New York City

Via E-mail

Jennifer J. Johnson, Esq.
Secretary
Board of Governors of the
Federal Reserve System
Washington, D.C. 20551
Attn: Docket No. R-1128
Jonathan G. Katz, Esq.
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Attn: File No. S7-32-02
Office of the Comptroller
of the Currency
250 E Street, S.W.
Public Information Room
Mail Stop 1-5
Washington, D.C. 20219
Attn: Docket No. 02-13
Ms. Christine Tomczak
Secretary
New York State Banking Board
2 Rector Street
New York, NY 10006

      Re: Draft Interagency White Paper on Sound Practices
      To Strengthen the Resilience of the U.S. Financial System

To Whom It May Concern:

Introduction

New York City respectfully submits its comments in response to the Draft White Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System (the "White Paper") issued by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the New York State Banking Department (the "Agencies"). The White Paper discusses some preliminary recommendations concerning business continuity that will affect the location decisions of financial service company operations. In general, the White Paper asks for comments on the geographic separation necessary between primary and secondary processing sites to ensure business continuity in the face of a "severe, regional" disruption.

New York City commends the White Paper for taking an important first step in evaluating the ability of the United State financial system to continue operating in the aftermath of an event similar to the terrorist attack of September 11th, 2001 (hereinafter referred to as "September 11th"). Unquestionably, the business continuity arrangements of critical financial institutions should be reevaluated after an event as significant as September 11th. A renewed focus on the issue will ensure that the United States financial system continues to be the most robust and secure in the world. At the same time, the Agencies should not rush to adopt hard and fast rules governing such situations.

The issues raised by the White Paper are complex as are the questions posed by the Agencies; both require further detailed analysis. New York City looks forward to working with the Agencies and the industry to develop a comprehensive business continuity strategy.

New York City submits this response because it believes that the City can help the Agencies answer some of the questions posed by the White Paper. New York City focuses on two matters for which the role played by local government is an important factor: (1) the Agencies' conclusion that central cities remain viable locations for headquarters and primary processing sites of financial institutions; and (2) the Agencies' question whether there are "alternative arrangements (i.e., within a region) that would provide sufficient resilience in a wide-scale, regional disruption?" In answering this question, these comments will address the kind of disruption for which financial institutions should be required to plan.

First, the White Paper rightfully concludes that there is no reason for recommending "that firms move their primary sites out of center-city locations." To the contrary, "[t]here are many business and internal control benefits of having processing sites near financial markets and firms' headquarters." It should also be noted that there are additional, fundamental business and operational reasons for key financial firms to maintain primary operations in New York City. Such reasons include access to a diverse and experienced labor pool, the advantages of face-to-face communication in a dynamic environment, full integration with the broader national marketplace and proximity to managerial supervision and regulatory control. The comments submitted by New York City herein concerning the scope and redundancy of New York City's infrastructure will further reinforce the White Paper's conclusion that the central city continues to be the best location for the headquarters and primary processing sites of major financial institutions. The City and its financial industry have grown together for almost 300 years to develop the infrastructure needed by this industry. Relocation of operations would be disruptive and costly, and would create additional operational exposures to risks at the second location. Moreover, it is unlikely that a location out of the central city would offer security from terrorism. By definition, terrorists will pursue critical targets wherever they are located.

Second, New York City believes that the information it provides to the Agencies herein will demonstrate that it is possible to locate secondary sites within a region and specifically within the five boroughs of the City, which span 300 square miles. New York City contends that the relocation of operations outside the primary region is not necessarily the optimal response to the possible threat of future terrorism. The infrastructure redundancy and distinct networks of infrastructure operations available within the New York City region, plus the City's partnership with the financial industry for continuity planning, can provide strategic protection for primary and secondary sites. Accordingly, the final White Paper should state that there is no minimum distance required between primary and secondary facilities and that determinations concerning whether a particular institution has adequate business continuity arrangements for critical functions will be reviewed on a case-by-case basis. As the White Paper acknowledges, the firms involved in this process have made it clear that "one size does not fit all." Any more restrictive recommendations could result in unjustified and uneconomic location decisions, as well as unintended additional risks.

