Moving from Zero-Tolerance to Risk-Based Compliance

The US Federal Energy Regulatory Commission recently announced that it approves the North American Electric Reliability Corporation’s risk-based approach to reliability compliance. According to NERC, “the Reliability Assurance Initiative approach to compliance focuses resources on higher-risk issues that matter more to reliability, while still identifying, correcting and tracking lesser-risk issues.”

It’s great to see that risk-based decision-making is being endorsed at the highest levels in the electrical industry. Most power generation and utility companies are strongly influenced by their respective regulatory bodies, and under the old “zero tolerance” regime of compliance and monitoring they had little leeway on how and when to monitor and fix their assets. The risk-informed approach is more pragmatic and will enable companies to focus their attention where it really matters.

From an investment decision process point of view, this generally translates into less “must-do” projects. Many regulated companies literally drown in the amount of projects that are mandated by zero-tolerance regulation, leaving little room and leeway to accommodate non-mandatory but important projects.

One of the key benefits of a risk-based approach is the ability to compute the evolution of risk over time, which allows companies to explore different investment plans by moving projects around and calculating the resulting risk profile. This additional freedom often allows for the identification of higher value plans, while still conforming to regulation.