1. Alan Rivaldo
Public Utility Commission of Texas
Regulators’ Role in Smart Grid Security
What They Want to Know

2. BACKGROUND
• Utilities are typically monopolies and therefore
are highly regulated.
• Unlike with most other stock investments, for
the most part utility investors are guaranteed a
certain rate of return on their investment.
• Any capital investments made by utilities are
ultimately paid by ratepayers… their customers.
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3. CUSTOMERS AND REGULATORS
• Therefore, customers need to know what they are
getting and how much they’re paying for it.
• Customers are typically disengaged from the
process (at least beyond the bottom line on
their utility bill).
• Regulators are the ones who are charged with
knowing about the capital expenditures made
by utilities.
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4. RATE CASES
• Utilities recapture capital investments through
rate cases
• Rate cases are conducted in open hearings
• This process is nothing new: ~100 years
• Any infrastructure:
• Water and Wastewater
• Electric service
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5. WHAT IS NEW?
• In past few years, commissions became aware of
cybersecurity as a pressing issue.
• Unfortunately, some awareness has come in the
form of alarmist reports in the media:
• Mass outages
• Chaos
• Imminent take-overs by foreign governments
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6. WHAT’S NOT SO NEW?
• Risk that legislatures may overreact
• Try to pass “comprehensive bills” that may:
• Cause unintended consequences
• Impede meaningful progress
• Interfere with commission direction
• Classic conflict: legislative vs. executive
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7. THE CHALLENGE
• Utilities have difficulties finding qualified,
knowledgeable staff for energy operations.
• Commissions are in the same position; engineers
have to be recruited from an industry in which
there traditionally hasn’t been much turnover.
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8. THE CHALLENGE (CONT.)
• States’ budgets are being cut
• Recruiting from industry and the private sector
is a challenge
• PUC staff knowledge limited to conventional
energy operations technologies
• Electromechanical devices
• Not advanced, data-intensive technologies
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9. WHAT TO DO?
• Commissions train existing staff
• Hire new people to ask intelligent questions of:
• Utilities
• Vendors
• Staff within the agency
• Ponder implications of technology on policy
• Ponder implications of policy on technology
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10. ASK UTILITIES QUESTIONS: STRATEGY
• What is your security strategy?
• Update your security plans? How often?
• Test your plans?
• Have you conducted vulnerability assessment of:
• Back Office information systems?
• Control Systems?
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11. ASK UTILITIES QUESTIONS: RISK
• How do you manage risk?
• Use a Risk Management process?
• How was it derived?
• From DOE/NIST/NERC or some other
authority?
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12. QUESTIONS: UTILITY ENGAGEMENT
• Have you worked with Department of Homeland Security
regarding cybersecurity?
• Aware of… work with…
• DHS National Cyber Security Division (NCSD)?
• US-CERT? ICS-CERT? etc.
• NESCO (National Electric Sector Cybersecurity
Organization)
• Law Enforcement, i.e. Fusion centers
• Local chapter of InfraGard (FBI public private
partnership)?
• DOE, SANS, others?
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13. NERC CIP
• We may ask about NERC CIP…
• Not necessarily the utility’s status
• NERC CIP is outside of a state’s jurisdiction
• No double reporting or “double jeopardy”
• NERC CIP compliance is only marginally
interesting to state regulators. We care more
about distribution: SAIDI and SAIFI
• Upstream cybersecurity issues may have an
impact upon SAIDI and SAIFI
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14. NERC CIP (CONT.)
• NERC CIP is compliance-based. Commissions are
compliance-focused out of tradition, but…
• Compliance doesn’t ensure security.
• Cybersecurity isn’t about checking boxes on a form.
• “Hackers don’t have checklists”
• Folks at utilities: Trying to get their CIP compliance
paperwork in order to satisfy some NERC auditor
• Hackers: Working diligently to upset the apple cart
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15. LESSONS FROM NERC CIP
• PUCs are more interested in knowing how many
resources a utility has tied up in doing NERC CIP
compliance paperwork
• Is NERC CIP compliance a value-added activity?