The structure of the City's comments is as follows: (1) a brief description of the White Paper and its principal preliminary recommendations; (2) New York City's recommendation that the Agencies should not adopt hard and fast rules and instead permit a firm-specific analysis that balances the probability of different kinds of disruptive events and the nature of the firm operations; (3) a description of the major components of New York City's infrastructure, which will demonstrate that the central city is the best place for primary headquarters and processing and that secondary sites located within New York City can be strategically protected from what might be otherwise described as a "region-wide" event; and (4) a statement explaining New York City's request for additional clarification and opportunity to comment.

1. Brief Description of White Paper

With the goal of fortifying the U.S. financial system based on lessons learned from September 11th, the White Paper seeks to protect certain key financial markets ("Critical Markets")1 in the event of a "wide-scale, regional disruption." The White Paper's preliminary recommendations, if made final, would apply to core clearing and settlement organizations2 as well as other firms that play significant roles in those Critical Markets3. New York City shares the White Paper's goal of fortifying the U.S. financial system.

In summary, the White Paper states the preliminary recommendation that: (1) core clearing and settlement organizations have "sufficient out-of-the region resources both to recover and to resume fully their critical activities within their recovery and resumption-time objectives;" and (2) firms other than the core clearing and settlement organizations that play significant roles in Critical Markets should have sufficient out-of-region staff, equipment and data to recover their critical activities within their recovery time objectives. New York City comments here are directed toward the recommendation that firms have out-of-region resources, in particular because the White Paper specifically asks whether in-region resources could be sufficient.

2. The Agencies Should Not Focus on the Largest and Most Unlikely Disruptive Event and Instead Support A Case-By-Case Analysis that Balances the Probability of Different Kinds of Disruptive Events and the Nature of Each Firm's Operations

The White Paper asks for comments on its definition of a "wide-scale, regional disruption." A "wide scale, regional disruption" is defined as one that causes a severe disruption of transportation, telecommunications, power, or other critical infrastructure components across a metropolitan area and its adjacent communities that are economically integrated with it; or that results in a wide-scale evacuation or inaccessibility of the population within normal commuting range of the disruption's origin. This definition contemplates that financial institutions should be prepared to respond to an event that is significantly more severe than September 11th.

The White Paper does not describe the cause of the disruption, instead focusing on the effect. New York City believes, however, that business continuity planning must take into account the likelihood of various risks and the nature of the individual firm's operations, e.g., whether the firm has global operations or not. Accordingly, it is important to review the nature and scope of the September 11th event, given that this event prompted the reevaluation of business continuity strategies that resulted in the White Paper.

September 11th was a targeted, premeditated attack against the nation's infrastructure. In this way it is unlike more random threats, with implications for risk management strategies. A disaster scenario involving terrorism and a premeditated plan to disable a primary operation might also target a backup site wherever located --relocating operations may not solve the problem.

Moreover, a major terrorist attack would have nationwide effects not limited to the region in which it took place. For example, September 11th resulted in the shutdown of all airports in the United States for two days and restrictions on private flights. The managers of a major financial institution would have had difficulty traveling by plane and/or ground transportation from the primary to a secondary site during this period. Indeed, the transportation for the employees at the secondary site may itself be unavailable due to restrictions imposed in the aftermath of a catastrophic terrorist event. In other words, the White Paper's preliminary recommendation appears to be based on the inaccurate assumption that a "severe regional" catastrophe would have regional effects only. A fuller discussion of the nationwide effects of such a catastrophic event could lead to a different conclusion - that it makes little or no difference whether the secondary facility is located within a region or outside of a region.

The evaluation of the kind of event that firms must plan for must also take into account both the difficulty of predicting the kind of event to which firms may be required to respond and the specific nature of the firm involved. For example, many large financial institutions have significant operations in foreign countries that can act as business continuity centers as they did in the days following September 11th. These institutions have key personnel and critical systems in existing, multiple locations and therefore may not need the same degree of regional back up sites as non-global businesses. For these companies it is important to have offsite data centers and continuity sites that key employees can easily travel to in the event of a disruption at the primary site. An offsite data center in New York City would be easier to travel to than one at a distant location in the event of an emergency.

