Mandatory Reliability Standards for the Bulk-Power System, 16416-16602 [E7-5284]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 72, Number 64 (Wednesday, April 4, 2007)]
[Rules and Regulations]
[Pages 16416-16602]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-5284]



[[Page 16415]]

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Part II





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Part 40



Mandatory Reliability Standards for the Bulk-Power System; Final Rule

Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules 
and Regulations

[[Page 16416]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket No. RM06-16-000; Order No. 693]


Mandatory Reliability Standards for the Bulk-Power System

Issued March 16, 2007.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: Pursuant to section 215 of the Federal Power Act (FPA), the 
Commission approves 83 of 107 proposed Reliability Standards, six of 
the eight proposed regional differences, and the Glossary of Terms Used 
in Reliability Standards developed by the North American Electric 
Reliability Corporation (NERC), which the Commission has certified as 
the Electric Reliability Organization (ERO) responsible for developing 
and enforcing mandatory Reliability Standards. Those Reliability 
Standards meet the requirements of section 215 of the FPA and Part 39 
of the Commission's regulations. However, although we believe it is in 
the public interest to make these Reliability Standards mandatory and 
enforceable, we also find that much work remains to be done. 
Specifically, we believe that many of these Reliability Standards 
require significant improvement to address, among other things, the 
recommendations of the Blackout Report. Therefore, pursuant to section 
215(d)(5), we require the ERO to submit significant improvements to 56 
of the 83 Reliability Standards that are being approved as mandatory 
and enforceable. The remaining 24 Reliability Standards will remain 
pending at the Commission until further information is provided.
    The Final Rule adds a new part to the Commission's regulations, 
which states that this part applies to all users, owners and operators 
of the Bulk-Power System within the United States (other than Alaska or 
Hawaii) and requires that each Reliability Standard identify the subset 
of users, owners and operators to which that particular Reliability 
Standard applies. The new regulations also require that each 
Reliability Standard that is approved by the Commission will be 
maintained on the ERO's Internet Web site for public inspection.

EFFECTIVE DATE: This rule will become effective June 4, 2007.

FOR FURTHER INFORMATION CONTACT: Jonathan First (Legal Information), 
Office of the General Counsel, Federal Energy Regulatory Commission, 
888 First Street, NE., Washington, DC 20426, (202) 502-8529.
    Paul Silverman (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8683.
    Robert Snow (Technical Information), Office of Energy Markets and 
Reliability, Division of Reliability, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
6716.
    Kumar Agarwal (Technical Information), Office of Energy Markets and 
Reliability, Division of Policy Analysis and Rulemaking, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 502-8923.

SUPPLEMENTARY INFORMATION: Before Commissioners: Joseph T. Kelliher, 
Chairman; Suedeen G. Kelly; Marc Spitzer; Philip D. Moeller; and Jon 
Wellinghoff.

                            Table of Contents
 
                                                               Paragraph
 
I. Introduction.............................................           1
    A. Background...........................................           3
        1. EPAct 2005 and Order No. 672.....................           3
        2. NERC Petition for Approval of Reliability                  12
         Standards..........................................
        3. Staff Preliminary Assessment and Commission NOPR.          15
        4. Notice of Proposed Rulemaking....................          17
II. Discussion..............................................          21
    A. Overview.............................................          21
        1. The Commission's Underlying Approach to Review             21
         and Disposition of the Proposed Standards..........
        2. Mandates of Section 215 of the FPA...............          23
        3. Balancing the Need for Practicality with the               29
         Mandates of Section 215 and Order No. 672..........
    B. Discussion of the Commission's New Regulations.......          34
        1. Applicability....................................          34
        2. Mandatory Reliability Standards..................          40
        3. Availability of Reliability Standards............          44
    C. Applicability Issues.................................          50
        1. Bulk-Power System v. Bulk Electric System........          50
        2. Applicability to Small Entities..................          80
        3. Definition of User of the Bulk-Power System......         110
        4. Use of the NERC Functional Model.................         117
        5. Regional Reliability Organizations...............         146
    D. Mandatory Reliability Standards......................         161
        1. Legal Standard for Approval of Reliability                161
         Standards..........................................
        2. Commission Options When Acting on a Reliability           169
         Standard...........................................
        3. Prioritizing Modifications to Reliability                 193
         Standards..........................................
        4. Trial Period.....................................         208
        5. International Coordination.......................         226
    E. Common Issues Pertaining to Reliability Standards....         234
        1. Blackout Report Recommendation on Liability               234
         Limitations........................................
        2. Measures and Levels of Non-Compliance............         238
        3. Ambiguities and Potential Multiple                        264
         Interpretations....................................
        4. Technical Adequacy...............................         282
        5. Fill-in-the-Blank Standards......................         287
    F. Discussion of Each Individual Reliability Standard...         304
        1. BAL: Resource and Demand Balancing...............         305
        2. CIP: Critical Infrastructure Protection..........         446

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        3. COM: Communications..............................         473
        4. EOP: Emergency Preparedness and Operations.......         542
        5. FAC: Facilities Design, Connections, Maintenance,         678
         and Transfer Capabilities..........................
        6. INT: Interchange Scheduling and Coordination.....         796
        7. IRO: Interconnection Reliability Operations and           889
         Coordination.......................................
        8. MOD: Modeling, Data, and Analysis................        1007
        9. PER: Personnel Performance, Training and                 1325
         Qualifications.....................................
        10. PRC: Protection and Control.....................        1419
        11. TOP: Transmission Operations....................        1568
        12. TPL: Transmission Planning......................        1684
        13. VAR: Voltage and Reactive Control...............        1847
        14. Glossary of Terms Used in Reliability Standards.        1887
III. Information Collection Statement.......................        1900
IV. Environmental Analysis..................................        1909
V. Regulatory Flexibility Act...............................        1910
VI. Document Availability...................................        1947
VII. Effective Date and Congressional Notification..........        1950
Appendix A: Disposition of Reliability Standards, Glossary
 and Regional Differences
Appendix B: Commenters on the Notice of Proposed Rulemaking
Appendix C: Abbreviations in this Document
 

