. Ensuring that each 
of the nearly two thousand entities that own and operate components of 
the bulk power system understands cyber security and the efforts needed 
to adequately protect the security of the bulk power system has been a 
priority for NERC. While efforts such as the September 23rd, 2008 cyber 
security summit and classified briefings for industry executives have 
been important components of NERC's educational efforts, the standards 
development process itself has contributed a great deal to raising the 
profile and priority of cyber security within the electric sector. 
Other educational efforts currently under development include a series 
of webinars on compliance with the critical infrastructure protection 
standards and further regular communication with the industry.
    At the end of the day, however, preparedness efforts like those 
discussed above are necessary but not sufficient to protect the system 
against specific and imminent threats. Protecting the system from these 
kinds of threats is dependent in large measure on the quality and 
timeliness of threat analysis and risk information developed by 
intelligence and law enforcement professionals and, importantly, their 
ability to share specific, actionable information with asset owners.

      II. ADDRESSING IMMINENT AND SPECIFIC CYBER SECURITY THREATS

    At NERC, we are working in a number of areas to help provide or 
assist in the provision of the kinds of information that will help the 
industry better secure critical assets from advanced, well-resourced 
threats and other known cyber activity on an ongoing basis. Strong and 
proactive participation by industry volunteers thus far has been 
encouraging.
    In these efforts, NERC collaborates with the U.S. Department of 
Energy (DOE) and U.S. Department of Homeland Security (DHS) on critical 
infrastructure and security matters on an almost daily basis. 
Additionally, NERC serves as the Electricity Sector Information Sharing 
and Analysis Center (ES-ISAC),\2\ which is responsible for promptly 
analyzing and disseminating threat indications, analyses and warnings 
to assist the electricity industry.
---------------------------------------------------------------------------
    \2\ The ES-ISAC has been operated by NERC since it was formed in 
2001. The ES-ISAC was created as a result of action by the U.S. 
Department of Energy in response to Presidential Decision Directive 63 
issued in 1998. The ES-ISAC works with the electricity industry to 
identify and mitigate cyber vulnerabilities by providing information, 
recommending mitigation measures, and following up to monitor 
implementation of recommended measures. NERC, in its capacity as the 
ES-ISAC, also has some related responsibilities for cyber and physical 
security issues associated with all electric facilities operated in the 
United States.
---------------------------------------------------------------------------
    NERC disseminates these findings via its voluntary alerts 
mechanism, which has pioneered outreach to asset owners and is 
virtually unmatched by other infrastructure sectors. NERC is now able 
to provide timely critical reliability information to security and grid 
operations professionals, and has demonstrated success by conducting 
training and using the system to send alerts, record acknowledgements 
and receive responses within several days. As a result, our last 
recommendation was met with a 94 percent response rate. The industry 
has been very supportive as we have worked to improve this process. We 
look forward to launching an improved secure ``alerts portal'' to 
continue to improve this system in the coming weeks.
    Other efforts underway at NERC include ongoing work with industry 
experts to assess security risks to the bulk power system of North 
America. Through these assessments, NERC seeks to broaden the 
understanding of cyber risk concerns facing the interconnected bulk 
power system and guide industry-wide efforts to develop prudent 
approaches to address the most material risks--in both the short-term, 
through appropriate alerts, and longer-term, through appropriate 
standards. Generalized and aggregated findings generated through these 
assessments will be communicated with asset owners through the 
voluntary alerts mechanism discussed above.
    We firmly believe, however, that there are circumstances where 
these efforts will not be adequate to identify or address specific 
imminent threats. NERC agrees that new, specific authority for 
emergency response to cyber threats is necessary. In the case of an 
imminent cyber security threat, authority to direct action should be 
vested in the Federal government in the United States and as 
appropriate in Canada.

                   III. COMMENTS ON JOINT STAFF DRAFT

    The Joint Staff Draft legislation would add a new Section 224, 
``Critical Electric Infrastructure,'' to the Federal Power Act. The 
draft addresses the principal gap that NERC sees in the current law: 
the Federal government lacks sufficient authority to act to address an 
imminent and specific cyber security threat to the critical 
infrastructure of the United States. NERC believes that authority to 
act in such emergencies should be assigned to a single Federal agency. 
Proposed Section 224(c)(1) does this by giving the Secretary of Energy 
the authority to act in such circumstances. Proposed Section 224(c)(2) 
properly encourages the Secretary, in exercising that authority, to 
consult and coordinate with appropriate officials in Canada and Mexico. 
This encouragement is entirely appropriate, because the bulk power 
system in North America comprises an interconnected grid that spans two 
international borders.
    The draft legislation goes beyond the scope of Section 215, which 
specifically limits standard-setting authority to apply only to users, 
owners, and operators of the bulk power system. The draft legislation 
would extend jurisdiction, for purposes of Section 224, to any entity 
that owns, controls, or operates systems and assets, whether physical 
or virtual, used for the generation, transmission, or distribution of 
electric energy affecting interstate commerce. At the time Congress 
adopted Section 215 of the Federal Power Act, providing for mandatory 
and enforceable reliability standards, it carefully chose the scope of 
jurisdiction it was granting, based on the nature of the risk and the 
international nature of the interconnected grid. Congress should again 
weigh the benefits and risks of broader jurisdiction as it considers 
this grant of additional authority.
    Proposed Section 224(b) would give FERC authority to establish 
standards to address not only emergencies, but any cyber security 
vulnerability, defined as a weakness or flaw in the design or operation 
of any programmable electronic device or communication network that 
exposes critical electric infrastructure to a cyber security threat. It 
would authorize FERC to adopt rules or orders without notice or 
hearing. Proposed Section 224(b) would supplant Section 215 with 
respect to establishing cyber security standards. The NERC standard-
setting process brings together industry and security experts to 
develop standards that must apply to the international, interconnected 
grid. Developing long-term standards that apply to the more than 1800 
diverse entities that own and operate the bulk power system is a 
complex undertaking. Standards must apply equally to companies with 
thousands of employees and to those with only twenty. Additionally, the 
standards must not do harm. They must take into account unique 
component configurations and operational procedures that differ widely 
across the grid. Given our extensive experience in standards 
development, NERC firmly believes the level of expertise needed to 
create standards that achieve security objectives and ensure 
reliability can best be found within the industry itself. Given these 
constraints, setting these standards should not be done without notice 
or opportunity to be heard, especially when the consequence of non-
compliance can be significant penalties.
    Sections 224(b) and 224(c) also create potentially competing 
emergency authorities in both the Secretary of Energy and FERC, since 
FERC may issue an order without notice and hearing, and there is no 
requirement that the Commission coordinate with the Secretary of Energy 
or with other potentially affected nations.
    NERC believes the highest priority gap in the nation's cyber 
security protection is the lack of emergency authority, and proposed 
Section 224(c) addresses that gap.

                               CONCLUSION

    NERC, the electric industry, and the governments of North America 
share a mutual goal of ensuring threats to the reliability of the bulk 
power system, especially cyber security threats, are clearly understood 
and effectively mitigated. NERC has taken a number of actions to 
protect the bulk power system against cyber security threats and NERC 
will continue its work with industry stakeholders to do so. We believe 
these efforts have improved and will continue to improve the 
reliability and security of the bulk power system. We maintain, 
however, that these efforts cannot be a substitute for additional 
emergency authority at the federal level to address specific and 
imminent cyber security threats.
    NERC and industry stakeholders appreciate the magnitude and 
priority of this issue and fully support legislative efforts to address 
this gap in authority as quickly as possible. Moving forward, NERC is 
committed to complementing Federal authority to address cyber security 
challenges, regardless of the form it may take. We commend this 
Committee for its action to date and look forward to supporting its 
efforts however possible.

    The Chairman. Thank you very much.
    Mr. Mosher.

 STATEMENT OF ALLEN MOSHER, SENIOR DIRECTOR OF POLICY ANALYSIS 
       AND RELIABILITY, AMERICAN PUBLIC POWER ASSOCIATION

    Mr. Mosher. Thank you and good morning. Chairman Bingaman, 
members of the committee, thank you for asking me to testify 
this morning. I am Allen Mosher, Director of Policy Analysis 
and Reliability for APPA. I am here on behalf of APPA staff. 
There wasn't sufficient time for me to run the Dtaff Draft by 
APPA membership, so I am giving you a preliminary view.
    APPA is the trade association of the Nation's 2,000 State, 
municipal, and other publicly owned utility systems. We serve 
about 45 million people across the country in 49 of the 50 
States.
    I did have an opportunity to speak with a member at the 
NERC Board of Trustees meeting the other day about the draft 
legislation and my testimony. He very much wanted me to 
emphasize that if the utility industry is given reliable, 
credible, actionable information from the Federal Government, 
we will act to protect our facilities. We have a vested 
interest in protecting both the assets and in ensuring reliable 
service to our customers. Its a responsibility to customers, to 
our communities, and to the Nation as a whole to do that.
    APPA does believe that legislation is needed, but it needs 
to be carefully drawn and to build upon the security, cyber 
security and bulk power reliability framework that is already 
in place. We need to improve upon the NERC standards 
development process. Yes, it isn't fast enough, but we do 
believe that we can improve upon it and make it more effective 
and meet many of the needs that have been identified.
    We do agree that there should be specific additional 
legislative or statutory authorities for the Federal 
Government, in particular for FERC and DOE. First, we support 
targeted authority for FERC to issue emergency orders in 
response to imminent threats to the bulk power system. These 
directives should, however, remain in effect only until the 
threat subsides and until we can replace them with permanent 
NERC reliability standards.
    We also support specific authority for the Commission to 
address certain vulnerabilities identified in a June 2007 NERC 
Advisory called AURORA. In the APPA's view, the AURORA-related 
vulnerabilities can and should be addressed through reliability 
standards, but until there are standards in place that cover 
it, then FERC should have some interim authority, but limited 
to that advisory.
    We definitely need to have better mechanisms and statutory 
protections for communications. There are real problems 
communicating on the nature of threats, both from the 
government down to the industry and back up from the industry 
to the government. There are particular problems for publicly 
owned entities, both Federal, State, and municipal. Because we 
are entities of local governments, we have public openness laws 
that sometimes get in the way of keeping information 
confidential.
    Let me go on to the next point. We do have some concerns 
with the draft. It is potentially over-inclusive of facilities, 
it covers generation, transmission, and distribution. We are 
concerned that if you include distribution facilities within 
the scope of the legislation, you may actually reduce the 
effectiveness of the overall program. By trying to cover 
everything, you may actually weaken the overall program.
    In section 224, B-1, FERC is given very, very broad 
discretion to act in the public interest to protect against a 
cyber attack. We think there should be some limitations on that 
authority. It could--in fact, in the absence of prior 
consultation with the industry, lead to requirements that are 
burdensome, very expensive, and potentially ineffective. Again, 
the Commission can't know all of the details on all of the 
different utility systems. As Rick said earlier, we have very 
small electric utilities in the country. I have members, 
utilities, that have staffs of five people. It would be 
impossible for them to be read into the programs and to work 
effectively in this construct. So, thus we need to have a 
limited scope initially to really have an effective program for 
the bulk power system.
    Next, the bill gives both FERC and DOE authority to act on 
an emergency basis. Although one is characterized as authority 
to act on vulnerabilities and the other is threats, this could 
lead to conflicts between the actions of two Federal agencies. 
What we really can't afford to have in the time of crisis is 
two directives from two agencies that are inconsistent.
    Finally we need to have really far more, far more effective 
measures on confidentiality. The bill raises the issue, but we 
need a much more comprehensive structure and we would be happy 
to work with the committee to work out such provisions.
    Thank you.
    [The prepared statement of Mr. Mosher follows:]

Prepared Statement of Allen Mosher, Senior Director of Policy Analysis 
           and Reliability, American Public Power Association

                              INTRODUCTION

    APPA appreciates the opportunity to provide the following testimony 
for the Senate Energy and Natural Resources Committee's hearing 
regarding the Joint Staff draft related to cyber security and critical 
electricity infrastructure. I am Allen Mosher, Senior Director of 
Policy Analysis and Reliability for APPA.
    APPA represents the interests of more than 2,000 publicly-owned 
electric utility systems across the country, serving approximately 45 
million Americans. APPA member utilities include state public power 
agencies and municipal electric utilities that serve some of the 
nation's largest cities. However, the vast majority of these publicly-
owned electric utilities serve small and medium-sized communities in 49 
states.
    My comments concerning the electric utility industry's work on 
cyber security issues and the Joint Staff draft that is the subject of 
today's hearings are offered on behalf of APPA alone. I would be 
remiss, however, if I did not first discuss the broad consensus within 
the electric power industry in support of enhanced, albeit narrowly 
targeted, authorities for the Federal Energy Regulatory Commission 
(FERC) and the United States Department of Energy (DOE) in the area of 
cyber security.
    The associations in our industry represent a broad variety of 
stakeholder interests, including investor-owned, cooperatively-owned 
and publicly-owned utilities, independent generators, Canadian 
utilities, large industrial consumers, and state-public utility 
commissions. For very legitimate reasons, we usually have very 
different views on the policy issues facing our industry. On the issue 
of protection of the electric bulk power system from cyber security 
emergencies, however, we have been working together for over a year. 
APPA, the Canadian Electricity Association, the Edison Electric 
Institute, the Electricity Consumers Resource Council, the Electric 
Power Supply Association, the Large Public Power Council, the National 
Association of Regulatory Utility Commissioners, the National Rural 
Electric Cooperative Association and the Transmission Access Policy 
Study Group all support carefully crafted and specific legislation to 
deal with the discrete issue of cyber security emergencies. We 
understand the seriousness of the issue, and the need to deal with it. 
At the same time, we believe that such legislation must be carefully 
drawn and narrow in its application, to avoid disrupting the mandatory 
reliability regime that Congress has already required and the electric 
utility industry is implementing, with FERC oversight.
    Attached to my testimony is a two-page issue brief* that outlines 
this common perspective among the electric power trade associations in 
support of certain shared principles. However, I must emphasize that 
this testimony is provided solely on behalf of APPA. I will also 
address APPA's initial assessment of the Joint Staff draft, although 
these views are only those of APPA Staff, since we were unable to 
review the draft legislation with APPA's members prior to the filing of 
this testimony.
---------------------------------------------------------------------------
    * See attachment on page 32.
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                     APPA CYBER SECURITY PRINCIPLES

    APPA believes legislation regarding the cyber security of the 
nation's electric power system should be based on certain core 
principles, and take into account efforts now underway. Any legislation 
Congress adopts should:

          (1) Continue the strong industry partnership with government 
        agencies in the United States and Canada. On an ongoing basis, 
        the electric power industry communicates and collaborates in 
        the United States with the Department of Homeland Security, DOE 
        and FERC. Similarly, in Canada, the industry deals with the 
        various federal and provincial authorities to gain needed 
        information about potential threats and vulnerabilities related 
        to the bulk power system. The electric power industry also 
        works very closely with the North American Electric Reliability 
        Corporation (NERC) to develop mandatory reliability standards, 
        including an array of cyber security standards, which NERC 
        calls ``Critical Infrastructure Protection'' or ``CIP'' 
        standards. In addition, NERC, in its capacity as the Electric 
        Sector Information Sharing and Analysis Center (ESISAC), uses 
        its ``alert and advisory'' procedures to provide the electric 
        power industry with timely and actionable information received 
        from various federal agencies to assure the continued 
        reliability and security of the nation's electric systems. NERC 
        is in the process of adopting important improvements to its 
        ESISAC alert communications software that will allow more 
        targeted communications and provide for a more secure, reliable 
        two-way communications pathway between NERC and industry 
        members.
          (2) Foster the current electric power industry-wide 
        commitment to continuously monitor the bulk power system and 
        mitigate the effects of transmission grid reliability and 
        security incidents, large and small. All sectors of the 
        industry are working to instill a culture of compliance with 
        mandatory electric reliability standards enforced by the 
        Commission within the United States. Maintaining and enhancing 
        the cyber security of our bulk power control and communication 
        systems is a fundamental element of this developing industry 
        culture. The electric utility industry is unlike many other 
        critical infrastructures in the United States, in that each 
        utility company, whether publicly or privately owned, is 
        interconnected with and directly affected by the operating 
        practices of its neighboring utilities. The very fact that our 
        own actions can adversely affect the reliable operation of our 
        neighbors gives the industry a shared commitment to reliability 
        and to mandatory reliability standards. The need to maintain 
        and enhance cyber security, coupled with the deployment of 
        complex digital communications networks for system control, 
        presents a new set of potential challenges and opportunities to 
        the industry. New efficiencies made possible by smart grid for 
        example, also present new vectors for attack upon both new and 
        existing system control networks that could present a risk of 
        cascading outages. On the other hand, it may be possible to 
        design smart grid applications that provide new ways of 
        detecting and responding to malicious activity on the electric 
        grid.
          (3) Support continued participation in NERC's industry-based 
        and FERC-approved standards development process which will 
        yield mandatory CIP cyber security standards for the bulk power 
        system that are clear, technically sound and enforceable, and 
        which garner broad support within the industry. NERC is 
        striving to draw from the state-of-the-art in cyber security, 
        through consideration of the National Institute of Standards 
        and Technology's (NIST) framework for cyber security, and to 
        integrate that framework into NERC's existing Critical 
        Infrastructure Protection standards. As Vice Chairman of the 
        NERC Standards Committee, I can personally attest that both 
        NERC, as an organization, and the industry have made a 
        significant commitment of resources to the development of new 
        cyber security standards. In fact we've committed some of our 
        scarcest resources--our subject matter experts in cyber 
        security and system operations--to the task of developing draft 
        standards for consideration by the industry as a whole. NERC 
        has also made important revisions to its standards development 
        process, by putting in place policies that allow, when 
        necessary, for the confidential and expedited or emergency 
        development of reliability standards, including those related 
        to cyber security.

    However, there are four specific areas in which APPA would support 
additional statutory authorities for the federal government and in 
particular for FERC and DOE:

          (1) Narrowly targeted authority for the FERC to issue 
        emergency orders in response to an imminent threat to the bulk 
        power system. If the federal government has actionable 
        intelligence about an imminent threat to, or a newly identified 
        vulnerability on, the bulk power system, and time does not 
        allow for classified industry briefings and timely development 
        of mitigation measures for a threat or vulnerability, the FERC 
        in the United States and the appropriate corresponding 
        authorities in Canada should be authorized to direct the 
        electric power industry to take needed emergency actions. The 
        electric power industry is ready, willing and able to respond 
        to specific directives based on targeted mitigation measures 
        that are clearly linked to the nature of the underlying threat. 
        However, these emergency directives should only remain in 
        effect until the threat subsides or FERC approves related NERC-
        developed reliability standards that establish permanent 
        measures to address the specific vulnerability that the threat 
        was intended to exploit. In the United States, Section 215 of 
        the Federal Power Act (added by the Energy Policy Act of 2005) 
        invested FERC with a significant supervisory role in bulk power 
        system reliability. It would be duplicative and inefficient to 
        recreate that responsibility at another agency. But at the same 
        time, it would be highly disruptive to the process for 
        development of mandatory and enforceable electric reliability 
        standards set out in FPA Section 215 for the FERC to impose 
        permanent or quasi-permanent cyber security standards that have 
        not undergone the due process steps within the industry 
        required by that section.
          (2) Specific authority for the Commission to issue orders 
        that address certain vulnerabilities to the bulk power system 
        identified in the June 21, 2007 ESISAC Advisory issued by NERC, 
        and related remote access issues. In APPA's view, the 
        vulnerabilities identified in the so-called ``Aurora Advisory'' 
        can and will be addressed through the development of new NERC 
        cyber security standards for the bulk power system that will be 
        posted for industry comment. These standards will be 
        comprehensive in scope and will encompass all bulk power system 
        asset owners, operators and users in various degrees. The 
        standards will address the potential underlying vulnerability 
        by securing utility assets from unauthorized remote access. 
        Until such time as those standards are adopted, however, FERC 
        should be authorized to direct that remedial measures be taken 
        by United States entities subject to NERC reliability 
        standards.
          (3) Improved communications flows of timely and actionable 
        information from government to industry, matched by enhanced 
        responsibility for the electric power industry to share 
        critical energy infrastructure information with government 
        agencies on a similarly secure and confidential basis. In 
        normal circumstances, the electric power industry can protect 
        the reliability and security of the bulk power system without 
        government intelligence information. However, in the limited 
        circumstances when the industry does need government 
        intelligence information on a particular cyber security threat 
        or vulnerability, it is critical that such information be 
        timely and actionable. After receiving this information, the 
        electric power industry can then direct its expert operators 
        and cyber security staff to take the necessary steps to secure 
        systems and networks, ensuring the reliability and security of 
        the bulk power system. While a number of federal agencies have 
        roles in this communication process, APPA continues to support 
        placing DOE in the role of the lead agency in communicating 
        threat information to the electricity sector as well as to 
        other sectors of the energy industry. DOE's understanding of 
        the electric utility industry provides it with the ability to 
        filter and translate intelligence information into a more 
        actionable form. Moreover, because DOE does not have direct 
        regulatory authority over the electric utility industry, it 
        will be better situated to receive candid assessments of 
        potential industry vulnerabilities or attempts to penetrate 
        electric power industry assets than FERC, which is charged with 
        enforcing industry compliance with mandatory reliability 
        standards, with penalties of up to $1 million per day for each 
        violation.
          (4) Enhanced authority for the electric power industry--
        particularly public power utilities--to protect and keep 
        critical energy infrastructure information confidential and 
        non-public. The electric power industry and government face a 
        variety of complex issues associated with the non-public 
        exchange of Critical Energy Infrastructure Information (CEII) 
        as well as gaining appropriate access to highly sensitive cyber 
        security threat information available to government agencies. 
        For example, NERC and FERC face conflicting statutory 
        obligations to use open, public stakeholder processes to 
        develop cyber security standards and to approve such standards 
        through public notice and comment, while safeguarding from 
        public disclosure threat and vulnerability information that may 
        provide the rationale for certain elements of these reliability 
        standards. Public power utilities face their own unique 
        problems in this area. As instrumentalities of state and local 
        governments, public power utilities are subject to state public 
        record and open meeting laws, which make keeping a variety of 
        information non-public more difficult. As publicly-owned 
        entities, this is as it should be--public power utilities are 
        committed to open government and transparency. However, in the 
        case of CEII, transparency is not in the public interest. Just 
        as certain federally-owned utilities may face difficulties 
        protecting information from Freedom of Information Act (FOIA) 
        requests, even when CEII protections are invoked, state and 
        locally-owned utilities face the risk of state record requests 
        for such information. The transfer of such sensitive 
        information to a third party makes protection of CEII for 
        public power systems even more difficult. Public power systems 
        are currently developing possible statutory approaches to 
        address their unique CEII concerns. APPA notes that H.R. 2165, 
        introduced on April 29, 2009, by Rep. John Barrow (D-GA) and 
        co-sponsored by Energy and Commerce Chairman Henry Waxman (D-
        CA) and Rep. Ed Markey (D-MA), contains provisions intended to 
        address these pressing information disclosure issues. While 
        APPA has not completed its analysis, H.R. 2165 appears to 
        comport with many of the points I have laid out in this 
        testimony, including the need for enhanced authority to protect 
        CEII.