For other companies or exchanges that do not have global operations (which can include core clearing and settlement organizations), risk management involves weighing the desirability of splitting primary operations versus establishing backup facilities that are more secondary (i.e., "hot" versus "cold" sites.) Focusing on an event more severe than September 11th, as suggested by the White Paper, does not permit a proper balancing of the risks. For example, in the case of a nuclear event, the immediate disruption to financial activity, separate and apart from the facilities issues relevant to the White Paper, would be so great that the existence of a second primary hot site to achieve short-run restoration would be irrelevant .

A distant second primary site is not only unnecessary to meet financial system needs in the event of a catastrophic disaster, but would also create risks and problems of its own. For example, assume a company locates half its key personnel to an out of region facility. First, it would have to manage the disruption to its employees, many of whom may not be willing or able to transfer or travel the required distance. Second, two primary sites increases the chance of an event occurring that could disrupt either of the two primary sites. Few businesses can operate effectively with half their key personnel. The farther away the backup site and the more key people located at such a distant site, the greater the probability of some smaller event (natural, like blizzard or flood, or terrorist), severely disrupting business. As described in section 3, New York City's redundant and diverse infrastructure can handle these smaller events better than any other city. For any event other than a nuclear event, the best balance is achieved by having secondary sites within New York City. A secondary site within New York City could easily obtain synchronous data connections, sufficient workspace for a large number of employees, and maximize the probability that key personnel can travel to the site.

New York City believes that its description of its infrastructure provided in Point 3 will demonstrate that an analysis performed on a case-by-case basis, which evaluated the likelihood of significant risks faced by a financial institution and its existing geographical footprint, could lead to the conclusion that it is not necessary to relocate facilities. Further, the analysis could find that it makes sense for a financial institution to maintain both its primary and secondary sites within New York City. Accordingly, any final White Paper adopted by the Agencies should not adopt any hard and fast rules like minimum distances or requirements for out-of-region facilities.

3. New York City's Unparalleled Infrastructure Has Redundancy and the Ability to Isolate Incidents That Create the Potential to Locate a Secondary Site Within the City

As one noted well-known city historian has stated, New York City, "perhaps to a greater extent than any other city, is an engineer's city."4 New York City's infrastructure is second to none in terms of diversity and redundancy of transportation, telecommunication, water and energy supply. New York City's unparalleled infrastructure demonstrates that the White Paper rightfully concluded that primary headquarters and processing sites can remain in the central city. Moreover, New York City's infrastructure demonstrates that it is also possible to locate a secondary site within the five boroughs and be able to maintain operations during an event like September 11th.

The White Paper itself notes, "Some firms that require real-time data back-up have or are establishing in-region back-up sites that employ synchronous technology and are easily accessible in situations that do not involve a wide area disruption." Thus, the White Paper, while making a preliminary recommendation that financial institutions should establish out-of-region secondary sites, asks whether there are "alternative arrangements (i.e., within a region) that would provide sufficient resilience in a wide-scale, regional disruption?"

The factors that come into play in making this determination are described in the White Paper as follows when discussing the requirements of out-of-region back-up locations:

[they] should not be dependent on the same labor pool or infrastructure components used by the primary site, and their respective labor pools should not both be vulnerable to simultaneous evacuation or inaccessibility. Infrastructure components include transportation, telecommunications, water supply and electric power.

While these requirements led the White Paper to preliminarily conclude that an out-of-region secondary site is required, New York City will demonstrate herein, examining the factors cited by the White Paper, that it can meet these requirements. New York City has a variety of backup operations locations throughout the City that offer secure facilities (e.g., single-tenant building, blast-proof construction, ability to secure building perimeter, ability to restrict truck access), easy access to a redundant, diverse transportation network that connects the largest regional labor force in the United States, redundant telecommunications and power infrastructure on different grids from primary locations and access to sophisticated emergency management services.