I. Introduction

    1. Pursuant to section 215 of the Federal Power Act (FPA), the 
Commission approves 83 of 107 proposed Reliability Standards, six of 
the eight proposed regional differences, and the Glossary of Terms Used 
in Reliability Standards (glossary) developed by the North American 
Electric Reliability Corporation (NERC), which the Commission has 
certified as the Electric Reliability Organization (ERO) responsible 
for developing and enforcing mandatory Reliability Standards. Those 
Reliability Standards meet the requirements of section 215 of the FPA 
and Part 39 of the Commission's regulations. However, although we 
believe it is in the public interest to make these Reliability 
Standards mandatory and enforceable, we also find that much work 
remains to be done. Specifically, we believe that many of these 
Reliability Standards require significant improvement to address, among 
other things, the recommendations of the Blackout Report.\1\ Therefore, 
pursuant to section 215(d)(5), we require the ERO to submit significant 
improvements to 56 of the 83 Reliability Standards that are being 
approved as mandatory and enforceable. The remaining 24 Reliability 
Standards will remain pending at the Commission until further 
information is provided.
    2. The Final Rule adds a new part to the Commission's regulations, 
which states that this part applies to all users, owners and operators 
of the Bulk-Power System within the United States (other than Alaska or 
Hawaii) and requires that each Reliability Standard identify the subset 
of users, owners and operators to which that particular Reliability 
Standard applies. The new regulations also require that each 
Reliability Standard that is approved by the Commission will be 
maintained on the ERO's Internet Web site for public inspection.
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    \1\ U.S.-Canada Power System Outage Task Force, Final Report on 
the August 14 Blackout in the United States and Canada: Causes and 
Recommendations (April 2004) (Blackout Report). The Blackout Report 
is available on the Internet at https://www.ferc.gov/cust-protect/
moi/blackout.asp.
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A. Background

1. EPAct 2005 and Order No. 672
    3. On August 8, 2005, the Electricity Modernization Act of 2005, 
which is Title XII, Subtitle A, of the Energy Policy Act of 2005 (EPAct 
2005), was enacted into law.\2\ EPAct 2005 adds a new section 215 to 
the FPA, which requires a Commission-certified ERO to develop mandatory 
and enforceable Reliability Standards, which are subject to Commission 
review and approval. Once approved, the Reliability Standards may be 
enforced by the ERO, subject to Commission oversight or the Commission 
can independently enforce Reliability Standards.\3\
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    \2\ Energy Policy Act of 2005, Pub. L. No 109-58, Title XII, 
Subtitle A, 119 Stat. 594, 941 (2005), to be codified at 16 U.S.C. 
824o.
    \3\ 16 U.S.C. 824o(e)(3).
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    4. On February 3, 2006, the Commission issued Order No. 672, 
implementing section 215 of the FPA.\4\ Pursuant to Order No. 672, the 
Commission certified one organization, NERC, as the ERO.\5\ The ERO is 
required to develop Reliability Standards, which are subject to 
Commission review and approval.\6\ The Reliability Standards will apply 
to users, owners and operators of the Bulk-Power System, as set forth 
in each Reliability Standard.
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    \4\ Rules Concerning Certification of the Electric Reliability 
Organization; Procedures for the Establishment, Approval and 
Enforcement of Electric Reliability Standards, Order No. 672, 71 FR 
8662 (February 17, 2006), FERC Stats. & Regs. ] 31,204 (2006), order 
on reh'g, Order No. 672-A, 71 FR 19814 (April 18, 2006), FERC Stats. 
& Regs. ] 31,212 (2006).
    \5\ North American Electric Reliability Corp., 116 FERC ] 61,062 
(ERO Certification Order), order on reh'g & compliance, 117 FERC ] 
61,126 (ERO Rehearing Order) (2006), order on compliance, 118 FERC ] 
61,030 (2007) (January 2007 Compliance Order).
    \6\ Section 215(a)(3) of the FPA defines the term Reliability 
Standard to mean ``a requirement, approved by the Commission under 
this section, to provide for reliable operation of the Bulk-Power 
System. This term includes requirements for the operation of 
existing Bulk-Power System facilities, including cybersecurity 
protection, and the design of planned additions or modifications to 
such facilities to the extent necessary to provide for the reliable 
operation of the Bulk-Power System, but the term does not include 
any requirement to enlarge such facilities or to construct new 
transmission capacity or generation capacity.'' 16 U.S.C. 
824o(a)(3).
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    5. Section 215(d)(2) of the FPA and the Commission's regulations 
provide that the Commission may approve a proposed Reliability Standard 
if it determines that the proposal is just, reasonable, not unduly 
discriminatory or preferential, and in the public interest. The 
Commission specified in Order No. 672 certain general factors it would 
consider when assessing whether a particular Reliability Standard is 
just and reasonable.\7\ According to this guidance, a Reliability 
Standard must provide for the Reliable Operation of Bulk-Power System 
facilities and may impose a requirement on any user, owner or operator 
of such facilities. It must be designed to achieve a specified

[[Page 16418]]

