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FERC Proposes to Adopt Electric Supply Chain Cybersecurity Standards

The proposal would adopt NERC standards on accelerated deadlines and expand the scope of covered assets subject to supply chain risk management. If adopted, these standards could significantly alter the electric utility procurement process for critical IT infrastructure assets and services by requiring that procurement processes address specific supply chain cybersecurity risks.

The Federal Energy Regulatory Commission (FERC or Commission) issued a notice of proposed rulemaking (NOPR) on January 18 proposing to adopt a suite of North American Electric Reliability Corporation (NERC) reliability standards addressing the cybersecurity risks that global supply chains create for the industrial control and other critical systems used by electric utilities. The proposed standards are the result of a lengthy and contentious stakeholder development process, and would require electric utilities to develop plans to mitigate supply chain cybersecurity risks posed by vendor products and services, particularly during the vendor procurement process.

Although the new standards do not require a specific outcome in the procurement process, utilities will need to demonstrate that their purchasing activities did address each of the minimum cybersecurity criteria outlined in the new standards. As a result, those companies providing goods and services to electric utilities will also need to adapt to the new requirements in order to demonstrate that they can assist electric utilities in meeting these compliance obligations, even though only utilities themselves would be subject to the standards and could be fined for noncompliance.

The adoption of the standards, the Commission explained, would reflect “substantial progress” in addressing its longstanding concerns over cybersecurity risk in the supply chain. Nevertheless, the Commission continued to see gaps in NERC’s proposal, and seeks comment on expanding the scope of the assets covered by the proposed standards and shortening the implementation period before those standards would become effective.

Background

The NOPR follows NERC’s September 26, 2017, petition for approval of new Reliability Standard CIP-013-1, addressing supply chain risk management, and revisions to two existing Reliability Standards in proposed CIP-005-6 and CIP-010-3. The proposed standards would address cybersecurity risks in the supply chains for those BES Cyber Systems by ensuring that entities

  • establish and implement organizationally defined processes that integrate a cybersecurity risk management framework (proposed CIP-013-1);
  • implement methods to identify active vendor remote access sessions and disable active vendor remote access when necessary (proposed modification to CIP-005-5); and
  • ·verify the identity of software publishers and the integrity of all software and patches intended for use on BES Cyber Systems (proposed modification to CIP-010-2).

NERC proposed to limit the applicability of the standards to high- and medium-impact BES Cyber Systems, which are those BES Cyber Systems associated with the most critical BES control centers, transmission, and generation assets.

For a comprehensive overview of the new standards, read our recent LawFlash.

Proposed Rulemaking

Although the NOPR proposes to adopt the new standards, it also highlights potential gaps in NERC’s supply chain risk management proposal. In particular, the Commission expressed concern over the exclusion of Electronic Access or Control Monitoring Systems (EACMS), Physical Access Control Systems (PACS), and Protected Cyber Assets (PCAs) from the scope of the proposed standards, which NERC originally proposed would only apply to high- and medium-impact BES Cyber Systems. To address those concerns, the Commission proposed to direct NERC to develop modifications to the standards to include EACMS within the scope of the proposed standards and to further evaluate the cybersecurity supply chain risks posed by PACS and PCAs to determine if similar controls would be appropriate for those assets. The Commission also suggested shortening the amount of time before the proposed standards would become effective.

Scope of Proposed Standards

The Commission expressed concern that by limiting the proposed standards to high- and medium-impact BES Cyber Systems, NERC had overlooked the supply chain risks posed by EACMS, which are Cyber Assets that monitor and control access to BES Cyber Systems. The Commission proposed to direct NERC to include EACMS within the scope of the proposed standards, pointing to the critical security functions performed by those assets, such as controlling interactive remote access into Electronic Security Perimeters and guarding industrial control systems. If compromised, the Commission observed, the misoperation or unavailability of critical EACMS supporting BES Cyber Systems could adversely affect bulk electric system reliability. For those reasons, the Commission remarked that EACMS are high-value targets for malicious actors and “represent the most likely route an attacker would take to access a BES Cyber System or PCA within an [Electronic Security Perimeter].”

Although the Commission proposed to determine that the risks posed by EACMS warrant additional action by NERC, it stopped short of doing the same with respect to PACS and PCAs. The key difference, the Commission explained, is that compromised PACS or PCAs are less likely to jeopardize an associated BES Cyber System than the misuse of an EACMS device that controls access to essential IT assets. As an example, the Commission noted that the compromise of a PACS could potentially grant an attacker physical access to an associated BES Cyber System, but carrying out an attack to take advantage of the compromised PACS would still require physical access to that BES Cyber System.

Instead of proposing that PACS and PCAs be included within the scope of the standards, the Commission proposed to direct NERC to further evaluate the supply chain risks posed by those types of assets. The Commission noted that NERC had already planned to evaluate the supply chain risks posed by PACS and PCAs—as well as low-impact BES Cyber Systems, which are also excluded from the scope of the proposed standards—in response to a prior request from the NERC board of trustees (BOT). The NOPR proposes to direct NERC to include PACS and PCAs in the BOT-requested study, and to file the study’s interim and final reports with the Commission upon their completion. While the Commission appears to be more interested in the study results as they pertain to PACS and PCAs, the NOPR suggests that the Commission may also use the study to consider whether low-impact BES Cyber Systems—those at less important locations—should also be addressed in the supply chain risk management standards.

Implementation Period

NERC’s proposed implementation plan envisioned the proposed standards becoming effective on the first day of the first calendar quarter 18 months after the effective date of a Commission order approving them. NERC proposed the 18-month implementation period to afford responsible entities sufficient time to develop and implement their supply chain cybersecurity risk management plans required under proposed Reliability Standard CIP-013-1 and implement the new controls required in proposed Reliability Standards CIP-005-6 and CIP-010-3. In the NOPR, FERC suggested that the process-based controls in the proposed standards do not require an extended implementation period. Thus, FERC proposed to shorten the implementation period to 12 months, also citing the need for expediency in meeting the security objectives of the proposed standards.

The Commission is seeking comment on all of the NOPR proposals. Comments will be due 60 days after publication in the Federal Register.

Copyright © 2018 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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About this Author

J. Daniel Skees, Electric Utilities Attorney, Morgan Lewis, Law Firm
Associate

J. Daniel Skees represents electric utilities before the Federal Energy Regulatory Commission (FERC) and other agencies on rate, regulatory, and transaction matters. He handles rate and tariff proceedings, electric utility and holding company transactions, reliability standards development and compliance, and FERC rulemaking proceedings. The mandatory electric reliability standards under Section 215 of the Federal Power Act are a major focus of Dan’s practice. He advises clients regarding compliance with reliability standards, and helps them participate in the development of new standards...

202-739-5834
Arjun Prasad Ramadevanahalli, Morgan Lewis Law firm, Environmental Attorney
Associate

Arjun Prasad Ramadevanahalli is an associate in Morgan Lewis's Energy Practice. Mr. Ramadevanahalli represents electric, natural gas, and other participants in the energy industry. 

202-739-5913