FERC vs. NERC: Understanding the Critical Difference for Power System Professionals

If you work in the power industry, you have encountered both FERC and NERC but the distinction between these two organizations, and why both matter for your compliance obligations, is often misunderstood. This guide provides a clear, technically grounded explanation of the FERC/NERC relationship and what it means for generator owners, utilities, and power system professionals.

What Is FERC?

The Federal Energy Regulatory Commission (FERC) is a federal agency within the U.S. Department of Energy. It is an independent regulatory commission with authority over:

• Interstate wholesale electricity markets: Approving market tariffs, rate schedules, and market rules for organized wholesale electricity markets (PJM, MISO, CAISO, NYISO, ISO-NE, SPP, ERCOT)
• Transmission system access: Open-access transmission tariffs and interconnection rules under FERC Order 888, Order 1000, and Order 2023
• Natural gas infrastructure: Interstate natural gas pipelines and LNG facilities
• Hydroelectric licensing: Federal licensing for hydroelectric generation projects

FERC’s authority derives from the Federal Power Act (FPA) and the Natural Gas Act. It exercises direct regulatory authority over the entities within its jurisdiction it can approve, reject, or modify rate schedules; order refunds; assess civil penalties; and direct changes to market rules.

FERC is led by up to five commissioners appointed by the President and confirmed by the Senate. By law, no more than three commissioners can be from the same political party.

What Is NERC?

The North American Electric Reliability Corporation (NERC) is an Electric Reliability Organization (ERO) whose authority derives from FERC certification under the Energy Policy Act of 2005. NERC is not a government agency it is a private, not-for-profit organization. However, because FERC certified NERC as the ERO for the continental U.S. (and Canadian provinces that voluntarily participate), NERC standards have the force of law for entities within FERC’s jurisdiction.

NERC’s authority covers:

• Reliability standards development: NERC develops, approves, and maintains the mandatory reliability standards that govern the operation of the bulk electric system
• Compliance monitoring and enforcement (CME): Through its Regional Entities, NERC monitors compliance with reliability standards and enforces violations through financial penalties and remediation requirements
• Bulk power system assessment: NERC produces reliability assessments, event analyses, and technical reports on grid reliability risks

NERC covers the continental United States, the Canadian provinces that participate voluntarily, and parts of northern Baja California, Mexico.

The FERC-NERC Relationship: How They Work Together

The most important relationship to understand is this: FERC approves NERC standards, making them mandatory. NERC develops and enforces those standards.

The process works as follows:

1. NERC’s Standards Development Process: Industry stakeholders (utilities, generators, ISOs, equipment manufacturers) develop proposed reliability standards through an open, balloted process governed by NERC’s Rules of Procedure.
   
2. NERC Board of Trustees Approval: Once a standard passes NERC’s ballot body with the required vote, it is approved by NERC’s Board of Trustees for filing with FERC.
   
3. FERC Approval: FERC reviews the proposed standard for its reliability benefit and compliance with the ERO’s rules. FERC can approve, reject, or remand standards with directives for modification. Upon FERC approval, the standard becomes mandatory.
   
4. Enforcement: NERC’s Regional Entities (SERC, RFC, WECC, MRO, NPCC, TRE, etc.) monitor compliance and process violations through the NERC Compliance Monitoring and Enforcement Program (CMEP).
   
5. Penalties: NERC files penalty agreements with FERC for FERC ratification. Major penalties (above $50,000) require FERC approval before becoming effective.
   

Practical Differences for Generator Owners

For generator owners and power system professionals, the practical distinction is:

NERC affects your day-to-day operations and engineering activities through mandatory reliability standards (PRC-029-1, MOD-026-2, FAC-008, CIP, etc.) that require specific engineering analyses, documentation, and compliance activities.

FERC affects your market participation and business relationships through interconnection rules, transmission access requirements, and market tariff provisions.

Violations of NERC standards can result in financial penalties. Violations of FERC regulations (e.g., manipulation of electricity markets, failure to follow open-access tariff requirements) can result in civil penalties up to $1 million per day per violation under the FPA.

Our Grid Reliability & Compliance focus on the engineering aspects of NERC reliability standard compliance, while ensuring that our engineering work products support your FERC-regulated interconnection obligations.

Related Services:

• Grid Reliability & Compliance Services
• POI Interconnection Engineering
• Power Systems Engineering