reliability goal and must contain a technically sound means to achieve 
this goal. The Reliability Standard should be clear and unambiguous 
regarding what is required and who is required to comply. The possible 
consequences for violating a Reliability Standard should be clear and 
understandable to those who must comply. There should be clear criteria 
for whether an entity is in compliance with a Reliability Standard. 
While a Reliability Standard does not necessarily need to reflect the 
optimal method for achieving its reliability goal, a Reliability 
Standard should achieve its reliability goal effectively and 
efficiently. A Reliability Standard must do more than simply reflect 
stakeholder agreement or consensus around the ``lowest common 
denominator.'' It is important that the Reliability Standards developed 
through any consensus process be sufficient to adequately protect Bulk-
Power System reliability.\8\
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    \7\ Order No. 672 at P 262, 321-37.
    \8\ Id. at P 329.
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    6. A Reliability Standard may take into account the size of the 
entity that must comply and the costs of implementation. A Reliability 
Standard should be a single standard that applies across the North 
American Bulk-Power System to the maximum extent this is achievable 
taking into account physical differences in grid characteristics and 
regional Reliability Standards that result in more stringent practices. 
It can also account for regional variations in the organizational and 
corporate structures of transmission owners and operators, variations 
in generation fuel type and ownership patterns, and regional variations 
in market design if these affect the proposed Reliability Standard. 
Finally, a Reliability Standard should have no undue negative effect on 
competition.\9\
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    \9\ Id. at P 332.
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    7. Order No. 672 directs the ERO to explain how the factors the 
Commission identified are satisfied and how the ERO balances any 
conflicting factors when seeking approval of a proposed Reliability 
Standard.\10\
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    \10\ Id. at P 337.
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    8. Pursuant to section 215(d)(2) of the FPA and Sec.  39.5(c) of 
the Commission's regulations, the Commission will give due weight to 
the technical expertise of the ERO with respect to the content of a 
Reliability Standard or to a Regional Entity organized on an 
Interconnection-wide basis with respect to a proposed Reliability 
Standard or a proposed modification to a Reliability Standard to be 
applicable within that Interconnection. However, the Commission will 
not defer to the ERO or to such a Regional Entity with respect to the 
effect of a proposed Reliability Standard or proposed modification to a 
Reliability Standard on competition.\11\
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    \11\ 18 CFR 39.5(c)(1), (3).
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    9. The Commission's regulations require the ERO to file with the 
Commission each new or modified Reliability Standard that it proposes 
to be made effective under section 215 of the FPA. The filing must 
include a concise statement of the basis and purpose of the proposed 
Reliability Standard, a summary of the Reliability Standard development 
proceedings conducted by either the ERO or Regional Entity, together 
with a summary of the ERO's Reliability Standard review proceedings, 
and a demonstration that the proposed Reliability Standard is just, 
reasonable, not unduly discriminatory or preferential and in the public 
interest.\12\
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    \12\ 18 CFR 39.5(a).
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    10. Where a Reliability Standard requires significant improvement, 
but is otherwise enforceable, the Commission approves the Reliability 
Standard. In addition, as a distinct action under the statute, the 
Commission directs the ERO to modify such a Reliability Standard, 
pursuant to section 215(d)(5) of the FPA, to address the identified 
issues or concerns. This approach will allow the proposed Reliability 
Standard to be enforceable while the ERO develops any required 
modifications.
    11. The Commission will remand to the ERO for further consideration 
a proposed new or modified Reliability Standard that the Commission 
disapproves in whole or in part.\13\ When remanding a Reliability 
Standard to the ERO, the Commission may order a deadline by which the 
ERO must submit a proposed or modified Reliability Standard.
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    \13\ 18 CFR 39.5(e).
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2. NERC Petition for Approval of Reliability Standards
    12. On April 4, 2006, as modified on August 28, 2006, NERC 
submitted to the Commission a petition seeking approval of the 107 
proposed Reliability Standards that are the subject of this Final 
Rule.\14\ According to NERC, the 107 proposed Reliability Standards 
collectively define overall acceptable performance with regard to 
operation, planning and design of the North American Bulk-Power System. 
Seven of these Reliability Standards specifically incorporate one or 
more ``regional differences'' (which can include an exemption from a 
Reliability Standard) for a particular region or subregion, resulting 
in eight regional differences. NERC stated that it simultaneously filed 
the proposed Reliability Standards with governmental authorities in 
Canada. The Commission addresses these proposed Reliability Standards 
in this rulemaking proceeding.\15\
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    \14\ The filed proposed Reliability Standards are not attached 
to the Final Rule but are available on the Commission's eLibrary 
document retrieval system in Docket No. RM06-16-000 and are 
available on the ERO's Web site, https://www.nerc.com/filez/nerc_
filings_ferc.html.
    \15\ Eight proposed Reliability Standards submitted in the 
August 29, 2006 filing that relate to cyber security, Reliability 
Standards CIP-002 through CIP-009, will be addressed in a separate 
rulemaking proceeding in Docket No. RM06-22-000.
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    13. On November 15, 2006, NERC filed 20 revised proposed 
Reliability Standards and three new proposed Reliability Standards for 
Commission approval. The 20 revised Reliability Standards primarily 
provided additional Measures and Levels of Non-Compliance, but did not 
add or revise any existing Requirements to these Reliability Standards. 
NERC requested that the 20 revised proposed Reliability Standards be 
included as part of the Final Rule issued by the Commission in this 
docket. The proposed new Reliability Standards, FAC-010-1, FAC-011-1, 
and FAC-014-1, will be addressed in a separate rulemaking proceeding in 
Docket No. RM07-3-000.
    14. On December 1, 2006, NERC submitted in Docket No. RM06-16-000 
an informational filing entitled ``NERC's Reliability Standards 
Development Plan: 2007--2009'' (Work Plan). NERC stated it was 
submitting the Work Plan to inform the Commission of NERC's program to 
improve the Reliability Standards that currently are the subject of the 
Commission's rulemaking proceeding.
3. Staff Preliminary Assessment and Commission NOPR
    15. On May 11, 2006, Commission staff issued a ``Staff Preliminary 
Assessment of the North American Electric Reliability Council's 
Proposed Mandatory Reliability Standards'' (Staff Preliminary 
Assessment). The Staff Preliminary Assessment identifies staff's 
observations and concerns regarding NERC's then-current voluntary 
Reliability Standards. The Staff Preliminary Assessment describes 
issues common to a number of proposed Reliability Standards. It reviews 
and identifies issues regarding each individual Reliability Standard 
but did not make specific recommendations regarding the appropriate 
Commission action on a particular proposal.
    16. Comments on the Staff Preliminary Assessment were due by June 
26, 2006. Approximately 50 entities filed comments in response to

[[Page 16419]]

the Staff Preliminary Assessment. In addition, on July 6, 2006, the 
Commission held a technical conference to discuss NERC's proposed 
Reliability Standards, the Staff Preliminary Assessment, the comments 
and other related issues.
4. Notice of Proposed Rulemaking
    17. The Commission issued the NOPR on October 20, 2006, and 
required that comments be filed within 60 days after publication in the 
Federal Register, or January 2, 2007.\16\ The Commission granted the 
request of several commenters to extend the comment date to January 3, 
2007. Several late-filed comments were filed. The Commission will 
accept these late-filed comments. A list of commenters appears in 
Appendix A.
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    \16\ Mandatory Reliability Standards for the Bulk Power System, 
Notice of Proposed Rulemaking, 71 FR 64,770 (Nov. 3, 2006), FERC 
Stats. & Regs., Vol IV, Proposed Regulations, ] 32,608 (2006).
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    18. On November 27, 2006, the Commission issued a notice on the 20 
revised Reliability Standards filed by NERC on November 15, 2006. In 
the notice, the Commission explained that, because of their close 
relationship with Reliability Standards dealt with in the October 20, 
2006 NOPR, the Commission would address these 20 revised Reliability 
Standards in this proceeding.\17\ The notice provided an opportunity to 
comment on the revised Reliability Standards, with a comment due date 
of January 3, 2007.
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    \17\ The modified 20 Reliability Standards are: CIP-001-1; COM-
001-1; COM-002-2; EOP-002-2; EOP-003-1; EOP-004-1; EOP-006-1; INT-
001-2; INT-003-2; IRO-001-1; IRO-002-1; IRO-003-2; IRO-005-2; PER-
004-1; PRC-001-1; TOP-001-1; TOP-002-2; TOP-004-1; TOP-006-1; and 
TOP-008-1.
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    19. The Commission issued a notice on NERC's Work Plan on December 
8, 2006. While the Commission sought public comment on NERC's filing 
because it was informative on the prioritization of modifying 
Reliability Standards raised in the NOPR, the notice emphasized that 
the Work Plan was filed for informational purposes and NERC stated that 
it is not requesting Commission action on the Work Plan.
    20. On February 6, 2007, NERC submitted a request for leave to file 
supplemental information, and included a revised version of the NERC 
Statement of Compliance Registry Criteria (Revision 3). NERC noted that 
it had submitted with its NOPR comments an earlier version of the same 
document.\18\
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    \18\ See NERC comments, Attachment B.
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II. Discussion

