An Introduction to NAESB Standards and FERC Compliance

April 26, 2023

Written By

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, two guiding lights in energy transaction compliance set the standards and regulatory framework for the entire industry: FERC and NAESB.

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

What is NAESB?

The North American Energy Standards Board (NAESB, often pronounced nays-bee) is a natural gas and electricity industry organization.

It sets standards aimed at creating a “seamless marketplace for wholesale and retail natural gas and electricity.”

These standards operate in four quadrants:

  • Wholesale Gas Quadrant
  • Wholesale Electric Quadrant
  • Retail Gas Quadrant
  • Retail Electric Quadrant

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

These standards contain key business practices for: Contracts; Capacity Release; Nominations and Scheduling; Flowing Gas; Invoicing; and more.

The standards related to capacity release alone fill more than 600 pages so diving deep into these standards simply isn’t possible within one blog post.

NAESB standards apply to Gas Transactional Systems—both front and back office—and the Electronic Bulletin Board (EBB), which includes Customer Activities Websites (CAW) and Informational Postings Websites (IPW).

Consequently, NAESB WGQ sets standards for the business practices, transactions, and websites of pipeline operators and storage providers.

It’s important to recognize that NAESB is involved in everything from data sets and transactions to system look and feel and communication protocols.

NAESB has even been working to incorporate blockchain standards and cybersecurity standards into their portfolio.

Since the standards are complex, intricate, and nuanced, formulating actionable strategies and ensuring compliance requires collaboration and open communication between regulatory and business experts, the c-suite, and vendors.

One more critical detail: the Federal Energy Regulatory Commission (FERC) has amended its regulations to include most of the NAESB standards.

In other words, NAESB isn’t just a guiding light—these are regulatory requirements mandated by FERC. You have two choices: comply or comply.


Understanding the Value of NAESB to Energy Players

Let’s be honest: standards aren’t the most exciting thing on the planet.

We would venture to say that hundred-page documents filled with references, enumerations, and revisions fall near the bottom of your party-planning list, but they do play an important role.

No one celebrates when new NAESB standards are released but, without them, the wholesale gas marketplace would be plagued by inconsistent experiences, suffer varying degrees of safety and security, and be forced to deal with even more confusing terms and conditions.

NAESB is a private entity. Its board is stacked with gifted and experienced professionals, and it has formed public-private partnerships with top agencies, including FERC and the Department of Energy (DoE).

NAESB generally publishes standards that advocate on behalf of the energy industry, for example stating that it will help energy companies “realize reduced transaction costs via standardization of transactions.”

Such cooperative public-private standards and regulations are valuable to our industry.

Too often, regulatory bodies are so heavily focused on public interest that they overlook the burden regulations can place on private companies. Meanwhile, privately developed standards may overlook public needs.

With NAESB standards converging with FERC requirements, all sides stand to gain.


The Connection Between FERC, GISB, and NAESB

Time for a quick history lesson.

The Gas Industry Standards Board (GISB) was once the de facto standards organization covering commercial and electronic wholesale gas transactions.

Like NAESB today, the GISB wrote its standards in a “you don’t have to comply—but you really actually do” world.

Both GISB and NAESB standards were “optional” when written but eventually incorporated into federal regulation by FERC, making them mandatory.

In 2002, GISB became NAESB. While GISB was purely focused on wholesale gas, NAESB expanded to cover the wholesale electric, retail gas, and retail electric sectors.

Plenty of confusing side stories took place during the GISB to NAESB transition period, involving the North American Electric Reliability Council (NERC), the Committee on Uniform Business Rules (CUBR), and other public bodies. Just know that standards were spread across a variety of bodies during this period, making them difficult to track and follow.

Once the transition period ended, however, NAESB emerged as the clearinghouse for gas and electric transaction standards.

This has been great for everyone involved. In fact, the formation of NAESB might be the energy success story of the decade.

NAESB’s core tenets—inclusivity, flexibility, structural protections, effectiveness, and credibility—lend themselves well to transactional standards.

It has brought rationality and consistency to energy transactions and, in doing so, created an efficient and cost-effective way for energy companies to conduct business.


Staying Compliant with NAESB

Technically, NAESB compliance is optional. And, indeed, NAESB doesn’t monitor for compliance or impose any penalties.

However, remember that most NAESB standards have been rolled into FERC federal requirements.

And FERC doesn’t play around. Since 2007, it has issued a whopping $784 million in penalties to energy companies, with a single infraction often drawing $1 million in fines.

In other words, the cost for not following NAESB standards can be high, even if they are technically optional.

This means it is crucial for energy companies to use a transaction system that is inherently NAESB compliant or face unnecessary risk.

Compliance should be baked into your energy supply chain systems, especially those that deal with regulated assets.

Adopting a compliant system is both cost effective and helps ensure continued compliance as standards and regulations evolve, while positioning your organization for digital transformation and cloud migration.


Trellis and NAESB

Trellis understands the value of NAESB standards. Our goal has always been to help energy companies run their businesses in compliance with the latest standards using secure and innovative technologies.

As Trellis’s President and CEO, I have served four terms on the Board of Directors and Executive Committee for the Wholesale Gas Quadrant (WGQ) of NAESB, serving the interests of all stakeholders—both market and regulatory.

Our flagship energy transaction management software is compliant with the latest NAESB/ FERC standards, and we are committed to maintaining that compliance going forward.


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