To demonstrate the uniqueness of New York City in this regard, the comments will first address the special role played by the New York City Office of Emergency Management ("OEM") and then the factors set forth in the White Paper.

A. OEM

The Agencies should note the City's unique ability to deal with emergencies through OEM. Established in 1996, OEM is responsible for providing interagency coordination in the event of a natural, technological, biological, chemical, terrorist or other emergency in New York City. Charged with emergency response, hazard planning and disaster mitigation, OEM provides New York City's businesses, residents and visitors with the highest and most efficient degree of emergency preparedness.

OEM works closely with the private sector and financial services firms, especially since September 11th, and has committed a dedicated staff of professionals with private and public sector experience to assist in these efforts. The Securities Industry Association ("SIA") and the New York Clearing House are represented whenever OEM's Emergency Operations Center ("EOC") is activated. The EOC is the central coordination point for agency operations as a result of a serious event or incident, and serves as a central clearing house for information and resource sharing in the emergency management process. OEM also operates a communications system that allows companies to receive the most up-to-the-minute information on emergency management events occurring throughout the City.5

With respect to transportation during emergencies, OEM is developing a Corporate Emergency Access System, in partnership with the Business Network of Emergency Resources, Inc., which will provide for the pre-credentialing of essential employees and critical service providers. This program will facilitate access to restricted areas to speed business recovery processes, even after a severe regional event. This project is currently in its initial planning stages.

OEM's Emergency Management Online Locator System ("EMOLS"), initially designed to facilitate the smooth evacuation of residents from areas of the City most vulnerable to coastal storm flooding, served residents and businesses displaced by the World Trade Center disaster by identifying the habitability of their respective buildings, as well as access routes to and from the area.

No other jurisdiction has these capabilities and would be able to mobilize necessary human and technical resources to restore service as quickly as New York City.

B. Labor Pool and Transportation

Labor and transportation are interrelated. Any secondary site, whether hot or cold, must have access to a skilled labor force and the managerial skill required to operate such a facility. The New York City metropolitan area has by far the largest skilled labor force in the country6. Its vast transportation network provides access to a labor pool of six million people within a 45-minute commute of the City. In the case of a disruptive event, a business continuity plan could indicate which employees can: (1) work at home; (2) work with remote access;(3) travel to a regional site; and (4) utilize a dedicated facility. Given the redundancy and diversity of New York City's transportation system as discussed below, it is highly likely that necessary employees would be able to travel to a secondary facility in New York City outside of Manhattan even in the face of an event similar to September 11th.

No other City in North America has the breadth and diversity of transportation assets as New York. Over the past 400 years, New York has developed infrastructure that offers its labor force diverse options for traveling to work. There are about 350 different rail, subway and bus lines covering over 2,000 miles of rail tracks and over 2,500 bus route miles. These assets cover over 5,000 square miles of the region fanning out from New York City to cover areas in New Jersey, Connecticut, southeastern New York State and Long Island. In addition, there are almost 30 ferry routes that connect Manhattan to other boroughs and New Jersey, and more ferry routes are being developed.

While nearly 85 percent of the nation's workers use automobiles to get to their jobs, four out of five rush hour commuters to New York City's central business districts travel by mass transit. Today, the City's transit assets move over 2.3 billion people per year, with 1.3 billion on the subway alone. In addition to the City's robust transit infrastructure, the City is also well served by surface transportation with a logical street grid and private and public bus operators with a fleet of 6,000 buses. The street grid system, developed centuries ago throughout the five boroughs, provides flexibility and redundancy for vehicles and close to 250 bus routes.

The City's transportation assets are managed by the Metropolitan Transportation Authority and are supplemented by seven private bus operators and five ferry operators, in addition to the City's Staten Island Ferry system. The City is also well connected to New Jersey labor markets with New Jersey Transit commuter and bus service. Regionally and nationally, Amtrak service and three airports also provide local businesses ease of travel. On a smaller scale, New York is also a pedestrian city with continuous sidewalks, allowing many residents to walk to work.

This transportation access redundancy would enable employers and employees to maintain continuity of service in a manner unavailable in any other region.