A. Overview

1. The Commission's Underlying Approach To Review and Disposition of 
the Proposed Standards
    21. In this Final Rule, the Commission takes the important step of 
approving the first set of mandatory and enforceable Reliability 
Standards within the United States in accordance with the provisions of 
new section 215 of the FPA. The Commission's action herein marks the 
official departure from reliance on the electric utility industry's 
voluntary compliance with Reliability Standards adopted by NERC and the 
regional reliability councils and the transition to the mandatory, 
enforceable Reliability Standards under the Commission's ultimate 
oversight through the ERO and, eventually, the Regional Entities, as 
directed by Congress. As we discuss more fully below, in deciding 
whether to approve, approve and direct modifications, or remand each of 
the proposed Reliability Standards in this Final Rule, our overall 
approach has been one of carefully balancing the need for practicality 
during the time of transition with the imperatives of section 215 of 
the FPA and Order No. 672, and other considerations.
    22. In addition, our action today is informed by the August 14, 
2003 blackout which affected significant portions of the Midwest and 
Northeast United States and Ontario, Canada and impacted an estimated 
50 million people and 61,800 megawatts of electric load. As noted in 
the NOPR, a joint United States-Canada task force found that the 
blackout was caused by several entities violating NERC's then-effective 
policies and Reliability Standards.\19\ Those violations directly 
contributed to the loss of a significant amount of electric load. The 
joint task force identified both the need for legislation to make 
Reliability Standards mandatory and enforceable with penalties for 
noncompliance, as well as particular Reliability Standards that needed 
corrections to make them more effective in preventing blackouts. 
Indeed, the August 2003 blackout and the recommendations of the joint 
task force helped foster enactment of EPAct 2005 and new section 215 of 
the FPA.
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    \19\ NOPR at P 14.
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2. Mandates of Section 215 of the FPA
    23. The imperatives of section 215 of the FPA address not only the 
protection of the reliability of the Bulk-Power System but also the 
reliability roles of the Commission, the ERO, the Regional Entities, 
and the owners, users and operators of the Bulk-Power System.\20\ 
First, section 215 specifies that the ERO is to develop and enforce a 
comprehensive set of Reliability Standards subject to Commission 
review. Section 215 explains that a Reliability Standard is a 
requirement approved by the Commission that is intended to provide for 
the Reliable Operation of the Bulk-Power System. Such requirement may 
pertain to the operation of existing Bulk-Power System facilities, 
including cybersecurity protection, or it may pertain to the design of 
planned additions or modifications to such facilities to the extent 
necessary to provide for reliable operation of the Bulk-Power 
System.\21\
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    \20\ Generally speaking, the nation's Bulk-Power System has been 
described as consisting of ``generating units, transmission lines 
and substations, and system controls.'' Maintaining Reliability in a 
Competitive U.S. Electricity Industry, Final Report of the Task 
Force on Electric System Reliability, Secretary of Energy Advisory 
Board, U.S. Department of Energy (September 1998) at 2, 6-7. The 
transmission component of the Bulk-Power System is understood to 
provide for the movement of power in bulk to points of distribution 
for allocation to retail electricity customers. Essentially, 
transmission lines and other parts of the transmission system, 
including control facilities, serve to transmit electricity in bulk 
from generation sources to concentrated areas of retail customers, 
while the distribution system moves the electricity to where these 
retail customers consume it at a home or business.
    \21\ 16 U.S.C. 824o(a)(3).
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    24. Second, the reliability mandate of section 215 of the FPA 
addresses not only the comprehensive maintenance of the reliable 
operation of each of the elements of the Bulk-Power System, it also 
contemplates the prevention of incidents, acts and events that would 
interfere with the reliable operation of the Bulk-Power System. 
Further, section 215 seeks to prevent an instability, an uncontrolled 
separation or a cascading failure, whether resulting from either a 
sudden disturbance, including a cybersecurity incident, or an 
unanticipated failure of the system elements. In order to avoid these 
outcomes, the various elements and components of the Bulk-Power System 
are to be operated within equipment and electric system thermal, 
voltage and stability limits.\22\
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    \22\ ``The term `reliable operation' means operating the 
elements of the Bulk-Power System within equipment and electric 
system thermal, voltage, and stability limits so that instability, 
uncontrolled separation, or cascading failures of such system will 
not occur as a result of a sudden disturbance, including a 
cybersecurity incident, or unanticipated failure of system 
elements.'' 16 U.S.C. 824o(a)(4).
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    25. Third, section 215 of the FPA explains that the Bulk-Power 
System broadly encompasses both the facilities

