An Introduction to NAESB Standards & Compliance

FERC, NAESB, GISB, NERC, CURB… what does it all mean? The world of energy transaction compliance is fraught with an alphabet soup of acronyms and plenty of lengthy compliance and standards documentation. Luckily, you really only need to know two: FERC and NAESB. These are the two guiding lights in energy transaction compliance, and they set the standards and regulatory needs for the entire industry.

So, what is NAESB? How does it differ from FERC? And why does it matter?

What is NAESB?

The North American Energy Standards Board (NAESB) is a natural gas and electric industry organization that sets standards to create a “seamless marketplace for wholesale and retail natural gas and electricity.” These standards operate in four quadrants:

  1. Wholesale Gas Quadrant
  2. Wholesale Electric Quadrant
  3. Retail Gas Quadrant
  4. Retail Electric Quadrant

There’s plenty to unpack in the NAESB architecture. For now, we’ll focus on the Wholesale Gas Quadrant standards, which helps define modern natural gas deals and transactions.

Contained in these standards are key business practices for Contracts, Capacity Release, Nominations and Scheduling, Flowing Gas, Invoicing, and others. The standards surrounding capacity release alone are over 600 pages, so obviously, diving deep into these standards simply isn’t possible within the confines of a blog post.

NAESB standards apply to Gas Transactional Systems (front and back office) and the Electronic Bulletin Board (EBB), which includes Customer Activities Website (CAW) and Informational Postings Website (IPW). So, NAESB WGQ helps set standards for the business practices, transactions and websites for pipeline operators and storage providers.

It’s important to note that NAESB is involved in everything from data sets, transactions, system look and feel to technology communication protocols. More recently, NAESB has been working to incorporate blockchain standards and cybersecurity standards into their portfolio, so there’s plenty to dig through and digest.

NAESB standards are highly complex, intricate, nuanced, and certainly an area where regulatory and business experts, C-level, and vendors all collaborate, communicate, and formulate actionable strategies and compliance requirements.

There is one hyper-critical detail we want to mention. FERC amended its regulations to include most of the NAESB standards. In other words, NAESB isn’t just a guiding light for standards; they are regulatory requirements mandated by FERC. You have two choices: comply or comply.

Understanding the Value of NAESB for Energy Players

Let’s be honest: standards aren’t the most exciting thing on the planet. In fact, we would venture to say that hundred-plus-page documents filled with references, enumerations, revisions, and superscript references are near the bottom of your party-planning list. We get lost in those complex standards, too! That being said, they’re important. Sure, no one has busted out the confetti and punched to a new version release of NAESB standards, but without them, the wholesale gas marketplace would be filled with inconsistent experiences, varying degrees of safety and security, and confusing terms and conditions.

NAESB is a private entity. It has a board jam packed with incredibly gifted and experienced professionals, and it has formed public-private partnerships with top agencies like FERC and the DOE. In a way, NAESB publishes standards that advocate on behalf of the energy industry. As an example, the brief description of NAESB says that it will help energy companies “realize reduced transaction costs via standardization of transactions.” Even the language NAESB uses puts the value proposition on energy companies, not just on the broader public value.

We value these cooperative public-private standards and regulations. Often, regulatory bodies are heavily focused on the public side, so they may overlook the burden regulations placeed on private companies. Simultaneously, privately driven standards may overlook some of the public needs. With NAESB standards converging with FERC requirements, all sides stand to gain.

The Connection Between FERC, GISB, and NAESB

Time for a small history lesson. For us old-timers, the Gas Industry Standards Board (GISB) used to be the de facto standard organization covering commercial and electronic wholesale gas transactions. Like NAESB, it existed in that “you don’t have to comply… but you really actually do” space of standards. Both GISB and NAESB standards are/were “optional,” but both were also incorporated by FERC as part of federal regulation making them mandatory.

In 2002, GISB became NAESB. So, they’re different, but they’re also the same in a way. GISB is purely focused on wholesale gas. NAESB also incorporates wholesale electric, retail gas, and retail electric.

Like GISB, NAESB connects with FERC and the DOE, so it’s one part private and one part public in that it influences public policy. There’s plenty of semi-confusing history that goes into the GISB to NAESB transition period. It involves the North American Electric Reliability Council (NERC), the Committee on Uniform Business Rules (CUBR), and some other public bodies. Remember, standards were spread out across a variety of bodies during this period, which made them more difficult to track and follow.

However, when the transition period ended, NAESB stood as a clearinghouse of gas and electric transaction standards. And it’s been great for everyone involved. NAESB’s core tenants (i.e., inclusivity, flexibility, structural protections, effectiveness, and credibility) lend themselves well to transactional standards. To be clear, NAESB may be the success story of the decade for energy. It’s brought rationality and consistency to energy transactions, and in doing so, it’s created an efficient and cost-effective way for energy companies to navigate business practices and transactions.

Staying Compliant with NAESB

What happens if you don’t comply with NAESB? Well, nothing from NAESB’s perspective. NAESB doesn’t monitor for compliance or establish any penalties. Technically, NAESB compliance is optional. However, that’s not entirely accurate. Remember, most NAESB standards are rolled into FERC requirements. And FERC doesn’t play around. For example, since 2007, FERC has issued a whopping $784+ million in penalties to energy companies. A single penalty can cost you $1 million in fines.

In other words, the cost for not following NAESB standards is high, despite them being “technically” optional. That’s why it’s crucial that energy companies pay attention to their transaction system. If you utilize a transaction system that isn’t NAESB compliant, you’re in a risky situation. Compliance should be baked into your energy supply chain systems, especially any systems that deal with regulated assets. Not only is it more cost-effective to adopt an already-compliant system, but choosing the right compliance-driven vendor can help maintain compliance with evolving standards and regulations, take advantage of technology innovations, and manage your total cost of system ownership. This also helps position organizations for digital transformation and leveraging cloud solutions.

With Trellis you are NAESB-Compliant

Trellis understands the value of NAESB standards. Our goal has always been to enable energy companies to run their business smarter with compliance to the latest standards and access to secure and innovative technologies. As Trellis’s President and CEO, I have served four consecutive terms on the Board of Directors and Executive Committee for the Wholesale Gas Quadrant (WGQ) of NAESB, striving to serve the interests of all stakeholders—market and regulatory.

Our flagship energy transaction management software is compliant with the latest NAESB/ FERC standards. We are committed to maintaining that compliance going forward for our clients by providing an out-of-the-box cloud-based solution. Contact us to learn more about how Trellis can help you.

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