                APPA STAFF COMMENTS ON JOINT STAFF DRAFT

    APPA staff has also reviewed the Senate Energy and Natural 
Resources Committee Joint Staff draft of proposed Federal Power Act 
Section 224, which would authorize FERC and DOE to issue rules and 
orders to respond to cyber security vulnerabilities and threats to 
critical electric infrastructure. While we appreciate the Committee 
working to address this important issue, APPA does have some concerns 
with that draft, including the following:

          Inclusion of potentially all electric utility industry 
        assets, including distribution, is overly broad.

                  Sec. 224 (a)(1) defines ``Critical electric 
                infrastructure'' to include distribution systems and 
                assets that if incapacitated or destroyed would have a 
                debilitating impact on security, national economic 
                security, or national public health or safety. 
                Depending on how FERC and DOE make their respective 
                determinations in implementing the statute, virtually 
                all electric utility infrastructure could be included 
                within the scope of this new statutory authority. APPA 
                believes that over-inclusion of electric utility 
                infrastructure would be counterproductive; by 
                attempting to protect everything efforts to protect the 
                truly critical and important infrastructure would be 
                diluted. APPA therefore supports targeting new FERC and 
                DOE authority toward urgent cyber security threats to 
                the bulk power system, rather than the broader universe 
                of facilities envisioned in the Committee staff draft. 
                The Committee staff draft could expose over 1,650 
                additional public power distribution systems to FERC 
                and DOE regulation, imposing very substantial 
                regulatory and financial burdens on many small cities 
                and towns that are disproportionate to the potential 
                cyber security risks that these entities pose. Again, 
                APPA believes that the effort to maintain and enhance 
                the cyber security of the nation's critical electric 
                utility infrastructure should focus first on the 
                critical facilities and systems that, if not protected, 
                could cause substantial disruption to the nation's 
                electric utility industry.

          FERC discretion appears to be broad and unfettered.

                  Sec. 224 (b)(1) directs FERC to issue rules and 
                orders ``as are necessary to protect critical electric 
                infrastructure from cyber security threats.'' [Emphasis 
                added.] This section imposes no real limits on the 
                extent of FERC authority to order specific actions. As 
                written, it appears that FERC could order the 
                enlargement of facilities, interconnections or 
                disconnections or any other action it deems necessary, 
                without any obligation even to consult with the 
                industry in advance to determine whether its proposed 
                course of action is the most effective and cost-
                efficient way to address a particular threat. This 
                section would also permit FERC to issue cyber security 
                orders that directly replace or supplement industry-
                approved reliability standards, undermining one of the 
                fundamental tenets underlying Section 215.

          FERC and DOE emergency procedure authorities are potentially 
        redundant.

                  Under Sec. 224 (b)(2) and (c), FERC and DOE are both 
                granted authority to act on an emergency basis without 
                prior notice or hearing for up to 90 days, with FERC 
                authorized to take expedited measures to protect 
                critical electric infrastructure from cyber security 
                vulnerabilities and DOE authorized to take emergency 
                actions to protect critical electric infrastructure 
                from cyber security threats. APPA suggests that such 
                emergency or expedited authority could be assigned to a 
                single agency, to avoid duplication and confusion as to 
                the respective roles of the two agencies. It is 
                imperative that agency directives not be conflicting.

          The requirements to consult with industry and to mitigate 
        burdens before directives become effective should be stronger.

                  FERC's authority to issue rules or orders under 
                Section 224 (b)(1) presumably is subject to the 
                judicial review procedures set out in the FPA, as well 
                the Administrative Procedures Act (although these 
                points should be clarified). DOE and FERC authorities 
                to issue emergency orders under sections (b)(2) and (c) 
                are subject to a 90 day sunset in Sec. (d) unless FERC 
                ``gives interested persons an opportunity to submit 
                written data, views, or arguments. . .'' Unfortunately, 
                there is no requirement for FERC and DOE to consult 
                with the industry in advance, even as time permits, 
                regarding the nature of the threat or vulnerability, or 
                to take into account the industry's views on the most 
                efficient way in which to address the threat and/or 
                methods for reducing the associated burden on the 
                industry. Moreover, the filing of a request for 
                rehearing or petition for review would not stay the 
                effectiveness of the directive. Compliance with a 
                potentially flawed directive would therefore be both 
                mandatory and subject to financial penalties under FPA 
                Section 316A (EPAct Sec. 1284).

          Draft Sec. 224(f) does not fully address confidentiality 
        issues, including the need for processes governing non-public 
        communications between FERC/DOE and the industry, and the 
        particular confidentiality issues faced by public power 
        utilities.

                  My understanding is that the Critical Infrastructure 
                Information Act processes referenced in Sec. 224 (a)(3) 
                and (f) protect only voluntary disclosures by non-
                governmental entities to government agencies. As 
                discussed above, a variety of other communications may 
                need additional safeguards. As noted previously, H.R. 
                2165 contains provisions that deal with these 
                confidentiality concerns in a more comprehensive and 
                effective manner.
                  Thank you for the opportunity to present APPA's views 
                on the important cyber security issues facing the 
                electric utility industry. We look forward to 
                continuing to work with the Committee on this important 
                issue and we are available to provide any further 
                assistance.

    The Chairman. Thank you very much.
    Mr. Owens.

STATEMENT OF DAVID K. OWENS, EXECUTIVE VICE PRESIDENT, BUSINESS 
             OPERATIONS, EDISON ELECTRIC INSTITUTE

    Mr. Owens. Good morning Chairman Bingaman, Senator 
Murkowski, other members of the committee. My name is David 
Owens and I am the Executive Vice President for Business 
Operations for the Edison Electric Institute. I certainly do 
appreciate this opportunity to be with you today.
    I am accompanied today by Steve Naumann, who is the Vice 
President of Wholesale Market Development for the Exelon 
Corporation. Steve also serves as the chair of the Member 
Representatives Committee in the North American Electric 
Liability Corporation. So, he has extensive technical 
background and a good understanding of the NERC processes. I 
brought him in case you ask me some hard questions, so I'll 
turn around and say, Steve, help me out.
    But let me get into just the points that I'd like to make. 
I'd like to really focus on three areas morning. I would like 
to first say that I believe that the success of public and 
private partnerships in recognizing and addressing cyber 
threats and vulnerabilities are very critical. I also believe 
that there is a need to avoid unintended consequences when 
implementing cyber security remedies. Finally, I would like to 
make a couple of comments about the joint draft proposal.
    But let me start out and really piggyback something that 
Allen Mosher said earlier and that is that we take the issue of 
cyber security very, very seriously in our industry. Not just 
as utility owners and operators, but all aspects of the 
industry. We take it very seriously.
    We also recognize, however, that our cyber adversaries are 
becoming much more sophisticated and so that compels that the 
private sector work more closely with the government in 
coordinating information from and to the government. So, we see 
that we have a significant commitment to work very closely with 
the government, to get a good understanding of the possibility 
of cyber threats and vulnerabilities.
    We recognize that we have important roles and the 
government has important roles. We believe that both the public 
and private sectors, we need to have our regimes very clearly 
defined. We recognize that our roles are complementary and our 
responsibilities may be complementary, but we certainly do 
believe that there needs to be substantial cooperation between 
government agencies and utilities.
    We also believe very passionately that grid security, in 
order to provide gridsecurity, that the manufacturers of 
critical components of our systems, they also need to come 
under some very high standards. They need to demonstrate that 
they are adequately fulfilling their security responsibilities 
by adopting good security practices as well. Now, if our 
suppliers are building security into their products and 
providing mitigation technical assistance when new 
vulnerabilities arise, it permits us to operate our systems in 
a much more secure and reliable fashion.
    We also recognize, as Pat Hoffman indicated, that there are 
additional potential cyber vulnerabilities as we begin to 
digitize our systems. As we begin to go to Smart Grid 
technologies, we recognize that we open ourselves up for other 
vulnerabilities. We believe that it is very imperative that the 
industry work closely with the vendors and manufacturers to 
ensure that they understand that cyber security is essential, 
so that they have cyber security protection and that they are 
incorporating in the devices as much as possible.
    To that end, we certainly do support the process currently 
underway at the National Institute of Standards and Technology 
to develop a framework of standards that will become the 
foundation of a secure, interoperable Smart Grid.
    Now, we are also encouraging the development of a security 
certification program. Let me describe that. We call it kind of 
Good Housekeeping seal of approval, if you will, through which 
Smart Grid components and systems could undergo rigorous 
independent testing and receive a certification that security 
tests have been passed. If we are using new devices and we're 
moving to the Smart Grid, we believe that those devices really 
need to be able to pass through a very rigorous screen.
    I mentioned earlier the need for cooperation between the 
government and industry and EI members are working very closely 
with government partners, the national labs, the FBI, the DHS, 
DOE, the Office of the Director of National Intelligence and 
even FERC in many proactive processes to enhance cyber 
security. We believe that this careful consultation with 
utilities helps ensure that government intervention in 
protecting the grid from a cyber attack does not have 
unintended consequences.
    That is because, as you know, the grid is a very complex 
machine. Certain measures which might prevent a particular type 
of cyber attack could themselves have adverse consequences on 
the safety and reliability of the electric grid.
    So we believe, for this reason, any new legislation giving 
FERC or the Department of Energy additional statutory authority 
should be limited to emergency situations where there is 
significant declared national security or public welfare 
concerns and should provide ongoing consultation with industry 
experts as much as possible.
    Now, we applaud the committee and the chair for the 
herculean efforts in the adoption of mandatory reliability 
standards. As was indicated earlier by Rick Sergel, there is a 
very deliberative process that we go through within the NERC 
framework and the adoption of standards. We recognize that that 
NERC process really is not suited for developing standards that 
are designed to address emergencies, where we require immediate 
mandatory action with the confidential handling of information.
    But it is also important to recognize, as I believe, that 
the vast majority of cyber issues do not rise to the level of 
national security. As such, we believe very strongly that the 
legislation should be focused narrowly on addressing a 
potential set of threats that legitimately merit special 
Federal emergency authority.
    I will go back to a major theme and that is promoting 
clearly defined roles and responsibilities as well as ongoing 
consultation sharing of information between the government and 
the private sector, in our opinion, is the best approach to 
improve cyber security. EI and its member companies, we remain 
fully committed to working with the committee, working with the 
various government agencies.
    I appreciate this opportunity to appear before you today 
and I look forward to your questions.
    [The prepared statement of Mr. Owens follows:]

    Prepared Statement of David K. Owens, Executive Vice President, 
             Business Operations, Edison Electric Institute

    My name is David Owens, and I am Executive Vice President in charge 
of the Business Operations Group at the Edison Electric Institute 
(EEI). EEI is the trade association of U.S. shareholder-owned electric 
companies and has international affiliate and industry associate 
members worldwide. EEI's U.S. members serve 95 percent of the ultimate 
customers in the shareholder-owned segment of the industry and 
represent about 70 percent of the U.S. electric power industry. I am 
accompanied by Steve Naumann, Vice President for Wholesale Market 
Development for Exelon Corporation. Steve also serves as Chairman of 
the Member Representatives Committee of the North American Electric 
Reliability Corporation (NERC), and in his various roles he has more 
familiarity with the technical and operational aspects of cyber 
security issues related to the electric grid, as well as industry 
processes in place at NERC. We appreciate your invitation to appear 
today and the opportunity to testify about cyber security and critical 
electric infrastructure.
    My testimony focuses on the nature of cyber security threats to the 
bulk electric power system, the efforts of electric utilities to 
respond to those threats, and the joint staff draft on critical 
electric infrastructure. I want to reassure the Committee that EEI's 
member companies and other owners, operators, and users of the bulk 
power system take cyber security very seriously. Our companies deal 
with cyber security issues every day as one of many important aspects 
of grid reliability. Utilities have many processes and programs in 
place to protect their cyber infrastructure and mitigate the risks that 
cyber intrusions pose to reliable operations of their systems.
    Information about cyber security vulnerabilities and attempts to 
exploit those vulnerabilities is shared with electric industry owners, 
users, and operators through a number of channels every day. Federal 
agencies that communicate this information to the private sector, such 
as the United States Computer Emergency Readiness Team (US-CERT), as 
well as cyber security hardware and software vendors, classify 
vulnerabilities in terms of the generalized risk to systems. Factors 
such as the seriousness of consequences of a successful attack, the 
sophistication required to conduct the attack, and how widely used the 
potentially affected assets are within an industry are used to rank 
vulnerabilities as ``high'', ``medium'', or ``low'' risk.
    Both the federal government and electric utilities have distinct 
realms of responsibility and expertise in protecting the bulk power 
system from cyber attack. As cyber security threats continue to evolve 
and our cyber adversaries become more sophisticated, the private sector 
would welcome even more coordination with, and information from, 
government agencies with national security responsibilities that have 
the best access to intelligence concerning the nature of threats to 
electric utility systems. Electric utilities are experienced and 
knowledgeable about how to provide reliable electric service at a 
reasonable cost to their customers, and they understand how their 
complex systems operate. Electric utilities are in a unique position to 
understand the consequences of a potential malicious act as well as 
proposed actions to prevent such an exploitation. The optimal approach 
to utilizing the considerable knowledge of both government intelligence 
specialists and electric utilities in ensuring the cyber security of 
the nation's electric grid is to promote a regime that clearly defines 
these complementary roles and responsibilities and provides for ongoing 
consultation and sharing of information between government agencies and 
utilities.
    As the industry relies increasingly on digital electronic devices 
and communications to optimize our systems and enhance reliability, 
cyber security will remain a constant challenge. Effective cyber 
security will continue to require a strong partnership among utilities, 
the federal government, and the suppliers of critical electric grid 
systems and components. Our companies believe they are up to their part 
of this task, building on our industry's historical and deep-rooted 
commitment to maintaining system reliability.
    EEI member companies are addressing the risks they know about 
through a ``defense-in-depth'' strategy while appropriately balancing 
considerations of potential consequences. This defense-in-depth 
strategy includes preventive, monitoring and detective measures to 
ensure the security of our systems. For example, they perform 
penetration tests where a contractor attempts to find and exploit 
vulnerabilities. The results of these regular penetration tests inform 
companies about whether their preventive strategies are working so that 
they can enhance their protection as technologies and capabilities 
evolve. Penetration testing also allows them to practice and enhance 
their monitoring capabilities.
    EEI members are also working with government partners--the national 
laboratories, the Federal Bureau of Investigation (FBI), Department of 
Homeland Security (DHS), Department of Energy (DOE), and the Office of 
the Director of National Intelligence (ODNI)--in many proactive 
programs to enhance the cybersecurity of the electric grid. For 
example, industry participants worked with DOE to develop a strategic 
roadmap to identify and prioritize projects to enhance the security of 
electric industry control systems.
    Obviously, the scope of the damages that could result from a cyber 
security threat depends on the details of any particular incident. A 
carefully planned cyber attack could potentially have serious 
consequences. In considering the scope of damages that any particular 
cyber security threat might inflict, utilities must also consider the 
potential consequences caused by any measures taken to prevent against 
cyber attack. Certain measures that might prevent a particular type of 
cyber attack could themselves have adverse impacts to safe and reliable 
utility operations and service to electricity customers. Examples might 
include slower responses during emergency operations, longer times for 
restoration of outages and disruption of business operations dependent 
on Internet access. That is why each situation requires careful 
consultation with utilities to ensure that a measure aimed at 
protecting the grid from a malicious cyber attack does not instead 
cause other unintended and harmful consequences.
    Furthermore, every utility operates different equipment in 
different environments, making it difficult to offer generalizations 
about the impacts to the bulk power system or costs and time required 
to mitigate any particular threat or vulnerability. This complexity 
underscores the importance of consultation with owners, users, and 
operators to ensure that any mitigation that may be required 
appropriately considers these factors to ensure an efficient and 
effective outcome.
    For the foregoing reasons, any new legislation giving the Federal 
Energy Regulatory Commission (FERC) or DOE additional statutory 
authority should be limited to true emergency situations where there is 
a significant declared national security or public welfare concern. In 
such an emergency, it is imperative that the government can provide 
appropriate entities clear direction about actions to be taken, and 
assurance that those actions will not have significant adverse 
consequences to utility operations or assets, while at the same time 
avoiding any possible confusion caused by potential conflicts or 
overlap with existing regulatory requirements.
    A separate but equally important component of grid security is to 
ensure that manufacturers of critical grid equipment and systems are 
adequately fulfilling their security responsibilities by adopting good 
security practices in their organizations, building security into their 
products, and establishing effective programs so that, as new 
vulnerabilities are discovered, they can inform customers and provide 
technical assistance with mitigation. As grid technologies continue to 
evolve, they inevitably will include greater use of digital controls. 
Congress recognized the potential cyber security vulnerabilities, as 
well as benefits, that could result from greater digitization of the 
grid when it directed DOE to study these issues in Section 1309 of the 
Energy Independence and Security Act of 2007.
    As new smart grid technologies are developed, it will be imperative 
for the industry to work closely with vendors and manufacturers to 
ensure they understand that cyber security is essential so that cyber 
security protections are incorporated into devices as much as possible.
    It is equally critical that cyber security solutions be 
incorporated into the architecture being developed for smart grid 
solutions, so that the great benefits new smart grid technologies will 
provide are implemented in a secure fashion. With smart grid solutions 
in the early stages of development, opportunities exist to ensure this 
vision is fulfilled. EEI supports the process currently underway at the 
National Institute of Standards and Technology (NIST) to develop a 
framework of standards that will become the foundation of a secure, 
interoperable smart grid. EEI is encouraging the development of a 
security certification program, through which smart grid components and 
systems could undergo independent testing and receive a certification 
that security tests had been passed. Such a program would help 
utilities differentiate among different vendor solutions to select 
those providing appropriate cyber security.
    EEI agrees that it is appropriate for this Committee and Congress 
to consider legislation providing federal energy regulators new 
authority to address emergency cyber security threats. I want to 
emphasize, however, that current law already provides the means to 
address the many non-emergency cyber security issues in the electric 
industry. Section 215 of the Federal Power Act (FPA), which this 
Committee helped develop and which was enacted by Congress as part of 
the Energy Policy Act of 2005, provides for mandatory and enforceable 
electric reliability standards, specifically including standards to 
address cyber security, under FERC oversight. Chairman Bingaman and 
other Senators on this Committee should be commended for their work on 
enacting Section 215 and other efforts to ensure the reliability of the 
electric grid.
    The basic construct of the relationship between FERC and NERC in 
developing and enforcing reliability standards is sound. In summary, 
NERC, using a well-defined stakeholder process that leverages the vast 
technical expertise of the owners, users, and operators of the North 
American electric grid, develops reliability standards, which are then 
submitted to FERC for review and approval. Once approved by FERC, these 
standards are legally binding and enforceable in the United States. Any 
stakeholder, including FERC, may request that a standard be developed 
to address some aspect of reliability, expressly including cyber 
security.
    I suggest the question on which the Committee should focus is, 
``What additional authority should be provided to federal energy 
regulators in order to promote clarity and focus in response to 
emergency situations?'' Legislation in this area should complement, not 
supplant, the mandatory reliability regime already established under 
FPA Section 215, and any new federal authority should be appropriately 
narrow and focused only on unique problems that cannot be addressed 
under Section 215. The Section 215 mandatory reliability framework 
reflects years of work and broad consensus reached by industry and 
other stakeholders in order to ensure a robust, reliable grid. It 
should not be undermined so early in its implementation.
    While the open stakeholder processes now used for developing 
industry-wide reliability and critical infrastructure protection 
standards admittedly are not well-suited to emergencies requiring 
immediate mandatory action with confidential handling of information, 
it is important to note that the vast majority of cyber security issues 
do not rise to the level of national security emergencies. Rather than 
creating broad new federal regulatory authorities that could undermine 
the consensus-driven policy framework developed through years of 
stakeholder input and memorialized in section 215, legislation should 
be focused on addressing a relatively narrow set of potential threats 
that legitimately merit special federal emergency authority.
    Because of its extraordinary nature and potentially broad impacts 
on the electric system, any additional federal emergency authority in 
this area should be used extremely judiciously. Legislation granting 
such authority should be narrowly crafted and limited to address 
circumstances where the President or his senior intelligence or 
national security advisors determine there is an imminent threat to 
national security or public welfare.
    Also, the joint staff draft provides DOE and FERC with parallel 
authorities to address cyber security threats and vulnerabilities, 
respectively. The joint staff draft could be clarified and strengthened 
by providing for a single agency to take expedited actions based on 
advice or information from the President or intelligence agencies.
    Federal legislation also should require that federal emergency 
cyber security orders end when the emergency is past or NERC has 
developed and FERC has approved a mandatory standard that handles the 
situation. The joint staff draft provides a 90-day ``sunset'' for 
emergency actions, unless FERC affirms or amends a rule or order after 
receiving comments.
    Any cyber security legislation should promote consultation with 
industry stakeholders and owner-operators of the bulk power system on 
remediation measures. The complexities of keeping a large, 
interconnected system running safely cannot be understated. 
Consultation is critical to improving cyber security while maintaining 
safe and reliable utility operations. To the extent practicable, a 
basic premise of existing law--involvement of industry experts to 
develop mitigation measures--should be replicated for imminent cyber 
security threats. Cyber security legislation should provide reasonable 
opportunity for important industry consultation, without mandating a 
consultation that could delay implementation of mitigation in an urgent 
situation.
    The consultation provisions of the joint staff draft are focused 
mostly on after-the-fact consultation with owners, users and operators. 
Without stronger requirements for prior consultation where possible 
under the circumstances, it is more likely that federally-ordered 
actions, developed under time pressure and without technical input from 
affected entities, could cause unintended adverse consequences to 
electric reliability.
    It is also important to note that FERC has jurisdiction under FPA 
section 215 over owners, users, and operators of the bulk power system, 
the electric reliability organization (i.e., NERC), and regional 
reliability entities. The scope of this authority is relatively broad, 
including facilities and control systems that operate interconnected 
electric transmission networks and generation needed to maintain 
transmission reliability. However, the joint staff draft appears to 
represent a further broadening of federal regulatory authority that 
would extend to local distribution systems, which historically under 
the FPA has been reserved for the jurisdiction of state regulatory 
commissions.