[[Page 16420]]

and control systems necessary for operating an interconnected electric 
energy transmission network (or any portion thereof) as well as the 
electric energy from generation facilities needed to maintain 
transmission system reliability.\23\ Further, section 215 explains that 
the interconnected transmission network within an Interconnection is a 
geographic area in which the operation of Bulk-Power System components 
is synchronized such that the failure of one such component, or more 
than one such component, may adversely affect the ability of the 
operators of other components within the system to maintain reliable 
operation of the facilities within their control.\24\ A Cybersecurity 
Incident is explained to be a malicious act that disrupts or attempts 
to disrupt the operation of programmable electronic devices and 
communication networks including hardware, software or data that are 
essential to the reliable operation of the Bulk-Power System.\25\
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    \23\ 16 U.S.C. 824o(a)(1).
    \24\ 16 U.S.C. 824o(a)(5).
    \25\ 16 U.S.C. 824o(a)(8).
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    26. Next, as to the reliability roles of the Commission and others, 
section 215 of the FPA explains that the ERO must file each of its 
Reliability Standards and any modification thereto with the 
Commission.\26\ The Commission will consider a number of factors before 
taking any action with respect thereto. We may approve the Reliability 
Standard or its modification only if we determine that it is just, 
reasonable, and not unduly discriminatory or preferential and in the 
public interest to do so. Also, in doing so, we are instructed to give 
due weight to the technical expertise of the ERO concerning the content 
of a proposed standard or a modification thereto. We must also give due 
weight to an Interconnection-wide Regional Entity with respect to a 
proposed Reliability Standard to be applicable within that 
Interconnection, except for matters concerning the effect on 
competition.\27\
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    \26\ ``The Electric Reliability Organization shall file each 
Reliability Standard or modification to a Reliability Standard that 
it proposes to be made effective under this section with the 
Commission.'' 16 U.S.C. 824o(d)(1).
    \27\ ``The Commission may approve, by rule or order, a proposed 
Reliability Standard or modification to a Reliability Standard if it 
determines that the standard is just, reasonable, not unduly 
discriminatory or preferential, and in the public interest. The 
Commission shall give due weight to the technical expertise of the 
Electric Reliability Organization with respect to the content of a 
proposed standard or modification to a Reliability Standard and to 
the technical expertise of a regional entity organized on an 
Interconnection-wide basis with respect to a Reliability Standard to 
be applicable within that Interconnection, but shall not defer with 
respect to the effect of a standard on competition. A proposed 
standard or modification shall take effect upon approval by the 
Commission.'' 16 U.S.C. 824o(d)(2).
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    27. Similarly, in considering whether to forward a proposed 
Reliability Standard to the Commission for approval, the ERO must 
rebuttably presume that a proposal from a Regional Entity organized on 
an Interconnection-wide basis for a Reliability Standard or 
modification to a Reliability Standard to be applicable on an 
Interconnection-wide basis is just, reasonable, and not unduly 
discriminatory or preferential, and in the public interest.\28\ The 
Commission may also give deference to the advice of a Regional Advisory 
Body organized on an Interconnection-wide basis in regard to whether a 
proposed Reliability Standard is just, reasonable and not unduly 
discriminatory or preferential and in the public interest, as it may 
apply within the region.\29\
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    \28\ 16 U.S.C. 824o(d)(3).
    \29\ 16 U.S.C. 824o(j).
---------------------------------------------------------------------------

    28. Finally, the Commission is further instructed to remand to the 
ERO for further consideration any standard or modification that it does 
not approve in whole or part.\30\ We may also direct the ERO to submit 
a proposed Reliability Standard or modification that addresses a 
specific problem if we consider this course of action to be 
appropriate.\31\ Further, if we find that a conflict exists between a 
Reliability Standard and any function, rule, order, tariff, rate 
schedule, or agreement accepted, approved, or ordered by the Commission 
applicable to a transmission organization,\32\ and if we determine that 
the Reliability Standard needs to be changed as a result of such a 
conflict, we must order the ERO to develop and file with the Commission 
a modified Reliability Standard for this purpose.\33\
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    \30\ 16 U.S.C. 824o(d)(4).
    \31\ 16 U.S.C. 824o(d)(5).
    \32\ Under section 215, a transmission organization is a RTO, 
ISO, independent transmission provider or other Transmission 
Organization finally approved by the Commission for the operation of 
transmission facilities. 16 U.S.C. 824o(a)(6).
    \33\ 16 U.S.C. 824o(d)(6).
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3. Balancing the Need for Practicality With the Mandates of Section 215 
and Order No. 672
    29. In enacting section 215, Congress chose to expand the 
Commission's jurisdiction beyond our historical role as primarily an 
economic regulator of the public utility industry under Part II of the 
FPA. Many entities not previously touched by our economic regulatory 
oversight are within our reliability purview and these entities will 
have to familiarize themselves not only with the new reliability 
obligations under section 215 of the FPA and the Reliability Standards 
that we are approving in this Final Rule, but also any proposed 
Reliability Standards or improvements that may implicate them that are 
under development by the ERO and the Regional Entities.\34\ We have 
taken these and other considerations into account and have tried to 
reach an appropriate balance among them.
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    \34\ Section 215(b) of the FPA provides that, for purposes of 
approving Reliability Standards and enforcing compliance with such 
standards, the Commission shall have jurisdiction over those 
entitles that had previously been excluded under section 201(f) of 
the FPA. Section 201(f) excludes the United States, a state or any 
political subdivision of a state, an electric cooperative that 
receives financing under the Rural Electrification Act of 1936, 7 
U.S.C. 901 et seq., or that sells less than 4,000,000 megawatt hours 
of electricity per year, or any agency, authority, or 
instrumentality of any one or more of the foregoing, or any 
corporation which is wholly owned, directly or indirectly, by any 
one or more of the foregoing, or any officer, agent, or employee of 
any of the foregoing acting as such in the course of his official 
duty, unless such provision makes specific reference thereto. 16 
U.S.C. 824(f).
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    30. First, we have decided, as proposed in our NOPR, to approve 
most of the Reliability Standards that the ERO submitted in this 
proceeding, even though concerns with respect to many of the 
Reliability Standards have been voiced. As most of these Reliability 
Standards are already being adhered to on a voluntary basis, we are 
concerned that to remand them and leave no standard in place in the 
interim would not help to ensure reliability when such standards could 
be improved over time. In these cases, however, the concerns 
highlighted below merit the serious attention of the ERO and we are 
directing the ERO to consider what needs to be done and how to do so, 
often by way of descriptive directives.\35\
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    \35\ In Order No. 672, we decided, in response to some 
commenters' suggestions that a Reliability Standard should address 
the ``what'' and not the ``how'' of reliability and that the actual 
implementation should be left to entities such as control area 
operators and system planners, that in some limited situations, 
there may be good reason to do so but, for the most part, in other 
situations the ``how'' may be inextricably linked to the Reliability 
Standard and may need to be specified by the ERO to ensure the 
enforcement of the standard. Since leaving out implementation 
features could sacrifice necessary uniformity, create uncertainty 
for the entity that has to follow the standard, make enforcement 
difficult, or increase the complexity of the Commission's oversight 
and review process, we left it to the ERO to reach the appropriate 
balance between reliability principles and implementation features. 
Order No. 672 at P 260. We also decided that the Commission's 
authority to order the ERO to address a particular reliability topic 
is not in conflict with other provisions of Order No. 672 that 
assigned the responsibility for developing a proposed Reliability 
Standard to the ERO. Order No. 672 at P 416.
---------------------------------------------------------------------------

