Revisions to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure, 803-851 [2012-31142]

Download as PDF Vol. 78 Friday, No. 3 January 4, 2013 Part II Department of Energy mstockstill on DSK4VPTVN1PROD with Federal Energy Regulatory Commission 18 CFR Part 40 Revisions to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure; Final Rule VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\04JAR2.SGM 04JAR2 804 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 40 [Docket Nos. RM12–6–000 and RM12–7– 000; Order No. 773] Revisions to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure Federal Energy Regulatory Commission. ACTION: Final rule. AGENCY: In this Final Rule, pursuant to section 215 of the Federal Power Act, the Federal Energy Regulatory Commission (Commission) approves modifications to the currently-effective definition of ‘‘bulk electric system’’ developed by the North American Electric Reliability Corporation (NERC), the Commission-certified Electric Reliability Organization. The Commission finds that the modified definition of ‘‘bulk electric system’’ mstockstill on DSK4VPTVN1PROD with SUMMARY: removes language allowing for regional discretion in the currently-effective bulk electric system definition and establishes a bright-line threshold that includes all facilities operated at or above 100 kV. The modified definition also identifies specific categories of facilities and configurations as inclusions and exclusions to provide clarity in the definition of ‘‘bulk electric system.’’ In this Final Rule, the Commission also approves: NERC’s revisions to its Rules of Procedure, which create an exception process to add elements to, or remove elements from, the definition of ‘‘bulk electric system’’ on a case-by-case basis; NERC’s form entitled ‘‘Detailed Information To Support an Exception Request’’ that entities will use to support requests for exception from the ‘‘bulk electric system’’ definition; and NERC’s implementation plan for the revised ‘‘bulk electric system’’ definition. DATES: This Final Rule will become effective March 5, 2013. FOR FURTHER INFORMATION CONTACT: Susan Morris (Technical Information), Office of Electric Reliability, Division of Reliability Standards, Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, Telephone: (202) 502–6803. Nicholas Snyder (Technical Information), Office of Energy Market Regulation, Division of Electric Power Regulation—Central, Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, Telephone: (202) 502–6408. Robert Stroh (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, Telephone: (202) 502–8473. SUPPLEMENTARY INFORMATION: 141 FERC ¶ 61,236 Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur. FINAL RULE (Issued December 20, 2012) Table of Contents I. Background .................................................................................................................................................................................................... A. Section 215 of the FPA ........................................................................................................................................................................ B. Order No. 693 ....................................................................................................................................................................................... C. Order No. 743 ....................................................................................................................................................................................... D. NERC Petitions ..................................................................................................................................................................................... 1. Revised Definition of Bulk Electric System ................................................................................................................................. 2. NERC Petition for Approval of Revisions to Rules of Procedure To Adopt an Exception Process ......................................... E. Commission NOPR ............................................................................................................................................................................... II. Discussion .................................................................................................................................................................................................... A. Approval of the Revised Bulk Electric System Definition ................................................................................................................ NOPR Proposal ................................................................................................................................................................................... Comments ........................................................................................................................................................................................... Commission Determination ............................................................................................................................................................... B. The Core Definition of Bulk Electric System ...................................................................................................................................... NOPR Proposal ................................................................................................................................................................................... Comments ........................................................................................................................................................................................... C. Local Distribution ................................................................................................................................................................................. Comments ........................................................................................................................................................................................... Commission Determination ............................................................................................................................................................... D. Inclusions and Exclusions in the Definition of Bulk Electric System .............................................................................................. 1. Inclusion I1 (Transformers) ........................................................................................................................................................... Commission Determination ............................................................................................................................................................... 2. Inclusion I2 (Generating Resources) ............................................................................................................................................. 3. Inclusion I3 (Blackstart Resources) ............................................................................................................................................... 4. Inclusion I4 (Dispersed Power Producing Resources) ................................................................................................................. 5. Inclusion I5 (Static or Dynamic Reactive Power Devices) .......................................................................................................... Exclusions ........................................................................................................................................................................................... 6. Exclusion E1 (Radial Systems) ...................................................................................................................................................... 7. Exclusion E2 (Behind the Meter Generation) ............................................................................................................................... 8. Exclusion E3 (Local Networks) ..................................................................................................................................................... 9. Exclusion E4 (Reactive Power Devices) ........................................................................................................................................ E. The NERC Rules of Procedure Exception Process, RM12–7–000 ...................................................................................................... NOPR Proposal ................................................................................................................................................................................... 1. How Entities Will Review and Seek Inclusion of Necessary Elements ..................................................................................... 2. NERC Role in Identifying Necessary Elements ............................................................................................................................ 3. Commission Role in Identifying Necessary Elements ................................................................................................................. 4. Technical Review Panel ................................................................................................................................................................ NOPR Proposal ................................................................................................................................................................................... 5. Use of Industry Subject Matter Experts ........................................................................................................................................ 6. NERC’s Detailed Information Form .............................................................................................................................................. 7. NERC’s Implementation Plan ........................................................................................................................................................ NOPR Proposal ................................................................................................................................................................................... 8. NERC List of Facilities Granted Exceptions ................................................................................................................................. 9. Declassification of Facilities .......................................................................................................................................................... VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\04JAR2.SGM 04JAR2 5. 5. 6. 8. 11. 12. 26. 29. 31. 32. 32. 33. 38. 45. 45. 46. 57. 58. 66. 74. 75. 80. 83. 97. 104. 116. 125. 127. 178. 185. 235. 238. 238. 263. 270. 279. 289. 289. 295. 298. 302. 302. 305. 311. Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with III. Information Collection Statement .............................................................................................................................................................. IV. Regulatory Flexibility Act Analysis .......................................................................................................................................................... V. Environmental Analysis .............................................................................................................................................................................. VI. Document Availability ............................................................................................................................................................................... VII. Effective Date and Congressional Notification ........................................................................................................................................ 1. Pursuant to section 215(d) of the Federal Power Act (FPA),1 the Commission approves modifications to the currently-effective definition of ‘‘bulk electric system’’ developed by the North American Electric Reliability Corporation (NERC), the Commissioncertified Electric Reliability Organization (ERO). The Commission finds that the modified definition of ‘‘bulk electric system’’ improves upon the currently-effective definition by establishing a bright-line threshold that includes all facilities operated at or above 100 kV and removing language that allows for broad regional discretion. The modified definition also provides improved clarity by identifying specific categories of facilities and configurations as inclusions and exclusions to the definition of ‘‘bulk electric system.’’ 2. We believe that the proposed ‘‘core’’ definition, together with the more granular inclusions and exclusions, should produce consistency in identifying bulk electric system elements across the reliability regions. In addition, we find that NERC’s proposed case-by-case exception process to add elements to, and remove elements from, the definition of the bulk electric system adds transparency and uniformity to the determination of what constitutes the bulk electric system. 3. We recognize the substantial work invested by NERC and industry participants in developing the modified bulk electric system definition. We also appreciate that NERC timely submitted the revised definition within the twelve month time frame directed by the Commission in the underlying order, Order No. 743, which tasked NERC with this project.2 We believe that NERC and industry’s efforts provide a technically grounded and legally supportable foundation for identifying elements and facilities that make up the bulk electric system. Other highlights of the Final Rule include: • Accepts NERC’s revisions to its Rules of Procedure, which creates an exception procedure to add elements to, or remove elements from, the definition of ‘‘bulk electric system’’ on a case-bycase basis; 1 16 U.S.C. 824o(d) (2006). to Electric Reliability Organization Definition of Bulk Electric System, Order No. 743, 133 FERC ¶ 61,150 (2010), order on reh’g, Order No. 743–A, 134 FERC ¶ 61,210 (2011). 2 Revision VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 • approves NERC’s implementation plan for the revised ‘‘bulk electric system’’ definition; • approves NERC’s form entitled ‘‘Detailed Information to Support an Exception Request’’ that entities will use to support requests for exception from the ‘‘bulk electric system’’ definition; • finds that the Commission can designate sub-100 kV facilities, or other facilities, as part of the bulk electric system, provided that the Commission provides opportunity for notice and comment; and • establishes a process pursuant to which an entity can seek a determination by the Commission whether facilities are ‘‘used in local distribution’’ as set forth in the Federal Power Act. 4. In the Notice of Proposed Rulemaking (NOPR), the Commission requested comment on certain aspects of NERC’s petition to better understand the application of the ‘‘core’’ definition, as well as the specific inclusions and exclusions.3 The explanations provided by NERC and other entities in their comments have assisted in our understanding of the parameters of the definition, and we adopt many of these explanations in the Final Rule. However, in two particular circumstances we believe further action is necessary. We direct NERC to implement the bulk electric system definition consistent with the Commission determinations below. Specifically, we direct NERC to implement the exclusions for radial systems and local networks so that they do not apply to tie-lines for bulk electric system generators. In addition, we direct NERC to modify the local network exclusion to remove the 100 kV minimum operating voltage to allow systems that include one or more looped configurations connected below 100 kV, (as shown in figures 3 and 5 below) to be eligible for the local network exclusion. Further explanation of these configurations and the rationale for our determinations is provided below. 3 Revision to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure, Notice of Proposed Rulemaking, 77 FR 39857 (July 5, 2012) 139 FERC ¶ 61,247 (2012) (NOPR). PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 805 319. 333. 339. 340. 343. I. Background A. Section 215 of the FPA 5. Section 215 of the FPA requires a Commission-certified ERO to develop mandatory and enforceable Reliability Standards, subject to Commission review and approval. Once approved, the Reliability Standards may be enforced by the ERO, subject to Commission oversight, or by the Commission independently.4 The Commission established a process to select and certify an ERO 5 and, subsequently, certified NERC as the ERO.6 B. Order No. 693 6. On March 16, 2007, in Order No. 693, pursuant to section 215(d) of the FPA, the Commission approved 83 of 107 proposed Reliability Standards, six of the eight proposed regional differences, and the NERC Glossary, which includes NERC’s definition of bulk electric system.7 That definition provides: 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.8 7. In approving NERC’s definition of bulk electric system, the Commission stated that ‘‘at least for an initial period, the Commission will rely on the NERC definition of bulk electric system and NERC’s registration process to provide as much certainty as possible regarding the applicability to and the responsibility of specific entities to 4 See 16 U.S.C. 824o(e)(3) (2006). Concerning Certification of the Electric Reliability Organization; and Procedures for the Establishment, Approval and Enforcement of Electric Reliability Standards, Order No. 672, FERC Stats. & Regs. ¶ 31,204, order on reh’g, Order No. 672–A, FERC Stats. & Regs. ¶ 31,212 (2006). 6 North American Electric Reliability Corp., 116 FERC ¶ 61,062 (2006), order on reh’g and compliance, 117 FERC ¶ 61,126 (2006) (certifying NERC as the ERO responsible for the development and enforcement of mandatory Reliability Standards), aff’d sub nom. Alcoa Inc. v. FERC, 564 F.3d 1342 (D.C. Cir. 2009). 7 Mandatory Reliability Standards for the BulkPower System, Order No. 693, FERC Stats. & Regs. ¶ 31,242, order on reh’g, Order No. 693–A, 120 FERC ¶ 61,053 (2007). 8 Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 75 n.47. 5 Rules E:\FR\FM\04JAR2.SGM 04JAR2 806 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations comply with the Reliability Standards.’’ 9 The Commission also stated that ‘‘[it] remains concerned about the need to address the potential for gaps in coverage of facilities.’’ 10 mstockstill on DSK4VPTVN1PROD with C. Order No. 743 8. On November 18, 2010, the Commission revisited the definition of ‘‘bulk electric system’’ in Order No. 743, which directed NERC, through NERC’s Reliability Standards Development Process, to revise its definition of the term ‘‘bulk electric system’’ to ensure that the definition encompasses all facilities necessary for operating an interconnected transmission network.11 The Commission also directed NERC to address the Commission’s technical and policy concerns. Among the Commission’s concerns were inconsistencies in the application of the definition and a lack of oversight and exclusion of facilities from the bulk electric system required for the operation of the interconnected transmission network. In Order No. 743, the Commission concluded that the best way to address these concerns was to eliminate the Regional Entity discretion to define bulk electric system without NERC or Commission review, maintain a bright-line threshold that includes all facilities operated at or above 100 kV except defined radial facilities, and adopt an exemption process and criteria for removing from the bulk electric system facilities that are not necessary for operating the interconnected transmission network. In Order No. 743, the Commission allowed NERC to ‘‘propose a different solution that is as effective as, or superior to, the Commission’s proposed approach in addressing the Commission’s technical and other concerns so as to ensure that all necessary facilities are included within the scope of the definition.’’ 12 The Commission directed NERC to file the revised definition of bulk electric system and its process to exempt facilities from inclusion in the bulk electric system within one year of the effective date of the final rule.13 9. In Order No. 743–A, the Commission reaffirmed its determinations in Order No. 743. In addition, the Commission clarified that 9 Id. P 75; see also Order No. 693–A, 120 FERC ¶ 61,053 at P 19 (‘‘the Commission will continue to rely on NERC’s definition of bulk electric system, with the appropriate regional differences, and the registration process until the Commission determines in future proceedings the extent of the Bulk-Power System’’). 10 Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 77. 11 Order No. 743, 133 FERC ¶ 61,150 at P 16. 12 Id. 13 Id. P 113. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 the issue the Commission directed NERC to rectify was the discretion the Regional Entities have under the current definition to define the bulk electric system in their regions without any oversight from the Commission or NERC.14 The Commission also clarified that the 100 kV threshold was a ‘‘first step or proxy’’ for determining which facilities should be included in the bulk electric system.15 10. The Commission further clarified that the statement in Order No. 743, ‘‘determining where the line between ‘transmission’ and ‘local distribution’ lies * * * should be part of the exemption process the ERO develops’’ was intended to grant discretion to NERC, as the entity with technical expertise, to develop criteria to determine how to differentiate between local distribution and transmission facilities in an objective, consistent, and transparent manner.16 The Commission stated that the ‘‘Seven Factor Test’’ adopted in Order No. 888 could be relevant and possibly a logical starting point for determining which facilities are local distribution for reliability purposes.17 However, the Commission left it to NERC to determine if and how the Seven Factor Test should be considered in differentiating between local distribution and transmission facilities for purposes of determining whether a facility should be classified as part of the bulk electric system.18 Order No. 743–A re-emphasized that local distribution facilities are excluded from the definition of Bulk-Power System and, therefore, must be excluded from the definition of bulk electric system.19 D. NERC Petitions 11. On January 25, 2012, NERC submitted two petitions pursuant to the directives in Order No. 743: (1) NERC’s proposed revision to the definition of ‘‘bulk electric system’’ which includes provisions to include and exclude facilities from the ‘‘core’’ definition; and (2) revisions to NERC’s Rules of Procedure to add a procedure creating 14 Order No. 743–A, 134 FERC ¶ 61,210 at P 11. PP 40, 67, 102–103. 