                               CONCLUSION

    While many cyber security issues are already being addressed under 
current law, we believe it is appropriate to provide federal energy 
regulators with explicit statutory authority to address cyber security 
in a situation deemed sufficiently serious to require a Presidential 
declaration of emergency. In such a situation, the legislation should 
clarify the respective roles, responsibilities, and procedures of the 
federal government and the industry, including those for handling 
confidential information, to facilitate an expeditious response.
    Any new authority should be complementary to existing authorities 
under Section 215 of the Federal Power Act, which rely on industry 
expertise as the foundation for developing reliability standards. Any 
new authority should also be narrowly tailored to deal with real 
emergencies; overly broad authority would undermine the collaborative 
framework that is needed to further enhance security.
    Promoting clearly defined roles and responsibilities, as well as 
ongoing consultation and sharing of information between government and 
the private sector, is the best approach to improving cyber security. 
Each cyber security situation requires careful, collaborative 
assessment and consultation regarding the potential consequences of 
complex threats, as well as mitigation and preventive measures, with 
owners, users, and operators of the bulk power system.
    EEI and its member companies remain fully committed to working with 
the government and industry partners to increase cyber security. EEI's 
commitment to such coordinated efforts is illustrated by the broad 
representation of industry stakeholder associations represented on the 
joint statement on cyber security attached at the end of my testimony.
    I appreciate the opportunity to appear today and would be happy to 
answer any questions.

ATTACHMENT.--THE NORTH AMERICAN ELECTRIC POWER INDUSTRY'S TOP PRIORITY 
               IS A RELIABLE AND SECURE BULK POWER SYSTEM

    The stakeholders of the electric power industry continue to work 
closely and in partnership with governmental authorities at the 
federal, state/provincial and local levels in both the United States 
and Canada in order to maintain and improve upon the high level of 
reliability consumers expect. Cyber security is an important element of 
bulk power system reliability that the electric power industry takes 
very seriously.

Electric Power Industry in Strong Partnership with Government
    The electric power industry works closely with various government 
agencies on bulk power system security. On an ongoing basis, we 
communicate and collaborate in the United States with the Department of 
Homeland Security, the Department of Energy, and the Federal Energy 
Regulatory Commission (FERC), and in Canada with the various federal 
and provincial authorities to gain needed information about potential 
threats and vulnerabilities related to the bulk power system. The 
electric power industry also works very closely with the North American 
Electric Reliability Corporation (NERC) to develop mandatory 
reliability standards, including cyber security standards. In addition, 
NERC has an ``alert and advisory'' procedure that provides the electric 
power industry with timely and actionable information to assure the 
continued reliability and security of the bulk power system.

The Electric Power Industry Continuously Monitors and Acts Quickly to 
        Ensure Bulk Power System Reliability and Security
    Every day, the electric power industry continuously monitors the 
bulk power system and mitigates the effects of transmission grid 
incidents--large and small. Consumers and government are rarely aware 
of these incidents because of the sector's advance planning and 
coordination activities which reflect the quick and often seamless 
response the sector takes to address reliability and security events. 
This response includes prevention and response/recovery strategies--
both are equally important. The industry's strong track record on 
reliability and security continues as we work diligently to adhere to 
mandatory NERC reliability standards, which are approved by FERC, 
including standards that address cyber security.

NERC Flexible Standards Approval Processes Meet Majority of Grid 
        Challenges
    NERC's industry-based and FERC-approved standards development 
process yields mandatory standards for the bulk power system that are 
clear, technically sound and enforceable, yet garner broad support 
within the industry. NERC is striving to draw from the state-of-the-art 
in cyber-security, through consideration of the National Institute of 
Standards and Technology (NIST) framework for cyber-security, and to 
integrate that framework into NERC's existing Critical Infrastructure 
Protection standards. NERC has also made important revisions to its 
standards development process by putting in place policies that allow, 
when necessary, for the confidential and expedient development of 
standards, including those related to cyber and physical security.

Emergency Cyber Situations Require an Expeditious and Efficient 
        Approach
    If the federal government has actionable intelligence about an 
imminent threat to the bulk power system, the electric power industry 
is ready, willing and able to respond. We understand it may be 
necessary for government authorities to issue an order, which could 
require certain actions to be taken by the electric power industry. In 
these limited circumstances, when time does not allow for classified 
industry briefings and development of mitigation measures for a threat 
or vulnerability, FERC in the United States and the appropriate 
corresponding authorities in Canada should be the government agencies 
that direct the electric power industry on the needed emergency 
actions. These actions should only remain in effect until the threat 
subsides or upon FERC approval of related NERC reliability standards. 
In the United States, Section 215 of the Federal Power Act (Energy 
Policy Act of 2005) invested FERC with a significant role in bulk power 
system reliability, and it would be duplicative and inefficient to 
recreate that responsibility at another agency. As FERC, NERC and the 
electric power industry relationships move forward and mature in the 
area of reliability and security, any disruption of this would be 
counterproductive.

Improved Electric Power Industry-Government Partnership with Better 
        Information Flow
    In nearly all situations the electric power industry can protect 
the reliability and security of the bulk power system without 
government intelligence information. However, in the limited 
circumstances when the industry does need government intelligence 
information on a particular threat or vulnerability, it is critical 
that such information is timely and actionable. After receiving this 
information, the electric power industry can then direct its expert 
operators and cyber security staff to make the needed adjustments to 
systems and networks to ensure the reliability and security of the bulk 
power system. The electric power industry is fully committed to taking 
the needed steps to maintain and improve bulk power system reliability 
and security, and stands ready to work with Congress, FERC, other 
government agencies and NERC on these critical issues.

                  SUPPORTING ASSOCIATIONS AND CONTACTS


    American Public Power Association, Joy Ditto, [email protected]

           Canadian Electricity Association, Bonnie Suchman, 
                   [email protected]

      Edison Electric Institute, Scott Aaronson, [email protected]

      Electric Power Supply Association, Con Lass, [email protected]

        Electricity Consumers Resource Council, John Anderson, 
                          [email protected]

   Large Public Power Council, Jessica Matlock, [email protected]

National Association of Regulatory Utility Commissioners, Charles Gray, 
                            [email protected]

  National Rural Electric Cooperative Association, Laura M. Schepis, 
                        [email protected]

         Transmission Access Policy Study Group, Deborah Sliz, 
                        [email protected]

    The Chairman. Thank you all for your excellent testimony. 
Let me just ask a few questions and then defer to Senator 
Murkowski.
    Mr. Mosher, you point out, and I think several of the other 
witnesses did as well, that the draft we have circulated here 
has both FERC and the Department of Energy with new authority 
to act on an emergency basis. You say that you think this could 
be confusing and that APPA suggests that such emergency or 
expedited authority be assigned to a single agency. Which of 
the two?
    Mr. Mosher. My recommendation is that the emergency 
authority to issue orders should be assigned to the FERC and 
that DOE should be given the lead role in the R&D and 
communications process.
    It's important, I think, to separate regulatory 
responsibilities and penalties for enforcement for failure to 
comply with government regulations, put that one agency and 
then put the R&D, let's stretch the frontier responsibility, in 
another organization. I think that DOE is very well situated. I 
think we have immense opportunities to improve our 
communications to get information from the Federal Government 
to the industry, make it actionable, and I would hate to have a 
conflict of interest there.
    The Chairman. Mr. McClelland, do you agree with that way of 
fixing the problem?
    Mr. McClelland. If you could bear with me just for a 
moment, I brought along a statistic, if I can find my 
statistic. If I can't, I can almost recall it from memory.
    I'd rather not comment on the capabilities of the 
Department of Energy, but I would like to comment on the 
Commission's capabilities.
    The Commission is a regulator and it deals with industry. 
Last year for instance, the Commission issued almost 9,000 
orders to the affected entities, mostly to electric utilities. 
We had over 400, close to 500, re-hearings. So we have a 
process by which we can issue an order and then we can hold a 
hearing to hear objections and come to a reasonable decision. 
We initiated approximately 50 enforcement cases and settled, or 
ended, 22 enforcement cases.
    So the commission is well-situated as a regulatory 
authority to make certain that measures, if you will, emergency 
measures that may be applied get implemented. There is a 
hearing and appeals process and then there is also an 
enforcement arm for folks that may not be so inclined to follow 
the Commission's directives.
    The Chairman. All right. So, you think giving the 
Commission authority to act in the face of immediate threats is 
consistent with the authority they currently have, is that what 
I'm understanding?
    Mr. McClelland. It is authority--it's consistent with 
implementation. The Commission has maintained all along that we 
are not an intelligence or security organization. We work very 
closely with the Department of Energy, we work closely with 
Homeland Security, the Central Intelligence Agency, the 
Department of Defense, Nuclear Regulatory Commission, on 
intelligence matters.
    Many of our folks, in my particular office, we're mostly 
experienced electrical engineers from industry. So we use that 
intelligence, we draw upon that intelligence. We have top-
secret and SCI clearances. We use that intelligence and 
coordinate very closely with the agencies to subsequently work 
with industry to try to address the vulnerabilities.
    The Chairman. Let me ask you about one other point you made 
in your testimony. This might be something of interest to 
Senator Murkowski.
    You say, ``Finally, Congress should be aware''--this is on 
page 16 of your testimony, ``should be aware of the fact that 
if additional reliability authority is limited to the areas 
within the Commission's jurisdiction under section 215 of the 
FPA, it would exclude protection against reliability threats in 
Alaska and Hawaii and possibly the territories, including any 
Federal installations located therein.'' You mentioned New York 
City, as I understood it. Could you elaborate on that?
    Mr. McClelland. Yes. Would you like the elaboration just to 
the cities or----
    The Chairman. Elaboration on all of it, please.
    Mr. McClelland. The Defense Science Board, the Energy Task 
Force, issued a report. It was entitled, ``More Fight--Less 
Fuel'' and it was February 2008. One of the primary findings, 
they didn't intend to arrive at this conclusion, but they 
arrived at two primary conclusions. The second conclusion, 
which is the one that they had not intended to reach, was that 
the military's critical missions are overly dependent upon the 
commercial power grid. The commercial power grid, in many 
cases, the military installations do not have sufficient back 
up, other than for a few hours on base for selected facilities.
    That would speak very heavily--and there is also a 
classified annex which we could not go into in an open forum, 
but the classified annex named specific facilities that would 
be at risk.
    What we wanted to make certain of was that if Congress 
chose the definition of, Bulk Power System under the Federal 
Power Act, it would do so with a complete understanding that 
Alaska, Hawaii, perhaps the territories, would not be included. 
So we couldn't assure that mandatory actions would be taken, to 
protect and to implement measures to protect the cyber security 
of those systems.
    In addition, the Federal Power Act allows some discretion 
in the definition of bulk power system. One of the regions in 
the Northeast has chose to define bulk power system to largely 
exclude all facilities below 230,000 volts. In that particular 
case, and they have that discretion, subject to the 
Commission's review, that the process will take some time to 
sort through. It could take years to sort through. That 
discretion essentially opts out all of New York City.
    If other entities or other regions exercise that same 
definition, then major population areas would be excluded from 
cyber security protection that the Commission might employ 
under that definition under the Federal Power Act.
    The Chairman. So, you're suggesting that we clarify what 
the definition needs to be under the Federal Power Act to deal 
with that problem and we also clarify that, if there is an 
additional emergency authority given to FERC, that it not be 
restricted just to the section 215.
    Mr. McClelland. No. I'm sorry, I probably wasn't clear. 
We're going to keep working at section 215 definition of bulk 
power system. The Commission does have an ability to initiate 
proceedings and to clarify and issue directives on the 
definition of bulk power system. It's just a time-consuming 
process.
    However, in a matter that affects national security, where 
timely action and targeted action is critical, for instance to 
the success of the military missions of the Department of 
Defense, that definition is not acceptable. What we have asked 
this committee to consider is that it not use that definition 
of bulk power system and initiate a separate definition that 
would clearly delineate where the Commission's authorities were 
under these emergency actions.
    The Chairman. OK. Let me defer to Senator Murkowski for 
questions.
    Senator Murkowski. Mr. Chairman, I appreciate you bringing 
up both aspects. Certainly, the clarification on the Alaska, 
Hawaii, and territories issue, but also to better understand 
that, inadvertently perhaps, through our definition, we could 
be laying vulnerable some of the larger cities, whether it be 
Washington DC or New York.
    Mr. Owens. Senator, may I just--if I might.
    Senator Murkowski. Yes, Mr. Owens.
    Mr. Owens. I don't necessarily agree with Mr. McClelland's 
explanation. Let me see if I understand whether there is a gap 
here in regulation.
    When he was describing the city of New York, I believe that 
he's describing local distribution issues, which I believe are 
fairly handled by the companies and the State agencies. I don't 
see a gap in their ability to respond to emergency situations. 
They understand those systems extremely well. They work very 
closely with the utility systems. They have a process where the 
government and the industry clearly understand their respective 
roles.
    I don't believe there's any evidence to indicate that there 
has been a failure of those agencies or those utilities to be 
responsive to national threat. I would go back to 9/11 to just 
suggest that you, where I believe that we all applauded the 
efforts of the city of New York.
    So, I don't necessarily agree with Mr. McClelland that we 
need to extend FERC's jurisdiction all the way down to the 
distribution level.
    Senator Murkowski. I want to make sure that I clearly 
understand this discussion because I think it is very, very 
important.
    Now, what you're suggesting, Mr. Owens, is that, through 
the local distribution system, it has to be handled, and we 
don't need to worry about it.
    Mr. Owens. That's correct.
    Senator Murkowski. As I understood, what we are attempting 
to do through this legislation, is to allow for that authority 
to the FERC, if that vulnerability is present.
    But you're suggesting, Mr. McClelland, if we limit it to 
the bulk power system, then we will not have the ability for 
the FERC to intervene. Is that correct?
    Mr. McClelland. Yes. I guess I would like to clarify. I'm 
not certain that I've made my point clear.
    Downtown New York City is served by a network of 138,000 
volt facilities. If it's Congress' expectation that a 
population center like downtown New York City would be covered 
under an emergency provision like this, in other words that the 
Commission would be able to implement mitigation measures that 
would protect against cyber security threats and vulnerability 
and New York City would be covered, then that would not occur 
under the current definition of bulk power system in the 
Northeast.
    Senator Murkowski. Under the definition currently included 
in this legislation or the definition that we are currently 
operating under?
    Mr. McClelland. The definition that we are currently 
operating under in section 215 of the Federal Power Act.
    So, my point was to make certain that if the committee 
chose to exercise or to use the definition of bulk power 
system, as it's used in section 215, it is subject to the 
interpretation and application of the regional entities. In 
this particular case, the regional entity has excluded the 
network, the 138,000 volt network, that serves downtown New 
York City and other major facilities such, I believe there are 
some nuclear power plants that are also excluded from 
regulation, interconnections with those nuclear power plants.
    So I think it's an important distinction to make.
    Senator Murkowski. Mr. Sergel.
    Mr. Sergel. Thank you, Senator Murkowski. If we start, I 
think, from section 215 that was put in place, perhaps that 
will make it easier.
    The Congress did just a fabulous job there, and I really 
believe that, in defining the bulk power system as the users 
and owners and operators of the bulk power system and left it 
at that.
    It has been the task of NERC, working with the Federal 
Energy Regulatory Commission, to determine what precisely is 
meant by the bulk power system. It is not defined, per se, nor 
should it have been. But the law goes on to particularly 
exclude distribution facilities. So, it's users and owners of 
the bulk power system and the law specifically excludes 
distribution.
    What Mr. McClelland is saying is that, from time to time, 
we find ourselves where that is problematic. What a surprise 
that we find that it is problematic with respect to New York 
City, where the number of distribution facilities are so 
significant and the level, and sort of the voltage level, at 
which they conduct business at distribution is so high. So, as 
a consequence, it is a particular example of where it is a 
challenge to determine. It does not mean that it is per se 
excluded under that definition. We continue to work on that.
    Senator Murkowski. I am going to move on because my time 
has expired. I don't know whether we've clarified the issue or 
further muddied it, but it sounds like we do need to work on 
this just a little bit more.
    Senator Shaheen.
    Senator Shaheen. I actually would like to switch topics, 
since I'm not any clearer on the answer to the previous 
question.
    I want to talk a little bit about standards because most of 
you mentioned those in your remarks and this issue of adequate 
standards as we are looking to change our energy foundation in 
this country has come up time and time again.
    So, I guess my first question to you, Mr. McClelland, is 
you've stated in your testimony that the Department of Energy 
views--actually I guess maybe I should direct this to Ms. 
Hoffman. The Department of Energy views the development of 
interoperability standards for Smart Grid technologies that 
include cyber security protections as a key milestone. How 
close are we to achieving that milestone and what kind of 
progress has been made and what more do we need to do in order 
to get there?
    Ms. Hoffman. The National Institute of Standards and 
Technologies convened a workshop on April 28th and 29th to look 
at interoperability standards. One of the domains that was 
discussed was cyber security standards. NIST will hold another 
workshop May 19th and 20th to continue that discussion of 
standards.
    So, the standards process is moving as quickly as possible. 
In the meantime, the Department of Energy has been working with 
utility vendors to look at procurement strategies so that, as 
utilities purchase Smart Grid technologies, they will have 
current strategies to define what some of those cyber security 
requirements should be in the interim, until the standards are 
developed.
    Senator Shaheen. Would anybody else like to address where 
you think we are? Mr. Owens, you mentioned standards in your 
testimony as well.
    Mr. Owens. We are working very closely with Department of 
Energy. In fact, I would even suggest that there's going to be 
an important meeting on May the 18th, where we are going to 
talk about some of the NIST standards and how we can move 
forward in interoperability and we're very much in support of 
the direction that has been carved out.
    Senator Shaheen. Were you suggesting that there be 
independent testing, separate from NIST, and how would you 
envision that operating?
    Mr. Owens. Yes. NIST is really complementary. When I spoke 
to the independent testing of the various components that would 
be comprising the Smart Grid, I was really speaking to the fact 
that, in the absence of the NIST interoperability standards 
right now, because the utility systems are beginning to move 
aggressively toward Smart Grid, that we have a way that we can 
verify that the technologies, the devices that are being 
installed in our systems, are really cyber secure. That they've 
gone through some independent testing, that we have a set of 
standards that they have to meet. So that, when we integrate 
them into the grid, we have a comfort level that those 
facilities will not pose additional cyber vulnerabilities.
    Senator Shaheen. So, again, how do you envision that kind 
of independent testing? Would there be standards that the 
manufacturer would have to meet?
    Mr. Owens. It would be a set of standards that would be 
developed and the manufacturers would be held to those set of 
standards. There would be an independent tester that would make 
sure that those component devices are consistent with the 
standards.
    If they're not consistent with the standards, obviously the 
utility would say we don't want to install that piece of 
equipment into our overall system because we're creating a 
potential cyber vulnerability because it hasn't met the test.
    So, it would be like a Good Housekeeping, Good Housekeeping 
seal of approval. All vendors would have to comply. That is 
actually what NIST is trying to do and this is complementary to 
what NIST does, but recognizing that many of our systems are 
already beginning to put in Smart meters and other elements to 
the Smart Grid. We're suggesting that we try to do something 
right away to make sure that there is consistency and that we 
are not subjecting our system to cyber vulnerabilities.
    Senator Shaheen. Do you have a proposal for who should do 
that independent testing, who should be responsible for it?
    Mr. Owens. No, I do not.
    Senator Shaheen. Anyone else?
    Ms. Hoffman. I think it's a great opportunity for the 
market to develop capability in the testing and the 
verification.
    Mr. Owens. I would agree with that response.
    Senator Shaheen. Thank you.
    Senator Murkowski. Senator Corker.
    Senator Corker. Thank you very much and thank all of you 
for your testimony.
    Mr. McClelland, I think the Chairman asked you about 
whether you should or should not have the ultimate singular 
authority to take actions on an emergency or expedited basis. 
It was a pretty long answer and I think you were saying yes, 
but I'd like yes/no answer.
    Mr. McClelland. The Commission has requested that 
authority, yes.
    Senator Corker. So, the answer is yes.
    I noticed, Ms. Hoffman, in your opening testimony that 
Department of Energy is taking no position on this legislation 
which, by the way, I find to be kind of odd, since this is sort 
of in your wheelhouse. I don't know whether it's just due to 
lack of staffing right now or what, but in the event the 
legislation was changed so that FERC had solely that 
responsibility, would Department of Energy wish to weigh-in on 
the legislation at that time or does it agree with that 
proposition?
    Ms. Hoffman. You're correct, Senator. The Department does 
not have a position on the legislation at this time. However, 
with all emergencies within the Federal Government, 
coordination and consultation are very critical in making sure 
that everyone is on the same page with actions and responses.
    Senator Corker. But consultation is interesting and we like 
that too, I'm sure, but at the end of the day, are you agreeing 
with the proposition that FERC should have, in an emergency you 
can't have two or three folks, I assume, as mentioned by 
others, issuing conflicting direction. You are agreeing then, 
by lack of weighing-in, that FERC should have this 
responsibility?
    Ms. Hoffman. The Department does not have a position at 
this time. I know the Secretary is committed to working with 
the Administration on the goals and responsibilities, including 
determining who should have that authority.
    Senator Corker. But this legislation is going to determine 
that authority. So, let me just, as a follow-up, could you get 
the Secretary to tell us, yes/no, whether FERC should have this 
responsibility by itself?
    I do think it's problematic, when we're looking at 
emergency issues, to have two organizations involved that could 
issue conflicting direction. Could you get the Secretary to 
tell us yes/no, whether it ought to be FERC or DOE? I think 
most of us would probably be uncomfortable with both.
    Ms. Hoffman. Sir, I can take the question for the record.
    [The information follows:]

