FERC Software Technical Conference

1. FERCSoftware Technical Conference IT Guidelines and Best Practices July 14, 2004

2. Purpose • (1) Present concepts and methods for: • Defining the characteristics of effective IT organizations • Controlling technology costs within power system operations organizations and across the industry. • (2) Set the stage for an on-going dialog regarding ways to address critical industry-wide technology management issues: • The cost to implement new information technology. • The time to implement new information technology. • The lack of technology standards. • The inability to easily share information and data. • The need to enhance security to meet new threats. 1

3. Power System Operations Organizations • System Operations Centers • Control Area Operators • Reliability Coordinators • Market Operators Processes People Technology People, process and technology aligned to provide grid & market monitoring and management services. Two Primary Cost Components are People & Technology. 2

4. Reliability & MarketTechnology Foundation and Component Elements Congestion Management Transmission Mgt (OASIS) Tariff Admin Scheduling, Dispatch, AGC, Inadvertent Operating Reserve Data Acquisition Business Functions and Applications Corporate Functions and Applications Technical Infrastructure & IT Services. Planning Transactions Security Coordination FTR Markets Market Settlement Energy & Ancillary Service Markets Corporate (HR, Payroll, Finance, Customer Service, Administration) Technical Infrastructure and IT Services (Routers, Switches, Lines, RTU’s, Desk Top Computers, Phones, Servers…) 3

5. Major Applications for Key Functions • EMS System • Contingency Analysis tools • IDC • RCIS Transactions Security Coordination Congestion Management Transmission Mgt (OASIS) Scheduling, Dispatch, AGC, Inadvertent • EMS System • SCUC, SCED • Contingency Analysis tools • IDC • OASIS application • Transaction Scheduler • TTC & ATC Calculator • EMS System • AGC, SCUC, SCED • Contingency Analysis tools • Outage Scheduler • Load Forecast Energy & Ancillary Service Markets • Day-ahead & Real-time LMP • Ancillary service market clearing applications 4

6. extensive Infrastructure limited extensive limited Applications Business Models Influence on Technology, Infrastructure and Applications Market Operator Control Area & Reliability Coordinator Moving from functional model to more demanding functional models, the amount of infrastructure and applications required increases. Reliability Coordinator • Significant Infrastructure and Applications Investments required. ControlArea • Significant Infrastructure Investment required to support both CA/RC functions. • Incremental Applications Investments required. • Infrastructure Established • Enterprise Applications Installed • Basic Control Functions Supported

7. Characteristics of Highly Effective, Mature IT Organizations • Clear Purpose, Strategy and Business Alignment. • Integrated, Routine, and Flexible Planning. • Committed, Effective Leadership and Governance. • Skilled, Experienced, and Productive Employees. • Clear Roles, Responsibility, and Accountability. • Well Defined, Documented, and Communicated Processes and Standards. • Project Management Discipline. • Operation and Service Orientation. • Architectural Aligned Investment Strategy. • Performance and Cost Measurement Management and Reporting. 6

8. Indicators of Well Managed and Aligned IT Organizations • IT Plan linked and aligned with the Business Plan. • IT Budget and Asset Management process. • Implementation and use of a rigorous Project Justification process. • Implementation and use of a rigorous Project Management process. • Implementation and use of a rigorous Vendor/Contract Management process with service level agreements (SLAs). • Implementation and use of a rigorous systems development life cycle (SDLC) Methodology. 7

9. The Annual IT Budget IT Management Represents cost to Manage, Operate & Maintain the existing IT Environment. Applications Support Desktop Computing Services On-going Operating Expenses Communications Services IT Infrastructure Annual IT Spend Project 1 • Annual Project Related Costs • Labor • Consultants • Applications Hardware/ Software • Systems and Component Refresh • New IT Infrastructure Project Based Expenses Project 2 Project 3 Project 4 Project 5 8

10. IT Operating Expenses Operating Expense levels should be tracked and trended to evaluate reasonableness. Drivers provide a way to tie the expense level to a measurable business parameter. 9

11. IT Operating Cost Management Strategies • Employ organization-wide technology standards for architecture, hardware, software, operating systems, databases, and protocols to minimize development, maintenance, and support costs. • Maintain up-to-date policies, procedures, guidelines and configuration documentation to minimize maintenance and replacement costs. • Employ release management, refresh, and retirement strategies to manage total life cycle costs. • Employ supply and contract management strategies to maintain checks and balances with contractors and vendors. • Track, trend, and analyze usage and cost data to identify cost management opportunities • Provide user organizations with usage and cost data to enable frontline cost management. • Maintain accurate asset database and link it to warranty, license, maintenance and support agreement information. Common/open architectures, protocols and platforms enable re-use, ensure interoperability and reduce cost. Non-IT operating groups must take an active role in helping to manage technology costs. 10