    31. We emphasize that we are not, at this time, mandating a 
particular

[[Page 16421]]

outcome by way of these directives, but we do expect the ERO to respond 
with an equivalent alternative and adequate support that fully explains 
how the alternative produces a result that is as effective as or more 
effective that the Commission's example or directive.
    32. We have sought to provide enough specificity to focus the 
efforts of the ERO and others adequately. We are also sensitive to the 
concern of the Canadian Federal Provincial Territorial Working Group 
(FPT) about the status of an existing standard that is already being 
followed on a voluntary basis. The FPT suggests, for example, that 
instead of remanding an existing Reliability Standard, the Commission 
should conditionally approve the standard pending its modification.\36\ 
We believe the action we take today is similar in many respects to this 
approach.
---------------------------------------------------------------------------

    \36\ FPT letter to Chairman Kelliher (submitted on July 10, 
2006) (placed in the record of this proceeding).
---------------------------------------------------------------------------

    33. We have also adopted a number of other measures to mitigate 
many of the difficulties associated with the electric utility 
industry's preparation for and transition to mandatory Reliability 
Standards. For instance, we are directing the ERO and Regional Entities 
to focus their enforcement resources during an initial period on the 
most serious Reliability Standard violations. Moreover, because 
commenters have raised valid concerns as discussed below, our Final 
Rule relies on the existing NERC definition of bulk electric system and 
its compliance registration process to provide as much certainty as 
possible regarding the applicability and responsibility of specific 
entities under the approved standards. This approach should also 
assuage the concerns of many smaller entities.

B. Discussion of the Commission's New Regulations

1. Applicability
    34. In the NOPR, the Commission proposed to add Sec.  40.1(a) to 
the regulations. The Commission proposed that Sec.  40.1(a) would 
provide that this Part applies to all users, owners and operators of 
the Bulk-Power System within the United States (other than Alaska and 
Hawaii) including, but not limited to, the entities described in 
section 201(f) of the FPA. This statement is consistent with section 
215(b) of the FPA and Sec.  39.2 of the Commission's regulations.
    35. The Commission further proposed to add Sec.  40.1(b), which 
would require each Reliability Standard made effective under this Part 
to identify the subset of users, owners and operators to whom that 
particular Reliability Standard applies.
a. Comments
    36. NERC agrees with the Commission's proposal to add the text of 
Sec.  40.1(b) to its regulations to require that each Reliability 
Standard identify the subset of users, owners and operators to which 
that particular Reliability Standard applies and believes this 
requirement is currently established in NERC's Rules of Procedure.
    37. TANC supports proposed Sec.  40.1. It states that requiring 
each Reliability Standard to identify the subset of users, owners and 
operators to whom it applies, thereby limiting the scope of the broad 
phrase ``users, owners and operators,'' is a critical step to removing 
ambiguities from the Reliability Standards. According to TANC, the 
proposed text of Sec.  40.1 would eliminate ambiguities with regard to 
the entity responsible for complying with each Reliability Standard. In 
this way, Regional Entities and other interested parties will be 
allowed to weigh in during the Reliability Standards development 
process on the breadth of each standard and may urge NERC to accept any 
necessary regional variations that are necessary to maintain adequate 
reliability within the region.
    38. APPA believes that the Commission's proposal to add Sec.  40.1 
and 40.2 to its regulations is generally appropriate and acceptable, 
but the regulatory language should be amended to make clear the exact 
universe of users, owners and operators of the Bulk-Power System to 
which the mandatory Reliability Standards apply. It recommends that the 
regulations provide that determinations as to applicability of 
standards to particular entities shall be resolved by reference to the 
NERC compliance registry.
b. Commission Determination
    39. The Commission adopts the NOPR's proposal to add Sec.  40.1 to 
the Commission's regulations. The Commission disagrees with APPA's 
suggestion to define here the exact universe of users, owners and 
operators of the Bulk-Power System to which the mandatory Reliability 
Standards apply. Rather, consistent with NERC's existing approach, we 
believe that it is appropriate that each Reliability Standard clearly 
identify the subset of users, owners and operators to which it applies 
and the Commission determines applicability on that basis. As we 
discuss later, we approve NERC's current compliance registry to provide 
certainty and stability in identifying which entities must comply with 
particular Reliability Standards.
2. Mandatory Reliability Standards
    40. The Commission proposed to add Sec.  40.2(a) to the 
Commission's regulations. The proposed regulation text would require 
that each applicable user, owner and operator of the Bulk-Power System 
comply with Commission-approved Reliability Standards developed by the 
ERO, and would provide that the Commission-approved Reliability 
Standards can be obtained from the Commission's Public Reference Room 
at 888 First Street, NE., Room 2A, Washington, DC 20426.
    41. The Commission further proposed to add Sec.  40.2(b) to its 
regulations, providing that a modification to a Reliability Standard 
proposed to become effective pursuant to Sec.  39.5 shall not be 
effective until approved by the Commission.
a. Comments
    42. NERC concurs with the Commission's proposal to require NERC to 
provide to the Commission a copy of all approved Reliability Standards 
for posting in its Public Reference Room. NERC agrees with the 
Commission that neither the text nor the title of an approved 
Reliability Standard should be codified in the Commission's 
regulations.
b. Commission Determination
    43. For the reasons discussed in the NOPR, the Commission generally 
adopts the NOPR's proposal to add Sec.  40.2 to the Commission's 
regulations.\37\ However, after consideration, the Commission has 
determined that it is not necessary to have the approved Reliability 
Standards on file in the Commission's public reference room and on the 
NERC Web site. Therefore, we will require that all Commission-approved 
Reliability Standards be available on the ERO's Web site, with an 
effective date, and revise Sec.  40.2(b) to remove the following 
language: ``Which can be obtained from the Commission's Public 
Reference Room at 888 First Street, NE., Room 2A, Washington, DC, 
20426.'' Further, to be consistent with Part 39 of our regulations, we 
remove the reference to NERC and replace it with ``Electric Reliability 
Organization.''
---------------------------------------------------------------------------

    \37\ NOPR at P 37.
---------------------------------------------------------------------------