    Senator Corker, when the Department of Energy and FERC were 
established by the Department of Energy Organization Act, the Secretary 
was given the authority to issue orders during an emergency for the 
interconnection of facilities, generation, delivery, interchange, or 
transmission of electric energy. FERC was given Federal Power Act (FPA) 
authority to establish, review and enforce rates and charges for the 
transmission and sale of electricity. DOE believes that these divisions 
of FPA authority properly place the regulatory rate making 
responsibilities of the FPA with FERC, and the authority to make 
national emergency determinations with DOE.
    The authority to determine whether an emergency exists under 
section 202(c) of the FPA (16 U.S.C. Sec. 824a(c)) is a secretarial 
authority which may be invoked by the Secretary of Energy upon the 
Secretary's own motion or upon complaint. It is DOE's position that the 
extraordinary authority to direct immediate emergency actions to 
respond to and protect against particular immediate cyber risks, 
whether they are identified as imminent threats or vulnerabilities, 
should be vested in the Department of Energy. For several reasons, we 
believe this emergency authority should be exercised by DOE, rather 
than by an independent regulatory agency such as FERC.
    Since 1977, when the Department of Energy Organization Act created 
both DOE and FERC, the FPA section 202 emergency authority has been 
vested in DOE. Throughout Administrations involving several different 
Presidents and both parties, the Department has used this authority 
judiciously but effectively to address particular situations in which 
such an order was necessary to help ensure reliable supplies of 
electric energy.
    The Department has demonstrated that, when circumstances warrant, 
it can exercise the section 202 emergency interconnection authority 
very quickly. For example, on August 14, 2003, when the largest 
electrical blackout in the history of North America occurred, DOE 
exercised its section 202 authority by issuing an emergency 
interconnection order only hours after the blackout occurred. It was 
able to do so, in part, because the Secretary of Energy can issue 
section 202 orders unilaterally, and need not convene meetings or 
collect votes of other officeholders before exercising that emergency 
authority.
    New authority to deal with cyber emergencies also could be 
exercised quickly and effectively by DOE. Moreover, we believe that an 
extraordinary authority such as this is appropriately placed in a 
cabinet department whose head is fully accountable to the President. 
Independent agencies are just that, independent, with respect to many 
decisions, and while that certainly is appropriate with respect to many 
matters, we believe the exercise of emergency authority is not one of 
those matters.
    Finally, DOE is the agency that is most likely to develop or obtain 
knowledge--either on its own or as a member of the intelligence 
community (IC)--with respect to threats or vulnerabilities that might 
give rise to the need for an emergency order. DOE regularly 
participates with the other agencies who are members of the IC on a 
variety of initiatives. It makes sense to vest an authority to act on 
that information with the agency that is most likely to develop or have 
knowledge about it, and that agency is DOE.
    FERC should be authorized, after consultation with DOE, to issue 
expedited reliability standards under section 216 of the FPA to respond 
to cyber risks.