16 Id. P 68. See Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,783–84 (1996), order on reh’g, Order No. 888–A, FERC Stats. & Regs. ¶ 31,048, order on reh’g, Order No. 888–B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 888–C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002). 17 Order No. 743–A, 134 FERC ¶ 61,210 at P 69. 18 Id. P 70. 19 Id. PP 25, 58. 15 Id. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 an exception process to classify or declassify an element as part of the ‘‘bulk electric system.’’ 1. Revised Definition of Bulk Electric System 12. In Docket No. RM12–6–000, NERC filed a petition requesting Commission approval of a revised definition of ‘‘bulk electric system’’ in the NERC Glossary (NERC BES Petition). The definition consists of a ‘‘core’’ definition and a list of facilities configurations that will be included or excluded from the ‘‘core’’ definition. NERC proposed the following ‘‘core’’ definition of bulk electric system: Unless modified by the [inclusion and exclusion] lists shown below, all Transmission Elements operated at 100 kV or higher and Real Power and Reactive Power resources connected at 100 kV or higher. This does not include facilities used in the local distribution of electric energy. NERC also requested approval of the proposed ‘‘Detailed Information to Support an Exception Request’’ form as satisfying the requirement in Order No. 743 that NERC develop ‘‘technical criteria’’ to address exception requests. Finally, NERC requested Commission approval of its plan for implementation of the revised definition of ‘‘bulk electric system.’’ a. Inclusions and Exclusions to the Definition of Bulk Electric System 13. As part of the revised definition, NERC developed inclusions and exclusions to eliminate discretion in application of the revised ‘‘bulk electric system’’ definition. The inclusions address five specific facilities configurations to provide clarity that the facilities described in these configurations are included in the bulk electric system. Inclusions: I1—Transformers with the primary terminal and at least one secondary terminal operated at 100 kV or higher unless excluded under Exclusion E1 or E3. I2—Generating resource(s) with gross individual nameplate rating greater than 20 MVA or gross plant/facility aggregate nameplate rating greater than 75 MVA including the generator terminals through the high-side of the step-up transformer(s) connected at a voltage of 100 kV or above. I3—Blackstart Resources identified in the Transmission Operator’s restoration plan. I4—Dispersed power producing resources with aggregate capacity greater than 75 MVA (gross aggregate nameplate rating) utilizing a system designed primarily for aggregating capacity, connected at a common point at a voltage of 100 kV or above. I5—Static or dynamic devices (excluding generators) dedicated to supplying or absorbing Reactive Power that are connected at 100 kV or higher, or through a dedicated E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with transformer with a high-side voltage of 100 kV or higher, or through a transformer that is designated in Inclusion I1. 14. NERC also explained that the facilities described in inclusions I1, I2, I4, and I5 are each operated or connected at or above 100 kV. According to NERC, inclusion I3 encompasses blackstart resources identified in a transmission operator’s restoration plan, which are necessary for the operation of the interconnection transmission system and should be included in the bulk electric system regardless of their size (MVA) or the voltage at which they are connected. NERC stated that the inclusions will further reduce the potential for the exercise of discretion and subjectivity to exclude such configurations from the bulk electric system. 15. NERC explained that inclusion I1 includes transformers with the primary terminal and at least one secondary terminal operated at 100 kV or higher unless excluded under exclusion E1 or E3. NERC stated that transformers operating at 100 kV or higher are part of the existing definition, but since transformers have windings operating at different voltages, and multiple windings in some circumstances, clarification was required to explicitly identify which transformers are included in the bulk electric system. 16. According to NERC, inclusion I2 includes in the bulk electric system the generator terminals through the highside of the step-up transformers connected at a voltage of 100 kV or above. NERC states that this inclusion mirrors the text of the NERC Registry Criteria (Appendix 5B of the NERC Rules of Procedure) for generating units.20 17. As noted above, inclusion I3 includes blackstart resources identified in the transmission operator’s restoration plan in the bulk electric system. NERC added inclusion I4 to accommodate the effects of variable generation on the bulk electric system and inclusion I5 to address static or dynamic devices dedicated to supplying or absorbing reactive power that are connected at 100 kV or higher. 18. NERC’s modified definition of bulk electric system also provides four exclusions regarding facilities configurations that are not included in the bulk electric system. Generally, the exclusions address radial systems, behind-the-meter generation and local networks that distribute power to load: Exclusions: 20 See section III.c.1 and III.c.2 of Appendix 5B of the NERC Rules of Procedure. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 E1—Radial systems: A group of contiguous transmission Elements that emanates from a single point of connection of 100 kV or higher and: (a) Only serves Load. Or, (b) Only includes generation resources, not identified in Inclusion I3, with an aggregate capacity less than or equal to 75 MVA (gross nameplate rating). Or, (c) Where the radial system serves Load and includes generation resources, not identified in Inclusion I3, with an aggregate capacity of non-retail generation less than or equal to 75 MVA (gross nameplate rating). Note—A normally open switching device between radial systems, as depicted on prints or one-line diagrams for example, does not affect this exclusion. E2—A generating unit or multiple generating units on the customer’s side of the retail meter that serve all or part of the retail Load with electric energy if: (i) The net capacity provided to the BES does not exceed 75 MVA; and (ii) standby, back-up, and maintenance power services are provided to the generating unit or multiple generating units or to the retail Load by a Balancing Authority, or provided pursuant to a binding obligation with a Generator Owner or Generator Operator, or under terms approved by the applicable regulatory authority. E3—Local networks (LN): A group of contiguous transmission Elements operated at or above 100 kV but less than 300 kV that distribute power to Load rather than transfer bulk-power across the interconnected system. LN’s emanate from multiple points of connection at 100 kV or higher to improve the level of service to retail customer Load and not to accommodate bulk-power transfer across the interconnected system. The LN is characterized by all of the following: (a) Limits on connected generation: The LN and its underlying Elements do not include generation resources identified in Inclusion I3 and do not have an aggregate capacity of non-retail generation greater than 75 MVA (gross nameplate rating); (b) Power flows only into the LN and the LN does not transfer energy originating outside the LN for delivery through the LN; and (c) Not part of a Flowgate or transfer path: The LN does not contain a monitored Facility of a permanent Flowgate in the Eastern Interconnection, a major transfer path within the Western Interconnection, or a comparable monitored Facility in the ERCOT or Quebec Interconnections, and is not a monitored Facility included in an Interconnection Reliability Operating Limit (IROL). E4—Reactive Power devices owned and operated by the retail customer solely for its own use. Note—Elements may be included or excluded on a case-by-case basis through the Rules of Procedure exception process. 19. NERC explained that exclusion E1 is intended to enhance the clarity of the radial facilities exclusion and that criteria ‘‘b’’ and ‘‘c’’ of exclusion E1 identify the maximum amount of generation allowed on the radial facility while still qualifying for the radial facilities exclusion. NERC added the PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 807 ‘‘normally open switch’’ note at the end of exclusion E1 to address a common network configuration in which two separate sets of facilities would be recognized as radial systems and not included in the bulk electric system are connected by a ‘‘normally open switch’’ which is a switch is set to the open position for reliability purposes.21 20. NERC explained that the normally open switch note avoids numerous exception requests because this configuration is common and subjecting two sets of radial facilities that are normally unconnected to each other because the switch between them is open to the Reliability Standards during the limited time periods when the switch is closed for maintenance-related or outage-related circumstances is impractical and unworkable. 21. According to NERC, exclusion E2 excludes a generating unit or units on the customer’s side of the retail meter that serves all or part of the retail load subject to allowing a limited amount of generating capacity to be connected and that standby, back-up, and maintenance power services are provided to the generating unit. NERC stated that these generating units are not necessary for the operation of the interconnected transmission network because they serve a single retail load, provide a limited amount of capacity to the bulk electric system, and are fully backed up by other resources. 22. With respect to the ‘‘local network’’ exclusion (exclusion E3), NERC explained that it encompasses local networks of transmission elements operated at between 100 kV and 300 kV that distribute power to load rather than transfer bulk power across the interconnected system. NERC further explained that local networks are not intended to provide transfer capacity for the interconnected transmission network and such networks should not be included in the bulk electric system, and the conditions established in exclusion E3 are sufficient to ensure that such local networks are being used exclusively for local distribution purposes. NERC adds that facilities used for the local distribution of electric energy are expressly excluded from the bulk electric system by the core definition as well as by the local network exclusion.22 21 NOPR, 139 FERC ¶ 61,247 at P 27 (citing NERC BES Petition at 19). 22 See NOPR, 139 FERC ¶ 61,247 at P 30; See also NERC BES Petition at 22–23. E:\FR\FM\04JAR2.SGM 04JAR2 808 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations b. Detailed Information To Support an Exception Request 23. In response to the Order No. 743 directive to develop technical criteria to use in addressing requests for exceptions to the definition of the bulk electric system, NERC developed an alternative approach because it would be more feasible to develop a common set of data and information that Regional Entities and NERC could use to evaluate exception requests rather than to develop the detailed criteria.23 The Detailed Information Form contains a common set of data that entities seeking an exception must submit with every exception request. According to NERC, the information that an applicant may submit in support of an exception request is not limited to the Detailed Information Form. Rather, an applicant is expected to submit all relevant data, studies and other information that support the exception request, and the Regional Entity and NERC may ask an applicant to provide other data and studies in addition to the Detailed Information Form. mstockstill on DSK4VPTVN1PROD with c. Implementation Plan for Revised Definition of ‘‘Bulk Electric System’’ 24. NERC requested that the revised definition become effective on the first day of the second calendar quarter after receiving applicable regulatory approval, or, in those jurisdictions where no regulatory approval is required, on the first day of the second calendar quarter after its adoption by the NERC Board of Trustees. NERC stated that the proposed effective date is appropriate to provide a reasonable time between the date of regulatory approval, which is not under the control of NERC or the industry, and the effective date of the revised definition of bulk electric system. 25. NERC also requested that compliance obligations for all newlyidentified elements to be included in the bulk electric system should begin twenty-four months after the applicable effective date of the revised definition. While the Commission stated in Order Nos. 743 and 743–A that the transition period should not exceed 18 months, NERC explained that it is requesting a longer transition period in light of the actions that entities will need to complete in connection with the revised definition. 2. NERC Petition for Approval of Revisions To Rules of Procedure To Adopt an Exception Process 26. In Docket No. RM12–7–000, NERC filed proposed revisions to its Rules of 23 NERC BES Petition at 26. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 Procedure for the purpose of adopting an ‘‘exception process’’ mechanism to add elements to, and remove elements from, the bulk electric system. NERC stated that decisions to approve or disapprove exception requests will be made by NERC, rather than by the Regional Entities, thereby eliminating the potential for inconsistency and subjectivity. Further NERC explained that the exception process is ‘‘not intended to be used to resolve ambiguous situations,’’ i.e., the exception process is only available after an initial determination has been made regarding whether an element is part of or not part of the bulk electric system through the application of the definition to the element.’’ 24 27. NERC stated that an owner of an element may submit a request to the applicable Regional Entity to include the element in, or remove it from, the bulk electric system.25 In addition, a Regional Entity, planning authority, reliability coordinator, transmission operator, transmission planner, or balancing authority that has the elements covered by an exception request within its scope of responsibility may submit an exception request for the inclusion of an element or elements owned by a registered entity. Upon receiving an exception request, the applicable Regional Entity will review the exception request and will issue a recommendation to NERC. NERC will evaluate the Regional Entity recommendation, the accompanying technical documents, the Technical Review Panel opinion (if any), and any comments submitted, and will issue a final determination. Finally, NERC stated that an exception request will be subject to review to verify continuing justification for the exception. NERC also stated that an entity must certify every 36 months to the appropriate Regional Entity that the basis for the exception request remains valid. Further, NERC also included a method for an entity to challenge the NERC decision on an exception request to a NERC Compliance Committee. The entity may also appeal the final NERC decision to the Commission within 30 days following the date of the Compliance Committee‘s decision, or within such time period as the Commission’s legal authority permits. 28. In response to the Order No. 743 Commission statement that NERC should maintain a list of exempted facilities that can be made available to 24 NOPR, 139 FERC ¶ 61,247 at P 38, quoting NERC ROP Petition at 10–11. 25 See NOPR, 139 FERC ¶ 61,247 at PP 39–45, detailing the three-step exception process. PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 the Commission upon request, NERC maintained that the proposed exception process does not include provisions for such a list, adding that this is an internal administrative matter for NERC to implement that does not need to be embedded in the Rules of Procedure.26 NERC stated it will develop a specific internal plan and procedures for maintaining a list of facilities for which exceptions have been granted. E. Commission NOPR 29. The Commission issued the NOPR on June 22, 2012, and required that comments be filed within 60 days after publication in the Federal Register, or September 4, 2012. While seeking comment on various provisions of NERC’s petitions, the NOPR proposed to approve NERC’s modification to the currently-effective definition of bulk electric system and changes to the Rules of Procedure to add the exception process. The NOPR also requested comment on the appropriate role for NERC and the Commission in the identification of bulk electric system facilities and elements. 30. The Commission received more than sixty comments on the proposed rulemaking. NERC and other commenters, inter alia, respond to the Commissions questions regarding the application of the proposed bulk electric system definition. These comments have assisted us in developing this Final Rule. A list of commenters appears in Appendix A to this Final Rule.27 II. Discussion 31. For the reasons discussed below, the Commission adopts the NOPR proposal and approves NERC’s revised definition of bulk electric system and the specific inclusions and exclusions set forth in the definition, as just, reasonable, not unduly discriminatory or preferential, and in the public interest. Likewise, the Commission approves NERC’s revised Rules of Procedure that set forth an exceptions process for determining whether elements and facilities are included in the bulk electric system on a case-bycase basis. While we discuss below specific provisions of the NERC proposal, provisions of the modified bulk electric system definition and related Rules of Procedures not specifically mentioned are approved in 26 NERC ROP Petition at 49. NERC, MISO, Consumers, MISO Transmission Owners, Barrick, ITC Companies, and AMP filed reply comments. Although the NOPR did not allow for reply comments, we will accept these pleadings because they have assisted our understanding of NERC’s proposal in this Final Rule. 27 Further, E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations this Final Rule. Below, we address the following matters: (A) Approval of the NERC definition; (B) issues concerning the ‘‘core’’ bulk electric system definition; (C) local distribution; (D) exclusions and inclusions in the bulk electric system definition; and (E) NERC’s Rules of Procedures exceptions process. mstockstill on DSK4VPTVN1PROD with A. Approval of the Revised Bulk Electric System Definition NOPR Proposal 32. In the NOPR, the Commission proposed to approve a modification to the currently-effective definition of ‘‘bulk electric system’’ because it removes language allowing for regional discretion in the currently-effective bulk electric system definition, establishes a bright-line threshold that includes all facilities operated at or above 100 kV and identifies specific categories of facilities and configurations as inclusions and exclusions to provide clarity in the definition of bulk electric system.28 Comments 33. NERC, Regional Entities, trade organizations and a majority of commenters from various industry segments support the Commission’s proposal to approve NERC’s proposals. APPA ‘‘strongly support[s]’’ NERC’s proposed definition.29 EEI supports NERC’s proposals and states that any changes to the definition should be made through the standard development process, not through directives. LPPC, NRECA, and WPPC also support approval of the definition and urge the Commission to adopt the NERC proposal and to refrain from pursuing additional regulatory mandates. Snohomish and WPPC agree that NERC has developed a ‘‘clear and workable definition’’ of the bulk electric system that markedly improves the existing definition. They also opine that the definition creates a foundation for reliability that focuses on core elements of the interconnected bulk transmission system, and provides a means for lowervoltage or peripheral elements of the electric system to be excluded from the bulk electric system. Other commenters state that the definition is consistent, repeatable and verifiable and will provide clarity that will assist NERC and affected entities in implementing Reliability Standards. 34. Other commenters, while noting that the NOPR represents a ‘‘positive development,’’ believe additional modifications are necessary ‘‘to achieve consistency within the limitations’’ of section 215 of the FPA and the Commission’s directives in Order Nos. 743 and 743–A.30 35. Some commenters oppose approval on various grounds. For example, NARUC is concerned that, even though the definition appears to honor the exclusion of local distribution from the bulk electric system, the definition does not go far enough to ensure ‘‘that a costly analysis * * * is not required to be performed with regard to local distribution elements that are by law excluded.’’ 31 NARUC is also concerned that exclusion E3 (local networks) will exclude some, but not all, local distribution elements. According to NARUC, this could cause confusion as to the status of local distribution elements that are not also described in exclusion E3. Consequently, NARUC believes that the definition does not appropriately reflect the statutory limits of the Commission’s authority under FPA section 215 and its implementation could unnecessarily overreach into state jurisdictional local distribution facilities. 