C. Telecommunications

New York City has the most advanced and resilient telecommunications infrastructure in the world. However, the White Paper notes that certain firms "have expressed concerns about the reliability of telecommunications and . . . limitations on an individual firm's ability to obtain verifiable redundancy of service from such carriers." The Paper suggests that out-of-region facilities offer the needed "additional diversity in their telecommunications and other infrastructure services that provide additional resilience." In fact, the New York City metropolitan area offers a diverse and redundant telecommunications infrastructure that can provide far superior resiliency as compared to alternative locations.

Clearly, many firms that legitimately believed that they had "full" redundancy suffered significant outages as consequence of the September 11th attack. Since then, telecommunications executives at key financial firms are significantly better prepared to evaluate the level of redundancy they need and are actually purchasing it. Similarly, the City's telecommunications companies are more sensitive, and responsive, to their customers' requirements for information with which to make those determinations. A final version of the White Paper can further contribute to this effort on the part of telecommunications customers, regulators and providers by encouraging investment and testing of in-region redundant and resilient telecommunications equipment and services. Such encouragement would help the specific firms targeted by the White Paper as well as the wide range of other securities and financial services firms to secure adequate in-region back-up facilities.

The superior infrastructure that existed prior to September 11th continues to improve. A recent study by the Lower Manhattan Telecommunications Users' Working Group concluded "businesses in Lower Manhattan currently have more options for true network redundancy than in virtually any other central business district in the nation."7 In the aftermath of September 11th, Verizon is installing 45 miles of additional fiber in Lower Manhattan connecting its multiple central offices for additional reliability. Downtown firms are presently served by six companies8 that maintain their own fiber optic cables and self-healing SONET rings.9 Importantly, since September 11th, Con Edison Communications has offered new state-of-the-art service via its own conduit system, independent of the Empire City Subway system used by Verizon and certain other carriers. The Con Edison system maintains its own network switches, is served by distinct central offices and is carrier neutral.10

New York City's telecommunications network can fully accomplish, for any of the key financial firms that are the subject of the White Paper, the telecommunications objectives set forth in the Paper. It would be impossible to find an out-of-region facility served with a comparable wealth of redundant and resilient network elements, including multiple conduits and central offices. Network redundancy also exists throughout mid- and upper-Manhattan, as well as in the outer boroughs of New York City, where over a dozen well established business sites each have proximity to five or more fiber networks.

Inasmuch as all communications networks are inherently fragile, such redundancy is of paramount importance. Depending on the location of an out-of-region site, points of connection back to the original facility could entail a precarious "conversion" process, itself representing a potentially critical point of failure - one that can be avoided by strategic selection of an in-region back-up location. Furthermore, as the draft White Paper itself points out, there are technological limits to the distance over which real-time backup, remotely mirrored to provide uninterrupted service and avoid data loss, can be provided. The draft White Paper mentions estimates of this maximum distance at 60-100km, although for example, Cisco's application note "Dense Wave Division Multiplexing for Storage Networking and Disaster Recovery Applications" posted as recently as July of this year, refers to a maximum distance of 50km distance for IBM's ESCON technology11. Whatever the specific limits, however, it is clear that this technology is oriented around installation within densely populated metropolitan area networks, and out-of-region facilities will be unable to rely on it for some time to come.

Going forward, New York City's telecommunications infrastructure will only continue to improve. First, the City's Mutual Aid and Restoration Consortium (MARC) will soon be expanded to include private sector companies. MARC is a pioneering and unique plan for voice and data traffic to be handled by alternative carriers in case of a critical disruption to the telecommunications networks supporting New York City. MARC - which was successfully used in the aftermath of September 11th to restore telecommunications services to municipal agencies and to provision emergency communications services - establishes a framework for cooperation in an emergency among competing telecommunications service providers. Under the terms of the City's franchise agreements, carriers must participate in this coordinated effort. A new "MARC II" agreement, undergoing final review by the FCC, New York State Public Service Commission ("New York Commission") and wireline as well as wireless carriers, would include critical, non-municipal facilities on a priority restoration list in the event of another "telecommunications crisis." This would enable the City to immediately initiate telecom restoration efforts, in close coordination with the federal government. 12