    Ms. Hoffman. I would like to bring up emergency versus 
vulnerability. The legislation brings up two aspects, one of 
which is emergency authority with the determination that there 
is actually a threat out there. The vulnerability part of the 
language, as we read it, provides for an interim measure: if 
there is a vulnerability that is discovered within the electric 
sector, then there is action that may need to be taken on that 
vulnerability, if that vulnerability is determined to have a 
potentially significant impact to the electric sector.
    So, one actually looks at a threat environment, and the 
other one actually looks at a vulnerability that may be 
discovered for which it may be prudent to take action on a 
near-term accelerated basis.
    Senator Corker. So, since there is a difference, are you 
saying that DOE should look at the vulnerability issue and FERC 
should command in the event of an emergency, is that what 
you're saying? Or are you not going to weigh-in again?
    Ms. Hoffman. The Department does not have a position at 
this time.
    Senator Corker. That's interesting. I assume there's some 
staffing issues that maybe caused this and I certainly don't 
want to in any way embarrass you. If you could maybe get 
whoever it is that would like to weigh-in, to weigh-in on 
behalf of the Department at the appropriate time before we pass 
this out of committee, which I assume is going to be like in a 
week, is that correct?
    Senator Murkowski. I think it is scheduled for next week.
    Senator Corker. That would be helpful to everybody. We 
obviously want to work, as you mentioned, in cooperation.
    Did you want to say something, Mr. McClelland?
    Mr. McClelland. Yes. I would like to say that the draft 
bill does make an important distinction between the 
responsibilities of the Department of Energy and the FERC. The 
bill designates the ability to address vulnerabilities to FERC 
and threats to the Department of Energy.
    So, in this particular draft, the Commission staff didn't 
necessarily see a conflict or an overlap between the Department 
of Energy's role and FERC's role.
    Senator Corker. The industry folks agree with that?
    Mr. Owens. We think that needs to certainly be a clear 
understanding of who deals with cyber threats. So, if that's 
the Department of Energy or FERC, as long as there's a single 
agency, a clearly defined authority. With respect to cyber 
vulnerabilities, I believe FERC already has the responsibility 
and they have been implementing elements of that through their 
standards under section 215 of the Federal Power Act.
    Senator Corker. Mr. Sergel, you mentioned that y'all were 
working on some of the definitional issues that, you know, New 
York City has been thrown out multiple times during the course 
of this testimony, that y'all were working on the definitional 
language and that's evolving.
    However, since this legislation is to focus on cyber 
security and other kinds of things, would it be relevant for us 
to work out that definitional language in advance of passing 
this legislation or just leaving it somewhat abstract when, in 
essence--I guess we're trying to figure out a way to actually 
deal with real threats that exist. I'm just curious as to what 
your response might be to that.
    Mr. Sergel. We are attempting to work out the precise lines 
of the definition between distribution, which is excluded from 
section 215, and the bulk power system in which we have 
authority. There are, not a long list, but certainly a list of 
places where it's difficult, New York being the best example.
    I think the question on the distribution side goes more to 
the necessity of the authority that you want to grant in an 
emergency as opposed to that.
    So if, in fact, the authority of the--to act in an 
emergency is intended to cover everyone, and you wish to do 
that in this legislation, you would want to then specify who 
that is and it would extend, for example, to those places that 
are not interconnected with the United States, excluded from 
section 215, Alaska and Hawaii and Guam, not interconnected. So 
you would be extending the definition from 215.
    If you just think of it, 215 is covering a portion, the 
largest facilities, the largest lines, but it doesn't include 
distribution. So, I would think you would want to say, what do 
you what to include. I would go from 215 and then I would 
decide what you were going to add. It's 215 plus.
    If it was all of distribution, my own view is that all of 
distribution is a reach, that that is not necessary here. But 
then, at the same time, I understand where it should be broader 
than the current definition of 215. Alaska, Guam, Hawaii, 
potentially very large metropolitan areas like New York and 
Washington which--military facilities, but I would add. I would 
start from the definition of 215 and decide how much to add. If 
you decided to add all of distribution, that would be one way 
to do it.
    Senator Corker. Madam Chairman, is it OK if I continue to 
listen?
    Senator Murkowski. Yes, that's fine.
    Senator Corker. OK. Mr. Mosher.
    Mr. Mosher. Yes, thank you, Senator. I would suggest that 
the committee look and think seriously about starting in the 
other direction and figuring out which customers you are trying 
to protect and you're most concerted about.
    Rather than encompassing all of distribution, if you're 
concerned about New York City or Washington DC or military 
facilities, then you need to talk--for example, starting with 
military, with the base, commanders there, identify their 
vulnerabilities an then assign authority or set up regulations 
that would ensure that those particular facilities are 
protected. That involves the relationship between the 
particular distributing utility and the customer.
    Now, New York City and Washington DC I know are areas of 
particular concern. Frankly, I think that bulk power 
reliability standards and the authority that is contemplated 
for the Commission will, in fact, cause the utilities that 
serve those areas to adopt standards and policies and to train 
their personnel so that they will have cyber protection for the 
entirety of the enterprise. That's the underlying part of the 
NIST framework, is that it is not a facility-specific program, 
that is NIST for cyber security.
    Its about protecting your entire enterprise and making sure 
there is no backdoor way of attacking the system. If you do it 
for the entire utility, you are indirectly going to protect the 
distribution facilities as a part of it.
    Senator Corker. I know my time is way beyond over. Thank 
each of you for your testimony.
    I hope that what you may consider is that, my sense is that 
we are going to have a markup on this very soon, is that, on 
the definitional issue we just discussed, but also the 
definitional issue of critical electric infrastructure and 
cyber security threat, those two terms. I would encourage each 
of you to submit to us some clarifications that you think might 
be helpful to us.
    Again, Ms. Hoffman, thank you very much for being a good 
soldier today and hopefully somebody from the Department will 
respond to the questions.
    Thank you all very much.
    Senator Murkowski. Thank you, Senator Corker. I think it is 
important to note that we do have this on schedule for next 
Wednesday for potential markup, if all goes as planned.
    I think you have raised some good issues here today. It is 
important to try to get that input from the Department and we 
recognize that there is a lot happening, not the least of which 
is that people aren't entirely in place and perhaps might not 
be focused on this, but we are trying to move on it.
    I might note, and it may have been already brought up by 
the chairman, but we are not the only committee looking at the 
issue of cyber security. There is legislation out there that 
would have FERC be consulting with Department of Homeland 
Security. You have also legislation coming out of the Commerce 
Committee where it would be the Secretary of Commerce that is 
providing the direction. You've got another bill that would 
establish an Office of National Cyber Security Adviser within 
the executive branch. So, it's kind of all over the board right 
now.
    I guess I'll throw-out this question to all of you. There 
has been some discussion about whether or not we need a cyber 
security czar. Is that where you go with it, Mr. Mosher?
    Mr. Mosher. My view is that the committee ought to focus 
here on the particular concerns of the electric power industry 
and solve those as surgically as you can, because the issue of 
cyber security is so much bigger than the electric power 
industry.
    The Federal Government, the executive branch, and Congress 
need to come to a meeting of the minds of what that Federal 
Government strategy is. Then you could do a comprehensive 
strategy, whether it entails a cyber czar in the White House 
with a special office there, whether the authority is assigned 
to NSA, or whether it is shared with DHS. Those are sort of 
level issues that are, frankly, much beyond our paygrade.
    But we would like to see that our particular vulnerability 
issues and authority issues are resolved pretty quickly. We 
certainly are willing to work with the Congress to resolve that 
as quickly as we can. We hope that we can work with you to get 
something that we can all agree upon as part of the 
comprehensive energy bill.
    Senator Murkowski. Mr. Sergel.
    Mr. Sergel. Thank you. I agree with Allen, but not just 
overall, but within the specific confines of this bill as well. 
That the emergency authority for cyber security is extremely 
important to us. We need that. It is important to complement 
our standards. Our standards are incomplete without that 
authority.
    So, it is taking action on those things that we can do 
today to protect the bulk power system in that situation. 
Certainly we will work to get our definitions as precise as we 
can, to make that as effective--but it is to do that portion of 
it that is so important. There's always the broader and larger 
picture, but for this industry we need emergency authority 
granted to a single agency.
    Senator Murkowski. Now, that's fair and I appreciate that.
    I was reading an article here that was posted in the Wall 
Street Journal this morning and it attracts my attention 
because it details a report that the air traffic data systems 
in Alaska were shut-down by hackers. You know, when you're a 
State like mine where everybody flies and you've got your air 
traffic control systems that have been breached, this is a real 
problem.
    Not to suggest that it is greater than the electrical, we 
recognize in today's world where we are connected in many 
different ways, there is a level of vulnerability in our day-
to-day lives that we could never have imagined a couple of 
decades ago. So, whether it is occurring with air traffic 
control or electricity or just security in general.
    Let me ask a question. We did not address this in our 
legislation, but it's the issue of the potential costs. There 
has been some concern expressed with the cost of compliance, 
whether it's an emergency order through DOE or FERC's expedited 
rules, and the concern that merchant suppliers can't pass these 
costs on that they need to incur in order to address the cyber 
security threats.
    Do we just consider these costs as part of doing business 
in today's world or should there be some kind of cost recovery 
mechanism included in our legislation? Because, as I said, we 
have not included it, but what's your position, Mr. Sergel?
    Mr. Sergel. Just two things from me and then I'll turn it 
over to David Owen.
    First, the way standards are set under section 215 with the 
industry participating assures that the costs of taking an 
action are incorporated in the decision itself. Because it's 
part of the process and it's reflected there and it's very 
important.
    The second is that 215 address the bulk power system 
because it is the priority, it is the one in which we're most 
in danger. I point to the length of time--we had an event in 
Florida and it was over in an hour; whereas, the August 2003 
blackout, it took days to recover from that same event in many 
places. So, it is very important that we deal with the bulk 
power system, large scale, are whole orders of magnitude 
greater concern.
    So, from the standpoint of what it costs, let the standards 
and processes we have today do the job and focus on the bulk 
power system. It is where the highest priority is. So, for 
costs, those would be my suggestions.
    Senator Murkowski. Mr. Owens
    Mr. Owens. Soon after 9/11, FERC adopted a policy because 
it recognized that companies wanted to secure their systems. 
They said, in emergency situations, they would focus on getting 
you cost recovery.
    So, I think it's very, very appropriate for merchant 
generators, who don't serve retail customers and don't go 
before State PUC, that to the degree that we're responding to 
emergency standards, standards relating to cyber, to reduce 
cyber vulnerabilities and so forth, it is very, very 
appropriate that they get cost recovery. I think that is very 
consistent with how FERC has dealt with issues in the past.
    Senator Murkowski. Mr. McClelland.
    Mr. McClelland. I'd like to add to that. In fact, David 
stole my thunder. The Commission did issue a policy statement 
after 9/11 that said it would prioritize cost recovery filings 
for security reasons, for security aspects. So, the Commission 
is very aware of that.
    As a staff member, I can say that it seems reasonable and I 
would support, as a staff member, support cost recovery filings 
in order to comply with measures necessary to protect the bulk 
power system, be they cyber or be they physical.
    If I could just stir the pot back up again, because it 
seems like it's settled down a bit too much, back to the issue 
as far as the definition of bulk power system. Smart Grid 
actually would enable a new type of attack vector. Rick has 
talked about the priority associated with the bulk power 
system, but if you could imagine many millions and millions of 
distribution meters being installed on the Smart Grid that have 
a two-way communication capability and would be interacting, 
perhaps, back to an ISO or some central control center, that is 
another path, and a substantial path, for compromise. There are 
several different attack vectors that can be associated with 
the installation of those type meters.
    So, it's a complex issue. It's ever-changing.
    Senator Murkowski. Do we need additional Federal authority 
as we reckon with the complications, as we look at the Smart 
Grid?
    Mr. McClelland. I think the committee needs to consider 
that aspect and I think it needs to be well-aware that, as 
Smart Grid is implemented, and as these devices, these formerly 
dumb appliances that couldn't communicate now can communicate 
in two directions, any time there's two-way communication, 
there's a chance for cyber compromise.
    The current draft does go through the distribution levels, 
so it appears to be a mechanism by which Smart Grid could be 
addressed. But it would be an expansion, a significant 
expansion, of the Commission's authority, if the Commission 
were selected as a lead agency to implement these mitigation 
measures for the vulnerabilities.
    Mr. Mosher. If I may?
    Senator Murkowski. Senator Shaheen.
    Mr. Mosher. Very briefly. The Commission has no rate 
jurisdiction over distribution.
    Mr. McClelland. That's right.
    Mr. Mosher. So, if the costs are incurred at the 
distribution level, then this should be something before the 
State public utility commissions.
    Also the mechanisms for guaranteed rate recovery for 
independent power producers does give public power systems some 
heartburn. I'll leave it at that.
    Senator Murkowski. Senator Shaheen
    Senator Shaheen. Thank you. I want to go back to the 
definition because I guess I'm a little confused by the 
previous exchange.
    Because, as I look at the bill, it defines critical 
electric infrastructure and would amend the Federal Power Act 
and it seems to me it is a pretty comprehensive definition 
because it defines it as ``systems and assets, whether physical 
or virtual, used for the generation, transmission, or 
distribution of electric energy affecting interstate commerce 
that is determined by the Commission or Secretary'' however 
that gets resolved ``are so vital to the United States that the 
incapacity or destruction of the systems and assets would have 
a debilitating impact on national security, national economic 
security, or national public health or safety.''
    I mean, I guess, as I read this definition, it would 
address the concerns that you all were raising. Do you think 
that that definition is not adequate? If it were adopted in the 
bill.
    Mr. Sergel. The definition in the draft legislation is the 
broadest one possible.
    Senator Shaheen. Right.
    Mr. Sergel. You're are absolutely correct. It does not need 
to be broader to increase the protections.
    The current section 215 covers only the bulk power system, 
the largest lines and plants, and the interconnected system in 
the United States; therefore excluding both distribution and 
Guam, Alaska, Hawaii as well.
    Senator Shaheen. Right.
    Mr. Sergel. I think NERCs position on this is that we start 
from the bulk power system because it is the highest priority 
that needs to be protected. Then additions to that definition 
to expand it should be carefully done, because the authority 
being granted here is so great.
    Now, there's two different components of the draft. One 
component of the draft is for emergency authority and, on that, 
I would say----
    Senator Shaheen. Which is the definition I just read.
    Mr. Sergel. Yes. So, as it relates to giving emergency 
authority on that expanded definition, we will all work to make 
sure that we understand how that should be done and how it 
should be done effectively.
    For example then, when you move to the vulnerabilities 
language, I would be willing to say I think that definition is 
too broad for the vulnerabilities language because it would 
give the authority to order distribution, order distribution 
companies to take actions from the Federal Government which is 
not in place today.
    So I think that definition is broad enough to protect for 
cyber security but is actually a reach too far with respect to 
standard setting. On emergency authority, it is logical. On 
standard setting, it is a reach too far.
    Senator Shaheen. So, is everyone on the panel in agreement 
that, in terms of a definition for an emergency situation, that 
that definition is adequate? Or is there some objection from 
the rest of you that that's going too far?
    Mr. Mosher. It is my view that the definition goes too far 
on distribution, even for emergency authority. To have a 
regulatory program that is actually going to be effective, I 
can see it cratering just in the number of entities that the 
Commission would have to preestablish communication pathways to 
make it work. If it has an authority to issue an emergency 
order, then it presumably needs to know it's going to contact. 
If it has to contact all of the roughly 1,650, one thousand six 
hundred and fifty, municipal systems in the country that are 
not on the NERC compliance registry, then the FERC would have 
to establish who that contact person is, what clearances they 
have, and have the ability to execute it. Now----
    Senator Shaheen. If there's a current emergency----
    Mr. Mosher. I'm sorry.
    Senator Shaheen. If there is a current emergency, how does 
that work? I mean, right now in the absence of this kind of 
legislation to address cyber security, if there were an 
emergency effecting the municipal utilities, how would that be 
communicated to them?
    Mr. Mosher. Today, within the scope of NERC's authority, 
they're communicating primarily with the registered entities. 
We are working to expand their ability to communicate through 
the ESISAC, the Electricity Sector Information Sharing and 
Analysis Center, excuse me for the acronym. We will be 
improving it and have voluntary communications that well reach 
basically all municipals over time, but it is not in place yet.
    We, again, are trying to prioritize getting the 
communications down where the risks are the greatest, which are 
in the larger communities.
    My concern is not in the emergency authority, but it is the 
regulatory hooks that come with it and the effectiveness of the 
communication to make sure that, for example, when Joe sends 
out a directive, he needs to know if the other person on the 
other end of the line has a security clearance. I know for a 
fact that we can't get security clearances for all of these 
entities. It would just overwhelm the capability of the FBI to 
do, to get all of the clearances done. People change jobs and, 
you know, people are performing multiple functions. It just 
isn't going to work.
    I am suggesting a more targeted approach going to defense 
establishments and to addressing whatever concerns you have 
with large cities. That could be the way of focusing, that 
would be my recommendation.
    Senator Murkowski. Mr. McClelland.
    Mr. McClelland. When we meet as Federal agencies and we 
discuss cyber security and cyber security issues that would 
affect the electric utility industry, when we speak about the 
electric utility industry, we say they're out in the wild. The 
reason why we say that they're out in the wild is that they 
don't have information regarding the current threats and the 
current activities that are being propagated on the electric 
grid.
    One thing I would like to address that Allen had said was 
that we needed a security clearance or would need a security 
clearance to communicate with entities. Our assumption would be 
that if we broadcast the information out to a large number of 
entities, forget it. That information will be disclosed. So the 
advisories or the orders that we would issue, the advisories 
that NERC crafts and the orders that we would issue, would be 
carefully crafted so as not to compromise national security, 
but would provide clear direction.
    The testimony that I gave today, the oral and written 
testimony, was merely intended to reflect the fact, or inform 
the committee, that there is a clear distinction between--there 
is a limitation under 215 as to how far the Commission can 
reach.
    The Staff Draft, however, went much further and captures 
even distribution. That capturing in effect, or that effect, 
would in turn capture the Smart Grid meters, the meters that 
would be deployed. We didn't address the complexities 
associated with an agency and exercising that control. But the 
definition seems to, and the testimony is intended to say, that 
the definition is very broad. If the committee intends to move 
in that direction, the committee should understand that Alaska, 
Hawaii, the territories, and the larger urban areas should be 
captured, from the Commission's perspective, and that we were 
advising you in regard to that definition.
    In other words, the definition appears to be adequate and 
separate from the definition of bulk power systems in 215.
    Senator Shaheen. But that's why I'm still confused. 
Because, if the definition says it would cover any system that 
would have a debilitating impact on national security, economic 
security, public health or safety, why would that not then 
effect Alaska, Hawaii, and the territories?
    Mr. McClelland. I think the question would be what was 
intended by the draft and how does the Federal Power Act 
capture Hawaii--Alaska and Hawaii and the territories.
    Senator Shaheen. So, do you also share the concern 
expressed by others on the panel that this definition is too 
broad?
    Mr. McClelland. It depends on what the intent of the 
committee is. If the intention or the direction of the 
committee is to ensure that the agencies, the Department of 
Energy and the Federal Energy Regulatory Commission, would have 
sufficient authority to be able to address cyber security 
threats that could affect the United States, could impact the 
mission of the Department of Defense, the military facilities, 
then no. I would say no, the definition is not too broad, if 
you intend to capture Alaska and Hawaii and the territories.
    If, however, you intend to limit it to say, the continental 
United States, in just the definition of bulk power system 
under 215, then you should be advised that there are 
limitations with that definition and complexities associated 
with the interpretation and the administration of that 
definition.
    That, in and of itself, if one is speaking about national 
security, that could render the actions ineffective. If there 
is disagreement about where it applies and how it applies and 
whether or not it goes to a downtown urban area and there is 
some room for interpretation or discretion, you really can't be 
sure that the directive you've issued will be effective to 
address the cyber security concerns.
    Mr. Owens. Senator, can I try to just simplify this? I 
think we are making it a little bit too complicated.
    You asked if the definition is too broad. If you are 
seeking to define a national emergency and you know the 
components that make the electric system, the definition covers 
the broadest of the electric system.
    But then if you're speaking to how do I define a cyber 
vulnerability and what is the level or the scope of authority 
of the Department of Energy and the Federal Energy Regulatory 
Commission, you are raising a different set of issues. So, we 
have to separate cyber threat from cyber vulnerability. In a 
cyber threat, you certainly do, even Allen's members want to 
know, that if there is a cyber threat it needs to be well-
communicated to them so they can take corrective action, so we 
don't have widespread disruption.
    So I don't think anybody has a problem with that. We need 
to make sure that there is a single agency that has that 
responsibility and we are clear and there is ongoing 
communication with the utility and people that have security 
clearances, so they can huddle together and say, here the 
solutions to deal with this immediate threat.
    Senator Shaheen. OK. Can I stop you right there? Because 
that is not what I heard Mr. Mosher say.
    Mr. Owens. No, I just changed it a little to say----
    Senator Shaheen. Yes, you did. Do you agree with what he 
just said?
    Mr. Mosher. Yes, I do. If you're talking about 
communication----
    Mr. Owens. Yes.
    Mr. Mosher [continuing]. Then I agree and what David was 
saying is we get the experts together talking to the Federal 
Government, experts from the industry, experts from the 
government, distill the threat down to something that is 
actionable.
    Mr. Owens. Exactly.
    Mr. Mosher. Take out, because of a need-to-know basis, take 
out all of the underlying threat information that should be 
classified, tell the entities what to do.
    Mr. Owens. Exactly.
    Mr. Mosher. That can be communicated. Now the question 
where we may differ is on whether there is a regulatory 
structure that is imposed upon this to say that if the entity 
that receives the information does not comply, then there will 
be sanctions.
    Mr. Owens. Exactly.
    Mr. Mosher. it's when you get to the sanctions that the 
process breaks down because the regulatory burden increases. 
The entities that receive this information are going to respond 
to it, but they're very different in their capabilities to 
respond to this information. They are different in the 
vulnerabilities that they present to the Nation. Small 
municipals with one stoplight aren't in the same category as 
PEPCO.
    Mr. Owens. That's right.
    Senator Murkowski. Senator Corker.
    Senator Corker. I think this hearing is coming to a close 
pretty soon and we've got a four page bill, OK. It's not like--
it's pretty short.
    I think we've found through this Q&A time that it maybe 
doesn't adequately address some of the definitional issues that 
are important to each of you that actually have to do this on a 
daily basis and you're asking what the intent of the committee 
is.
    Look, I mean, we're Senators. You know, let's face it, we 
do not understand fully, as each of you do, and that's why 
you're here, exactly how this language effects you on a daily 
basis. I think our concern is--we're concerned about cyber 
security, OK? We're concerned about making sure that Americans, 
including those in Hawaii and Alaska, wake up and have power to 
do the things they need to do and that our country has the 
ability, through its military, to do things necessary.
    So, I would suggest that the four of you, and if the DOE 
determines it wants to weigh-in, and I think it might, that 
y'all take these four pages and make it work and give us the 
input back. Even if it's six pages, OK, to sort of deal with 
this. I mean, it's evident that you guys have a wealth of 
knowledge that we don't, that's why you're here. I would just 
ask you to help us with this. Because it sounds like that we, 
in some ways, in trying to solve this problem and could raise 
more questions than answers.
    So I'll conclude with this, at least my portion of it. Mr. 
McClelland, you mentioned that there are issues in addition to 
cyber security that we need to be addressing. That there are 
other national security threats to reliability and I'm 
wondering if, in this little four-pager that we have, that 
could be five, six, seven, eight, are there are other powers, 
as it relates to the reliability side, that you feel like we 
ought to be addressing for FERC right now?
    Mr. McClelland. Is that a question now?
    Senator Corker. Yes.
    Mr. McClelland. Oh, I'm sorry.
    Senator Corker. That wasn't a yes/no one, that was a----
    Mr. McClelland. Oh, yes.
    Senator Corker. No, no, no. That was not a yes/no one, OK.
    Mr. McClelland. Yes, there are. Our point in the oral 
remarks and the written testimony is that there are physical 
attacks that can occur on the power grid and those attacks can 
be just as devastating as cyber attacks.
    So if Congress would entrust an agency to exercise, be able 
to exercise directives, not ask for voluntary measures, but 
exercise directives over the industry, the affected industry 
for cyber, our position is that it should consider, or it 
should also grant the agency an extraordinary ability, or 
ability under extraordinary circumstance, to also exercise 
actions against physical threats.
    A good example is a bulk power system transformer. If there 
were some, if there were some issue, if there were some 
information, that would indicate that these transformers were 
affected, the affected agency or the agency in charge could 
then issue a directive to help or to give guidance to the 
affected industry to protect those transformers. Perhaps 
relocate the transformers or take other actions in order to 
secure those transformers for a period of time.
    Senator Corker. So, I noticed the two guys on the end sort 
of shrieking. So----
    Mr. McClelland. Yes, I wouldn't be surprised. We all know 
each other.
    Mr. Mosher. There are numerous police agencies in the 
United States and the FERC is not among them.
    Mr. McClelland. Right
    Mr. Mosher. Particularly for municipal utilities, where we 
have a local police department, they are frankly very good at 
maintaining local security. They know who isn't from the 
community and is lurking around the substation.
    I agree with Joe that there are physical concerns security 
concerns. I do not think that the FERC is the appropriate 
agency to undertake that.
    Mr. Owens. I would agree with. I think that there are other 
agencies that have that responsibility. I think Joe is right 
that there are elements of our system that present some 
vulnerabilities.
    He mentioned specifically transformers and we already have 
an industry effort underway to make sure that we can secure, if 
we have a disruption in our transformers, we have an inventory 
of transformers that can be quickly mobilized so that we can 
make sure that electric service is restored very quickly.
    FERC has blessed that approach, but FERC is not the agency 
that deals with all the physical aspects of our systems. I 
think that there does need to be coordination. If that is what 
Joe is indicating, I do agree with him that there needs to be 
ongoing coordination between the Federal Government and the 
State and local agencies.
    Senator Corker. Mr. Sergel.
    Mr. Sergel. On physical security, I worry that too many 
agencies that are qualified will show up to help. On cyber 
security, I lie awake at night worrying that no one will show 
up. It's cyber security emergency legislation that is 
absolutely essential.
    There are physical issues, they are real. But, again, I 
agree with my associates that that is not--first, it is not the 
priority that I have but it's also--others would be the ones 
who would be better suited to do that.
    Mr. Owens. Right.
    Senator Corker. Madam Ranking Chairman, I think we've had 
some great witnesses and I do--did I say ranking chairman? Yes. 
Acting chairman, acting chairman.
    I do wonder if we are ready to do this next week. Either, I 
mean, I know it is just a short piece of work, four pages, but 
it seems like a very, very important issue and it seems like 
that these witnesses have some clarifications that could be 
incredibly helpful. Either they have some quick work to do and 
all of us just sort of sit around and think that what they do 
is good or maybe we ought to think about may be looking at this 
some more.
    I know you're very concerned. I've heard you talk several 
times about cyber security and I know the Senator from New 
Hampshire is, too. I know our whole country is. I just wonder 
if we're adequately addressing this right now, so.
    Senator Murkowski. Thank you Senator Corker. I think we all 
share the concerns and I'm pretty certain that the folks within 
the White House are very keyed on this as well. Whether it's 
cyber security within the power grid or, as I mentioned, cyber 
security issues that crop up in our aspects of day-to-day life 
in commerce.
    But the problem is is that perhaps they have not moved as 
quickly in determining how they are going to approach the issue 
of cyber security.
    Again, I threw out this whole discussion about a cyber 
security czar. I'm not convinced it is necessarily needed, but 
I think it speaks to the issue that we're faced with today. 
There is a level of vulnerability that we have, the smarter 
that we get. Our ability to utilize new technologies, and Smart 
Grid is a perfect example of how it makes our life better and 
more efficient, but exposes us to a level of vulnerability if 
we don't build securities into our system. We've got to be on 
top of this in a very, very strong way. So, the issues that 
have been presented today, I think, have been very helpful.
    I think you're right, Senator Corker, we have recognized 
that, as part of a Comprehensive Energy Bill, we would be 
foolish not to include some aspect of cyber security into an 
energy piece, but how we define it and who we place in charge 
is key and it is critical that we do our best to try to get it 
right.
    So, I appreciate the input from the witnesses here today 
and the good exchange from committee members this morning.
    Thank you.
    [Whereupon, at 11:45 a.m., the hearing was adjourned]


                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

                      Federal Energy Regulatory Commission,
                                       Washington, DC, May 8, 2009.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Thank you for the opportunity to testify before 
the Senate Energy and Natural Resources Committee on May 7, 2009 on 
cybersecurity of the nation's electric grid. Enclosed are my responses 
to the post-hearing questions that you and Senator Murkowski have 
submitted.
    Also enclosed is a one-page document with edits to the Joint Staff 
bill on two issues addressed in my testimony. First, the edits would 
broaden the bill to cover not only cyber vulnerabilities and threats 
but also other national security vulnerabilities and threats. Second, 
the edits would include additional information within the scope of 
subsection (f), on protection of critical electric infrastructure 
information.
    Should you need additional information, please do not hesitate to 
get back in touch with me.
            Sincerely,
                                         Joseph McClelland,
                          Director, Office of Electric Reliability.
[Enclosure.]

              Responses to Questions From Senator Bingaman

    Question 1. In your view is the authority granted in the proposal 
sufficiently broad to allow protection against all cyber security 
threats and vulnerabilities? Does the provision cover Alaska, Hawaii, 
and distribution systems?
    Answer. Yes, my view is that the draft bill provides adequate 
authority on each of these points. First, the draft bill allows 
protection of critical electric infrastructure against all cyber 
security threats and vulnerabilities. Second, as to Alaska and Hawaii, 
the draft bill covers systems and assets used to produce, transmit or 
deliver ``electric energy affecting interstate commerce.'' It is 
Commission legal staffs view that the Commission could reasonably find 
that electric energy in Alaska and Hawaii affects interstate commerce. 
Finally, the draft bill includes systems or assets used for 
``generation, transmission, or distribution'' (emphasis added) if they 
are ``so vital to the United States that the[ir] incapacity or 
destruction ... would have a debilitating impact on national security, 
national economic security, or national public health or safety.''
    Question 2. The condition that allows a utility, under current NERC 
standards, to accept the risk of inaction is a little puzzling to me. 
Does that mean that, if a utility says that it is willing to accept 
liability for all the costs of a massive outage, perhaps into the 
hundreds of billions of dollars, it does not have to take steps to 
prevent that outage? Is there any requirement for indemnification or 
warranty that the utility would be able to bear the cost?
    Answer. While the current CIP (cyber security) standards have 
several requirements that allow an ``acceptance of risk'' in lieu of 
mitigation, the standards do not make clear the legal liability for 
such acceptance of risk. For example, Requirement R3.2 in CIP-007-1 
states: ``The Responsible Entity shall document the implementation of 
security patches. In any case where the patch is not installed, the 
Responsible Entity shall document compensating measure(s) applied to 
mitigate risk exposure or an acceptance of risk.'' The Commission's 
Order No. 706 required replacing the unilateral acceptance of risk with 
a ``technical feasibility'' exception mechanism that includes an 
independent approval. Version two of the CIP standards recently 
approved by the NERC Board of Trustees deletes all uses of the 
``acceptance of risk'' language. Version two has not yet been filed 
with the Commission. Depending on the time required for the version two 
CIP standards to be filed and approved, under the effective date 
provision embedded in those standards, they could be effective as early 
as January 1, April 1 or September 1 of 2010. (The applicable provision 
in the standards makes them effective on the ``first day of the third 
calendar quarter after applicable regulatory approvals have been 
received.'')
    Question 3. How long did it take for these NERC rules to he 
developed, and how much longer might it take to get them amended to 
correct the weaknesses?
    Answer. It took approximately three years for the NERC rules to be 
developed. The CIP standards began as the Urgent Action (UA) 1200 
standard (voluntary standards), which became effective in 2003. It was 
intended to he temporary measures until permanent ones could be 
developed and agreed upon. The current CIP standards replaced the 
UAl200 standard on June 1, 2006, after they were approved by the NERC 
Board of Trustees, and were filed with the Commission on August 28, 
2006. After considering public comments on the issuance of a Staff 
Preliminary Assessment and on a Notice of Proposed Rulemaking, the 
Commission approved the CIP standards on January 18, 2008, but 
immediately directed NERC to make substantial modifications. NERC 
formed a standards drafting team to address those Commission 
directives. That team is addressing the required modifications in 
phases. The first phase has been drafted and recently approved by the 
NERC Board of Trustees. Once it has been filed with the Commission, and 
if it is approved by the Commission, that version (version two) will 
then he mandatory and enforceable in the continental United States. 
Depending on the time required for the version two CIP standards to be 
filed and approved, under the effective date provision embedded in 
those standards, they could he effective as early as January 1, April 1 
or September 1 of 2010. (The applicable provision in the standards 
makes them effective on the 'first day of the third calendar quarter 
after applicable regulatory approvals have been received.'') The same 
drafting team has been working on an anticipated phase two and a phase 
three to address the remaining Commission directives for modifications. 
I do not have a good estimate of when phase two or phase three of the 
modifications will take effect.
    Question 4. You say that NERC reported that only 29% of utilities 
reported owning any critical assets. Do you have an idea of how many 
utilities own critical assets?
    Answer. As a point of clarification, NERC reported that only 29% of 
Generation Owners and Generation Operators reported identifying at 
least one critical asset. NERC also reported that approximately 63% of 
Transmission Owners identified critical assets. The Commission does not 
have any data on how many utilities own critical assets. However, 
NERC's Compliance Registry Matrix identifies a total of 1,555 Generator 
Owners (GOs) or Operators (GOPs) and 321 Transmission Owners (TOs). 
NERC standard CIP-002 is entitled ``Cyber Security Asset 
Identification'' and it requires these entities to develop a ``risk-
based assessment methodology'' to use in identifying their critical 
assets. The entities are then to use this methodology to self-determine 
their critical assets and subsequently, critical cyber assets that are 
captured by the cybersecurity standards. In Order No. 706, the 
Commission directed NERC to, among other things, provide guidance on 
the development and application of the risk-based assessment and to 
implement independent reviews of the individual entity's critical asset 
determinations. The NERC survey described on page 6 of my written 
testimony is part of this still-ongoing effort.
    Question 5. We have tried not to eliminate the NERC standards 
setting process in our bill. The intent is that FERC establish 
standards for vulnerabilities as quickly as possible, that could then 
be superseded by NERC standards when such are developed that the 
Commission finds acceptable under the statute. Is this your reading of 
it as well?
    Answer. I agree that the bill does not eliminate the NERC standards 
setting process. The Commission would have the ability to move quickly 
and effectively to address vulnerabilities under the new provision, 
followed by standards development activities by NERC pursuant to FPA 
section 215.
    Question 6. In your view is the authority granted in the bill broad 
enough to protect against all cyber security threats and 
vulnerabilities, including those originating on distribution systems 
and in Alaska and Hawaii?
    Answer. Yes, for the reasons explained in response to Question No. 
1, above.