36. NYPSC believes that the proposed definition will likely result in classifying certain facilities as part of the bulk electric system despite their being unnecessary for operating an interconnected transmission network. NYPSC states that the majority of the 138 kV lines within New York City serve as direct feeders to the networked distribution system serving load. NYPSC also states that there is no technical justification for a 100 kV bright-line definition.32 NYPSC contends that, even with the exclusions and the exception process, it is uncertain whether an exclusion or exception would apply to the 138 kV lines noted above. NYPSC believes that this approach presumes the Commission has jurisdiction over all facilities operated at 100 kV or above, unless proven otherwise, which inappropriately shifts the legal and technical burdens to the states. 37. NYPSC, NARUC, and the Massachusetts DPU argue that the revised definition does not include a cost impact analysis that weighs costs related to the modified definition against the reliability benefits that the new definition would achieve. They contend that the lack of a cost-benefit analysis accompanying the revised definition represents an additional gap in the process for developing this Reliability Standard. NYPSC and the 30 Holland Comments at 2. Comments at 4. 32 NYPSC Comments at 3. See also Massachusetts DPU Comments at 6–7. Massachusetts DPU contend that the costs of compliance with the definition will be excessive. NYPSC states that, according to NERC and the Northeast Power Coordinating Council, Inc. (NPCC), it would exceed $280 million. Thus, they advocate that, given the significant costs that the revised definition could impose on consumers, the Commission should reject NERC’s proposed modifications until they are supported by a cost-benefit analysis. Commission Determination 38. Pursuant to section 215(d)(2) of the FPA, we approve NERC’s revised definition of bulk electric system and the specific inclusions and exclusions set forth in the definition, as just, reasonable, not unduly discriminatory or preferential, and in the public interest. NERC’s proposal provides additional clarity and granularity that will allow for greater transparency and consistency in the identification of elements and facilities that make up the bulk electric system and is responsive to the technical and policy concerns discussed in Order No. 743. 39. NERC’s proposal adequately ensures that all facilities necessary for operating an interconnected electric energy transmission network are included under the bulk electric system. As we observed in Order No. 743, ‘‘[U]niform Reliability Standards, and uniform implementation, should be the goal and the practice, the rule rather than the exception, absent a showing that a regional variation is superior or necessary due to regional differences. Consistency is important as it sets a common bar for transmission planning, operation, and maintenance necessary to achieve reliable operation * * * . [W]e have found several reliability issues with allowing Regional Entities broad discretion without ERO or Commission oversight.33 The core definition eliminates the provision that allows broad regional discretion, and establishes a 100 kV bright-line threshold for determining, in the first instance, those elements and facilities that are included in the bulk electric system. The definition also includes specific inclusions and exclusions that address typical system facilities and configurations such as generation and radial systems, providing additional granularity that improves consistency and provides a practical means to determine the status of common system configurations. Thus, we agree with commenters that the modified definition is consistent, repeatable and verifiable and will provide clarity that will assist NERC 31 NARUC 28 NOPR, 29 APPA 139 FERC ¶ 61,247 at P 18. Comments at 7. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 809 33 Order No. 743, 133 FERC ¶ 61,150 at P 82 (footnote omitted). E:\FR\FM\04JAR2.SGM 04JAR2 mstockstill on DSK4VPTVN1PROD with 810 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations and affected entities in implementing Reliability Standards. 40. Accordingly, the Commission finds that NERC’s proposal satisfies the directives of Order No. 743 to develop modifications to the currently-effective definition of bulk electric system to ensure that the definition encompasses all facilities necessary for operating an interconnected transmission network and remove the Regional Entity discretion that currently allows for regional variations without review or oversight. We also find that NERC’s definition satisfies the Commission’s technical concerns in Order No. 743 through the use of a bright-line 100 kV threshold, with specific inclusions and exclusions within the definition, for identifying bulk electric system elements and the establishment of an exception process for facilities that are not necessary for operating the interconnected transmission network. 41. Moreover, we are not persuaded by the rationale of the commenters who advocate that we remand the NERC proposal. We disagree with NYPSC that the proposed definition will likely result in classifying certain facilities as part of the bulk electric system despite their being unnecessary for operating an interconnected transmission network. An entity that believes its facility is improperly classified as part of the bulk electric system by application of the definition may avail itself of the exception process to have the facility removed from inclusion in the definition. With regard to NYPSC’s claim that there is no technical justification for the 100 kV threshold, in Order No. 743, the Commission found ‘‘that many facilities operated at 100 kV and above have a significant effect on the overall functioning of the grid and that the majority of 100 kV and above facilities in the United States operate in parallel with other high voltage and extra high voltage facilities, interconnect significant amounts of generation sources and operate as part of a defined flowgate.’’ The Commission explained that this ‘‘illustrates their parallel nature and therefore their necessity to the reliable operation of the interconnected transmission system’’ and that ‘‘[p]arallel facilities operated at 100–200 kV will experience similar loading as higher voltage parallel facilities at any given time and the lower voltage facilities will be relied upon during contingency scenarios.’’ 34 In addition, in Order No. 743 the Commission identified the reliability concerns created by the current definition and a method to ensure that 34 Order No. 743, 133 FERC ¶ 61,150 at P 73. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 certain facilities needed for the reliable operation of the nation’s bulk electric system are subject to mandatory and enforceable Reliability Standards. The Commission noted that the material impact assessments implemented, for example, by NPCC ‘‘are subjective in nature, and results from such tests are inconsistent in application, as shown through the exclusion of facilities that clearly are needed for reliable operation.’’ 35 The Commission also found that the vast majority of 100 kV and above facilities are part of parallel networks with high voltage and extra high voltage facilities and are necessary for reliable operation.36 Thus, the Commission found that NERC should ‘‘establish a uniform definition that eliminates subjectivity and regional variation in order to ensure reliable operation of the bulk electric system’’ and that ‘‘the existing NPCC impact test is not a consistent, repeatable, and comprehensive alternative to the brightline, 100kV definition we prefer.’’ 37 42. NERC already applies a general 100 kV threshold, and today all regions, with the exception of NPCC, also apply a 100 kV threshold. We also note NYPSC cites to the same methodology that the Commission found dubious in Order No. 743–A where the Commission explained that it had: serious concerns about NPCC’s [] methodology. The Commission stated that, as a threshold matter, the material impact tests proffered by commenters did not measure whether specific system elements were necessary for operating the system, but, rather, measure the impact of losing the element. The Commission’s extensive discussion of the NPCC test further noted that the NPCC methodology is unduly subjective, and results in an inconsistent process that excludes facilities necessary for operating the bulk electric system from the definition.38 43. We also disagree with NYPSC’s contention that this approach presumes the Commission has jurisdiction over all facilities operated at 100 kV or above, unless proven otherwise, which inappropriately shifts the legal and technical burdens to the states. As noted above and in Order No. 743–A, the suggested solution of a 100 kV threshold paired with an exemption process, in essence, ‘‘merely clarifies the current NERC definition, which classifies facilities operating at 100 kV or above as part of the bulk electric system.’’ 39 35 Order No. 743, 133 FERC ¶ 61,150 at P 96. 36 Id. 37 Id. 38 Order No. 743–A, 134 FERC ¶ 61,210 at P 47 (footnotes omitted) (citing Order No. 743, 133 FERC ¶ 61,150 at PP 74, 76 and 85). 39 Order No. 743–A, 134 FERC ¶ 61,210 at P 36. PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 Thus, we are not persuaded that NERC’s proposal inappropriately shifts legal or technical burdens. In addition, the Commission has maintained that the bright-line threshold would be a ‘‘first step or proxy’’ in determining which facilities should be included in the bulk electric system. The definition, coupled with the exception process will ensure that facilities not necessary for the operation of the interconnected transmission network will be properly categorized. Further, the Commission’s approach for determining whether elements are used for local distribution on a case-by-case basis, as discussed more fully below, addresses NARUC’s concerns as to the status of local distribution elements that are not also described in exclusion E3 and that the definition does not appropriately reflect the statutory limits of the Commission’s authority under FPA section 215 as well as NYPSC’s concern about the Commission having jurisdiction over all facilities operated at 100 kV or above. With regard to the specific examples cited by NYPSC, we find that such determinations are more appropriate for the exception process and beyond the scope of this proceeding. 44. We also disagree with NYPSC and Massachusetts DPU that NERC’s proposal is flawed because NERC’s petition did not include a formal cost analysis. Order No. 743 did not require such an analysis. Rather, Order No. 743 tasked NERC with certain directives and NERC’s petitions are intended to comply with those directives. In addition, while cost of implementation can be relevant in Commission review of a proposed Reliability Standard, the foremost concern is the reliability of the interconnected transmission network.40 Therefore, we find that NERC’s petition adequately addresses the Commission’s Order No. 743 directives. B. The Core Definition of Bulk Electric System NOPR Proposal 45. In the NOPR, the Commission proposed to approve the bulk electric system ‘‘core’’ definition developed by NERC which states as follows: Unless modified by the lists shown below, all Transmission Elements operated at 100 kV or higher and Real Power and Reactive Power resources connected at 100 kV or higher. This does not include facilities used in the local distribution of electric energy. In the NOPR, the Commission noted that NERC’s proposal appears to satisfy the objectives set forth in Order No. 743. 40 See Order No. 672, FERC Stats. & Regs. ¶ 31,204 at P 330. E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations The Commission also stated that NERC’s ‘‘core’’ definition establishes the fundamental threshold for inclusion of facilities in the bulk electric system as those that are operated at 100 kV or higher, if they are transmission elements, or are connected at 100 kV or higher, if they are real power or reactive power resources. In addition, the Commission stated that the core definition also establishes a 100 kV criterion as a bright-line threshold, rather than as a general guideline as in the current definition, i.e., the phrase ‘‘generally operated at’’ in the current definition is eliminated. mstockstill on DSK4VPTVN1PROD with Comments 46. NERC and a majority of commenters including most trade organizations believe that the core definition satisfies the Order No. 743 directives. By eliminating the language ‘‘as defined by the Regional Reliability Organization’’ and ‘‘generally operated at,’’ they state that the revised definition eliminates the subjectivity and regional variations that are possible under the current definition.41 WPPC supports the NERC proposals but is concerned that the NOPR could be read as attempting to impose nationally uniform standards without allowing regional variation. WPPC believes that FPA section 215 requires deference to Regional Entities in developing Reliability Standards and is concerned that the NOPR’s references to uniformity of the definition of bulk electric system must be limited by the deference accorded to Regional Entities in the statute. 47. Other commenters seek modification of the core definition. For example, PSEG Companies believe that the core definition will introduce subjectivity because it omits facilities and systems necessary to operate the facilities above 100 kV, such as protection systems, underfrequency load shedding systems and control centers.42 PSEG Companies suggest the addition of demand response above 75 MW within a balancing authority into the definition. In the same vein, ISO New England suggests including capacity resources connected below 100 kV and identifies protection systems, under-frequency and under-voltage load shedding systems, inclusion of non-bulk electric system facilities into transmission and operational planning, and control rooms as items that are important to operating the bulk electric 41 See e.g., NERC, APPA, EEI, NRECA, ELCON, the Regional Entities, NV Energy, National Grid, Southern Companies, Duke Energy, International Transmission Company, TAPS, BPA, Hydro One and IESO, and Snohomish. 42 PSEG Comments at 4–6. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 system but not in the definition. ISO New England, therefore, believes that NERC should make the determination whether or not these facilities and control systems must comply with Reliability Standards independent of their designation. Valero seeks clarification that the core definition excludes elements ‘‘that are owned and used by an industrial end-user to serve its load.’’ 43 48. Similarly, IUU and Barrick state that industrial generators are intrastate facilities that serve only the owner’s load and believe that they are excluded from the jurisdiction of the Commission.44 IUU and Barrick believe that some of the Reliability Standards appear to reach beyond the limits imposed by Congress and into these intrastate industrial generator facilities. According to IUU and Barrick, the definition needs an additional exclusion that excludes these intrastate facilities. 49. Several commenters that support the NERC proposal also comment on matters not specifically raised in the NOPR. APPA recommends that the Commission state that it expects NERC will continue to treat the Phase 2 bulk electric system definition project as a priority in the 2013 budget year. APPA also requests that the Commission direct NERC to expedite the deregistration process for those entities or facilities that are no longer designated as part of the bulk electric system under the new definition or through application of the Rules of Procedure exception process. APPA believes that an expedited deregistration process would reduce the associated burden on entities that are no longer required to document compliance due to the revisions in the bulk electric system definition and the exception process. 50. Redding requests that, due to the connection between the definition and the NERC Functional Model, the Commission should direct revisions to the NERC Functional Model to accommodate entities that own or operate facilities that technically qualify as transmission but that have a limited, if any, impact on reliability. Commission Determination 51. We find that the ‘‘core’’ definition satisfies the Order No. 743 directives to remove the subjectivity and regional variations that are possible under the current definition by eliminating the language ‘‘as defined by the Regional Reliability Organization’’ and ‘‘generally operated at,’’ in the revised definition. The ‘‘core’’ definition, quoted above, 43 Valero 44 See PO 00000 Comments at 3. also Barrick Reply Comments at 2–3. Frm 00009 Fmt 4701 Sfmt 4700 811 establishes the fundamental threshold for inclusion of facilities in the bulk electric system as those that are operated at 100 kV or higher, if they are transmission elements, or are connected at 100 kV or higher, if they are real power or reactive power resources. The core definition also establishes a 100 kV criterion as a bright-line threshold, rather than as a general guideline as in the current definition, i.e., the phrase ‘‘generally operated at’’ in the current definition is eliminated. The core definition also continues to capture equipment associated with the facilities included in the bulk electric system. 52. Other than the directive to modify exclusion E3 as discussed below, the Commission declines to direct NERC to further modify the definition or the specified inclusions and exclusions. Specifically, we will not direct further revisions to address demand response, protection systems and other facilities or equipment as separate inclusions or exclusions as advocated by ISO New England, PSEG Companies, IUU or Barrick.45 Rather, NERC has indicated that it has initiated a Phase 2 of the development project for the definition of bulk electric system, and interested stakeholders have the opportunity in the first instance to raise their ideas in that forum regarding possible additions, inclusions and exclusion set forth in the bulk electric system definition.46 53. Moreover, in the NOPR we acknowledged NERC’s statement that the core definition also continues to capture equipment associated with the facilities included in the bulk electric system.47 In the NOPR we agreed with NERC that while the new definition does not use the term ‘‘associated equipment,’’ the phrase is included in the definition through the defined term ‘‘Transmission Elements.’’ 48 We adopt the NOPR proposal that the term ‘‘associated equipment,’’ is included in the definition through the defined term ‘‘Transmission Elements’’ which could 45 We note that, in Order No. 693, the Commission recognized demand side management as a type of resource for contingency reserve that should be treated on a comparable basis with other resources; and must meet similar technical requirements as other resources providing this service. Order No. 693, FERC Stats. & Regs. ¶ 31,242 at PP 330–335. 46 According to NERC, due to time constraints in meeting the compliance deadline set in Order No. 743, NERC separated the development of the revised definition into two phases. See NERC Petition at 46. NERC stated that Phase 1 culminated in the language of the proposed modified definition that is the primary subject of this Final Rule. Phase 2, which is ongoing, intends to focus on other industry concerns raised during Phase 1. 47 NOPR, 139 FERC ¶ 61,247 at PP 16, 55. 48 NOPR, 139 FERC ¶ 61,247 at P 55 n.69. E:\FR\FM\04JAR2.SGM 04JAR2 812 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations include the facilities identified by PSEG Companies. 54. With regard to Valero’s clarification, that the core definition excludes elements ‘‘that are owned and used by an industrial end-user to serve its load,’’ Valero can either seek to have this matter addressed generically, if appropriate, in NERC’s Phase 2, or seek to have this addressed on a case-by-case basis in the exception process that we approve in this Final Rule. 55. We decline, as APPA requests, to direct NERC to expedite the deregistration process for those entities who own or operate facilities that are no longer designated as part of the bulk electric system. We do not expect there to be significant numbers of entities either needing to register or deregister due to the change in definition.49 To the extent entities seek to deregister, NERC, as the ERO, can determine the appropriate timeframe for making such a determination. We also decline to order NERC to modify the Functional Model as Redding requests as the issues Redding raises are outside the scope of this proceeding. In response to WPPC’s concern, this Final Rule adopts the revised definition which eliminates regional discretion for determining whether an element is part of the bulk electric system. It does not address or subsume the ability of Regional Entities to develop Reliability Standards for their regions that meet criteria for regional Reliability Standards. 56. In summary, the Commission finds that NERC’s proposal adequately addresses the concerns articulated in Order No. 743 regarding regional discretion and the need for a consistent approach and satisfies the concerns regarding the elimination of inconsistencies across regions. mstockstill on DSK4VPTVN1PROD with C. Local Distribution NOPR Proposal 57. The NOPR noted that, although Order No. 743 acknowledged that ‘‘Congress has specifically exempted ‘facilities used in the local distribution of electric energy’ ’’ it still is necessary to determine which facilities are local distribution, and which are transmission.50 The NOPR observed that Order No. 743–A stated that ‘‘[w]hether facilities are used in local distribution will in certain instances raise a question of fact, which the Commission has jurisdiction to determine.’’ 51 In addressing what constitutes local distribution, NERC stated in its petition 49 See NOPR, 139 FERC ¶ 61,247 at P 132. No. 743–A, 134 FERC ¶ 61,210 at P. 67. 51 NOPR, 139 FERC ¶ 61,247 at P. 58, quoting Order No. 743–A, 134 FERC ¶ 61,210 at P. 67. 