3. Availability of Reliability Standards
    44. The Commission proposed to add Sec.  40.3 to the regulation 
text, which requires that the ERO maintain in electronic format that is 
accessible from the Internet the complete set of effective

[[Page 16422]]

Reliability Standards that have been developed by the ERO and approved 
by the Commission. The Commission stated that it believes that ready 
access to an electronic version of the effective Reliability Standards 
will enhance transparency and help avoid confusion as to which 
Reliability Standards are mandatory and enforceable. We noted that NERC 
currently maintains the existing, voluntary Reliability Standards on 
the NERC Web site.
    45. While the NOPR discusses each Reliability Standard and 
identifies the Commission's proposed disposition for each Reliability 
Standard, we did not propose to codify either the text or the title of 
an approved Reliability Standard in the Commission's regulations. 
Rather, we proposed that each user, owner or operator of the Bulk-Power 
System must comply with applicable Commission-approved Reliability 
Standards that are available in the Commission's Public Reference Room 
and on the Internet at the ERO's Web site. We stated that this approach 
is consistent with the statutory options of approving a proposed 
Reliability Standard or modification to a Reliability Standard ``by 
rule or order.'' \38\
---------------------------------------------------------------------------

    \38\ See 16 U.S.C. 824o(d)(2).
---------------------------------------------------------------------------

a. Comments
    46. NERC states that it can successfully implement the Commission's 
proposal to require NERC to maintain in electronic format that is 
accessible from the Internet the complete set of Reliability Standards 
that have been developed by the ERO and approved by the Commission. 
NERC currently maintains a public Web site displaying the existing, 
voluntary Reliability Standards for access by users, owners and 
operators of the Bulk-Power System. Once the proposed Reliability 
Standards are approved by the Commission, NERC will modify its Web site 
to distinguish which Reliability Standards have been approved by the 
Commission for enforcement in the United States.
    47. EEI states that the approval of Reliability Standards should be 
through a rulemaking rather than an order, except in very rare 
circumstances, because of the open nature of the rulemaking process. 
Where the Commission decides to proceed by order, EEI states that the 
Commission should give notice and an opportunity to comment on any 
proposed Reliability Standards.
b. Commission Determination
    48. For the reasons discussed in the NOPR, the Commission adopts 
the NOPR's proposal to add Sec.  40.3 to the Commission's regulations; 
however the Commission has further clarified the proposed regulatory 
text.\39\ We clarify that the ERO must post on its Web site the 
currently effective Reliability Standards as approved and enforceable 
by the Commission. Further, we require the effective date of the 
Reliability Standards must be included in the posting.
---------------------------------------------------------------------------

    \39\ NOPR at P 39-41.
---------------------------------------------------------------------------

    49. In response to EEI, the Commission anticipates that it will 
address most, if not all, new Reliability Standards proposed by NERC 
through a rulemaking process. However, we retain the flexibility to 
address matters by order where appropriate, consistent with the statute 
and our regulations.\40\ In Order No. 672, the Commission stated that 
it would provide notice and opportunity for public comment except in 
extraordinary circumstances and, on rehearing, clarified that any 
decision by the Commission not to provide notice and comment when 
reviewing a proposed Reliability Standard will be made in accordance 
with the criteria established in section 553 of the Administrative 
Procedure Act.\41\
---------------------------------------------------------------------------

    \40\ See 16 U.S.C. 824o(d)(2) (``the Commission may approve, by 
rule or order, a proposed Reliability Standard or modification * * 
*''); 18 CFR 39.5(c).
    \41\ See Order No. 672 at P 308; Order No 672-A at P 26.
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C. Applicability Issues

1. Bulk-Power System v. Bulk Electric System
    50. The NOPR observed that, for purposes of section 215, ``Bulk-
Power System'' means:

    (A) facilities and control systems necessary for operating an 
interconnected electric energy transmission network (or any portion 
thereof) and (B) electric energy from generating facilities needed 
to maintain transmission system reliability. The term does not 
include facilities used in the local distribution of electric 
energy.

    51. The NERC glossary, in contrast, states that Reliability 
Standards apply to the ``bulk electric system,'' which is defined by 
its regions in terms of a voltage threshold and configuration, as 
follows:

    As defined by the Regional Reliability Organization, the 
electrical generation resources, transmission lines, 
interconnections with neighboring systems, and associated equipment, 
generally operated at voltages of 100 kV or higher. Radial 
transmission facilities serving only load with one transmission 
source are generally not included in this definition.\42\
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    \42\ NERC Glossary at 2. All citations to the Glossary in this 
Final Rule refer to the November 1, 2006 version filed on November 
15, 2006.

    52. In the NOPR, the Commission proposed that, for the initial 
approval of proposed Reliability Standards, the continued use of NERC's 
definition of bulk electric system as set forth in the NERC glossary is 
appropriate.\43\ However, the Commission interpreted the term ``bulk 
electric system'' to apply to: (1) All of the >= 100 kV transmission 
systems and any underlying transmission system (< 100 kV) that could 
limit or supplement the operation of the higher voltage transmission 
systems and (2) transmission to all significant local distribution 
systems (but not the distribution system itself), transmission to load 
centers and transmission connecting generation that supplies electric 
energy to the system. The Commission proposed that, if a question arose 
concerning which underlying transmission system limits or supplements 
the operation of the higher voltage transmission system, the ERO would 
determine the matter on a case-by-case basis.
---------------------------------------------------------------------------

    \43\ NOPR at P 66-70. The Commission explained in the NOPR that 
regional definitions had not been submitted and it would not 
determine the appropriateness of any regional definition in the 
current rulemaking proceeding. Id. at n. 56.
---------------------------------------------------------------------------

    53. The Commission solicited comment on its interpretation and 
whether the Regional Entities should, in the future, play a role in 
either defining the facilities that are subject to a Reliability 
Standard or be allowed to determine an exception on a case-by-case 
basis.
    54. Further, the NOPR explained that continued reliance on multiple 
regional interpretations of the NERC definition of bulk electric 
system, which omits significant portions of the transmission system 
component of the Bulk-Power System that serve critical load centers, is 
not appropriate. Thus, the NOPR proposed that, in the long run, NERC 
revise the current definition of bulk electric system to ensure that 
all facilities, control systems and electric energy from generation 
resources that impact system reliability are included within the scope 
of applicability of Reliability Standards, and that NERC's revision is 
consistent with the statutory term Bulk-Power System.
a. Comments
    55. Most commenters, including NERC, NARUC, APPA, National Grid, 
EEI and Ontario IESO, believe that the Commission should only impose 
Reliability Standards on those entities that fall under NERC's 
definition of bulk electric system as it existed under the voluntary 
regime. They state that, by extending the definition of bulk electric 
system, the Commission goes beyond