             Responses to Questions From Senator Murkowski

    Question 1. The industry witnesses before us today urge Congress 
not to broaden federal jurisdiction in the cyber arena to extend to the 
local distribution system. But, if Congress limits any new federal 
authority to the Bulk Power System, aren't we leaving cities like New 
York and Washington vulnerable to a cyber attack?
    Answer. Yes, the current definition of Bulk Power System leaves 
certain cities, such as New York, vulnerable to a cyber attack. When. 
NERC proposed its first set of reliability standards, it asked that the 
applicability of the reliability standards be limited to facilities 
generally rated at 100 kV and above subject to the individual 
determinations of the regions. In Order No. 693, the Commission 
accepted this proposal but expressed concern about potential gaps in 
coverage. Since then, the regional definition applicable to Washington, 
D.C., has been strengthened adequately to include the transmission 
systems serving the city, but a different regional definition excludes 
most of the network facilities in the New York City area. Moreover, the 
Bulk Power System is statutorily defined as excluding facilities used 
in local distribution. The draft bill's language is broader than the 
Bulk Power System and would allow the Federal government to protect 
against such a gap.
    Question 2. In the 2005 Energy Policy Act, Congress created an 
Electric Reliability Organization--which is now NERC--to develop 
mandatory and enforceable reliability standards, including cyber 
security standards, for the electrical grid. While this ``Section 215 
Process'' provides for extensive stakeholder involvement, FERC has 
complained that the process is too time-consuming, does not allow 
timely changes, and does not protect security-sensitive information. I 
am concerned that even though we learned about Aurora in 2007, the NERC 
standards will still not be in place until 2010. Do the witnesses agree 
that the additional federal authority, beyond the Section 215 process, 
is needed for cyber security protection?
    Answer. Yes.
    Question 3. Section 215 of the Federal Power Act gives FERC the 
authority to oversee mandatory, enforceable reliability standards for 
the Nation's bulk power system, but excludes Alaska and Hawaii. What 
are the challenges in including Alaska, Hawaii, and the territories in 
cyber security action?
    Answer. The Commission would need to learn about the facilities 
that provide electric service in these States and territories, and 
establish a communication protocol to convey information and 
directives.
    Question 4. We can have the most secure systems here in the U.S., 
but we are interconnected with our northern and southern neighbors. 
What kind of coordination do we have with Canada and Mexico today? How 
much of an impact on the U.S. would there he from a cyber-intrusion 
into the Canadian or Mexican systems?
    Answer. The Commission and DOE maintain close coordination with 
Canadian and Mexican governmental officials and regulators; 
representatives from the three countries communicate by telephone or 
meet frequently. Officials in Canada and Mexico are well aware of the 
risks of cyber-intrusion, and the need to protect against such 
vulnerabilities and threats. The impact on the United States from a 
cyber-intrusion in Canada or Mexico is difficult to predict, and could 
vary widely based on the nature and location of the intrusion, as well 
as the system conditions at the time an intrusion occurs or is 
activated.
    Question 5. Some of the industry witnesses have argued that 
Congress should provide emergency/expedited authority to either DOE or 
FERC--but not both. How do you respond?
    Answer. The comments that supported giving the authority to either 
FERC or DOE but not both seemed to flow from a concern that there would 
be an overlap. However, the draft bill authorizes FERC to address 
vulnerabilities while authorizing DOE to address threats, so it is not 
clear that there will be an overlap. If circumstances arose in which 
the statute allowed both agencies to act, the agencies would need to 
coordinate their efforts appropriately, and I believe the agencies 
would act timely and responsibly in doing so. The FERC, which currently 
is the Federal agency statutorily responsible for overseeing 
reliability, has the expertise and processes in place to timely and 
effectively issue orders directing necessary actions to address 
reliability vulnerabilities or to address threats in emergency 
situations, to ensure that the actions ordered do not conflict with 
other reliability requirements, and to enforce its orders. The FERC 
also has many years of experience in reacting promptly to industry 
urgent action needs.
    Question 6. You testified that the legislation should address not 
only cyber security threats but also extend to other national security 
threats to reliability. What additional authority does FERC require?
    Answer. Physical or non-cyber events or attacks can damage the grid 
as much as, or more than, cyber attacks. While law enforcement agencies 
may be able to inform utilities about known or suspected threats, and 
provide or enhance protection against certain threats, I am unaware of 
any federal agency or law enforcement agency with authority to require 
utilities to take preventative actions to mitigate non-cyber 
vulnerabilities or threats to the power grid even if they endanger 
national security. It is impossible to speculate as to what specific 
non-cyber vulnerabilities and/or threats might materialize in future 
years, although it is certain that when such issues arise, it cannot be 
assured that they will be dealt with in a timely and effective manner 
unless a Federal agency is already authorized to require appropriate 
action. These non-cyber events might vary significantly and range from 
natural causes such as solar-magnetic storms to deliberate and 
coordinated attacks on specific equipment such as bulk power 
transformers. Broadening the draft bill to include non-cyber 
vulnerabilities would authorize regulatory requirements, quickly if 
necessary, to install and actuate protection measures against a solar 
storm (or threat of an electromagnetic pulse attack) or the stockpiling 
and sharing of costs for spare transformers. If the Congress does not 
enact a provision to enable the Commission to act to protect the power 
grid from such threats, there will be a gap in protection of the grid.
    Question 7. When FERC issues an alert or advisory for industry to 
take a voluntary action, such as in response to the Aurora 
vulnerability, what is the compliance rate?
    Answer. I am not aware of calculations of compliance rates, since 
some NERC issuances do not recommend specific actions and all are 
merely voluntary. NERC, and not FERC, issues alerts to address 
vulnerabilities or threats that are not covered by the reliability 
standards. Since the Aurora advisory, NERC has restructured its alert 
process, with Commission oversight. NERC now has three levels of 
alerts, and also issues awareness bulletins. Not all alerts require any 
feedback from industry. The three alert levels are: Industry 
Advisories, Recommendations to Industry and Essential Action Alerts. 
The Essential Action Alerts are the highest urgency alerts, and are 
most like the Aurora alert. Since putting this mechanism in place, no 
Essential Action Alerts have been issued. Voluntary compliance with 
these advisories has not been the subject of any audit--by NERC or the 
Commission. Thus, the effectiveness of these alert efforts is 
uncertain.

                               Attachment

I. Changes to Address Non-Cvber Vulnerabilities or Threats
          A. In section (b)(1), after ``cyber security 
        vulnerabilities'' insert ``or other national security 
        vulnerabilities''.
          B. In section (h)(2), after ``a cyber security 
        vulnerability'' insert ``or national security vulnerability''.
          C. In section (c)(1), after both references to ``cyber 
        security threat'' insert ``or national security threat''.
II. Changes to Broaden Protection of CEII
    Revise section (f) by adding the text underlined below:

          Section 214 of the Critical Infrastructure Information Act of 
        2002 (6 U.S.C. 133) shall apply to critical electric 
        infrastructure information submitted to, or developed by, the 
        Commission or the Secretary under this section to the same 
        extent as that section applies to critical infrastructure 
        information voluntarily submitted to the Department of Homeland 
        Security under that Act (6 U.S.C. 131 et seq.) If a rule or 
        order issued pursuant to this section contains critical 
        electric infrastructure information or if information in the 
        record associated with such rule or order constitutes critical 
        electric infrastructure information, the Commission or the 
        Secretary may make the rule, order or information non-public in 
        whole or in part.

                Responses to Questions From Senator Bayh

    Question 1. In your agency's view, would the proposed legislation 
drafted by the Committee on Energy and Natural Resources be 
complementary of various other legislative efforts to address the issue 
of cyber security in other sectors (banking, commerce, military, and 
intelligence)?
    Answer. Yes, the proposed legislation would be complementary to 
other legislative efforts addressing cyber security in other sectors 
such as banking, commerce, military, and intelligence. The legislation 
directs FERC to address cyber security vulnerabilities of the Nation's 
critical electric infrastructure. By doing so, the legislation places 
the responsibility and authority to address cyber security 
vulnerabilities of the electric grid with the agency that is already 
charged with regulating reliability and cyber security of the bulk 
power system and is therefore experienced and expert in these matters. 
It does not preclude or discourage FERC from working with other 
agencies or even a central authority (if Congress or the President 
elects to establish one) to address and mitigate these issues. In fact. 
I believe that in order to be effective, the Commission would need to 
coordinate closely with other agencies and bring all resources and 
expertise to bear on the particular vulnerability or threat presented. 
FERC already works closely with agencies such as DOE, DoD, DHS, NRC, 
CIA and others in these matters and expects to continue to do so if the 
proposed legislation is passed--even in combination with other cyber 
security legislative efforts affecting other industries and agencies.
    Question 2. If this legislation is enacted, how would new DOE and 
FERC authorities be complementary of the other efforts to ensure 
cybersecurity undertaken by the Executive Branch and of each other?
    Answer. As I mentioned previously, even if Congress or the 
President were to create a central authority, FERC expects to 
coordinate as appropriate with that authority to effectively establish 
and implement cyber security measures necessary to address 
vulnerabilities. Should the proposed draft retain the separation of 
FERC and DOE responsibilities, FERC expects to coordinate with DOE in 
order to prevent overlap of our orders and enforcement actions 
regarding FERC's responsibility to address ``vulnerabilities'' and 
DOE's responsibility to address ``threats''. Again, FERC already 
coordinates with many other agencies such as DOE, DoD, DHS, NRC and CIA 
to avoid duplicative or conflicting actions. At times, as during 
Aurora, FERC worked closely with the Executive Branch which convened 
interagency meetings to coordinate the actions of all federal agencies 
in order to assure an effective and comprehensive plan. Therefore, 
action to formalize an Executive Branch role is not expected to cause a 
conflict, overlap or other adverse effect on FERC's role.
    Question 3. Currently, how are DOE and FERC coordinating with all 
of the other agencies and departments involved in cyber security (for 
example, DHS, DoD, and the Intelligence Community)?
    Answer. In addition to excellent working relationships and issue-
based contacts between staff members of FERC, DOE, DoD, DI IS, CIA, and 
NSA, there are several formal processes that engage our agencies.

          a. FERC participates as a member of the Energy Sector 
        Government Coordinating Council co-chaired by DOE and DHS. The 
        Council is organized to coordinate security activities of 
        federal agencies in the Energy Sector. The Council also 
        facilitates interaction with the energy industry's members 
        through their sector coordinating councils.
          b. Defense Science Board--I have served as a resource to the 
        energy task force evaluating specific physical and cyber 
        vulnerabilities and their impact to the mission-critical 
        functions of the armed services. As part of this assignment, I 
        have helped to conduct briefings of the Senate's Armed Services 
        staff members as well as briefings of senior DoD officials at 
        the Pentagon.
          c. Joint Projects and Studies--FERC has conducted independent 
        studies and has initiated joint studies with other agencies 
        such as DOE, DoD, and others to evaluate physical and cyber 
        security vulnerabilities and to identify effective mitigation 
        techniques.
          d. Memorandums of Understanding--FERC has executed an MOU 
        with the NRC and meets with staff to discuss cyber security 
        issues of the power grid and how they could affect the 
        operation and security of the nuclear power plants. In fact, 
        FERC just recently issued an order after considering comments, 
        including from the NRC staff, to eliminate a gap in regulatory 
        coverage of cyber security standards in the ``balance of 
        plant'' portion of nuclear generating plants not directly 
        related to the nuclear safety, security or emergency 
        preparedness.
          e. Industrial Control Systems Joint Working Group (the WG)--
        FERC participates in the WG that is organized and run by DHS. 
        The WG encompasses cyber security issues for all sectors, and 
        involves governmental and industry organizations.

    Question 4. How will these efforts be affected by the President's 
cybersecurity review?
    Answer. We have not yet seen the President's cybersecurity review 
and therefore cannot comment on its effect on our responsibility 
regarding the Bulk Power System or its interaction with the proposed 
legislation. However, I can reiterate that FERC is a regulatory agency 
and is expert at crafting orders, issuing them quickly when necessary, 
conducting fair proceedings for the regulated community, and enforcing 
its orders and directives. FERC has the statutory responsibility to 
oversee the reliability and cyber security of the nation's power grid. 
I believe that any new cyber security initiative or review should 
consider FERC's statutory responsibility and expertise to protect the 
electric infrastructure that our country depends upon for its safety, 
economy, and military preparedness. Should the proposed legislation 
pass, I expect that this will complement FERC's existing authorities to 
protect reliability of the transmission grid by allowing FERC to 
immediately address vulnerabilities to the Nation's critical electric 
infrastructure. In the event that the President's cybersecurity review 
leads to the creation of a new Executive Branch role, as in the past 
FERC would coordinate with this function to assure that its actions are 
effective and comprehensive in the context of the actions of the other 
agencies.
                                 ______
                                 
      Responses of Allen Mosher to Questions From Senator Bingaman

    Question 1. In your view is the authority granted in the proposal 
sufficiently broad to allow protection against all cyber security 
threats and vulnerabilities? Does the provision cover Alaska, Hawaii, 
and distribution systems?
    Answer. APPA has assumed that the question is directed to cyber 
security threats to and vulnerabilities on the electric system. Based 
on that premise, the proposal, through the Section 224(a)(1) definition 
of ``Critical Electric Infrastructure,'' is sufficiently broad to allow 
protection against cyber security threats and vulnerabilities to 
electric system assets, including generation, transmission and 
distribution. In fact, APPA is concerned that the scope of the proposed 
authority is overly broad, in that the inclusion of distribution 
facilities may tax the scarce resources needed to mitigate risks 
associated with attacks on the bulk power system.
    APPA is also concerned that the scope of this authority may not be 
clearly delineated and may overlap with authorities reserved to state 
and local regulatory bodies. APPA continues to oppose granting 
emergency authorities to FERC over distribution facilities.
    The phrase at page 1, line 10, ``affecting interstate commerce'' 
could be interpreted to imply that the covered distribution facilities 
may be used to provide electric service in interstate commerce. Under 
that interpretation, Hawaii and Alaska would not be covered by the 
proposal.
    But the text ``affecting interstate commerce'' could also be 
interpreted to imply that interruption of service through attacks on 
critical electric infrastructure would have a debilitating impact on 
the operations of electric customers. In that event, Alaska, Hawaii and 
all distribution electric assets, including private networks owned by 
non-utilities, might be covered.
    Question 2. You agree that it would be appropriate for FERC to 
issue ``interim measures'' to protect against the Aurora vulnerability. 
Do you not believe that there are other vulnerabilities that deserve 
this same treatment? What if, next week, we discovered eight others? 
Should we not allow FERC to issue interim measures for all 
vulnerabilities?
    Answer. APPA's support for FERC authority to address the Aurora 
cyber-security vulnerability is based on the recognition that current 
NERC Critical Infrastructure Protection reliability standards do not 
encompass all bulk-power system facilities and that the Aurora Advisory 
identified certain vulnerabilities that can and should be addressed 
now. The primary message of the Aurora advisory--that utilities should 
secure utility operating data and control systems from unauthorized 
remote access--is fundamental. One important set of lessons to be 
learned from Aurora is that advisories need to be clearly describe the 
nature of the vulnerability and that not all recommended mitigation 
measures work in all situations. The Aurora advisory process then in 
existence lacked the needed processes to clarify or refine the actual 
advisory and receive feedback from industry experts before it was 
issued to the industry as a whole.
    A comprehensive set of mandatory reliability standards will provide 
a framework for systematic analysis and response by bulk power system 
asset owners to new vulnerabilities. Thus, as specific new 
vulnerabilities emerge in the future, they can and will be addressed, 
either through new NERC standards for the bulk power system or through 
the development of interpretations of then-existing CIP standards. 
FERC's existing authority under FPA Section 215 to direct NERC to 
submit a new or revised reliability standard addressing a specific 
matter, in conjunction with improved government-industry communication 
processes should obviate the need for FERC authority to direct interim 
measures.
    Question 3. We have included the sensitive information protections 
from the Critical Infrastructure Information Act. Are these protections 
not sufficient? If not, what would be?
    Answer. No. Unfortunately, the Critical Infrastructure Information 
Act appears to protect only voluntary data submittals by private sector 
entities to the Department of Homeland Security and possibly other 
federal agencies. Submittals required by regulatory orders, data 
exchanged by private sector entities, information exchanged among 
entities during NERC standards development processes, and 
communications by federal, state, municipal and other locally owned 
utilities with third parties do not appear to be covered by the 
referenced act.
    APPA recommends that the Committee examine closely the language of 
Section (f) of H.R. 2165, introduced into the House of Representatives 
by Rep. Barrow on April 29, 2009.
    APPA will also provide additional draft statutory language to 
address the particular concerns of state and locally-owned utilities as 
soon as possible.

     Responses of Allen Mosher to Questions From Senator Murkowski

    Question 1. The industry witnesses before us today urge Congress 
not to broaden federal jurisdiction in the cyber arena to extend to the 
local distribution system. But, if Congress limits any new federal 
authority to the Bulk Power System, aren't we leaving cities like New 
York and Washington vulnerable to a cyber attack?
    Answer. On balance, no. Protecting the bulk power system from cyber 
attack necessarily entails taking measures to ensure that the bulk 
power system is not vulnerable to attacks originating on the 
interconnected distribution system. Such attacks could be propagated 
either through utility system data and control systems used perform 
both transmission and distribution functions, or through attacks on 
customer devices that might be propagated upward and adversely affect 
power characteristics on the bulk power system (e.g., real and reactive 
power demands, frequency, voltage, etc.). In the former case, 
integrated utilities have an interest in protecting both their 
transmission and distribution systems from attack and will apply cyber 
security measures throughout their systems. In the latter case, proper 
design and certification of Smart Grid devices will ensure that cyber-
security capability is built in rather than added in a patchwork 
process after the fact. Finally, distributions utilities in major 
cities and their retail regulators will respond to threat and 
vulnerability information made available through NERC ES-ISAC and DOE 
information sharing and analysis programs.
    Question 2. In the 2005 Energy Policy Act, Congress created an 
Electric Reliability Organization--which is now NERC--to develop 
mandatory and enforceable reliability standards, including cyber 
security standards, for the electrical grid. While this ``Section 215 
Process'' provides for extensive stakeholder involvement, FERC has 
complained that the process is too time-consuming, does not allow 
timely changes, and does not protect security-sensitive information. I 
am concerned that even though we learned about Aurora in 2007, the NERC 
standards will still not be in place until 2010. Do the witnesses agree 
that the additional federal authority, beyond the Section 215 process, 
is needed for cyber security protection?
    Answer. As I noted in my testimony, APPA supports authority for 
FERC to issue emergency orders in response to an imminent threat. APPA 
also supports authority for FERC to direct entities subject to Section 
215 to take interim measures to secure their bulk power system assets 
from the vulnerabilities described in the Aurora advisory.
    APPA also agrees that the NERC standards development process can be 
complex and time consuming. Nonetheless, APPA fully supports Congress' 
decision in the Energy Policy Act of 2005 to rely upon the Section 215 
model of an industry-based Electric Reliability Organization--NERC--to 
develop reliability standards that are technically sound, well 
understood and broadly supported by the 1800 entities within the 
electric power industry that have to live with these standards on a 
day-to-day basis. The additional time required to develop standards 
through this process helps ensure that technical issues are resolved up 
front by industry experts and that potential unintended consequences 
(such as a cyber-security rule that might impair real time operating 
procedures) are addressed early on.
    NERC has adopted procedures that provide for emergency standard 
development to quickly fill gaps that may be identified in existing 
reliability standards. NERC's rules of procedure and reliability 
standards development process provide for a two-step response. Where 
the nature of the underlying threat or vulnerability and the associated 
mitigation measures are well-defined, cyber-security experts from NERC 
and the electric industry collaborate with federal government agencies 
and other sources (e.g., US-CERT) to craft an advisory with recommended 
or essential actions to be taken by the applicable entities (generally 
owners and operators of the potentially affected bulk power system 
assets). Essential action advisories must be approved by the NERC Board 
of Trustees. Each entity that receives an essential action or 
recommended action advisory must respond to NERC that it has received 
the advisory and must describe the actions it has taken. If the 
underlying threat or vulnerability is sustained in nature and is not 
addressed by an existing reliability standard, an emergency standards 
development process can be initiated resulting in the development and 
approval of a new or revised reliability standard within days.
    APPA does believe that existing law makes it difficult to protect 
security-sensitive information during the standards-development 
process. This would appear to be true regardless of whether such 
standards were developed by stakeholders through NERC's standards 
development procedure or by and FERC through some form of public notice 
and comment. FERC witness Joseph McClelland raised similar concerns.
    Question 3. You mentioned the need for a greater flow of 
information from the government to industry on cyber security threats. 
What is the current process/course of action for cyber security threats 
for the private sector? Why do you want DOE as the lead and how would 
having a Cyber Security Czar in the White House impact that flow of 
information?
    Answer. APPA suggests that NERC is better equipped than APPA to 
provide a full description of its processes and responsibilities as the 
ES-ISAC. See the response to Question 2 for a brief overview.
    APPA sees several advantages to placing DOE in the lead role with 
respect to communications with the electricity sector. First, DOE has 
that role as the Government Coordinating Council for the energy sector 
today. DOE both understands the energy sector and has access to high-
level intelligence information from other cabinet-departments and 
intelligence agencies, allowing it to act as a conduit, filter and 
translator of intelligence threat and vulnerability information into 
actionable forms that may be used by the electric utility industry. 
Finally, as described by DOE witness Patricia Hoffman, the Department 
is the federal agency that is best situated to help improve the 
technological state of the art in cyber-security, while advancing other 
important energy policy goals such as the deployment of Smart Grid 
technologies.
    APPA does not have a position on whether a Cyber Security Czar 
should be established in the White House or whether the flow of threat 
and vulnerability information from government to industry might be 
improved by such an action. APPA merely observes that a narrow, 
surgical approach to addressing cyber security issues based on existing 
FERC and DOE authorities would be less likely to come into conflict 
with Congressional and Executive Branch decisions on how to better 
align the federal government's cyber-security strategy as a whole.
    Question 4. It has been suggested that the draft legislation we are 
considering could be duplicative and cause confusion by giving parallel 
powers to DOE and FERC for cyber security threats and vulnerabilities. 
How does the Electricity Sector Information Sharing and Analysis Center 
(ES-ISAC) fit into the picture in disseminating these potential new 
rules and orders to the electricity industry? Does information flowing 
through this Center help reduce any confusion or is it more about which 
agency has the lead?
    Answer. APPA suggests that NERC is better equipped than APPA to 
provide a full description of its processes and responsibilities as the 
ES-ISAC. See the response to Question 2 for a brief overview.
    APPA believes information should continue to flow through the ES-
ISAC regardless whether such information originates within the federal 
government or from public-private partnership arrangements, 
universities or equipment vendors and manufacturers. Under the current 
legal framework, the ES-ISAC is responsible for issuing alerts to the 
entire electric sector. These alerts are described as advisories, 
recommendations or essential actions. Recommendations and essential 
action alerts are accompanied by suggested mitigation measures. ES-ISAC 
alerts are separate and distinct from NERC's responsibility as the ERO 
to develop and enforce mandatory reliability standards. The ES-ISAC is 
not structured as a body with appropriate governance, due process and 
compliance procedures to act as a vehicle to disseminate and ensure 
compliance with rules and orders.
                                 ______
                                 