50 Order VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 that facilities used for the local distribution of electric energy are expressly excluded from the bulk electric system by the core definition as well as by the local network exclusion, exclusion E3.52 In the NOPR, the Commission requested comment regarding how NERC’s proposed definition is responsive to the Commission’s directives in Order Nos. 743 and 743–A. Specifically, the Commission requested comment on how NERC’s proposal adequately differentiates between local distribution and transmission facilities in an objective, consistent, and transparent manner. Comments 58. NERC and numerous commenters state that the definition adequately differentiates between local distribution and transmission.53 NERC states that the revised definition distinguishes between bulk electric system facilities and nonbulk electric system facilities and local distribution facilities fall into the latter category.54 NERC adds that, by applying the definition, facilities used for local distribution will not be included due to their specific exclusion in the core definition. NERC and others also state that the exception process can be used to determine whether facilities are used for local distribution when an entity believes such facilities have been improperly included.55 59. While ELCON generally agrees with NERC’s position, ELCON comments that NERC’s proposal does not fully respond to the Commission’s directive in Order Nos. 743 and 743–A. ELCON maintains that a definition of ‘‘local distribution’’ is necessary to avoid including assets that are clearly used for the local distribution as part of the bulk electric system. ELCON expresses concern that industrial consumers’ equipment that is rated 100 kV or above will be designated as a component of the bulk electric system, irrespective of whether such elements are material for the reliable operation of the interconnected Bulk-Power System. ELCON recommends that the Commission address this issue by establishing a joint working group with NARUC to draft a proposed definition of local distribution to exclude certain 52 NOPR, 139 FERC ¶ 61,247 at P. 59, (citing NERC BES Petition at 16). 53 See e.g., APPA Comments at 8–9, EEI Comments at 4, NRECA Comments at 7, Hydro One Comments at 3, NV Energy Comments at 3–4, PHI Companies Comments at 3, TAPS Comments at 3, BPA Comments at 3, WPPC Comments at 27–30. 54 NERC Comments at 6. 55 See e.g. WPPC Comments at 28. PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 facilities from the scope of the definition of bulk electric system. 60. Some entities that generally agree with NERC also suggest clarifications to improve the distinction between local distribution and transmission. MISO suggests that, to identify local distribution facilities, the Commission direct NERC to clarify the last sentence of the core definition by ‘‘crossreferencing’’ the exclusion criteria in the definition.56 Snohomish requests that the Commission clarify that the Seven Factor Test established in Order No. 888 is one element that can be used to evaluate an exception request in addition to other engineering and technical considerations.57 61. Other commenters contend that NERC’s proposal does not adequately differentiate between local distribution and transmission facilities or reflect the statutory limits of the Commission’s authority under FPA section 215.58 As noted above, NARUC states that the NERC definition does not appropriately reflect the statutory limits of the Commission’s authority under Federal Power Act Section 215 and its implementation could unnecessarily overreach into state jurisdictional local distribution facilities. NARUC maintains that, while the definition of bulk electric system appears to exclude local distribution by restating the law, the definition does not go far enough to ensure that a costly analysis applying for an ‘‘exception’’ is not required to be performed with regard to local distribution elements that are by law ‘‘excluded.’’ NARUC contends that the mere fact that a subset of local distribution elements expressly excluded from the bulk electric system by the core definition are specifically identified in exclusion E3 could cause confusion as to the status of local distribution elements that are not also described in E3. Similarly, the Steel Manufacturers Association states that the Commission cannot allow NERC’s exception process to determine the boundaries of the Commission’s jurisdiction. 62. Consumers Energy believes that the definition does not differentiate between transmission and local distribution because ‘‘Transmission Elements’’ and ‘‘local distribution’’ are undefined. Consumers Energy states that the Commission should clarify that any facilities that have been found by the Commission to be local distribution pursuant to the Seven Factor Test are 56 MISO Comments at 4. Comments at 3. 58 E.g., NARUC, Holland, NYPSC, and SmartSenseCom. 57 Snohomish E:\FR\FM\04JAR2.SGM 04JAR2 mstockstill on DSK4VPTVN1PROD with Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations also local distribution under FPA section 215 and therefore outside the bulk electric system.59 Consumers references a prior Commission declaratory order accepting the Michigan Public Service Commission’s determination of transmission and local distribution facilities.60 Consumers notes that it sold all of its ‘‘bulk electric system elements’’ to Michigan Electric Transmission Company, who is the registered transmission owner. ITC Companies and MISO filed reply comments requesting that the Commission reject the coordination and continuity aspect of Consumers’ proposal to automatically exclude from the definition those facilities that are ‘‘in series’’ with transmission facilities that are included in the bulk electric system definition.61 In addition, they state that this is not the proper proceeding to address whether specific facilities may or may not be part of the bulk electric system. Consumers filed a motion to strike the MISO reply comments. 63. Portland is concerned that the Commission is assessing its reliability jurisdiction without addressing ‘‘the inconsistency between its reliability jurisdiction and its traditional ‘transmission’ jurisdiction under FPA section 201(b).’’ Portland states that the Commission could clarify that for entities who apply the local distribution exception in good faith, any future regulatory determination that such distribution facilities are to be treated as part of the bulk electric system within the scope of FPA section 215 regulation will be prospective only.62 64. Holland argues that, aside from the exclusions in the core definition, there are no criteria or guidelines that exclude local distribution facilities from the bulk electric system. Holland also argues that if an entity challenges a registration, there is no guidance as to what information NERC will consider whether to recognize the facilities in question as local distribution and exclude them from the bulk electric system. Holland contends that the proposed Rules of Procedure fail to provide any distinction between those facilities that must be excluded because they are local distribution versus those that should be excluded because, although they meet the [bulk electric system] bright-line criteria, they are not necessary for the reliable operation of the interconnected transmission system. 59 Consumers Comments at 3–8. Comments at 4 (citing July 29, 1998 letter order in Docket No. EL98–21–000). 61 ITC Reply Comments at 6–7. 62 Portland Comments at 4. 60 Consumers VerDate Mar<15>2010 17:24 Jan 03, 2013 Jkt 229001 Holland claims that the exception process does not make ‘‘any distinction between criteria necessary for determining those facilities that must be excluded because they are local distribution versus those that should be excluded because they [ ] meet the [bulk electric system] criteria, but are not material.’’ 63 Holland adds that ‘‘because the exclusions are not comprehensive, and because the ‘exceptions’ process provides no further guidance on the proper exclusion of these facilities, there would be no basis to support a conclusion that the NOPR has effectively and transparently identified, let alone justified, a second class or test for identifying local distribution for purposes of Section 215 of the FPA.’’ 64 Similarly, Massachusetts DPU comments that exception requests will inevitably involve difficult questions regarding whether a facility is ‘‘used in the local distribution of electric energy,’’ an area over which states have exclusive authority under the FPA.65 65. Valero requests that the Commission direct NERC to develop criteria based on a ‘‘primary function test’’ to exclude facilities used in local distribution. In addition, Valero states that the Commission should ‘‘provide guidance to NERC by [ ] stating that, to constitute distribution, a facility need not be used exclusively for distribution purposes.66 Further, Valero contends that NERC’s ‘‘distribution use only’’ position contradicts the plain language of sections 201 and 215 of the FPA. Valero states that its ‘‘discrete onsite electrical equipment’’ is designed only to serve load at its refineries. While the facilities may enhance the reliability of electric service, Valero asserts they are only used by an industrial end-user of electricity for ‘‘the local distribution of electric energy’’ and must be excluded from the bulk electric system. The Power Agencies ask for clarification of footnote 79 in the NOPR and assume that the Commission is clarifying that certain facilities may not satisfy the revised definition, but may constitute transmission facilities for purposes other than applying FPA section 215.67 63 Holland Comments at 6. Comments at 9. See also Barrick Reply Comments at 2. 65 Massachusetts DPU Comments at 10. 66 Valero Comments at 8–12 (emphasis in original) (citing Detroit Edison v. FERC, 334 F.3d 48, 54 (D.C. Cir. 2003)). 67 See NOPR, 139 FERC ¶ 61,247 at P 60 n.79 stating that ‘‘an element that falls outside of the definition of bulk electric system is not necessarily local distribution.’’ 64 Holland PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 813 Commission Determination 66. For the reasons discussed below, we find that NERC’s ‘‘core’’ definition of bulk electric system definition, together with exclusion E3 (local networks), is consistent with the section 215 exclusion of local distribution facilities. We also find that, while NERC’s caseby-case exceptions process is appropriate to determine the technical issue of whether facilities are part of the bulk electric system, the jurisdictional question of whether facilities are used in local distribution should be decided by the Commission. 67. NERC’s ‘‘core’’ definition provides a 100 kV threshold for determining whether elements or facilities are included in the bulk electric system. As we indicated in Order No. 743, the 100 kV threshold is a reasonable ‘‘first step or proxy’’ for determining which facilities should be included in the bulk electric system. Indeed, it is reasonable to anticipate that this threshold will remove from the bulk electric system the vast majority of facilities that are used in local distribution, which tend to be operated at lower, sub-100 kV voltages. Moreover, applying the four exclusions in NERC’s proposed definition should serve to further exclude facilities used in local distribution from the bulk electric system. In particular, as NERC indicates, exclusion E3 (local networks)—although not synonymous with local distribution—should serve to reasonably exclude many above-100 kV facilities that are used in local distribution. Based on the information provided in NERC’s petition, as well as the supporting comments of EEI and others, we anticipate that the ‘‘core’’ definition together with exclusion E3 should provide a reasonable means to accurately and consistently determine on a generic basis whether facilities are part of the bulk electric system. In other words, most local distribution facilities will be excluded by the 100 kV threshold or exclusion E3 without needing to seek a Commission jurisdictional determination. Accordingly, we find this aspect of NERC’s petition reasonable. 68. In addition to the definition, NERC also submitted revisions to the Rules of Procedure (discussed below in greater detail) that allow for a case-bycase exception process. Included in this process is an opportunity for entities to seek to exclude facilities from the bulk electric system because they are used in local distribution. NERC’s petition does not provide criteria or guidance that it would apply in the case-by-case exception process to determine whether E:\FR\FM\04JAR2.SGM 04JAR2 814 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with an element above 100 kV should be excluded as local distribution, as directed in Order No. 743.68 Thus, we cannot conclude that the case-by-case exception process will ‘‘adequately differentiate[] between local distribution and transmission facilities in an objective, consistent, and transparent manner.’’ 69 69. In Order No. 743, the Commission stated that determining the line between transmission and local distribution should be part of the exception process and left it to NERC in the first instance to determine how to make such a determination.70 After further review of NERC’s proposal in this proceeding, and upon consideration of the comments submitted, we believe that it is more appropriate that the Commission make such case-by-case jurisdictional determinations when necessary, and to apply the Seven Factor Test set forth in Order No. 888 to make such determinations. The determination whether an element or facility is ‘‘used in local distribution,’’ as the phrase is used in the FPA, requires a jurisdictional analysis that is more appropriately performed by the Commission.71 Further, Commission review of whether a facility is used in local distribution comports with relevant legal precedent. As we explained in Order No. 743–A, ‘‘[w]hether facilities are used in local distribution will in certain instances raise a question of fact, which the Commission has jurisdiction to determine.’’ 72 68 The Commission, in Order No. 743–A, explained that ‘‘the Seven Factor Test could be relevant and possibly is a logical starting point for determining which facilities are local distribution for reliability purposes, while also allowing NERC flexibility in applying the test or developing an alternative approach as it deems necessary.’’ Order No. 743–A, 134 FERC ¶ 61,210 at P 69. NERC, in its petition, did not adopt a specific test or criteria for determining whether a facility is local distribution, but indicated that an entity seeking an exception for local distribution facilities could provide a ‘‘seven factor’’ analysis as one means to support the petition. NERC BES Petition at 49. 69 See NOPR, 139 FERC 61,247 at P 59. 70 Order No. 743, 133 FERC ¶ 61,150 at P 38. 71 Standardization of Generator Interconnection Agreements and Procedures, Order No. 2003, FERC Stats. & Regs. ¶ 31,146, at P 803 (2003), order on reh’g, Order No. 2003–A, FERC Stats. & Regs. ¶ 31,160, order on reh’g, Order No. 2003–B, FERC Stats. & Regs. ¶ 31,171 (2004), order on reh’g, Order No. 2003–C, FERC Stats. & Regs. ¶ 31,190 (2005), aff’d sub nom. Nat’l Ass’n of Regulatory Util. Comm’rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007), cert. denied, 552 U.S. 1230 (2008) (‘‘‘Local distribution’ is a legal term; under FPA Section 201(b)(1), the Commission lacks jurisdiction over local distribution facilities.’’). 72 Order No. 743–A, 134 FERC ¶ 61,210 at P 67 and n.78, (citing California Pacific Electric Co., LLC, 133 FERC ¶ 61,018 at n.59 (2010) (citing FPC v. Southern California Edison Co., 376 U.S. 205, 210 VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 70. As noted above, application of the ‘‘core’’ definition and the four exclusions should serve to exclude most facilities used in local distribution from the bulk electric system. However, there may be certain circumstances that present a factual question as to whether a facility that remains in the bulk electric system after applying the ‘‘core’’ definition and the four exclusions should nonetheless be excluded because it is used in local distribution. In such circumstances, which we expect will be infrequent, an entity must petition the Commission seeking a determination that the facility is used in local distribution.73 Such petitions should include information that will assist the Commission in making such determination, and notice of the petition must be provided to NERC and relevant Regional Entities. 71. In addressing such petitions, the Commission will apply the Seven Factor Test set forth in Order No. 888. In Order No. 888, the Commission articulated the Seven Factor Test to determine, on a case-by-case basis, whether a facility is a local distribution facility or a transmission facility.74 However, the Commission has found that the factors identified in the Seven Factor Test are not exclusive when determining whether an element is used for local distribution. Specifically, the Commission recognized that the Seven Factor Test does not resolve all possible issues and that ‘‘there may be other factors that should be taken into account in particular situations.’’ 75 The Commission will apply a similar analysis in determining in the context of FPA section 215 whether a facility is used in local distribution. In other words, while the starting point for the Commission’s analysis will be an analysis based on the Seven Factor Test, the Commission will consider other factors that should be taken into account in particular situations. 72. To reiterate, we expect that the 100 kV threshold as a ‘‘first step or proxy’’ for determining which facilities should be included in the bulk electric n.6 (1964) (asserting that ‘‘the Supreme Court has determined that whether facilities are used in local distribution involves a question of fact to be decided by the [Commission] as an original matter.’’))). See also Connecticut Light & Power Co. v. Federal Power Commission, 324 U.S. 515, 534– 35 (1945). 73 Such petitions will be assigned an ‘‘RC’’ docket prefix. The determinations would be public proceedings subject to notice and comment requirements which will allow NERC and interested parties (including state regulators) to provide input on a petition. 74 Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,771, 31,783–84, Appendix G. 75 Order No. 888–A, FERC Stats. & Regs. ¶ 31,048 at 30,242. PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 system, plus the four exclusions (in particular the local network exclusion E3), will exclude many facilities that are used in local distribution and thus should be excluded from the bulk electric system. This approach recognizes that, although local distribution facilities are excluded from the definition, it still may be necessary to determine which facilities are local distribution, and which are transmission. Whether facilities are used in local distribution will in certain instances raise a question of fact, which the Commission has jurisdiction to determine. We decline to clarify, as Portland requests, that for entities who apply the local distribution exception in good faith, any future regulatory determination that such distribution facilities are to be treated as part of the bulk electric system within the scope of FPA section 215 regulation will be prospective only. As explained above, in circumstances where a factual question remains after applying the ‘‘core’’ definition and the exclusions, entities must apply to the Commission for a determination of whether an element is used in local distribution. We believe this approach provides a means to maintain consistency and transparency across the various reliability regions but still have the necessary flexibility to make case-bycase determinations appropriate for reliability. 73. To the extent the various reply comments by ITC Companies, MISO and Consumers raise questions about the status of specific facilities, we decline to address them in this Final Rule as this rulemaking proceeding is not the proper forum to decide such matters. D. Inclusions and Exclusions in the Definition of Bulk Electric System NOPR Proposal 74. In the NOPR, the Commission proposed to approve, in addition to the core definition, specific inclusions and exclusions because the inclusions and exclusions provide added clarity regarding which elements are part of the bulk electric system as compared to the existing definition. In the NOPR, the Commission also posed questions about how some of the inclusions and exclusions will be applied to better understand potential applications of the inclusions and exclusions, their effect on identifying the facilities or elements for bulk electric system reliability, and whether possible gaps exist. We address these questions below. E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations 1. Inclusion I1 (Transformers) NOPR Proposal 75. Inclusion I1 includes as part of the bulk electric system ‘‘[t]ransformers with the primary terminal and at least one secondary terminal operated at 100 kV or higher unless excluded under [the radial system or local network exclusion].’’ In its petition, NERC explained that, due to transformers having multiple windings operating at differing voltages, the intent of inclusion I1 includes transformers operating at 100 kV or higher on the primary winding and at least one secondary winding.76 76. In the NOPR, the Commission stated that NERC’s approach to inclusion I1 ‘‘is a reasonable approach to identifying transformers that are appropriately included as part of the bulk electric system.’’ 