[[Page 16423]]

what is necessary to protect Bulk-Power System reliability, creates 
uncertainty and will divert resources from monitoring compliance of 
those entities that could have a material impact on Bulk-Power System 
reliability.
    56. Entergy, however, agrees with the Commission that NERC's 
definition of bulk electric system is not adequate and agrees with the 
Commission's proposed interpretation. ISO-NE does not oppose the NOPR's 
approach on how to interpret the term ``Bulk-Power System,'' but it 
states that this broader scope justifies a delay in the date civil 
penalties take effect, to January 1, 2008, to provide the industry 
sufficient time to review the Commission's Final Rule and to adjust to 
the expanded reach of the Reliability Standards.
    57. NERC, APPA and NRECA maintain that there was no intentional 
distinction made by Congress between ``Bulk-Power System'' (as defined 
in section 215) and the ``bulk electric system'' (as defined by the 
NERC glossary). NERC asserts that recent discussions with stakeholders 
confirm NERC's belief that there was no distinction intended. Moreover, 
NERC is not aware of any documentation that suggests a distinction was 
intended. NRECA argues that legislative intent and prior usage do not 
support the Commission's approach to defining the Bulk-Power System. 
NRECA concedes that no conference committee report accompanied EPAct 
2005, but it notes that the Congressional Research Service specifies in 
its manual on statutory interpretation that ``[W]here Congress borrows 
terms of art in which are accumulated the legal tradition and meaning 
of centuries of practice, it presumably knows and adopts the cluster of 
ideas that were attached to each borrowed word in the body of learning 
from which it was taken.'' \44\
---------------------------------------------------------------------------

    \44\ NRECA, citing Morissette v. United States, 342 U.S. 246, 
263 (1952).
---------------------------------------------------------------------------

    58. TAPS states that the Commission cannot lawfully ``interpret'' 
the bulk electric system definition contrary to its terms. According to 
TAPS, the Commission cannot include facilities below 100 kV ``that 
could limit or supplement the operation of the higher voltage 
transmission systems,'' in the bulk electric system, even if they are 
``necessary for operating'' the bulk system, because these facilities 
are not included in NERC's definition of bulk electric system.
    59. NERC states that the Commission's proposal that NERC's ``bulk 
electric system'' should apply to all of the equal to or greater than 
100 kV transmission systems and any underlying transmission system 
(less than 100 kV) that could limit or supplement the operation of the 
higher voltage transmission systems is a significant expansion over 
what the industry has historically regarded as the bulk electric 
system, both in terms of the facilities covered and the entities 
involved. While NERC agrees with the Commission that Congress intended 
to give the Commission broad jurisdiction over the reliability of the 
Bulk-Power System, it does not believe this is the right time for the 
Commission to define the full extent of its jurisdiction or that the 
approach proposed in the NOPR is the right way to do so. In addition, 
NERC does not believe it is legally necessary for the Commission to 
extend its jurisdiction to the limits in a single step.
    60. NERC states that the Commission should make clear in this Final 
Rule that its jurisdiction is at least as broad as the historic NERC 
definition of ``bulk electric system'' and that the Commission will use 
that definition for the near term. NERC asserts that the Commission 
should also make clear that it is not deciding in this docket the full 
scope of its jurisdiction and is reserving its right to consider a 
broader definition. Instead, NERC states that the Commission should 
focus on approving an initial set of Reliability Standards for the core 
set of users, owners and operators that have the most significant 
impact on the reliability of the Bulk-Power System. NERC maintains that 
this core set has been defined through its use of the terms ``bulk 
electric system'' and ``responsible entities'' provided in the NERC 
Glossary, the ``Applicability'' section of each Reliability Standard 
and substantive requirements of the standards themselves, and NERC's 
registration of specific entities that are responsible for compliance 
with the Reliability Standards.
    61. NRECA argues that the definition of ``Bulk-Power System'' 
contained in section 215(a)(1) reflects Congressional intent to codify 
the established materiality component because Congress limited the 
definition of Bulk-Power System to facilities and control systems 
necessary for operating an interconnected electric energy transmission 
network and electric energy from generation facilities needed to 
maintain transmission system reliability. NRECA argues that these 
limiting terms mean that not all transmission facilities are included. 
In NRECA's view, the definition of the Bulk-Power System within the 
meaning of section 215 cannot extend to radial facilities to 
``significant local distribution systems,'' ``load centers,'' or local 
transmission facilities unless otherwise ``necessary for'' (i.e., 
material to) the reliable operation of the interconnected grid. 
Further, NRECA states that the definition of ``Reliable Operation'' in 
section 215(a) focuses on the reliable operation of the Bulk-Power 
System and not the protection of local load per se.
    62. Certain commenters assert that expanding the scope of the 
Commission's jurisdiction and the scope of the Reliability Standards in 
this proceeding would be an unanticipated expansion of the reach of the 
existing Reliability Standards implemented with insufficient due 
process and may cause jurisdictional concerns.\45\ They state that the 
Reliability Standards under consideration were developed and approved 
through NERC's Reliability Standards development process with the 
intention that they would apply based on the industry's historical 
conception of the bulk electric system and that the outcome might have 
been different using the Commission's proposed definition. NERC 
therefore argues that it would be inappropriate to assume that the 
requirements of the existing Reliability Standards would be relevant to 
an expanded set of entities or an expanded scope of facilities under a 
broader definition of the Bulk-Power System. NERC also asserts that 
there is no reasonable justification for subjecting ``thousands of 
small entities'' to the costs of compliance with the Reliability 
Standards when there is no reasonable justification to do so in terms 
of incremental benefit to the reliability of the Bulk-Power System.
---------------------------------------------------------------------------

    \45\ See, e.g., NERC, TAPS and NRECA.
---------------------------------------------------------------------------

    63. NRECA, APPA and others argue that the Commission's 
interpretation would undermine, rather than promote, reliability. 
According to these commenters, the Commission's interpretation would 
require new definitions, such as one for ``load center,'' and otherwise 
creates confusion. For example, Small Entities Forum states that it is 
concerned with the inclusion of ``transmission connecting generation 
that supplies electric energy to the system'' be