     Responses of David K. Owens to Questions From Senator Bingaman

    Question 1. In your view is the authority granted in the proposal 
sufficiently broad to allow protection against all cyber security 
threats and vulnerabilities? Does the provision cover Alaska, Hawaii, 
and distribution systems?
    Answer. The language in the joint staff draft appears intended to 
protect against all cyber security threats and vulnerabilities, 
including those affecting distribution systems and Alaska and Hawaii. 
However, just as it is impossible as a practical matter to absolutely 
guarantee 100% electric system reliability all of the time, a 100% 
threshold for cyber security is virtually unattainable. Perfect 
security is not a static, or even realistic, goal for security 
professionals, including those in the electric utility industry, 
because the technologies utilized by the industry, as well as the 
techniques pursued by cyber adversaries, are continuously evolving.
    EEI and its member companies believe there is considerable 
strategic value in demonstrating to our cyber adversaries the ability 
to respond to a threat with swift, unambiguous action. That is why we 
support designating a single federal regulatory authority that, in case 
of an imminent emergency threat, could issue clear actionable orders 
and, where necessary, enforce those orders.
    In crafting legislation, Congress should try to avoid inadvertently 
creating a framework that could weaken grid security rather than 
strengthening it. For example, the inclusion of an overly broad 
diversity of assets and systems, as proposed in the joint staff draft, 
could significantly complicate the task of quickly writing unambiguous 
orders for actions to be taken to mitigate the threat, with significant 
risk that such orders would be ineffective or could cause other 
unintended adverse consequences. Also, attempting to address every 
single cyber security threat or vulnerability is inconsistent with a 
fundamental tenet of security, i.e., the use of risk analysis to 
prioritize resources. The technical comment at the end of the 
Department of Energy's prepared testimony submitted for the May 7 
hearing is a good description of such an approach. Using a risk-based 
approach means protecting against threats or vulnerabilities with the 
highest consequences to reliability or public welfare and safety. This 
is why Federal Power Act (FPA) section 215 focuses on protecting the 
reliability of the North American bulk power system.
    Question 2. Is it not true that threats to the bulk power system 
can come from attacks through distribution system control systems? If 
so, should we not protect against those possible attacks as well as 
those that come from transmission system control systems?
    Answer. Under current North American Electric Reliability 
Corporation (NERC) standards, if an attack on a distribution control 
system could impact the bulk power system, that piece of distribution 
equipment would be covered by NERC standards and authority under FPA 
section 215. Thus, EEI would argue that protection already exists 
against possible attacks on the bulk power system through distribution 
control systems.

    Responses of David K. Owens to Questions From Senator Murkowski

    Question 1. The industry witnesses before us today urge Congress 
not to broaden federal jurisdiction in the cyber arena to extend to the 
local distribution system. But, if Congress limits any new federal 
authority to the Bulk Power System, aren't we leaving cities like New 
York and Washington vulnerable to a cyber attack?
    Answer. No. In the Energy Policy Act of 2005, Congress wisely left 
the definition of the ``bulk power system'' flexible to allow the 
inclusion of assets to address special circumstances such as those 
posed by major cities like New York City and Washington, DC. In effect, 
there is not a single definition of ``bulk power system'' for the 
entire country, but instead each region has its own definition crafted 
to reflect the unique system design, operating and engineering 
characteristics, and asset makeup in that region. This flexibility 
provides FERC the ability to exercise discretion to include specific 
areas or assets, including some distribution assets where necessary for 
reliability purposes. In fact, FERC has pending in docket RC09-3 a 
filing by NERC to include additional assets in New York City, and has 
already acted in an earlier docket to include additional assets in 
Washington, DC.
    Question 2. In the 2005 Energy Policy Act, Congress created an 
Electric Reliability Organization--which is now NERC--to develop 
mandatory and enforceable reliability standards, including cyber 
security standards, for the electrical grid. While this ``Section 215 
Process'' provides for extensive stakeholder involvement, FERC has 
complained that the process is too time-consuming, does not allow 
timely changes, and does not protect security-sensitive information. I 
am concerned that even though we learned about Aurora in 2007, the NERC 
standards will still not be in place until 2010. Do the witnesses agree 
that the additional federal authority, beyond the Section 215 process, 
is needed for cyber security protection?
    Answer. As stated in our testimony, EEI agrees that it is 
appropriate for Congress to provide federal energy regulators with 
explicit new statutory authority to address imminent and serious 
emergency cyber security threats. Any new authority should be narrowly 
tailored to deal with real emergencies; overly broad authority could 
undermine the collaborative framework that is needed to further enhance 
security.
    It is important to note that current law already provides the means 
to address the many non-emergency cyber security issues in the electric 
industry. Any new emergency authority should be complementary to 
existing authorities under FPA section 215, a proven approach that 
relies on industry expertise as the foundation for developing 
reliability standards.
    Question 3. You mention the need for manufacturers of grid 
equipment and systems to build security into their products. Is the 
electric industry able to use procurement power to persuade vendors to 
deliver these safe systems, or is the industry too diverse in the 
systems and technologies they use to have the ability to influence 
product design? Isn't part of the problem that many of these systems 
are manufactured overseas?
    Answer. Procurement contracting is one way the industry can attempt 
to get vendors to build additional security into their products. 
However, EEI believes that building security into electric utility 
systems is too important to deal with solely on a contract-by-contract 
basis. Relying on this approach assumes that every utility has adequate 
expertise to negotiate in the procurement process for appropriate 
security protections, and that every vendor has adequate expertise to 
fulfill requirements made by the customer. The experience of EEI 
members has not shown these assumptions to be true. EEI believes that a 
uniform set of appropriately rigorous testing criteria, administered by 
a third party expert who would certify that the criteria had been 
applied and passed, would mitigate these issues.
    The National Institute of Standards and Technology (NIST) effort to 
develop a smart grid interoperability framework offers opportunities in 
this area. NIST plans to develop vendor and manufacturer certification 
guidelines as part of the third phase of this effort. Overseas 
manufacturers could be subject to the same certification processes.
    Another advantage of smart grid vendor and manufacturer security 
verification is that it could help state utility regulators objectively 
evaluate utilities' capital expenditures for inclusion of reasonable 
cyber security as a criterion for cost recovery purposes. This also 
could help indirectly encourage manufacturers of grid equipment and 
systems to build security into their products.
    Question 4. You have stressed that information sharing on the 
government's part is a vital component in cyber security. Which federal 
and state agencies/departments do you coordinate with on cyber security 
threats and vulnerabilities? Are there instances when intelligence and 
law enforcement officials have not shared actionable information in a 
timely manner?
    Answer. The electricity industry coordinates with and has received 
classified briefings from many federal agencies on cyber security 
issues, including the FBI, DHS, DOE, FERC, the NRC, CIA, Department of 
Commerce, DoD, and ODNI. Many agencies, in particular DOE, also work 
closely with industry personnel to educate and assist them in 
developing strong cyber security strategies. Electric utilities are 
eager to learn any information that helps them more effectively and 
efficiently secure their systems, and EEI very much appreciates the 
efforts of these agencies in helping utilities improve their cyber 
security.
    EEI believes that Congress should encourage a consultative 
relationship between utilities and government agencies as a necessary 
component of securing systems, and should not rely solely on a broad 
regulatory approach to achieve effective security. It is inevitable 
that the most sophisticated expertise on addressing the latest 
cybersecurity threats will rest in federal agencies with national 
security responsibilities. This information cannot be made available to 
electric utility personnel, who nevertheless under the proposed 
legislation could be expected to share responsibility for national 
security. Expertise in reliably and safely operating electricity assets 
in a large integrated system rests within the electric utility 
industry. EEI believes that security is enhanced by leveraging both 
types of expertise to identify efficient and effective techniques for 
securing electric industry systems.
    Question 5. A company in Alaska tells me that it is possible to put 
a one-way regulator on cyber networks so information can flow out from 
the network to managers that need access to the data, but data cannot 
be sent back into the network from a remote source--ie: an outside 
attack. Do you view a one-way flow regulator as a feasible solution?
    Answer. There are solutions that can be placed on networks which 
allow a secure one-way communication of data between networks of 
different security levels. This is a feasible option, which is already 
being used by some utilities, but only as part of an overall defense-
in-depth cyber security program.
                                 ______
                                 
   Responses of Richard P. Sergel to Questions From Senator Bingaman

    Question 1. In your view is the authority granted in the proposal 
sufficiently broad to allow protection against all cyber security 
threats and vulnerabilities? Does the provision cover Alaska, Hawaii, 
and distribution systems?
    Answer. The jurisdictional scope described in the Joint Staff Draft 
is the broadest that I can conceive. It covers generation, 
transmission, and local distribution. It covers Alaska and Hawaii. The 
use of the phrase ``affecting interstate commerce'' has been construed 
by the U.S. Supreme Court to be coterminous with the full extent of the 
Congress's authority under the Commerce Clause of the U.S. 
Constitution. Thus, I don't see that anything is left out. If Smart 
Grid devices were implicated in a cyber threat or vulnerability, they 
would be covered. As well, the language appears broad enough to reach 
third-party communications providers if they were implicated in any 
threat or vulnerability. Because I do not have access to information 
regarding the full range of cyber security threats and vulnerabilities 
facing the United States, I cannot say whether the proposed Joint Staff 
Draft grants sufficient authority to allow protection against ``all 
cyber threats and vulnerabilities.''
    Question 2. You suggest that we should not give FERC authority to 
establish standards pending the outcome of your deliberations. Do you 
not think that it is important to protect these critical assets during 
the years that it takes to get a standard through your organization?
    Answer. NERC believes the Congress should adopt legislation 
granting an agency of the Federal government emergency authority to 
address an imminent cyber security threat. Each of the examples given 
in testimony by the witness for the Federal Energy Regulatory 
Commission involved situations where the action needed to occur to 
address ``threats to national security quickly'' and ``require 
immediate action'' (Prepared Testimony of Mr. McClelland, page 8), as 
well as when ``there may be a need to act decisively in hours or days'' 
(Prepared Testimony of Mr. McClelland, page 9). That is what emergency 
authority is all about. A grant of emergency authority, such as that 
granted to the Department of Energy under the draft legislation, will 
provide the Federal government the authority it needs to address any 
specific situation that must be addressed in ``hours or days.''
    NERC now has in place a baseline set of standards designed to 
protect the security of the bulk power system. NERC's Critical 
Infrastructure Protection standards cover these broad categories:

   Sabotage Reporting
   Critical Cyber Asset Identification
   Security Management Controls
   Personnel & Training
   Electronic Security Perimeter(s)
   Physical Security of Critical Cyber Assets
   Systems Security Management
   Incident Reporting and Response Planning
   Recovery Plans for Critical Cyber Assets

    These nine standards, encompassing roughly 45 individual 
requirements, are already in effect. Audits for compliance with 13 
requirements in these standards will begin for a certain set of 
entities on July 1, 2009, with audits beginning for the remaining 
requirements and remaining entities in 2010.
    NERC and the industry are working to improve and strengthen those 
standards, including addressing the modifications directed by FERC in 
Order No. 706. NERC, working with industry security and operations 
experts and FERC staff, has divided that work into two concurrent 
phases. Last week, industry stakeholders approved phase one of the 
improvements by an 88% affirmative vote. On May 6, 2009, the NERC Board 
of Trustees approved those phase one revisions to the Critical 
Infrastructure Protection standards. These revisions will be filed 
shortly with FERC for approval and, if approved, they will become 
binding and enforceable. Phase two revisions are already underway and 
are expected to be complete in 2010. NERC and industry experts will 
continue their work to improve those standards further in the months 
ahead.
    Please note that NERC has procedures that enable it to adopt 
standards in substantially less time than ``years.'' To respond to the 
need for standards to address pressing reliability or security 
concerns, NERC can employ its urgent action standards development 
process. Under its current construct, a proposed standard can be 
processed through approval in approximately two months. Modifications 
to this timeline are under review and are to be presented for NERC 
Board approval in early August. These changes would dramatically reduce 
this approval timeframe to as few as 10 days once a team drafts the 
proposed standard. These timelines are impacted by the time needed to 
craft the standard in response to the identified threat or 
vulnerability.
    If NERC needs to develop a reliability standard in response to a 
critical issue that is so confidential that information can only be 
shared on a ``need to know'' basis, NERC will use all the steps in the 
standards development procedure, but will limit the participation and 
the amount of information released within some of the steps of the 
procedure. This balances the need to preserve the integrity of the 
reliability standards development procedure with the need to preserve 
the confidentiality of information that, if exposed, could put the 
reliability of the bulk power system at risk.
    Question 3. Do you know how long it will be before NERC is able to 
address the weaknesses in the standards remanded by the Commission?
    Answer. The Commission did not remand NERC's Critical 
Infrastructure Protection standards. Instead, the Commission approved 
those standards, stating:

          In approving the CIP Reliability Standards, the Commission 
        concludes that they are just, reasonable, not unduly 
        discriminatory or preferential, and in the public interest. 
        These CIP Reliability Standards, together, provide baseline 
        requirements for the protection of critical cyber assets that 
        support the nation's Bulk-Power System. Thus, the CIP 
        Reliability Standards serve an important reliability goal. 
        Further, as discussed below, the CIP Reliability Standards 
        clearly identify the entities to which they apply, apply 
        throughout the interconnected Bulk-Power System, and provide a 
        reasonable timetable for implementation. (Order No. 706, para. 
        24.)

    Those standards are now in effect. Users, owners, and operators of 
the bulk power system are in the process of coming into compliance with 
those standards, in accordance with the implementation timetable 
approved by the Commission. In Order No. 706, the Commission also 
directed NERC to make a number of improvements in the Critical 
Infrastructure Protection standards, and NERC is in the process of 
doing that now.
    As described in my response to the prior question, this week NERC's 
Board of Trustees approved the first phase of the improvements to the 
standards directed by the Commission. The phase one improvements 
include removal of the ``reasonable business judgment'' test and the 
``assumption of risk'' criterion. The improvements also strengthen 
senior management's accountability for implementation of critical 
infrastructure protection programs within each company. Related 
procedural rules will provide for audits of technical feasibility 
exceptions claimed by users, owners, and operators of the bulk power 
system. NERC and industry security and operations experts are now 
working on the second phase of the improvements directed by the 
Commission. NERC expects to complete phase two during 2010.

   Responses of Richard P. Sergel to Questions From Senator Murkowski

    Question 1. The industry witnesses before us today urge Congress 
not to broaden federal jurisdiction in the cyber arena to extend to the 
local distribution system. But, if Congress limits any new federal 
authority to the Bulk Power System, aren't we leaving cities like New 
York and Washington vulnerable to a cyber attack?
    Answer. The greatest risk to the Nation is threats to the bulk 
power system, and Congress should make sure that risk is addressed. 
State commissions and local authorities can act to protect local 
distribution facilities if they have access to prompt actionable 
information on which to base any requirements they might impose. 
However, the vast majority of the information about the risks and 
threats to the electric system is in the hands of Federal authorities, 
and much of that information is classified. Getting actionable 
intelligence and mitigation measures in the hands of state and local 
officials who already have authority to act to protect the cyber 
security of their cities is the best way to protect those localities.
    Question 2. In the 2005 Energy Policy Act, Congress created an 
Electric Reliability Organization--which is now NERC--to develop 
mandatory and enforceable reliability standards, including cyber 
security standards, for the electrical grid. While this ``Section 215 
Process'' provides for extensive stakeholder involvement, FERC has 
complained that the process is too time-consuming, does not allow 
timely changes, and does not protect security-sensitive information. I 
am concerned that even though we learned about Aurora in 2007, the NERC 
standards will still not be in place until 2010. Do the witnesses agree 
that the additional federal authority, beyond the Section 215 process, 
is needed for cyber security protection?
    Answer. NERC believes the Congress should adopt legislation 
granting an agency of the Federal government emergency authority to 
address an imminent cyber security threat. Each of the examples given 
in testimony by the witness for the Federal Energy Regulatory 
Commission involved situations where the action needed to occur to 
address ``threats to national security quickly'' and ``require 
immediate action'' (Prepared Testimony of Mr. McClelland, page 8), as 
well as when ``there may be a need to act decisively in hours or days'' 
(Prepared Testimony of Mr. McClelland, page 9). That is what emergency 
authority is all about. A grant of emergency authority, such as that 
granted to the Department of Energy under the draft legislation, will 
provide the Federal government the authority it needs to address any 
specific situation that must be addressed in ``hours or days.''
    Standards are different, because they prescribe the actions and 
practices that all entities, large and small, must follow day in and 
day out. Standards-setting is intentionally a deliberative process that 
involves the application of expertise in many disciplines. Entities may 
be subject to fines of up to $1,000,000 per day per violation for 
failure to comply with standards. The electricity production and 
delivery system is technically very complex, so it is important in 
establishing standards that there be no unintended consequences that 
may actually reduce the reliability or security of the system. NERC now 
has in place a baseline set of standards designed to protect the 
security of the bulk power system. NERC's Critical Infrastructure 
Protection standards cover these broad categories:

   Sabotage Reporting
   Critical Cyber Asset Identification
   Security Management Controls
   Personnel & Training
   Electronic Security Perimeter(s)
   Physical Security of Critical Cyber Assets
   Systems Security Management
   Incident Reporting and Response Planning
   Recovery Plans for Critical Cyber Assets