City government is also encouraging the development of even more fiber conduit to building lines, and through new lateral ducts on side streets providing alternative route lines. The City is also working with the mobile telecommunications industry to assure that wireless systems will also be available, and sufficiently capacious, to help provide survivable telecommunications services in disaster circumstances. Privately, groups such as the Downtown Alliance, working with many of the key financial firms that are the target of the White Paper, are exploring the use of wireless redundancy options, including free space optics, and are working intensively to educate building owners about the needs for, and the technical requirements of, resilient telecommunications systems.13

In sum, New York City possesses an extraordinary telecommunications infrastructure capable of fully meeting any firm's disaster recovery needs. The events of September 11th revealed flaws in redundancy and back-up functions, but significant progress to overcome those flaws has already been made and they will ultimately be eliminated with better planning and more extensive use of existing and new infrastructure. Continuing new development will help make such solutions even more cost effective and reliable. Back-up solutions within New York City can meet all of the telecommunications survivability goals that are met by out-of-region solutions, but without the disadvantages, such as the lack of available synchronous mirror solutions, of moving out-of-region.

D. Water Supply

The New York City Department of Environmental Protection ("DEP") is responsible for collecting, treating, and distributing water to New York City. The water storage and delivery system operated by DEP also has significant redundancy, a vigorous monitoring and emergency response system, and the ability to quickly isolate incidents when they occur.

DEP operates a system of watersheds, aqueducts, water tunnels, and trunk mains with interconnections that provide alternate flow paths to maintain service despite changes in water quality, storage, or water main breaks. This system provides significant redundancy. For example, disruption of service during water main breaks is generally localized. DEP continues, as part of its capital improvement plan, to increase the redundancy of the system. DEP maintains a vigorous infrastructure replacement program to modernize its water distribution system. In recent years, this effort has targeted areas of concentrated financial and commercial activity. This will allow the system to function in the event of some larger catastrophe or security event.

DEP continually reviews its need for primary or backup water supplies or storage in order to insure an uninterrupted supply of water, to mitigate the effects of drought, contamination or the planned or unplanned removal of critical infrastructure from service. Among the issues continuously under review are the use of groundwater, interconnections with other water purveyors, conservation, purchase of other water systems, water re-use, and the modification of existing facilities. DEP also fully participates in the New York City effort to provide a unified response to emergencies as they arise and has its own in-house Office of Emergency Management and operations staff.

With respect to security of the water supply, DEP maintains a vigorous sampling and analysis regimen for testing the quality of water both in the watershed and in-City distribution. DEP expects to further increase this activity using the latest advances in technology in order to improve its ability to monitor. Towards this end, DEP has partnered with the Army Corps of Engineers to develop an early warning system of water quality analysis. In addition, DEP's Environmental Police force has significantly expanded its staffing over the past several years, particularly since September 11. Given the growth in personnel and resources, the DEP Police force now provides the specialized expertise required to protect critical water supply facilities both in-City and upstate.

In sum, like other parts of New York City's infrastructure, its water supply is among the best in the world and is continually being refined and improved.

E. Energy

Electric systems are a good example of how central city locations can provide a superior level of reliability. The density and needs of New York City have led Con Edison, the local utility, to construct an underground electric delivery system with significant redundancy that provides the highest level of reliability. The legal requirements governing the Con Edison system have existed for a long time and have been continually refined and improved. For example, in the 1890's, after a major blizzard in 1888, New York City ordered that electric and telephone utilities place their facilities underground to avoid disruption to their facilities and the streets during a major storm. Next, in 1961, the New York Commission ordered Con Edison to add redundancy to its distribution system in critical areas of the City to further reduce the chance of major outages.14 As a result of these two requirements, New York City's electric delivery system is among the most reliable, if not the most reliable in the world.15