• Compliance puts a utility only on the ground floor
of security
• Compliance doesn’t set a ceiling
• Compliance makes security people contemplate
the roof
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16. LESSONS FROM NERC CIP
• Utilities have to graduate beyond compliance
• Utilities should have compliance mastered by
now, right?
• Utilities must find their way up the stairs to a
higher floor in the building
• Compliance mindset vs. Security
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17. PERSONNEL
• What kind of people do you have?
• Individuals specifically assigned cybersecurity
responsibility?
• IT staff responsible for cybersecurity in energy
operations?
• Does energy operations have its own security staff?
• What kind of training and experience does cybersecurity
staff have?
• Engaged in cybersecurity standards activities of:
• NIST SGIP Cybersecurity Working Group?
• NESCOR, UCAIug, NERC, etc.?
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18. PERSONNEL / VENDORS
• What background checking is performed for
those with access to key cyber components?
• Vendors and other third-parties that have
access to key cyber systems
• How are they vetted? How do you screen who
has access to your systems? A lot of support
comes from vendors and integrators.
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19. CAPITAL EXPENDITURES
• Review: Commissions are tasked with approving
surcharges in rate cases so that utilities can
recoup the costs they have incurred by making
capital expenditures on the infrastructure.
• Is the equipment a utility buys robust when it
comes to security? Will it continue to be robust
in the future?
• Traditional equipment lifetime is
as long as 40 years.
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20. CAPITAL EXPENDITURES
• Moving toward new paradigm
• May call for more regular replacements of
infrastructure components
• Precedents: IT and mobile phone
infrastructures
• Will no longer be in terms of multiple
decades
• But anticipated replacement cycle won’t be
as brisk as mobile phone infrastructure
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21. CAPITAL EXPENDITURES
• Prefer not to have to replace devices at all
• Hope/wish replacement won’t be
for reasons of security
• Smart Grid continues to evolve
• More palatable reasons for replacement:
• Expanded functionality
• Larger quantity of data
• Higher data rates
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22. CAPITAL EXPENDITURES/VENDORS
• Regulators want assurance that:
• Proposed investments are prudent
• Solutions are cost effective
• Firms hired by utilities are:
• Capable
• Reliable
• Understand their ultimate responsibilities
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23. CAPITAL EXPENDITURES/VENDORS
• Regulators want utilities to:
• Do their due diligence when securing their
infrastructure
• Prove it
• Hold their vendors accountable for doing their
part
• Everyone plays a role in security, and everyone
should be accountable for holding up their end of
the bargain.
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24. VENDORS
• Regulators… and therefore the utilities… want:
• To know that products and processes are
secure
• From concept to design to manufacture to
deployment to support in the form of
issuing of firmware updates, to the eventual
decommissioning of these devices and
systems.
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25. VENDORS AND UTILITIES
Concept/
Specification
Design/
Development
Integration Deployment Operation
Product Suppliers
System Integrators
Realms of Security Assurance
Utilities
Maintenance
S.I.
V
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26. VENDORS’ ROLE
• Third-party assessment of products - proof
• Installation of products - field testing of
configured, deployed infrastructure
• Deliver what was promised
• Anything that touches or comes near a
device is doing what it’s supposed to do
• Maintain integrity of the data
• Without latency
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27. UTILITY’S RESPONSIBILITIES
• Ensure the safe and secure delivery of energy and
energy-related data
• Maintain the accuracy of the data being
transmitted
• Ensure data is handled with care
• Secure
• Policies in place and followed
• Ensure customer privacy
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28. REVIEW
• Commissions take a look at the numbers – we
want to see what the public is… or will be…
paying for.
• If incorporating security costs a little bit more
upfront, then that should be reflected in the
numbers and filed in the rate case – preferably
itemized, if possible.
• At the same time, costs must be reasonable and
reflect whatever level of risk is acceptable.
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29. REVIEW AND CONCLUSION
• We must accept that risk is inevitable and cannot
be completely eliminated – only mitigated to an
acceptable level.
• Risk is difficult to calculate, but commissions
want to know how you made your
determinations; make us a part of the process.
• We all play a role in security.
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