77 However, the Commission expressed concern whether a particular transformer—operated at 100 kV or higher on the primary winding but all secondary terminals are operated below 100 kV—should be part of the bulk electric system or whether the exception process would be sufficient to include these transformers.78 The Commission also requested comment on whether transformers that have a terminal operated at 100 kV or above on the high side and below 100 kV on the low side should be designated as part of the bulk electric system. Comments 77. NERC supports allowing the exception process to include the transformers described by the Commission. NERC states that the ‘‘vast majority’’ of transformers with low side voltages step down to a voltage class that is designed for distribution to load. NERC adds that the 100 kV threshold for secondary windings provides a ‘‘clear demarcation’’ between facilities used to transfer power as opposed to those that serve load. According to NERC, while there are instances where transformers with secondary windings below 100 kV are connected in parallel with high voltage transmission lines, it is not possible to craft a bright-line inclusion of such transformers because the distinction may hinge on function as opposed to the physical characteristics 76 NERC BES Petition at 17. 139 FERC ¶ 61,247 at P 63. 78 In the NOPR the Commission noted that the joint NERC and Commission staff report on the September 8, 2011, Arizona-Southern California blackout explains how transformers of this type were not monitored or analyzed by the reliability coordinator, transmission operators and balancing authorities. NOPR, 139 FERC ¶ 61,247 at P 63. mstockstill on DSK4VPTVN1PROD with 77 NOPR, VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 815 of the transformer. NERC states that the exception process can evaluate whether such transformers should be included in the bulk electric system. A majority of commenters share NERC’s position and believe that most transformers with the configuration described by the Commission in the NOPR do not impact the bulk electric system and those that do can be classified as part of the bulk electric system through the exception process.79 78. SoCal Edison agrees with NERC, but identifies transformers operated in parallel with the bulk electric system as those that should be designated as part of the bulk electric system irrespective of the operational voltage of the transformer. SoCal Edison argues that information regarding such transformers should be provided to the impacted entities, e.g., reliability coordinators and neighboring regional entities. SoCal Edison contends that including these types of transformers in the bulk electric system would have made the Regional Entities, reliability coordinators, transmission operators and balancing authorities aware of the contingencies of the transformers and their impact on the bulk electric system in the September 2011 blackout. 79. SmartSenseCom states that transformers that operate at 100 kV or above with any secondary windings below 100 kV should be included. On the other hand, Consumers does not support inclusion I1 because it goes beyond the Commission’s jurisdiction and would confuse the distinction between the bulk electric system and local distribution. Consumers argues that inclusion I1 may create a ‘‘moving registration target’’ if related facilities are added to the bulk electric system.80 considered for inclusion through the exception process. We are persuaded that transformers with low side voltages stepped down to a voltage class that is designed to distribute power to load and, therefore, the 100 kV threshold for secondary windings provides an initial screening between facilities used to transfer power as opposed to those that serve load. We agree with NERC’s assessment that crafting an inclusion for transformers described by the Commission is difficult because the distinction may hinge on function as opposed to the physical characteristics of the transformer. Therefore, we decline to include such transformers in inclusion I1. 81. With regard to the specific configurations identified by SoCal Edison (transformers that operate in parallel with the bulk electric system irrespective of the operational voltage of the transformer), we will not make a determination of general application. Rather, such matters should be addressed in the case-by-case exception process. 82. We do not agree with Consumers that inclusion I1 would be ineffective because it would include lower voltage distribution facilities that were not designed to provide reliability to the bulk electric system or prevent cascading outages. The 100 kV threshold for secondary windings provides a bright line between facilities used to transfer power as opposed to those that serve load, and if a transformer is included pursuant to inclusion I1, but an entity believes it is not necessary for operation of the interconnected transmission network, it may be considered for exclusion through the exception process. Commission Determination 80. We find that inclusion I1 is a reasonable approach to identifying transformers that are appropriately included as part of the bulk electric system. We agree with NERC that inclusion I1 includes transformers operating at 100 kV or higher on the primary winding and at 100 kV or higher on at least one secondary winding. With regard to the Commission’s concern in the NOPR about inclusion of a transformer that is operated at 100 kV or higher on the primary winding but all secondary terminals are operated below 100 kV, we agree with NERC that it is appropriate for such transformers to be 2. Inclusion I2 (Generating Resources) 79 E.g. APPA, EEI, ELCON, WREA, Anaheim, Riverside, Imperial Irrigation District, G&T Cooperatives, NV Energy, NESCOE, and TAPS. 80 Consumers Comments at 9–10. PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 NOPR Proposal 83. Inclusion I2 of the bulk electric system definition provides for specific inclusion of generating resources with gross individual nameplate rating greater than 20 MVA or gross plant/ facility aggregate nameplate rating greater than 75 MVA. NERC developed this inclusion based on the text of the Registry Criteria for generating units while providing clarity by including ‘‘the generator terminals through the high-side of the step-up transformer connected at a voltage of 100 kV or above.’’ 81 84. In the NOPR, the Commission agreed that inclusion I2 is consistent with the individual and aggregate nameplate rating thresholds set forth in 81 NERC E:\FR\FM\04JAR2.SGM BES Petition at 17. 04JAR2 816 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations the Registry Criteria but noted the differing descriptions of the connection point of the generating resources.82 Inclusion I2 specifies ‘‘generator terminals through the high-side of the step-up transformer(s) connected at a voltage of 100 kV or above,’’ and the Registry Criteria specifies a ‘‘direct connection’’ to the Bulk-Power System. Accordingly, the Commission requested comment whether inclusion I2 will result in a material change to registration of existing generating units due to the difference in the language regarding the connection point. The Commission also requested comment if a generating unit, with a gross individual nameplate rating greater than 20 MVA connected through the highside of the step-up transformer connected at a voltage of 100 kV or above when the low side of the transformer is less than 100 kV, is included in the bulk electric system pursuant to inclusion I2. Further, the Commission asked how this result differs for a generation resource with two or more step-up transformers where the last transformer in the series operates at 100 kV or above. mstockstill on DSK4VPTVN1PROD with Comments 85. Most commenters do not believe that inclusion I2 will materially change registration of generating resources. NERC states that inclusion I2 connection point language merely clarifies the ‘‘directly connected’’ language in the Registry Criteria. NERC explains that while most generation is connected through a unit transformer on the high voltage bus within a facility, there are instances where generators are connected to lower voltages within a facility. NERC adds that most of these types of configurations are in older facilities where the higher voltage bus was added after the original generators. NERC confirms that the specific scenario described by the Commission would result in the generator being included in the bulk electric system provided that the transformers reside within a single site boundary and are used only to step-up the output voltage of the generator.83 APPA and others agree with NERC’s view. APPA adds that, if the transformers in question are also used to deliver power to serve local load, the generation resources and transformers should be excluded from the bulk electric system.84 PSEG Companies believe that inclusion I2 82 NOPR, 83 NERC 139 FERC ¶ 61,247 at P 65. Comments at 9–10. See also comments of EEI. 84 APPA Comments at 14–15. See also comments of National Grid, TAPS, NESCOE, and G&T Cooperatives. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 addresses the issue regarding two stepup transformers in series. PSEG Companies explain that both step-up transformers are part of the generator per inclusion I2 if the purpose of the transformers is to solely step-up the output voltage. 86. Arizona Public Service requests that the Commission clarify whether the voltage connection language in inclusion I2 applies only to the aggregated 75 MVA threshold or also to the 20 MVA threshold for individual generating units. Southern Companies believe that there are instances where generators may be connected to lower voltages that may fit under inclusion I2 but would not necessarily fit in the Registry Criteria. 87. Some commenters do not support inclusion I2 for varying reasons. Dominion opposes inclusion of elements such as those provided for in inclusion I2 that are already subject to reliability standards because the element meets the criteria in the NERC Compliance Registry. ISO New England states that the connection language in inclusion I2 should be eliminated. ISO New England maintains that interpreting inclusion I2 to be based on generator plant size, independent of the voltage connection, is important from a generator stability modeling view point. This is because generators connected at voltages less than 100 kV can have a significant impact on system stability.85 ISO New England supports adding generators connected at lower voltages but not the system to which the generators are connected. ISO New England believes that adding generators, regardless of their connection voltage levels, would increase the universe of registered generators and would enhance reliability. 88. MISO recommends that the Commission clarify that operators of generating resources included through inclusion I2 will only be subject to Reliability Standards for generators unless a specific determination is made that other standards should apply to a particular piece of equipment. MISO believes that, without this clarification, inclusion I2 could increase the number of transmission operators by including generation equipment. 89. Barrick believes that the term ‘‘gross plant/facility’’ in inclusion I2 needs to be clarified. Barrick states that it is not clear whether the terms are based on geographic proximity or structural definition. Barrick is also concerned that inclusion I2 is based on ‘‘gross’’ rating while exclusion E2 is based on net capacity and exclusion E3(a) is based on a non-retail basis, and that read together inclusion I2 and exclusions E2 and E3(a) appear to be in conflict.86 In reply comments, Barrick suggests that, instead of focusing on nameplate ratings, the focus should be on the normal configuration and operation of generation. 90. SmartSenseCom states that the Commission should direct NERC to modify inclusion I2 to include generating units that are stepped up to 100 kV or above containing a transformer with a low side below 100 kV because, at these levels, generating resources should be presumed to impact reliability. SmartSenseCom contends that Reliability Standards should apply to such facilities ‘‘in light of their potential impact to system reliability, especially given the increasing levels of distributed generation penetration that is expected in the near future.’’ 87 Springfield questions whether multiple individual units are considered one unit if they have a shared bus. Springfield believes that such instances should not be considered individually. Commission Determination 91. The Commission approves inclusion I2. Based on the language of inclusion I2, its derivation from the Registry Criteria and the statements from NERC and commenters, the Commission concludes that application of inclusion I2 will not materially change registration of generating resources. The Commission accepts NERC’s explanation that the inclusion I2 connection point language merely clarifies the ‘‘directly connected’’ language in the NERC Registry Criteria, section III.c.1. Further, the Commission agrees with NERC and other commenters that multiple step-up transformers that are solely used to deliver the generation to the bulk electric system at 100 kV or above qualify the generator and the step-up transformers pursuant to inclusion I2. 92. APPA and commenters claim that, if a transformer is also used to deliver power to serve local load, through, for example a 69 kV network, the generation resources and transformers should be excluded from the bulk electric system. The Commission agrees with the specific example. In such cases, local load refers to end-user load and not generator-specific station service load. This example depicts a generator whose step-up transformer delivers the generation to a voltage level of 69 kV and thus does not meet the criteria in inclusion I2. A second 86 Barrick 85 ISO PO 00000 New England Comments at 4. Frm 00014 Fmt 4701 Sfmt 4700 Comments at 10. Comments at 12. 87 SmartSenseCom E:\FR\FM\04JAR2.SGM 04JAR2 mstockstill on DSK4VPTVN1PROD with Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations transformer in this example that connects the 69 kV network to the bulk electric system is not solely delivering the generation to the bulk electric system but also delivers power from the bulk electric system to the 69 kV network. 93. Regarding Arizona Public Service’s request for clarification, the Commission finds that the voltage connection language in inclusion I2 applies to both the aggregated 75 MVA threshold for a plant/facility and the 20 MVA threshold for individual units. 94. The Commission disagrees with Dominion’s contention that inclusion I2 is not needed because the elements identified in inclusion I2 already meet the Registry Criteria. The NERC registration process uses element criteria to identify and register functional entities, not the actual equipment. In contrast, the focus of the bright-line definition is the facilities, not the owners or operators of the facilities. Similarly, with regard to Southern Companies’ belief that there are instances where generators may be connected to lower voltages that may fit under inclusion I2 but would not necessarily fit in the Registry Criteria, the Commission agrees that the Registry Criteria allows the Regional Entities and NERC to consider other factors regarding entity registration which may result in cases where the bulk electric system status and registry status differs for certain equipment owners and operators. 95. Regarding ISO New England’s assertion that generators that connect to the bulk electric system via transmission facilities with voltages below 100 kV are needed for reliability, the Commission believes these generators can be added to the bulk electric system through the exception process, and if registration is warranted for the owners and operators of these generators, the Registry Criteria provides NERC and the Regional Entities the option of registering ‘‘[a]ny generator, regardless of size, that is material to the reliability of the Bulk Power System.’’ 88 Aggregate stability impacts of generation below 100 kV could fall into this category of ‘‘material to the reliability of the Bulk Power System.’’ 96. With respect to the suggestions and requests for clarification submitted by MISO, Barrick, SmartSenseCom and Springfield, commenters may raise these suggestions in NERC’s Phase 2 development effort. 88 NERC Statement of Compliance Registry Criteria, section III.c.4. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 3. Inclusion I3 (Blackstart Resources) NOPR Proposal 97. NERC included as part of the bulk electric system definition ‘‘Blackstart Resources identified in a Transmission Operator’s restoration plan.’’ In the NOPR, the Commission agreed with NERC that inclusion of blackstart resources in the definition is vital to reliability and is an improvement to the definition. The Commission requested clarification whether the term ‘‘restoration plan’’ refers to the system restoration plans required in the Emergency Preparedness and Operations (EOP) Reliability Standards or included in a Commission approved tariff.89 The Commission also expressed concern whether a reliability gap exists with regard to cranking paths. The Commission explained that cranking paths are an important element of system restoration, and questioned ‘‘whether reliability can be adequately maintained when blackstart generators are defined as part of the bulk electric system but not the transmission paths that are used to deliver the energy from blackstart generators to the integrated transmission system.’’ 90 Accordingly, the Commission requested comment on whether a reliability gap exists and also requested comment on the appropriate role, if any, of state regulators in ensuring that energy from blackstart generation is reliably delivered through cranking paths to restart the system after an event. Comments 98. NERC confirms that the ‘‘restoration plan’’ in inclusion I3 refers to the restoration plans in the EOP Reliability Standards. Other commenters support NERC’s explanation.91 With regard to cranking paths, NERC explains that cranking paths above 100 kV are included in the bulk electric system by the core definition. NERC states that some cranking paths identified in a restoration plan ‘‘are composed of distribution system elements.’’ 92 NERC adds that certain Reliability Standards, such as Reliability Standards CIP–002– 4 and EOP–005–2, address reliability of cranking paths without regard to voltage which demonstrates there are other ways to ensure reliable operation of the 89 NOPR, 139 FERC ¶ 61,247 at P 67. Reliability Standard EOP–005–1, System Restoration Plans, requires a transmission operator to create ‘‘a restoration plan to reestablish its electric system in a stable and orderly manner in the event of a partial or total shutdown of its system.’’ 90 NOPR, 139 FERC ¶ 61,247 at P 68. 91 E.g. EEI, APPA, Southern Companies, SoCal Edison, PSEG Companies, and NV Energy. 92 NERC Comments at 11. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 817 bulk electric system without including non-bulk electric system cranking paths within the definition. In contrast, PSEG Companies request that, if the Commission supports NERC’s exclusion of cranking paths below 100 kV, the Commission confirm that below 100 kV cranking paths would be excluded from being enforced in Reliability Standards that address cranking paths unless they are added to the bulk electric system by the exception process.93 99. Other commenters agree that no reliability gap exists and that the Commission correctly noted that including cranking paths may improperly bring distribution level elements into the bulk electric system. Southern Companies and others contend that if a cranking path that does not fall within the definition of bulk electric system but is needed for reliability, the exception process would be the place to make that determination.94 NESCOE states that cranking paths are generally part of the distribution system and state regulators have the responsibility to ensure the reliability of these lower voltage facilities and are acutely aware of the importance of effective blackstart capability. NESCOE adds that these facilities are needed for restoration not for continuous operation.95 ODEC is concerned that including cranking paths will create an incentive for generators not making their units available for blackstart services. Alameda suggests that ‘‘any potential gap can be closed by requiring [t]ransmission [o]perators (‘‘TOPs’’) that identify blackstart generation and a related cranking path or paths in their system restoration plans to analyze and enter into an operating agreement with the owner of identified cranking path facilities not owned by the [transmission operator].’’ 96 100. While other commenters agree that the term ‘‘restoration plan’’ refers to the EOP Reliability Standards, they assert that cranking paths should be included in the bulk electric system. Idaho Power, ITC Companies and BPA assert that cranking paths are crucial to system restoration and implicate reliability even if they are local distribution or below 100 kV facilities.97 ITC Companies state that not including cranking paths will cause regional differences and inconsistent application resulting in some owners electing to 93 PSEG Comments at 10. Companies Comments at 7. See also TAPS Comments at 5. 95 NESCOE Comments at 10. 96 Alameda Comments at 6. 97 Idaho Power Comments at 4, ITC Companies at 3–4. See also BPA Comments at 3–4. 94 Southern E:\FR\FM\04JAR2.SGM 04JAR2 818 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with exclude such assets. Without cranking paths included in the definition, ITC Companies state that they will be ‘‘required to ensure its blackstart plan does not include blackstart generators connected to transmission facilities at voltages below 100 kV since [they] could not be assured that the proper standards are being followed for these blackstart cranking paths.’’ 98 101. MISO recommends that the Commission clarify that the term ‘‘restoration plan’’ refers to the EOP Reliability Standards but not include all blackstart resources in a Commissionapproved tariff. MISO is concerned that including blackstart resources from sources other than the EOP Reliability Standards is not necessary for reliability and could encourage generators to remove blackstart resources in order to avoid being subject to ‘‘unduly complex requirements.’’ 