As the City's independent electricity consultants have found, "[i]n general, grid network systems, such as those used by Con Edison in its most important load areas, have been designed to serve customers with no momentary interruptions and with a very high degree of service reliability."16 The various kinds of electricity distribution systems and their probability of failure rates are shown below. As can be seen, the grid network system used by Con Edison in the critical areas of the City has by far the highest reliability:

Type of
System
Radial Pri-
Auto-Loop
Pri-
Selective
Secondary
Selective
Grid
Network
Outages/yr. 0.3-1.3 0.4-0.7 0.1-0.5 0.1-0.5 0.005-0.020
Momentary
Interruptions/yr.
5-10 10-15 4-8 2-4 0.00

The most prevalent kind of system in sparsely developed areas is the above ground radial system, which is approximately 65 times more likely to experience an outage than the underground grid network system used by Con Edison in Manhattan and other business districts in the City.

In addition, publicly available studies have generally demonstrated that Con Edison has the most reliable delivery system in the United States.17 For example, a 1998 study by Haigler-Bailly of 45 electric utilities in the United States showed that Con Edison's delivery system was four times more reliable then the next most reliable utility and well below the industry average.18 A similar report by P.A. Consulting Group in 2001 again showed that Con Edison had by far the most reliable system in the United States of the electric utilities that were willing to be surveyed.

New York City also has numerous separate and independent electricity grids that serve to isolate an incident as soon as it occurs. The City's electricity consultants observed that:

Con Edison's networks are designed to operate as independent electrical systems[.] This approach optimizes substation and feeder loadings while preventing network contingencies from cascading to other networks, thus limiting the affected area.19

In total, Con Edison operates 55 separate and distinct distribution grids in the City.

In sum, New York City's highly reliable electric system is a perfect example of how geographical diversity is not necessarily the most important consideration governing reliability and continuity. This is just one reason why the White Paper rightfully concluded that firms should not leave the central city because of business continuity concerns.20 It also demonstrates that companies could have secondary sites located in specific areas of the City outside of Manhattan and be on a separate power grid.

F. Response of City to September 11th

The September 11th attacks demonstrated that New York City could quickly isolate the effects of that attack and allow other workers to continue to travel to work. Public transportation was up and running hours after the attack in areas outside Lower Manhattan. Subway service to Lower Manhattan was suspended shortly after the second attack on the World Trade Center and an extensive bus and ferry service was quickly organized to take workers away from Ground Zero to points around the City and New Jersey. Subway service in Lower Manhattan was re-established within three hours, bypassing disabled stops.

September 11th is also a perfect example of how the New York City power system operates with numerous separate and independent grids. Notwithstanding the significant damage experienced by the Lower Manhattan electricity delivery system, continuous electric service was maintained throughout the City other than the small area of Lower Manhattan where the damage occurred. In the days following September 11th, there were no major electric disruptions in any areas of the City outside of Lower Manhattan, nor even any minor disruptions that resulted from the attack. Nor were there water supply or delivery problems outside of Lower Manhattan

While telecommunications is the primary concern that was raised after September 11th, a substantial effort is now being made to ensure true network redundancy and security for critical users. New York City believes the White Paper can play an important role in ensuring that users, working together with the appropriate State and federal agencies, will be able to obtain effective back-up service from telecommunication providers.

4. New York City Requests Additional Opportunity to Comment After Further Clarification and Revision

New York City believes that it cannot fully evaluate and respond to the White Paper without clarification of additional open issues raised therein. For example, the final definitions of certain White Paper terms and concepts such as Critical Markets, "core clearing and settlement organizations" and "firms that play significant roles in critical financial markets" could have significant impacts in New York City. Furthermore, the role that New York City can play in ensuring both business continuity and security deserves further exploration. Accordingly, it would be very helpful if the Agencies held additional technical conferences after the first set of comments is filed, and then allow for the filing of additional comments before any final recommendations are made.

Conclusion

New York City commends the Agencies for the issuing the White Paper as a first step in examining this difficult topic and for granting the opportunity for full public discussion. New York City respectfully requests that the Agencies give due consideration to the information and comments provided by the City herein and refrain from adopting hard and fast rules like minimum distances or out-of-region requirements for secondary facilities that could result in unjustified and uneconomic location decisions, as well as unintended additional risks.