12. TypicalApplications Projects • EMS System • Security Constrained Unit Commitment (SCUC) • Security Constrained Economic Dispatch (SCED) • Contingency Analysis tools • Transaction Scheduler • TTC & ATC Calculator • IDC • AGC • Outage Scheduler • Load Forecast • Day- ahead & Real-time LMP • Ancillary service market clearing applications • RCIS • OASIS application New applications development or significant replacement projects can range in size from several million to $100 Million and in duration from 6 to 36 months. 11

13. Applications Project Expenses Total Life Cycle Costs must be used to justify projects and evaluate alternatives. Do-nothing, buy vs. build, and re-use should all be considered. Actual expenses should be tracked and routinely compared to forecasts. Avoid the sunk cost syndrome. Forecasts and justification should be revisited annually and whenever major assumptions change. 12

14. Applications Project Cost Management Strategies • Build flexibility into the design - Reliability policies and rules will change over time and applications must be able to easily accommodate and reflect changes. • Ensure that project is tied to clear business need. • Employ a life cycle development methodology which encompasses requirements gathering, design, build, test, deploy and maintain phase – and don’t skimp on the front end. • Evaluate multiple project alternatives – including do nothing. • Ensure that requirements are clear and locked down prior to design, build, or purchase decision is made. • Adhere to technology standards and optimize reuse, if appropriate. • Build in enough time to perform application, integration, and performance testing. • Use a project management process to manage scope, budget, and schedule. • Require periodic project reviews; re-visit justification, budget, scope, and schedule when assumptions change. Life Cycle Project costs must be identified before the project is approved and initiated so that long term costs of support and maintenance are understood in the total cost. 13

15. Key IssuesVendor Open Architecture • Reduces cost of operations by allowing common hardware platforms to be used within an organization. • Hardware can be reused. • Common skill sets are exploited. • Hardware maintenance cost is reduced. • Reduces cost of operations by allowing common database platforms to be used within an organization. • Support is simplified (e.g. backup & recovery). • Common skill sets are exploited. • Software maintenance cost is reduced. • Promotes data access by external technology services. • Reduces risk of technical obsolescence. Industry stakeholders should work together to ‘push’ software vendors to adopt more open architectures that are hardware and database independent.

16. Key Issues Information Technology Standards • Creates a common definition of key data elements. • Promotes efficient data exchange between internal and external systems. • Minimizes platforms required to exchange data with multiple entities. • Enables interoperability between multiple vendors’ systems / tools. • Enables common user interface across applications. • Enables security considerations to be more uniformly approached and addressed. Industry stakeholders should continue to work together to adopt information technology standards to reduce cost across the industry.

17. Key IssuesSoftware Application Flexibility • Business rules are separate from system code and Stakeholders have access to modify these. • Modular system design should be used when appropriate. • Non-proprietary coding languages are used. • Assessment of longer term migration to web services must be conducted. (Subject to security) • Security approaches and protocols are planned for and built into applications. • Off-the-shelf software should be used to facilitate system development where appropriate. Industry stakeholders should work together to encourage software vendors to develop more flexible solutions. Internally developed solutions should follow the same principles.

18. Key Issues Other Considerations • Lack of common market rules result in significant application modifications and increased costs for each new function and market. • Changing market rules and ambiguous specifications and requirements result in costly redesign and coding. • Bypassing of planning, analysis and design of market applications and interfaces and jump to vendor coding will require tradeoff between costly rework and meeting stakeholder needs. • Setting an unattainable schedule results in: • rushed planning and under-researched solutions. • less informed decision making, poor/costly technology selections. • over reliance on vendors. • higher overall costs. • Inadequate design/capacity planning will result in shortened system life and require large and costly replacements. Governance, Adherence to SDLC and Project Management methodologies and strong vendor management practices will provide the discipline required to implement Markets Projects.

19. Follow–up Issues Further Analysis of critical issues: • When to Buy vs. Build ? • When should technology be recycled & re-used ? • When should sunk cost be abandoned and new solutions sought ? • What should be considered the normal life span of power system operations technologies ? • What are the issues that arise when a limited number of vendors participate in a technology market and how can the risks be mitigated ? Publish the results and recommendations for FERC and distribute to conference participants. 18