99 Commission Determination 102. We find that NERC’s inclusion of blackstart resources in the definition is an improvement to the definition. We also agree with NERC’s statement that the ‘‘restoration plan’’ in inclusion I3 refers to the restoration plans in the EOP Reliability Standards. With regard to cranking paths, the Commission declines to include all cranking paths regardless of voltage level. The Commission finds that cranking paths operating at or above 100 kV are included in the bulk electric system by the core definition, and if a cranking path that does not fall within the definition of bulk electric system, (i.e. operating at or above 100 kV) but is needed for reliability, such elements can be included in the bulk electric system through the exception process. We also disagree that not including cranking paths will cause regional differences and inconsistent application resulting in some owners electing to exclude such assets. The revised definition includes all Transmission Elements at or above 100 kV. Thus, to the extent a cranking path is operating at or above 100 kV and a ‘‘Transmission Element,’’ it would be included in the bulk electric system. If a cranking path is below 100 kV and is necessary for operation of the interconnected transmission network or operates at or above 100 kV and is not necessary for the operation of the interconnected transmission network, the status of the cranking path may be determined in the exception process. These steps will ensure consistent treatment across the regions. In response to ITC Companies’ concern that, without 98 ITC Comments at 5. Comments at 6. 99 MISO VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 cranking paths included in the definition it will be required to ensure its blackstart plan does not include blackstart generators connected to transmission facilities at voltages below 100 kV, we note that such elements can be considered for inclusion through the exception process. Similarly, with regard to NESCOE’s statement that lower voltage cranking paths are generally part of the distribution system, we note that facilities operating below 100 kV would be excluded as part of applying of the core definition. In addition, as we discuss above, in certain instances the Commission will make determinations as to which facilities are used in local distribution and thus should be excluded from the bulk electric system.100 103. With regard to PSEG Companies’ request that the Commission confirm that Reliability Standards do not apply to below 100 kV cranking paths unless they are added to the bulk electric system by the exception process, we find that PSEG Companies’ request is outside the scope of this proceeding but note that Reliability Standard EOP–005– 2 addresses cranking paths with no voltage limits.101 4. Inclusion I4 (Dispersed Power Producing Resources) NOPR Proposal 104. NERC asserts inclusion I4, dispersed power producing resources with aggregate capacity greater than 75 MVA (gross aggregate nameplate rating), is needed ‘‘to accommodate the effects of variable generation’’ on the bulk electric system.102 NERC further stated that even though inclusion I4 could be considered subsumed in inclusion I2 (generating resources), NERC believes it is appropriate ‘‘to expressly cover dispersed power producing resources utilizing a system designed primarily for aggregating capacity.’’ 103 105. In the NOPR the Commission stated that inclusion I4 provides ‘‘useful granularity’’ in the bulk electric system definition, but requested comment whether inclusion I4 includes ‘‘the individual elements (from each energy100 See supra PP 66–73. Standard EOP–005–2, Requirement R6 states ‘‘[e]ach [t]ransmission [o]perator shall verify through analysis of actual events, steady state and dynamic simulations, or testing that its restoration plan accomplishes its intended function. This shall be completed every five years at a minimum.’’ Requirement R6.1 states that the transmission operator shall verify ‘‘[t]he capability of [b]lackstart [r]esources to meet the [r]eal and [r]eactive [p]ower requirements of the [c]ranking [p]aths and the dynamic capability to supply initial [l]oads.’’ 102 NERC BES Petition at 18. 103 Id. 101 Reliability PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 producing resource at the site through the collector system to the common point at a voltage of 100 kV or above) used to aggregate the capacity and any step-up transformers used to connect the system to a common point at a voltage of 100 kV or above.’’ 104 Comments 106. NERC states that the inclusion is meant to address the dispersed power producing resources themselves, not the individual elements of the collector systems operated below 100 kV. With regard to energy delivery elements in collector systems and interconnection facilities, NERC states these items were specifically not included in inclusion I4. According to NERC, this decision was intended to avoid categorically including as part of the bulk electric system assets that may include local distribution facilities. EEI believes that inclusion I4 applies to generating resources meeting the threshold in the aggregate, not the individual generating units. EEI agrees with NERC that the inclusion does not include individual elements of the collector systems operated below 100 kV. LPPC believes that generating units aggregating to 75 MVA are often very small and nondispatchable, and the reliability implications of these units will be negligible but the compliance burden would be quite high. 107. Several commenters urge the Commission to not interpret inclusion I4 as including wind turbines and electrical collector systems within a wind plant and only include the electrical equipment at the point of interconnection with the bulk electric system.105 AWEA believes that including all this equipment will potentially burden the owners with NERC compliance processes that were intended for large scale generators. AWEA argues that the ‘‘main transformer’s high-side terminal and the generator lead/tie line’’ should also be excluded unless another generator connects to the initial generator’s facilities.106 AWEA asserts that no one has demonstrated that there is any material reliability benefit from including resources envisioned by inclusion I4. AWEA and others state that if the Commission believes such resources should be included, such inclusion should be done on a case-bycase basis rather than generically.107 104 NOPR, 139 FERC ¶ 61,247 at P 71. e.g., AWEA, Southern Companies, Consumer Energy, BPA. Hydro One, G&T Cooperatives, and ISO New England. 106 AWEA Comments at 2. 107 E.g., Idaho Power. 105 See, E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations 108. Along the same lines, NESCOE believes that, absent a reliability risk a generic inclusion could adversely impact state policies to encourage renewable generation development by imposing additional costs. NESCOE states that setting the line for inclusion at 75 MVA is not supported by technical analysis since intermittent sources of power deliver only a fraction of their nameplate rating. NESCOE believes 300 MVA is a better threshold. 109. ISO New England contends that the term ‘‘common point’’ is unclear and notes that the inclusion could be interpreted to mean that if the individual generating units are ‘‘all collected at 34.5 kV, the ‘common point’ is at 34.5 kV and the entire group of resources should be found to be [not part of the bulk electric system].’’ 108 ISO New England believes this is not an appropriate interpretation because it would defeat the intent of the inclusion which is to classify large aggregated generating stations as part of the bulk electric system. Similarly, Springfield questions the meaning of ‘‘collector system’’ and proposes language to define it.109 110. SmartSenseCom states that facilities over a certain significant nameplate rating that are stepped up to over 100 kV should be subject to Reliability Standards in light of their potential impact to system reliability. SmartSenseCom suggests that the Commission direct NERC to modify inclusions I2 and I4 in order to ensure that generating units that are stepped up to 100 kV or above by the use of a transformer with a low side of less than 100 kV (or multiple contiguous transformers of less than 100 kV on the low side) are also included within this definition.110 111. MISO recommends that the Commission withdraw its proposal to approve inclusion I4. MISO believes inclusion I4 is unnecessary given the criteria in inclusion I2. MISO states that elements meeting the criteria in inclusion I2 would be considered part of the bulk electric system, irrespective of whether it is considered a dispersed power producing resource. MISO adds that a specific inclusion for dispersed power producing resources could subject the collector systems to unnecessary monitoring by the reliability coordinator or other mstockstill on DSK4VPTVN1PROD with 108 ISO New England Comments at 7. proposes to add the following sentence at the end of inclusion I4: ‘‘For purposes of this inclusion, a Collector System is any infrastructure not connected to load—where parasitic load associated with a generation unit or units is not considered load.’’ 110 SmartSenseCom Comments at 12. 109 Springfield VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 registered entities as collector systems at dispersed power producing facilities generally do not affect the reliability of the bulk electric system. Commission Determination 112. The Commission finds that inclusion I4 provides useful granularity in the bulk electric system definition. The clarifying language in inclusion I4 regarding the collector system language is consistent with language in the Registry Criteria, section III.c.2. The Commission agrees that it is appropriate ‘‘to expressly cover dispersed power producing resources utilizing a system designed primarily for aggregating capacity.’’ 111 113. As the Commission previously stated in the inclusion I2 discussion, multiple step-up transformers that are solely used to deliver the generation to the bulk electric system at 100 kV or above qualify the generator or plant/ facility and the step-up transformers for inclusion in the bulk electric system. 114. Similarly, the collector system in inclusion I4, described by NERC and others as being designed for aggregating capacity and solely used to deliver the aggregated capacity to the bulk electric system at 100 kV and above, falls into the category of multiple step-up transformers through the high side of the main transformer that connects to 100 kV or above. NERC reasons that proposed inclusion I4 was intended to avoid categorically including assets that may include local distribution facilities. While we believe most collector systems operate below 100 kV, the Commission disagrees that collector systems described in inclusion I4 that solely deliver aggregated generation to the bulk electric system contain local distribution facilities because power is delivered from the collector system to the bulk electric system. However, the Commission will not direct NERC to categorically include collector systems pursuant to inclusion I4. 115. We disagree with AWEA and other commenters that contend that inclusion I4 should be interpreted to not include the dispersed power producing resources within a wind plant in the bulk electric system. We agree with NERC’s statement that the purpose of this inclusion is to include such variable generation (e.g., wind and solar resources). NERC noted that, while such generation could be considered subsumed in inclusion I2 (because the gross aggregate nameplate rating of the power producing resources must be greater than 75 MVA), NERC considered it appropriate for clarity to add this 111 NERC PO 00000 BES Petition at 18. Frm 00017 Fmt 4701 Sfmt 4700 819 separately-stated inclusion to expressly cover dispersed power producing resources using a system designed primarily for aggregating capacity. In addition, although dispersed power producing resources (wind, solar, etc.) are typically variable suppliers of electrical generation to the interconnected transmission network, there are geographical areas that depend on these types of generation resources for the reliable operation of the interconnected transmission network. The Commission believes that owners and operators of these resources that meet the 75 MVA gross aggregate nameplate rating threshold are, in some cases, already registered and have compliance responsibilities as generator owners and generator operators. Regarding AWEA’s request that a transformer’s high-side terminal and the generator lead line should also be excluded, such determinations may be made on a case-by-case basis in the exception process. With regard to commenters who believe that dispersed power producing resources should be included on a case-by-case basis rather than generically, this would be inconsistent with the bright-line concept that NERC developed to have consistent application of the definition across the country. If such generating resources are included through inclusion I4, they are eligible for exclusion through use of the exception process. With respect to the concern raised by ISO New England regarding the term ‘‘common point,’’ ISO New England may raise this concern in NERC’s Phase 2 development effort. 5. Inclusion I5 (Static or Dynamic Reactive Power Devices) NOPR Proposal 116. Inclusion I5 identifies as part of the bulk electric system ‘‘[s]tatic or dynamic devices (excluding generators) dedicated to supplying or absorbing Reactive Power that are connected at 100 kV or higher, or through a dedicated transformer with a high-side voltage of 100 kV or higher, or through a transformer that is designated in Inclusion I1.’’ In its petition, NERC explained that this inclusion is the technical equivalent of inclusion I2 (generating resources), for reactive power devices and points out that the existing definition is unclear as to how these devices are treated.112 NERC stated inclusion I5 provides clarity by ‘‘providing specific criteria for Reactive Power devices, thereby further limiting subjectivity and the potential for 112 NERC E:\FR\FM\04JAR2.SGM BES Petition at 18. 04JAR2 820 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with discretion’’ in the application of the revised definition.113 117. In the NOPR, the Commission agreed with NERC that inclusion I5 adds clarity to the application of the bulk electric system definition by providing specific criteria for reactive power devices. For cases where the reactive power device is connected through a transformer designated in inclusion I1, the Commission requested comment whether both the reactive power device and the transmission elements connecting the reactive power device to the transformer are included as part of the bulk electric system pursuant to inclusion I5.114 Comments 118. NERC and other commenters note that inclusion I5 is intended to include the reactive resource itself and the other portions of the definition are intended to designate whether the remaining electrical components are part of the bulk electric system.115 NERC, EEI, National Grid, Utility Services and G&T Cooperatives refer to inclusion I1 as the proper place to determine whether transformers connected to reactive devices are included as part of the bulk electric system. 119. BPA and WPPC support excluding both the reactive device and the transformer from the bulk electric system if the device supports local distribution. Conversely, if the facilities provide reactive and voltage support to the bulk electric system, the reactive device and associated equipment, such as the transformer, should be classified as a bulk electric system facility. 120. AEP considers the transmission elements connecting the reactive power device to the transformer to be included in the bulk electric system definition and should be deemed part of inclusion I5.116 Idaho Power contends that both the reactive device and the transformer should be included in the bulk electric system. Idaho Power states that if the transformer is included as part of inclusion I1, then it should be included.117 121. PSEG Companies view the issue as one of ‘‘bulk electric system contiguity’’ and therefore should be addressed during Phase 2. MISO recommends that the Commission require NERC to include a size threshold or an impact test. According to MISO, this will avoid creating 113 Id. 114 NOPR, 139 FERC ¶ 61,247 at P 73. EEI. 116 AEP Comments at 4. 117 Idaho Power Comments at 5. 115 E.g., VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 incentives to owners of small reactive devices to disconnect them to avoid being classified as transmission owners or operators. With regard to transformers, MISO states that both the reactive power device and the transmission elements are included, but because these facilities have a generally localized impact on reliability, MISO recommends that the Commission clarify that they are not transmission equipment that subjects their owners and operators to the requirements applicable to registered transmission operators under the NERC Reliability Standards. 122. G&T Cooperatives suggest two clarifications. First, inclusion I5 should not apply to reactive power devices that are connected to the bulk electric system by a radial line excluded by exclusion E1 or a local network excluded by exclusion E3. G&T Cooperatives view this exclusion as implicit in inclusion I5, which references devices ‘‘connected at 100 kV or higher, or through a dedicated transformer with a high-side voltage of 100 kV or higher, or through a transformer that is designated in [i]nclusion I1.’’ Second, G&T Cooperatives believe that inclusion I5 should be clarified to include a minimum size threshold similar to the size threshold for generating resources under Inclusion I2. According to G&T Cooperatives because inclusion I2 does not apply to all generating resources and inclusion I5 is the ‘‘technical equivalent’’ of inclusion I2, a size threshold comparable to that found in inclusion I2 is implicit for reactive power devices. Commission Determination 123. The Commission approves inclusion I5 and finds that the inclusion adds clarity to the application of the bulk electric system definition by providing specific criteria for reactive power devices. The Commission also accepts NERC’s response for cases where the reactive power device is connected through a transformer designated in inclusion I1—that the reactive resource itself is included in the bulk electric system pursuant to inclusion I5 and the transmission elements connecting the reactive power device to the transformer are addressed in other portions of the definition. The Commission notes that this interpretation is different from inclusion I2 because inclusion I2 specifies including the equipment (step-up transformers) that connects generators to the bulk electric system. Nonetheless inclusion I5 provides criteria for reactive power devices that are not PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 explicitly addressed in the existing definition. The Commission does not agree with G&T Cooperatives that exclusions E1 and E3 override inclusion I5 and exclude the reactive power devices. Exclusions E1 and E3 exclude transmission elements only and not resources. 124. The Commission agrees with PSEG Companies that issues, such as whether the connecting equipment for reactive devices should be included pursuant to inclusion I5, can be raised in Phase 2. Similarly, the issues raised by AEP, Idaho Power, MISO and G&T Cooperatives may be raised in NERC’s Phase 2 effort. Exclusions 125. The proposed definition identifies four facilities configurations that should not be included in the bulk electric system: (1) Radial systems; (2) behind-the-meter generating units; (3) local networks; and (4) retail customer reactive power devices. 126. We agree that the proposed exclusions provide clarity and granularity. For example, the exclusion of generating units on the customer’s side of the retail meter that serves all or part of the retail load (exclusion E2) and the exclusion for reactive power devices owned and operated by a retail customer for its own use (exclusion E4) provide reasonable limitations on bulk electric system elements. While we approve in the Final Rule the language of exclusions E1, E2 and E4, we have concerns with regard to the application of exclusions E1 and E3 in specific situations and, thus, direct NERC to implement or apply these exclusions consistent with the determinations set forth below. In addition, we direct NERC to remove the 100 kV minimum operating threshold language from exclusion E3. 6. Exclusion E1 (Radial Systems) 127. Exclusion E1 provides as follows: Radial systems: A group of contiguous transmission Elements that emanates from a single point of connection of 100 kV or higher and: (a) Only serves Load. Or, (b) Only includes generation resources, not identified in Inclusion I3, with an aggregate capacity less than or equal to 75 MVA (gross nameplate rating). Or, (c) Where the radial system serves Load and includes generation resources, not identified in Inclusion I3, with an aggregate capacity of non-retail generation less than or equal to 75 MVA (gross nameplate rating). Note—A normally open switching device between radial systems, as depicted on prints or one-line diagrams for example, does not affect this exclusion. E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations In its petition, NERC explained that radial facilities are excluded under the currently effective bulk electric system definition, and the detailed criteria in the revised definition provide enhanced clarity.118 Commission Determination 128. The Commission approves exclusion E1. We agree with NERC that the currently-effective definition of bulk electric system excludes radial facilities, and the modifications provide additional granularity regarding the radial exclusion. In the NOPR, the Commission requested comment regarding specific applications of the E1 radial system exclusion. Below, we discuss these applications and comments received, and provide further explanation or direction as we deem appropriate. a. Exclusion E1 Does Not Apply to Whether Generation Is Included or Excluded NOPR Proposal 129. In the NOPR, the Commission requested comment on whether exclusion E1 removes from the bulk electric system ‘‘generation connected to a radial system that otherwise satisfies inclusion I2.’’ 