Further, New York City urges that the Agencies provide another opportunity for comment after consideration of responses received on October 21, 2002, permitting additional analysis and response before any final recommendations are issued.

Dated: October 21, 2002
New York, New York

Respectfully Submitted,

MICHAEL A. CARDOZO Corporation Counsel
of the City of New York
100 Church Street, Room 6-155
New York, NY 10007
(212) 788-1327

By:
_______/S/___________
Bruce Regal, Esq.
Assistant Corporation Counsel

____________________________
1 Critical Markets are defined as the markets for Federal funds, foreign exchange and commercial paper and government, corporate and mortgage-backed securities.
2 Core clearing and settlement organizations include market utilities that provide critical clearing and settlement services for financial markets and large value payment system operators, as well as firms that provide similar services for critical financial markets in sufficient volume or value to present systemic risk in their sudden absence, and for whom there are no viable immediate substitutes.
3 Firms that play significant roles in critical financial markets are those that participate in sufficient volume or value such that their failure to perform critical activities by the end of the business day could present systemic risk.
4 Sir Peter Hall, "Cities in Civilization," at 748 (1998).
5 On a more routine basis, APPL (Area Police/Private Security Liaison) provides a communication system between the New York Police Department ("NYPD") and private security directors that forwards security related information from the NYPD to APPL members. The communication includes critical information such as suspicious packages, roadway closures, transportation closures and certain police incidents and available intelligence information.
6 New York City has more persons with graduate degrees in its workforce than any other city in the country and 160,000 more than the next highest city.
7 Building a 21st Century Telecom Infrastructure, at 4.
8 Verizon, Con Edison Communications, Time Warner Telecommunications, AT&T, MCI WorldCom and MFN.
9 "Synchronous optical network (SONET) equipment aggregates many types of traffic into uniform streams onto fiber optic cabling. SONET is capable of transporting traffic in redundant rings. Fifty percent of the rings' capacity is set aside for automatic restoration. If one section of the ring is cut, traffic automatically travels on the redundant fiber in the ring." Dodd, Annabel Z., The Essential Guide to Telecommunications, 3d Ed., Prentice-Hall, 2002. New York City government's internal data network, known as Citynet, uses self-healing SONET technology and has, due to its redundant structure, never gone down, fully surviving all sorts of damage to which telecommunications systems are prone, including the attacks of September 11th, 2001.
10 Similarly, Keyspan Energy, another subsidiary of a financially stable electric utility company, has also begun to build its own plant and conduit.
11 See http://www.cisco.com/warp/public/cc/pd/olpl/metro/on15500/on15540/prodlit/fdmte_an.pdf
12 The White Paper could play an important role in this regard by emphasizing to Federal and State telecommunications regulators that all providers should be required to participate where such a citywide system exists.
13 "Seeking More Reliable Telecommunication Backups", New York Sunday Times Real Estate Section, October 20, 2002.
14 See New York Commission Order dated July 19, 1961 concerning Con Edison. As a result of this order, Con Edison's distribution system is an N-2 system, which means that the system will continue to operate within normal operating levels even after the failure of two of the same kind of system components, e.g., feeders, transformers. Finally, after the 1977 blackout, the last major one in the City, the New York Commission required Con Edison to implement a special "storm watch" procedure that is implemented whenever a thunderstorm is predicted (the 1977 blackout resulted from lighting strikes on the major transmission lines serving the City).
15 It is difficult to make "apples to apples" comparisons for all electric utilities because they all use different kinds of statistics for measuring their reliability.
16 EPRIsolutions, Inc., Con Edison Phase I Report, Prepared for Mayor's Advisory Task Force on Con Edison Reliability (June 2000), at 2-1 (filed with the PSC on July 14, 2000) [hereinafter "Reliability Report"].
17 See id. at 2-1-2.
18 See id. at 2-2-3.
19 Id. at 2-1, n. 2.
20 Finally, Con Edison provides customers with the ability to contract for emergency generator service even if there is a major disruption. See Con Edison Electric Service Tariff, Rider N.