    NERC and the industry are working to improve and strengthen those 
standards, including addressing the modifications directed by FERC in 
Order No. 706. NERC, working with industry security and utility experts 
and FERC staff, has divided that work into two concurrent phases. Last 
week, industry stakeholders approved phase one of the improvements by 
an 88% affirmative vote. On May 6, 2009, the NERC Board of Trustees 
approved those phase one revisions to the Critical Infrastructure 
Protection standards. NERC and industry experts will continue their 
work to improve those standards further in the months ahead.
    To respond to the need for standards to address pressing 
reliability or security concerns, NERC can employ its urgent action 
standards development process. Under its current construct, a proposed 
standard can be processed through approval in approximately two months. 
Modifications to this timeline are under review and are to be presented 
for NERC Board approval in early August. These changes would 
dramatically reduce this approval timeframe to as few as 10 days once a 
team drafts the proposed standard. These timelines are impacted by the 
time needed to craft the standard in response to the identified threat 
or vulnerability.
    If NERC needs to develop a reliability standard in response to a 
critical issue that is so confidential that information can only be 
shared on a ``need to know'' basis, NERC will use all the steps in the 
standards development procedure, but will limit the participation and 
the amount of information released within some of the steps of the 
procedure. This balances the need to preserve the integrity of the 
reliability standards development procedure with the need to preserve 
the confidentiality of information that, if exposed, could put the 
reliability of the bulk power system at risk.
    Question 3. Why isn't the existing Section 215 process sufficient 
to address cyber security threats and vulnerabilities? Should we extend 
any new authority to physical assets?
    Answer. As indicated in my response to earlier questions, the 
Section 215 standards-setting process cannot adequately deal with 
imminent cyber security threats. Standards prescribe the actions and 
practices that all entities, large and small, must follow, day in and 
day out. They are not capable of dealing with specific, targeted 
imminent threats that must be addressed ``in hours or days.'' Granting 
an agency of the Federal government authority to deal with emergency 
threats will address the gap that currently exists. With authority to 
deal with emergency situations in place, NERC can continue to work 
through its more deliberative standards development process, using 
security and operations experts, to make continuous improvements in the 
underlying standards. NERC does not believe it is necessary for 
Congress to extend new authority for the protection of physical assets. 
Sufficient authorities and agencies already exist to deal with risks to 
physical assets, including local and state police, the Federal Bureau 
of Investigation, and the Departments of Defense and Homeland Security.
    Question 4. In your written testimony, you say that in the case of 
an imminent cyber security threat, authority to direct action should be 
vested, as appropriate, in the Federal government of Canada. Could you 
please describe a scenario where the Canadian Government should have 
the authority to direct action? Directed at companies operating within 
the United States?
    Answer. I did not mean to suggest the Canadian government should 
have any authority to issue directives to companies operating within 
the United States. Rather, my testimony reflected that fact that the 
interconnected bulk power system is international in scope. It spans 
both the U.S./Canadian border and the U.S./Mexican border. Just as NERC 
believes it imperative that the U.S. Federal government have emergency 
authority to deal with imminent cyber security threats, NERC also 
believes that appropriate governmental authorities within Canada and 
Mexico should exercise emergency authority for imminent cyber security 
threats within their respective jurisdictions. The international, 
interconnected nature of the bulk power system does mean it is critical 
for authorities in all jurisdictions to coordinate their actions in 
dealing with imminent cyber security threats, so that they do not 
unintentionally cause unintended consequences that occur as a result of 
the actions they do require.
    Question 5. Could you expand on the education challenges the 
industry faces in ensuring that each entity understands the cyber 
security challenges facing them and efforts that are being made to 
overcome those challenges?
    Answer. The electricity industry is very accustomed to dealing with 
risks to the bulk power system, and users, owners and operators deal 
with risks such as severe weather, forest fires, mechanical breakdowns, 
and equipment failure every day. The cyber security challenges are 
different in kind, because they can be intentional, targeted attacks 
from remote locations, perhaps by hostile nation-states. And unlike the 
other location-specific risks that users, owners, and operators are 
accustomed to dealing with, the cyber security challenges can be very 
broad in scope and affect multiple assets simultaneously. The 
implications of this difference impact traditional thinking at a very 
basic level: even the criteria used to define a ``critical asset'' in 
the cyber world are different than those typically applied in 
traditional planning and operating analysis.
    Within the last year, NERC has worked extensively to help the 
industry better understand the potential risks associated with 
significant cyber vulnerabilities. These efforts have taken a number of 
forms, but began with NERC's formation of a Critical Infrastructure 
Protection program. In August of 2008, NERC hired security expert 
Michael Assante as Chief Security Officer (``CSO'') to lead the program 
and has recently brought additional expertise on board to support his 
efforts.
    NERC has also formed an Electricity Sector Steering Group 
comprising seven CEO-level executives from all sectors of the electric 
industry to provide overall policy guidance to NERC's Critical 
Infrastructure Protection Program and achieve greater CEO-level buy-in 
from industry executives. This group first met at NERC's 2008 Cyber 
Security Summit held in coordination with four government agencies in 
September 2008. The event was attended by 130 industry executives and 
covered various security-related topics. In addition to this initial 
session, NERC has subsequently arranged for special and classified 
briefings for industry executives in the United States and Canada with 
the intelligence community. NERC expects to continue this outreach, 
with another session currently being planned for December 2009.
    Webinars and other communications materials have been another key 
component of NERC's educational outreach. NERC's CSO has spoken at a 
number of industry web-based and in-person events. NERC has also given 
significant support to the organization of security conferences, such 
as the SCADA Summit meeting held in conjunction with the annual SANS 
Summit in February. Additionally, NERC is currently developing a five-
part webinar series designed to educate stakeholders about requirements 
in NERC's CIP standards.
    NERC's alerts mechanism has acted as yet another educational tool. 
In addition to their primary role of providing actionable information 
to industry, regular issuance of advisories has certainly helped to 
sensitize the four to five thousand individual alert recipients to 
these issues. In addition to its alerts, NERC has also begun to issue 
critical infrastructure ``awareness bulletins'' regarding critical 
infrastructure concerns as they arise.
    In February of 2009, NERC also launched its ``Network Hydra,'' a 
network of industry security professionals who are regularly convened 
via conference call and e-mail to discuss emerging cyber security 
issues.
    NERC also facilitates its Critical Infrastructure Protection 
Committee, a group of approximately thirty industry professionals 
dedicated to discussing and producing guidance related to critical 
infrastructure concerns to the industry. The group meets face-to-face 
quarterly and via conference call as necessary. NERC staff is in close 
coordination with the ``Executive Committee'' of this Committee on a 
weekly basis. As an example of its work, the group has recently posted 
a set of guidelines for critical asset identification for industry 
comment and plans to finalize these documents in the coming months.
    NERC views the standards development process itself as a key 
educational tool as well, as drafting the standards drives many 
discussions within the industry as groups seek to provide comment and 
vote on the standards.
    Finally, regular correspondence with the industry, via letters such 
as CSO Michael Assante's April 7th letter, the monthly newsletter, and 
through a ``CSO blog'' that will become available on NERC's website in 
the coming week, also provide an important educational mechanism for 
the industry.
                                 ______
                                 
    Responses of Patricia Hoffman to Questions From Senator Bingaman

    Question 1. In your view is the authority granted in the proposal 
sufficiently broad to allow protection against all cyber security 
threats and vulnerabilities? Does the provision cover Alaska, Hawaii, 
and distribution systems?
    Answer. The proposed language gives the government new authority to 
require entities that own and operate the electric power system to 
address newly discovered vulnerabilities and threats. The definition of 
critical infrastructure in the proposed language is sufficiently broad 
to encompass Alaska, Hawaii, and distribution systems.
    Question 2. Are there other vulnerabilities described in the Idaho 
National Laboratory report besides the Aurora vulnerability?
    Answer. Yes. The Idaho National Laboratory (1NL) 2008 Common 
Vulnerabilities Report summarizes vulnerability findings from 16 
control system assessments performed at the Department's National SCADA 
Test Bed (NSTB) from 2003-2007. INL found these vulnerabilities as part 
of its systematic testing program, in which they assess energy control 
systems for potential vulnerabilities and then work closely with 
vendors on specific mitigations. The Department published the common 
vulnerabilities (those found in at least two of the control systems 
tested) and the appropriate mitigation strategies to help owners and 
operators better protect their systems from cyber attacks. Although 
sensitive technical details are not included in this public report, it 
does provide generalized analysis and steps asset owners can take to 
evaluate their system and implement appropriate mitigations. 
Understanding the types of vulnerabilities commonly found and how to 
mitigate them can help protect systems currently in development, as 
well as those already installed in critical infrastructure 
applications. The report does not cover the Aurora vulnerability.
    Question 3. You mention a number of efforts to develop technologies 
and systems to prevent cyber attacks. How can you be sure that they 
will be implemented by utilities?
    Answer. The Department recognizes that the best way to ensure that 
technologies address market needs and are implemented by utilities is 
to work in partnership with the utility owners and operators, equipment 
vendors, industry associations, and the research community throughout 
the technology development process. For national laboratory-led 
projects, each lab works closely with utilities to identify the end-
user requirements and then develops the fundamental technology which is 
typically commercialized by the private sector. For example, the 
Pacific Northwest National Laboratory is working with several utilities 
(Alliant Energy, NiSource, Progress Energy, Entergy Corporation, et al) 
to develop a security state visualization tool of the cyber security 
status on a utility communications network. The tool will provide real-
time situational awareness and enhanced decision-making through fusion 
of advanced technologies in perimeter security, network traffic 
analysis, and signature-based intrusion detection. The utilities are 
helping to develop use cases and the system requirements.
    For industry-led projects, the Department selects projects on a 
competitive basis and requires a minimum 20%-50% cost sharing from the 
private-sector partners, depending on the stage of research and 
development. A good example of success in this area is the Bandolier 
project, led by Digital Bond. Digital Bond is working closely with 
utilities and control systems vendors to develop security software 
templates for control systems. The templates are used to audit the 
security settings against an optimal security configuration. So far, 
templates have been released to audit systems from seven vendors, and 
are available for a nominal subscriber fee on Digital Bond's website.
    The Department also ensures that technology development projects 
leverage industry expertise and insight through the Energy Sector 
Control Systems Working Group, an industry-government advisory group of 
technical experts that was formed under the Critical Infrastructure 
Partnership Advisory Council. For example, the Department conducts 
annual peer reviews of its cyber security projects and engages the 
Working Group to guide the technical and commercial direction of each 
project.
    Question 4. Is it clear that the bulk power system can be attacked 
through control devices and communications systems connected to 
distribution systems, as well as transmission systems?
    Answer. Because of the interconnected nature of electric power 
transmission and distribution systems, we believe it is possible for 
attacks at the distribution system to have an impact on the 
transmission system. The exact nature of these consequences is 
dependent on the specific scenario and the impact or consequence of a 
specific attack must be evaluated on a case by case basis.

   Responses of Patricia Hoffman to Questions From Senator Murkowski

    Question 1. The industry witnesses before us today urge Congress 
not to broaden federal jurisdiction in the cyber arena to extend to the 
local distribution system. But, if Congress limits any new federal 
authority to the Bulk Power System, aren't we leaving cities like New 
York and Washington vulnerable to a cyber attack?
    Answer. States and local governments generally have jurisdiction 
over distribution systems. If the various State regulatory authorities 
don't adequately address cyber security requirements, we will continue 
to have a regulatory gap that could expose the electric power 
infrastructure to unmitigated vulnerabilities.
    Question 2. In the 2005 Energy Policy Act, Congress created an 
Electric Reliability Organization--which is now NERC--to develop 
mandatory and enforceable reliability standards, including cyber 
security standards, for the electrical grid. While this ``Section 215 
Process'' provides for extensive stakeholder involvement, FERC has 
complained that the process is too time-consuming, does not allow 
timely changes, and does not protect security-sensitive information. I 
am concerned that even though we learned about Aurora in 2007, the NERC 
standards will still not be in place until 2010. Do the witnesses agree 
that the additional federal authority, beyond the Section 215 process, 
is needed for cyber security protection?
    Answer. Federal authority will be required beyond Section 215 for 
cyber security protection in emergency situations when there is a need 
to take action as well as to address a newly discovered vulnerability 
that, if exploited, would have a debilitating impact on national 
security, economic security, and/or public health or safety (e.g. 
Aurora). Because cyber security vulnerabilities (which may or may not 
have an impact on the electric power grid) are discovered on a routine 
basis, the Department also believes there must be a deliberate and 
comprehensive process to determine if a newly discovered vulnerability 
warrants emergency action. All such vulnerabilities, and potential 
mitigation measures, must be thoroughly evaluated on a scientific basis 
to determine the impact and risk to the nation in the event the 
vulnerability was exploited. Any decision to act or issue an order must 
be based on sound risk management principles and judgment coupled with 
engineering analysis, testing, and verification considering the 
characteristics of the vulnerability, the capabilities of the threat, 
likelihood of attack, the potential consequences to the nation should 
the vulnerability be exploited, and the cost of mitigation. 
Furthermore, prior to issuing an emergency order, any proposed 
mitigation action must be thoroughly and comprehensively evaluated to 
determine its effectiveness, impact on performance of the power grid, 
and possible unintended consequences. Finally, the Department believes 
that this determination must be made through deliberation between 
cabinet-level agencies including the intelligence community.
    Question 3. How does the Department of Energy fit into the nation's 
overall cyber security structure? How do you work with FERC and what 
other agencies do you coordinate with? Which is the lead agency?
    Answer. At the Cabinet level, the Secretary of Energy is a member 
of the National Security Council (NSC), whose members provide top level 
policy advice to the President and oversight in areas that include 
cyber security. The Secretary is also a member of the Homeland Security 
Council (HSC), which also provides top level policy oversight in cyber 
security. The Department participates on the Deputies committee of the 
NSC/HSC when they meet to provide policy oversight on cyber security, 
and the Department also participates on the NSC/HSC Interagency Policy 
Committee for the global information and communications infrastructure, 
a policy coordination group. DOE also has representation on a lower 
level interagency cyber security task force that is carrying forward 
some of the implementation planning from the previous Administration's 
Comprehensive National Cyber Security Initiative. Further, the 
Department's Office of Intelligence and Counterintelligence is active 
within the intelligence community on cyber security coordination and 
planning.
    Under Homeland Security Presidential Directive 7, the Department 
leads critical infrastructure protection (physical and cyber) in the 
energy sector--including electricity, oil, and natural gas operations--
and chairs the Government Coordinating Council (GCC) for Energy, which 
includes the Department of Homeland Security (DHS) and FERC. In this 
role, the Department works closely with industry members on the 
Electric and Oil & Gas Sector Coordinating Councils (SCC) to develop a 
Sector-Specific Plan, which outlines goals for public-and private-
sector security activities, including protecting critical 
infrastructure from cyber threats. The Department has also formed the 
Energy Sector Control Systems Working Group (with representatives from 
the DHS National Cyber Security Division, DHS Science and Technology 
Directorate, the Oil and Natural Gas SCC, and the Electric SCC) that 
serves as the primary mechanism to oversee the implementation of the 
Roadmap to Secure Control Systems in the Energy Sector. The Department 
also works closely with the Department of Homeland Security on the 
Cross Sector Cyber Security Working Group and the Industrial Control 
Systems Working Group.
    Question 4. We know that making our grid smarter could also 
increase our vulnerability to cyber attacks. I understand that NIST is 
addressing the issue of cyber security as it works on the Smart Grid 
interoperability standards. FERC has also developed a Policy Statement 
on this issue. Is additional federal authority needed to deal with 
cyber security issues in the context of Smart Grid?
    Answer. The Department is working with the private sector to 
develop cyber security requirements for the Smart Grid to ensure that 
cyber security is built into the design from technology development to 
deployment. The National Institute of Standards and Technology (NIST) 
is not developing standards, per se, but is developing an 
interoperability framework that will identify the types of standards 
that will be needed and track the status of standards for the Smart 
Grid. NIST is also coordinating the development of cyber security 
standards through the appropriate standard development organizations.
    At this time, we do not foresee the need for additional federal 
legislation to accomplish our goal through public-private partnerships. 
The Department will continue to work with NIST to accelerate the 
development of a framework for the complete suite of interoperability 
standards. Once a standard is completed by the applicable standards 
development organization, the Federal Energy Regulatory Commission will 
issue a rulemaking to adopt the standard as required under the Energy 
Independence and Security Act of 2007.
    Question 5. What role did the Department of Energy play in the 
President's recent interagency cyber security review?
    Answer. At the request of the Director of the 60-day review team, 
the Department temporarily assigned a senior-level representative with 
extensive experience in working with the energy sector on issues 
related to cyber security to work directly with the interagency review 
team. The Department provided technical assistance, background and 
situational analysis, and proposed options to consider for enhancing 
cyber security in the energy sector. The Department also provided 
assistance in evaluating the status of the nation's cyber security 
efforts in the energy sector, an understanding of agency relationships, 
status of ongoing projects, and strengths and weaknesses of current 
partnerships. In response to several data calls, the Department also 
submitted an inventory of departmental expertise, programs, and 
funding. Finally, as principal member of the Interagency Policy 
Committee, the Department provided comments on the draft report that is 
currently under review at the policy level.
    Question 6. An example was given at last week's Senate Homeland 
Security Committee hearing where the Chief Information Officer of the 
Air Force, after watching an NSA test team break into the military 
service's system fairly quickly, asked the NSA team to help them 
develop a more secure system. By asking the attacking team for 
assistance, they put in place a more standard configuration that blocks 
most attacks, allows for quick security patches, and saves them money 
in procurement costs. Have DOE and FERC done anything similar to this?
    Answer. Yes. The Department uses a systematic method for assessing 
the cyber security of energy control systems using its expertise in 
``Red Teaming'', which has evolved over decades as the steward of the 
nation's nuclear arsenal. The Department uses the recognized 
capabilities of its national laboratories to test systems from an 
adversarial perspective, identify vulnerabilities, and work with 
vendors on mitigation strategies. For example, the Department uses a 
Red Team approach at the National SCADA Test Bed (NSTB) to conduct 
vulnerability assessments of control systems (this does not include 
active testing on ``live'' production systems which could cause a 
system failure and loss of electricity). In partnership with numerous 
vendors, NSTB has performed rigorous vulnerability assessments on 90% 
of the current market offering of SCADA and energy management systems 
(EMS) in the electric sector, and 80% of the current market offering in 
the oil and gas sector. Through 20 test bed and on-site field 
assessments, NSTB has delivered vulnerability information and 
recommendations for security improvements to vendors including ABB, 
Areva, GE, OSI, Siemens, Telvent, and others. Vendors have used this 
information to build more secure systems and both vendors and asset 
owners have also used it to better secure systems already in place. 
Vendors have developed 11 hardened control system designs following 
vulnerability assessments at the Test Bed, and 31 of these are now 
deployed in the sector. Vendors have released several software patches 
for use by 82 system applications in the sector. In addition, INL 
releases generalized findings from vulnerability assessments in its 
Common Vulnerabilities Report, which includes mitigation strategies 
asset owners across the sector can use to better secure their systems. 
Findings from NSTB vulnerability assessments have also been translated 
into several training courses, including the Red Team/Blue Team 
Advanced Training. In this weeklong course, nearly 80 energy sector 
asset owners and operators have participated in a hands-on exercise 
either attacking or defending a control system environment, and have 
learned skills and techniques they can apply immediately in their own 
systems.

      Responses of Patricia Hoffman to Questions From Senator Bayh

    Question 1. In your department's view, would the proposed 
legislation drafted by the Committee on Energy and Natural Resources be 
complementary of various other legislative efforts to address the issue 
of cyber security in other sectors (banking, commerce, military, and 
intelligence)?
    Answer. The cyber security requirements for a cyber-physical system 
like the electric power grid are quite different than the requirements 
for information systems and networks used for commerce or banking. For 
example, the primary cyber security driver for the banking sector is to 
protect the confidentiality of the data. For many elements in the power 
grid, availability of data is the primary driver.
    Question 2. If this legislation is enacted, how would new DOE and 
FERC authorities be complementary of the other efforts to ensure 
cybersecurity undertaken by the Executive Branch and of each other?
    Answer. The proposed legislation provides the DOE emergency 
authority to address an imminent threat and provides FERC emergency 
authority to address vulnerabilities. The Administration is currently 
conducting a cyber review across the federal government and since the 
report has not been issued, the Department cannot comment on how the 
proposed efforts would be affected.
    At the Cabinet level, the Secretary of Energy is a member of the 
National Security Council (NSC), whose members provide top level policy 
advice to the President and oversight in areas that include cyber 
security. The Secretary is also a member of the Homeland Security 
Council (HSC), which also provides top level policy oversight in cyber 
security. The Department participates on the Deputies committee of the 
NSC/HSC when they meet to provide policy oversight on cyber security, 
and the Department also participates on the NSC/HSC Interagency Policy 
Committee for the global information and communications infrastructure, 
a policy coordination group. DOE also has representation on a lower 
level interagency cyber security task force that is carrying forward 
some of the implementation planning from the previous Administration's 
Comprehensive National Cyber Security Initiative. Further, the 
Department's Office of Intelligence and Counter Intelligence is active 
within the intelligence community on cyber security coordination and 
planning.
    Question 3. Currently, how are DOE and FERC coordinating with all 
of the other agencies and departments involved in cyber security (for 
example, DHS, DoD, and the Intelligence Community)?
    Answer. Under HSPD 7, the Department serves as the lead federal 
agency for coordinating critical infrastructure activities in the 
energy sector, including cyber. In this capacity, the Department chairs 
the Energy Government Coordinating Council whose members include DHS, 
FERC, DHS, DOD, Nuclear Regulatory Commission, FBI, Natural Resources 
Canada (NRCan) et al. The Department participates with the intelligence 
community mainly through the DOE Office of Intelligence and 
Counterintelligence.
    Question 4. How will these efforts be affected by the President's 
cybersecurity review?
    Answer. Since the report on the President's 60-day cyber security 
review has not been issued, the Department cannot comment on the how 
the proposed efforts would be affected.

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