119 The Commission sought to ensure that the conditions in exclusion E1 would not ‘‘lead to conflicting results when applying inclusion I2 and exclusion E1.120 The Commission noted that exclusion E1 applies to ‘‘a group of contiguous transmission Elements that emanates from a single point of connection of 100 kV or higher * * *.’’ 121 The Commission observed that the term ‘‘Elements’’ includes the term generator, and that the use of the term ‘‘transmission’’ before ‘‘Elements’’ indicates that exclusion E1 applies only to transmission elements.122 Thus, the 118 NERC BES Petition at 18. 139 FERC ¶ 61,247 at P 76. 119 NOPR, Commission stated that ‘‘transmission Elements’’ do not include generating resources that are bulk electric system resources pursuant to the generating resources included in inclusion I2 connected to a radial line operated at 100 kV above.123 Comments 130. NERC confirms that exclusion E1 does not apply to nor is it determinative of whether any generation is included or excluded from the bulk electric system. NERC states that, whether or not generation is included in the bulk electric system is determined by inclusions I2 through I4 and exclusion E2. Other commenters, including EEI, SoCal Edison, TAPS, Hydro One, and Alameda, also state that exclusion E1 does not apply to generating resources. Southern Companies suggest that the use of the term ‘‘includes’’ in subparts (b) and (c) could lead to some ambiguity because the implication is that a radial system includes generating resources. Southern Companies suggests that, the word ‘‘serves’’ should replace the word ‘‘include’’ to better reflect the intent of the provision. 131. PSEG Companies state there is confusion created by the fact that generators included in one provision of the definition (inclusion I2) are excluded under others (exclusions E1 through E3). According to PSEG Companies, a generator cannot be included under one provision of the bulk electric system definition and excluded under another provision and that this issue requires clarification and, once clarified, the bulk electric system definition needs to be modified accordingly.124 132. SmartSenseCom states that in the event of a conflict between an inclusion and exclusion, ‘‘there should exist a presumption that the [e]lement be considered included, absent an [e]xception’’ and asks that the Commission direct NERC to include a 120 Id. 121 NOPR, 139 FERC ¶ 61,247 at P 77. is defined in the NERC Glossary as ‘‘[a]ny electrical device with terminals that may be connected to other electrical devices such as a generator, transformer, circuit breaker, bus section, or transmission line. An element may be comprised of one or more components.’’ (emphasis added). mstockstill on DSK4VPTVN1PROD with 122 ‘‘Element’’ VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 123 See NOPR, 139 FERC ¶ 61,247 at P 77 and n.100 (citing NERC BES Petition, Exh. D, Consideration of Comments Report, at 223 (‘‘Exclusion E1 is an exclusion for the contiguous transmission Elements connected at or above 100 kV.’’)). 124 PSEG Comments at 11–13. PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 821 provision that states this presumption.125 Commission Determination 133. The Commission finds that the radial system exclusion only applies to ‘‘transmission Elements’’ and does not apply to nor is it determinative of whether any generation is included or excluded from the bulk electric system. This understanding is consistent with NERC’s defined terms, and consistent with the comment of NERC and other commenters. Further, in response to Southern Companies, AEP and PSEG Companies, we believe that the language of exclusion E1 is sufficiently clear that it does not exclude generation facilities that are otherwise included as part of the bulk electric system pursuant to inclusion I2. Thus, we will not direct NERC to modify exclusion E1 to state this more explicitly. We agree with SmartSenseCom that exclusion E1 should not lead to conflicting results when applying inclusion I2, but we decline to direct NERC to include a provision that specifically states this presumption. b. Definition of ‘‘Radial Systems,’’ Figure 1 and Condition (a) Radials Only Serving Load NOPR Proposal 134. Exclusion E1 defines the term ‘‘radial systems’’ as ‘‘a group of contiguous transmission Elements that emanates from a single point of connection of 100 kV or higher.’’ In the NOPR, the Commission requested comment on how NERC’s proposal would be applied in the three scenarios. Figure 1 in the NOPR depicted facilities configurations in which all of the 230 kV and 69 kV transmission elements emanate from a single point of connection of 100 kV or higher. The Commission requested comment on whether each of the radial systems shown in figure 1, the 230 kV elements above each transformer to the point of connection to each 230 kV line, respectively, are excluded from the bulk electric system pursuant to exclusion E1. 125 SmartSenseCom E:\FR\FM\04JAR2.SGM 04JAR2 Comments at 13. Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with Comments 135. NERC and other commenters state that both radial systems depicted in figure 1 would be subject to exclusion E1(a) because they each only serve load.126 ELCON agrees with NERC adding that these types of radial systems pose no reliability risk to the interconnected transmission network if the system is lost due to a fault condition. Similarly, SoCal Edison states that the figure 1 facilities would either be excluded or not part of the bulk electric system. SoCal Edison asserts that, because transformers 1 and 2 each have secondary voltages that are less than 100 kV, they do not meet the inclusion I1 requirements and, thus, are not included in the bulk electric system. In other words, SoCal Edison believes exclusion E1 should exclude all radial facilities that are greater than 100 kV up to the point where ‘‘the system is no longer radial, as indicated in figure 1 by the brackets where the 230 kV lines meet [lines 1 and 2].’’ 127 APPA believes that all the scenarios described by the Commission could create reliability concerns ‘‘if taken in isolation and operated in a certain matter’’ and 126 E.g., Southern Companies, AEP, National Grid, TAPS, ISO New England, Barrick, IUU, and WPPC. 127 SoCal Edison Comments at 5. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 believes that the exception process can capture configurations that pose a significant risk to the reliable operation of the interconnected transmission network. Idaho Power maintains that it is inappropriate to apply exclusion E1 for 230 kV elements in the scenarios if the breakers are part of the protection scheme for a three terminal 230 kV line. Idaho Power adds that if either breaker only opens for transformer protection, the exclusion would be applicable. 136. Anaheim agrees that the radials shown in figure 1 should be excluded and requests clarification that the associated bus work and protection system equipment installed on those radial lines are also excluded. Anaheim advocates that the exclusion should also apply to protection system equipment on the excluded facilities that provide backup protection for devices that are part of the bulk electric system, i.e. lines 1 and 2 in figure 1. 137. BPA is concerned about excluding the 230 kV lines without review by a planning authority or transmission operator because the fault magnitude on voltages above 200 kV are much higher than below 200 kV lines. BPA states that since actual power flows on systems above 200 kV are much higher, these systems have a higher risk PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 for serious impacts on the interconnected transmission system. 138. Holland supports the exclusion of radial systems but contends that the phrase ‘‘emanates from a single point of connection’’ could be too narrowly interpreted. According to Holland, multiple buses within a single substation could be viewed as multiple points of connections. Holland believes that an entity whose connection emanates from a single substation should not be denied an exclusion solely because it connects to multiple buses at the single substation. 139. Consumers argues that the exclusion of 100 kV radial systems that only serve load exceeds the Commission’s jurisdiction and the Seven Factor Test.128 Consumers believes that exclusion E1(a) would exclude radials that only serve load and this phrase expands the Commission’s jurisdiction by classifying 100 kV distribution systems that primarily serve load but could also have a secondary purpose. Consumers also argues that this exclusion is inconsistent with the Seven Factor Test which examines 128 Consumers cites to Detroit Edison Co. v. FERC, 334 F.3d 48 (D.C. Cir 2003) as support for its belief that the Commission cannot rewrite the FPA to exclude only facilities used exclusively in local distribution. See Consumers comments at 7. E:\FR\FM\04JAR2.SGM 04JAR2 ER04JA13.000</GPH> 822 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations whether local distribution facilities are ‘‘primarily’’ radial in character. Further, Consumers argues that the Commission should not adopt a rule that exceeds its jurisdiction or constitutes a collateral attack on the local distribution findings of the Seven Factor Test. mstockstill on DSK4VPTVN1PROD with Commission Determination 140. The Commission agrees with NERC that the radial systems shown in figure 1 meet the definition of ‘‘radial system’’ in exclusion E1. This configuration would result in the 230 kV lines between transformers 1 and 2 to the two 230 kV lines, respectfully, being excluded from the bulk electric system. The Commission agrees with NERC and other commenters that both radial systems depicted in figure 1 would be subject to exclusion E1 condition (a) because they each only serve load. 141. Idaho Power, BPA and Anaheim raise concerns about protection system equipment and design, needed for analysis by the planning authority and transmission operator, while APPA states that all scenarios described by the Commission could create reliability concerns. Regarding these concerns, the Commission agrees with APPA that the exception process can be used to add to the bulk electric system specific configurations that pose a significant risk to the operation of the interconnected transmission network. 142. The Commission disagrees with Holland’s interpretation that the phrase ‘‘emanates from a single point of connection’’ can refer to multiple buses. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 The phrase refers to a single point, and if there is more than one point of connection the configuration does not meet the radial system definition as stated in exclusion E1. NERC, in the standard development process, emphasized that radial systems cannot have multiple connections at 100 kV or higher. Networks that have multiple connections at 100 kV or higher may qualify under exclusion E3.129 143. The Commission also disagrees with Consumers that the exclusion of 100 kV radial systems that only serve load expands the Commission’s jurisdiction by classifying 100 kV distribution systems that primarily serve load, but may also have a secondary purpose, as transmission. First, exclusion E1 condition (a) reflects the language contained in the current bulk electric system definition and therefore, is itself not an expansion from the existing definition. In addition, as NERC stated, application of the definition is a three-step process. In step 1, the core definition is used to establish the bright line of 100 kV, the overall demarcation point between bulk electric system and non-bulk electric system elements. Step 2, applying the specific inclusions, provides additional clarification for the purposes of identifying specific elements that are included in the bulk electric system. Step 3 is to evaluate specific situations for potential 129 NERC BES Petition, Exhibit E, ‘‘Complete Development Record of the Proposed Revised Definition of ‘‘Bulk Electric System,’’ Consideration of Comments on Initial Ballot—Definition of BES,’’ at 259. PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 823 exclusion from the bulk electric system. Further, an entity may seek a casespecific exception if it believes that facilities with radial qualities that are not excluded pursuant to exclusion E1 or petition the Commission when seeking a determination whether a facility, otherwise included in the bulk electric system, is used in local distribution. Thus, merely applying the definition, and the inclusions or exclusions is not necessarily the end of the inquiry regarding whether an element is part of the bulk electric system. c. Figure 2 and Condition (a) Radials Serving Only Load NOPR Proposal 144. In the NOPR, the Commission requested comment on the scenario shown in figure 2 which shows a 115 kV loop, with the configuration emanating from two points of connection of 100 kV or higher. Specifically, the Commission requested comment on whether ‘‘the 115 kV and 230 kV elements above Transformers 1 and 2 to the points of connection to the two 230 kV lines would be excluded from the bulk electric system pursuant to exclusion E1.’’ 130 The Commission asked for comment on whether it is more appropriate to analyze figure 2 pursuant to the ‘‘local network’’ exclusion E3 and, if so, what if any elements operated at or above 100 kV would be excluded pursuant to exclusion E3. 130 NOPR, E:\FR\FM\04JAR2.SGM 139 FERC ¶ 61,247 at P 80. 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with Comments 145. NERC states that figure 2 is a non-radial loop on the 115 kV system. According to NERC, the 115 kV elements above transformers 1 and 2 to the point of interconnection with lines 1 and 2 would not be eligible for exclusion E1 because they do not emanate from a single point of connection. NERC also states that it would be appropriate to evaluate figure 2 under exclusion E3 as a potential local network.131 For such a candidate local network to qualify for exclusion, NERC states that additional technical analysis is needed to determine if all the exclusion E3 criteria are satisfied.132 NERC asserts that without such a technical analysis, the 115 kV elements above transformers 1 and 2 should be considered part of the bulk electric system. 146. Likewise, Idaho Power, ITC Companies, and National Grid contend that the figure 2 configuration should be included in the bulk electric system. Southern Companies believe exclusion E1 may apply from the breakers down and that the configuration may belong to 131 See also Comments of NESCOE, BPA, Idaho Power, ITC Companies, and National Grid. 132 E.g., ISO New England Comments at 10, MISO Comments at 7. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 exclusion E3. AEP assumes that each of the facilities below the 115 kV loop shown in figure 2, and including breaker 1 and breaker 2, are radial and excluded pursuant to exclusion E1. According to AEP, the facilities above breakers 1 and 2 may be excluded pursuant to exclusion E3 depending on the circumstances.133 147. Valero states that the figure 2 configuration is very similar to common facilities configurations employed in many industrial facilities involving the interconnection of the industrial facility to the utility through two high voltage feeder lines that originate at different utility owned and operated substations. Valero requests that the Commission include in the final rule an additional exclusion that would ‘‘categorically exclude from the [bulk electric system] any on-site high voltage switchyard facilities (less than 300 kV) owned by the industrial end-user where the predominant function of the facilities is to distribute electricity in an inward direction to the end-user’s load.’’ 134 WPPC argues that figure 2 shows both radial and network systems and that the system from the 115 kV loop upwards would be assessed under exclusion E3 133 AEP Comments at 7. Comments at 8. and below that point would be assessed by exclusion E1. Commission Determination 148. The Commission affirms NERC’s statement that figure 2 is a non-radial loop and thus would not be eligible for exclusion E1 because it does not emanate from a single point of connection. The Commission agrees with commenters that the elements below the 115 kV loop should be assessed as two separate radial systems pursuant to exclusion E1. The remaining elements (the 115 kV loop, transformers 3 and 4 and the 230 kV tie lines above the transformers to the two 230 lines 1 and 2) should be assessed pursuant to exclusion E3 and if the configuration meets the criteria of exclusion E3, the elements could be excluded. 149. Regarding Valero’s request for an additional exclusion if equipment owners’ configurations cannot meet the exclusion E3 criteria, Valero can request that the elements be excluded through the exception process. The exception process allows equipment owners to request an exception regardless of the owner’s registration status. 134 Valero PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 E:\FR\FM\04JAR2.SGM 04JAR2 ER04JA13.001</GPH> 824 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations NOPR Proposal 150. In the NOPR, the Commission agreed with NERC’s proposal that radial systems only serving load and emanating from a single point of connection of 100 kV or higher should be excluded from the bulk electric system. However, the Commission expressed concern ‘‘that the exclusion mstockstill on DSK4VPTVN1PROD with Comments 151. NERC disagrees with the Commission’s characterization of figure 3 in the NOPR. NERC states that figure 3 does not depict a configuration with two points of 100 kV or higher or a system emanating from two points of connection at 230 kV. According to NERC, except for lines 1 and 2, all the other elements depicted in figure 3 are excluded from the bulk electric system. NERC explains that the elements between line 1 and transformer 2 and from line 2 to transformer 1 are excluded by exclusion E1(a) because ‘‘each separate set of [e]lements [described above] is contiguous and emanate from a single point of connection of 100 kV or higher.’’ 137 135 NOPR, 139 FERC ¶ 61,247 at P 81. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 could allow elements operating at 100 kV or higher in a configuration that emanates from two or more points of connection ‘‘to be deemed ‘‘radial’’ even though the configuration remains contiguous through elements that are operated below 100 kV.’’ 135 Figure 3 in the NOPR illustrated this concern, and the Commission asked for comment on how to evaluate the configuration relative to the radial system definition. The Commission also requested comment on the appropriateness of examining elements below 100 kV to determine if the configuration meets exclusion E1, i.e., whether figure 3 depicts ‘‘a system emanating from two points of connection at 230 kV and, therefore, the 230 kV elements above the transformers to the points of connection to the two 230 kV lines would not be eligible for the exclusion E1 notwithstanding the connection below 100 kV.’’ 136 NERC states that the elements below the 69 kV side of transformers 1 and 2 are excluded from the definition because they are less than 100 kV, and transformers 1 and 2 are excluded because they ‘‘bridge voltages of 69 kV and 230 kV’’ and therefore do not meet inclusion I1. 152. NERC further explains that the focus of the definition of bulk electric system is on looped or networked connections at or above 100 kV. According to NERC, connections operated below 100 kV, generally do not carry significant parallel flow due to the higher impedance of lower voltage facilities. If such facilities are necessary for the reliable operation of the interconnected transmission network, NERC states that the exception process can be used to include such facilities. 153. Exelon agrees with NERC and explains that it has many connections similar to the one shown in figure 3 and provides a specific example where a 138 kV substation is fed by two radially connected 138 kV lines which in turn are connected through 40 MVA transformers to a 12 kV bus section. Exelon states that in its example the 40 MVA transformers cross bus sections so that if one of the 138 kV lines is out of service, each side of the 12 kV bus retains service. Exelon believes that due to the high impedance of the transformers, little energy flows between the buses in Exelon’s 136 Id. PO 00000 Frm 00023 137 NERC Fmt 4701 Sfmt 4700 E:\FR\FM\04JAR2.SGM Comments at 19. 04JAR2 ER04JA13.002</GPH> d. Figure 3 and Condition (a) Radials Only Serving Load 825 826 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations example.138 Exelon states that owners and operators of these configurations would be required to go through the exception process. 154. Other commenters believe that the figure 3 configuration may not be eligible for exclusion E1. SoCal Edison explains that the 69 kV loop is not open and therefore is a parallel path to the 230 kV system. BPA, Alameda and WREA do not view the figure 3 system as eligible for exclusion E1 because the system is networked. Idaho Power states that the 230 kV lines would be included only if there is a protection system in place for the 230 kV lines. According to Idaho Power, the elements above the transformers in figure 3 would not be excluded from the bulk electric system. Idaho Power believes this configuration should be evaluated under exclusion E3. mstockstill on DSK4VPTVN1PROD with Commission Determination 155. The Commission finds figure 3, which is identical to figure 5, is a networked configuration through a 69 kV loop and does not qualify for exclusion E1. The Commission also finds that, because the load in figure 3 can be served by either 230 kV line, it does not depict a ‘‘radial system.’’ However, the facilities below 100 kV may or may not be necessary for the operation of the interconnected transmission network, and this decision can be made case-by-case in the exception process. In other words, such facilities below 100 kV depicted in figure 3 would be excluded under the general threshold of the core definition unless found on a case-specific basis as necessary for the reliable operation of the interconnected transmission network. Thus, the Commission, while disagreeing with NERC’s interpretation, does not propose to include the below 100 kV elements in figure 3 in the bulk electric system, unless determined otherwise in the exception process. Further, as we discuss below in connection with exclusion E3 and figure 5, while we find that the configuration shown in figures 3 and 5 would not be eligible for exclusion E1, we believe that such configurations should be eligible for exclusion E3 for local networks. However, exclusion E3 as written requires the candidate local network to be contiguous and above 100 kV, thus, the exclusion E3 language as written does not allow for figures 3 and 5 to be eligible for the local network exclusion 138 Exelon Comments at 6. TAPS states that impedance is inversely proportional to the square of the voltage of the network and power flow is inversely proportional to the impedance. According to TAPS, impedance factors are very significant in limiting the amount of parallel path flows. TAPS Comments at 7. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 because they are not contiguous and include facilities that are not above 100 kV. Therefore, we direct NERC to modify exclusion E3 to remove the 100 kV minimum operating voltage in the local network definition. This modification will enable configurations similar to figures 3 and 5 to be assessed for the local network exclusion. The Commission believes this modification, together with satisfying the criteria outlined in exclusion E3, will appropriately exclude local network configurations that are not necessary to the reliable operation of the interconnected transmission network.139 e. Condition (b)—Radials With Limited Generation and Condition (c)—Radials With Limited Generation and Load NOPR Proposal 156. Exclusion E1, condition (b) describes generation connected to a radial system with no load, and condition (c) describes generation connected to a radial system with generation and load. In its petition, NERC stated that conditions (b) and (c) are ‘‘intended to address the circumstances of small utilities (including municipal utilities and cooperatives).’’ 140 157. In the NOPR, the Commission requested comment regarding the specific circumstances that conditions (b) and (c) are intended to address. In addition, the Commission observed that the power generated on these radial systems would be ‘‘delivered or injected to the bulk electric system and transported to other markets.’’ 141 The Commission noted that it appeared that a line 100 kV or above connected to a generator with a capacity 75 MVA or below would not be included in the bulk electric system. The Commission 139 NERC and Exelon contend that looped or networked connections operating below 100 kV generally do not carry significant parallel flow because of higher impedance characteristics and thus need not be evaluated as part of a radial system. However, the Commission believes that excluding these configurations solely on the level of impedance does not consider other factors, including voltage, the system configuration, type of conductors, length of conductors, and proximity of the networked system in the interconnected transmission network. Regardless of our disagreement with NERC and Exelon regarding the consideration of impedance, however, as we discuss above, configurations such as those described by Exelon may be assessed for exclusion through exclusion E3, which apply criteria to determine whether such facilities are necessary for reliable operation of the interconnected transmission network. Accordingly, the inclusion or exclusion of such facilities is better determined through application of exclusion E3, or case-by-case in the exception process. 140 NERC BES Petition at 19. 141 NOPR, 139 FERC ¶ 61,247 at P 83. PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 requested comment on the appropriateness of excluding such radial facilities. Comments 158. With respect to applicability to small utilities, NERC states that exclusion E1, conditions (b) and (c) are not intended solely for such entities. According to NERC, these conditions are intended to exclude radial systems that have limited benefit to the reliability of the interconnected transmission network. NERC states that the configurations described in exclusion E1(b) and (c) ‘‘pose no reliability risk to the interconnected transmission network when the radial system is lost due to a failure or fault condition.’’ 142 159. NERC states that the basis for exclusion E1(b) ‘‘is dependent on a single point of failure causing the radial system to separate’’ from the bulk electric system, which will result in a limited loss of generation without an adverse reliability impact to the interconnected transmission network.’’ 143 NERC explains that exclusion E1(c) addresses the installation of limited amounts of generation that are installed within a radial system and are intended to serve local load within that radial system. 160. In response to the Commission’s question about the delivery or injection of power from the radial systems described in these exclusions, NERC states that because of the limitation of the generation in exclusion E1(b) and (c), the power generated on the radial system would be delivered to the embedded load within the radial system and injected into the bulk electric system in very limited quantities. NERC argues that subjecting the elements associated with this type of radial system to all the Reliability Standards has limited benefit to the reliability of the interconnected transmission network. NERC believes it is more appropriate to identify these elements through the ‘‘the applicability in specific standards where a reliability benefit can be identified.’’ 144 161. A number of commenters agree with NERC.145 Idaho Power states that the exclusion is appropriate if the generation connected to the radials is not relied on to meet reliability performance criteria on bulk electric system elements. Idaho Power indicates that it follows the WECC guidelines and 142 NERC Comments at 20. Comments at 20. 144 NERC Comments at 21–22. 145 E.g. Idaho Power, National Grid, AEP, Hydro One, ISO New England, and BPA. 143 NERC E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations 166. NERC explains that the exclusion of radial systems pursuant to conditions (b) and (c) is based on the premise that a single point of failure causing the radial system to separate from the bulk electric system, resulting in the loss of a limited amount of generation will not have an adverse reliability impact. However, there are other reliability concerns that NERC does not address. 146 Anaheim VerDate Mar<15>2010 Comments at 7. 17:19 Jan 03, 2013 confusion regarding the generation limits in exclusion E1(b) and (c) and in exclusion E3. They contend that it is not clear if the generation limit only applies to generators connected at 100 kV or higher. PSEG Companies also ask for clarification regarding the definition of the phrase ‘‘non-retail generation.’’ 147 163. AEP does not believe that the three conditions of exclusion E1 would remove the generation connected to the radial system from the bulk electric system definition but states that the conditions may have the consequence of removing the radial line itself from the definition in error. According to AEP, this would be in cases of a 25 MVA generator (meeting I2 properties) but less than 75 MVA aggregate. AEP suggests that the conditions in (b) and (c) be revised to reference non-bulk electric system generation.148 164. We approve exclusion E1 conditions (b) and (c). However, we direct NERC to implement exclusion E1 so that the exclusions for radial systems do not apply to tie-lines for bulk electric system generators identified in inclusion I2. If the generator is necessary for the operation of the interconnected transmission network, the Commission believes that it is generally appropriate to have the radial tie-line operating at or above 100 kV that delivers the generation to the bulk electric system included as well. 165. In general, we believe that it is appropriate to have the bulk electric system contiguous, without facilities or elements ‘‘stranded’’ or ‘‘cut-off’’ from the remainder of the bulk electric system as shown in the figure below. However, the contiguous quality of the bulk electric system is lost in exclusion E1, condition (b), because it removes from the bulk electric system the 100 kV or greater generator tie-line that connects the bulk electric system generator to the interconnected transmission network. Such tie-lines should be subject to appropriate Reliability Standards. For example, both the radial line emanating from a generator and the portion of the bulk electric system to which it is connected have protective relays that require coordination to prevent the lines from tripping. The generator needs to coordinate the protective relays with transmission operators, otherwise there may not be adequate information to prevent a fault on the radial line from causing cascading outages on the bulk electric system. The Commission also notes that the phrase ‘‘adverse reliability impact,’’ which is defined in the NERC Glossary of Terms as ‘‘the impact of an event that results in frequency-related instability; unplanned tripping of load or generation; or uncontrolled separation or cascading outages that affects a Commission Determination 147 PSEG Jkt 229001 PO 00000 Comments at 3. Frm 00025 Fmt 4701 148 AEP Sfmt 4700 E:\FR\FM\04JAR2.SGM Comments at 5. 04JAR2 ER04JA13.003</GPH> mstockstill on DSK4VPTVN1PROD with thresholds (10 MVA individually, 20 MVA aggregate) to determine the appropriateness of excluding the power from components from radial connected generation. Alameda contends that the radial systems in these exclusions have only a minor impact on the bulk electric system and that system planning and operation assessments must provide for reliable operation under N–1 contingency operations including loss of the exclusion E1(b) and (c) configurations. WPPC states that the generator thresholds in these conditions are a logical cut-off to separate radial systems with generation that is not likely to be meaningful to operation of the bulk electric system. 162. Anaheim urges the Commission to clarify that the presence of generation resources connected at voltages below 100 kV ‘‘does not invalidate the availability of the radial exclusion for lines that are operated at greater than 100 kV unless the generating unit is actually connected to the higher voltage line.’’ 146 PSEG Companies state there is 827 mstockstill on DSK4VPTVN1PROD with 828 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations widespread area of the Interconnection,’’ is an extreme result that should not occur from the loss of a single tie-line for any sized generator.149 A single contingency that results in an ‘‘adverse reliability impact’’ violates planning and operating criteria in Commission approved Reliability Standards.150 NERC also does not consider issues, such as the issue raised by Idaho Power, that the exclusion is appropriate if the generation connected to the radial system is not relied on to meet reliability performance criteria. 167. Some commenters suggest there is a conflict between the inclusion I2 and exclusion E1 because they believe that the 100 kV or greater tie-line and the generator should remain in the bulk electric system. We agree that exclusion E1 as written does not prevent the radial tie-line operating at or above 100 kV from the high side of the step-up transformer to the bulk electric system from being excluded while the generator and associated step-up transformer(s) remain included. Inclusion I2 depends on the status of the tie-line based on the core definition’s 100 kV threshold to determine if a generator and its step-up transformers are part of the bulk electric system. Thus, this inclusion results in most bulk electric system generators having a contiguous connection to the interconnected transmission network. As noted above, we believe that it is generally appropriate to have the bulk electric system contiguous. Therefore, the Commission directs NERC to implement exclusion E1 so that the exclusion for radial systems does not apply to tie-lines for bulk electric system generators identified in inclusion I2. This directive provides consistent application of the entire definition by not allowing exclusion E1 to override the qualifying tie-lines pursuant to inclusion I2. 168. The Commission also rejects NERC’s argument that subjecting the elements associated with this type of radial system to all the Reliability Standards has a limited benefit to the reliability of the interconnected transmission network. In cases of radial tie-lines for bulk electric system generators where the generator owner also owns the tie-line, NERC has exercised discretion, on a case-by-case basis, in determining which entities require registration as transmission owners/operators and identified subsets of applicable reliability standard requirements for these entities.151 In other situations, such generator tie-lines may appropriately be considered an extension of the generation facility, which would not subject significant additional compliance obligations on the generator owner and/or operator. 169. In response to the question raised by PSEG Companies about whether the generation limit specified in exclusion E1(b) and (c) only applies to generators connected at 100 kV or higher, we note that exclusions E1(b) and (c) do not specify the generation connected to the radial system or local network to any voltage. 149 See the NERC Glossary of Terms at http:// www.nerc.com/files/Glossary_of_Terms.pdf. 150 See, e.g., Reliability Standards, TPL–002–0b and IRO–004–2. 151 E.g., New Harquahala Generating Company, LLC, 123 FERC ¶ 61,173, order on clarification, 123 FERC ¶ 61,311 (2008). 152 NERC BES Petition at 19. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 f. Normally Open Switches NOPR Proposal 170. NERC included a note accompanying the description of exclusion E1 stating that ‘‘[a] normally open switching device between radial systems, as depicted on prints or oneline diagrams for example, does not affect this exclusion.’’ NERC drafted this note to address a common network configuration in which two separate sets of facilities that, each standing alone, would be recognized as radial systems but are connected by a switch that is set to the open position for reliability purposes. In its petition, NERC explained that these switches are installed by entities to provide greater reliability to their end-use customers. NERC also explained that ‘‘a normally open switch’’ will be identified in documents such as prints or one-line diagrams and that ‘‘[t]he concept and usage of the ‘normally open switch’ in such configuration is well understood in the electric utility industry.’’ 152 171. In the NOPR, the Commission requested comment on NERC’s characterization and whether the phrase ‘‘normally open’’ is subject to interpretation or misunderstanding, or whether a ‘‘normally open’’ configuration is potentially difficult to oversee. The Commission also requested comment on the need of transmission operators or other functional entities to study the system impacts of the closing of a ‘‘normally open’’ switch, or to take other steps to ensure awareness of the impacts of the loop that is created by the closing of the switch if the closed loop is not included as part of the bulk electric system. Comments 172. NERC explains that the term ‘‘normally opened’’ is well understood PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 and commonly used in industry for a variety of reasons including public and personnel safety. NERC also explains that the purpose of recognizing a normally open switch in the definition is to preserve the bright-line so that the facilities can be characterized as they are planned to be operated which avoids the need to constantly reclassify elements to adjust to the changing operating conditions that occur on the system. NERC believes that a normally open switch is not difficult to oversee. 173. Nearly all commenters that addressed this issue agree with NERC’s positions. NRECA highlights NERC’s explanation that the configuration is so common that to write the definition to include radial systems connected by a normally open switch, with the caveat that entities can request an exception, would result in a flood of exception requests. Steel Manufacturers Association points out that such a switch can make a secondary connection point available to a large industrial load when needed to improve service reliability and continuity. Consumers Energy states that such switches would only be closed during emergency conditions and an entity in that instance would follow contingency plans and ensure that a proper study is performed on a normally open switch that is closed due to the emergency to avoid related equipment failures. TAPS agrees with NERC and notes that such switches are marked as normally open on one line diagrams. 174. PSEG Companies state that in effect the switch is irrelevant because if the normally open switch is open the systems are radial and therefore excluded and when the switch is closed the radial systems are also excluded for the same reasons figure 3 facilities should be excluded. Alameda submits it documents a normally open switch in operational diagrams and SCADA applications and its use is coordinated in advance with its transmission operator. Alameda also states that the system impacts of closing a normally open switch do not need to be required to be studied since it is the operational experience and documentation of such switch that is most important. 175. G&T Cooperatives state that some operational studies would be useful if there is an upcoming operational decision to close the normally open switch that could parallel the bulk electric system. However, G&T Cooperatives explain that the study would be used to ensure that the system can operate with the switch closed without inadvertently tripping one of the source breakers. G&T Cooperatives explain that a normally open switch E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations would not need to be modeled into any real-time model or contingency analysis, nor would it require the interconnecting radial systems to be incorporated into the bulk electric system, where such conditions are managed through quick changes to the equivalence bus loads or generation capacities. Similarly, TAPS states that closing a normally open switch does not have an impact on the system that needs to be studied because it is only close to change a down stream path on a temporary basis and does not create a loop. Commission Determination 176. Upon consideration of comments, we are persuaded that the concept of a normally open switch is well understood, common and not difficult to oversee. We accept NERC’s explanation that recognizing a normally open switch in the definition will preserve the bright-line so that the facilities can be characterized as they are planned to be operated and avoids the need to constantly reclassify elements to adjust to the changing operating conditions that occur on the system. 177. With regard to the Commission’s question concerning the need to study the system impacts of the closing of a ‘‘normally open’’ switch, at this time we will not require them to be studied. We are persuaded that the operational experience and documentation of such switch is most important and, thus, we decline to require additional studies. 7. Exclusion E2 (Behind the Meter Generation) mstockstill on DSK4VPTVN1PROD with NOPR Proposal 178. NERC stated in its petition that the wording of exclusion E2 is extracted from the Statement of Compliance Registry Criteria.153 In the NOPR, the Commission stated that the exclusion of ‘‘[a] generating unit or multiple generating units on the customer’s side of the retail meter * * *’’ was an appropriate exclusion that provides additional clarity and granularity to the definition of bulk electric system.154 While the Commission did not ask specific questions about exclusion E2, several commenters expressed support for the inclusion, while others stated concerns with the exclusion. Comments 179. NERC and EEI agree with the Commission that the exclusion provides additional clarity. ELCON notes that such configurations are commonly employed by industrial users of BES Petition at 22. 154 NOPR, 139 FERC ¶ 61,247 at P 88. electricity, and they do not affect in any significant way the bulk power system. On the other hand, ISO New England believes that exclusion E2 should be eliminated because it is contrary to the reliability of the bulk electric system. According to ISO New England, a 400 MW generator which is behind the meter with a 400 MW load could be excluded even though it could have a significant impact on the performance of the bulk electric system. ISO New England states that the owner of the generator in this example would not need to provide generator stability modeling information nor abide by the many normally applicable Reliability Standards. MISO believes that the exclusion could encourage entities to move generation capacity behind the meter which could adversely impact the bulk electric system. 180. PSEG Companies state that exclusion E2 could exclude generation included in inclusion I2. For example, PSEG Companies contends that, if a single 200 MVA behind-the-meter generator is connected to the bulk electric system at 100 kV or higher, the net capacity provided to the bulk electric system does not exceed 75 MVA and the generator has standby, backup, and maintenance services, under exclusion E2 the generator would be excluded from the bulk electric system, but it would be included pursuant to inclusion I2.155 181. Other commenters, such as Barrick and the IUU, believe additional clarification is needed for the terms ‘‘retail meter’’ and ‘‘net capacity.’’ Specifically, they question what the capacity is ‘‘net’’ of or whether it means the sum of flows at all points of connection to the bulk electric system. They also question whether ‘‘net’’ means the capacity of a generator that is made available for use by someone other than an owner of the generator or capacity less parasitic load only. 182. Barrick and IUU believe there is more than one use for the term ‘‘retail meter,’’ and it is not clear whether all situations are covered by the use in the proposed exclusion E2. Barrick proposes that the term ‘‘retail meter’’ should include an end-user’s meter at an end-user’s generator when that meter is used to measure the end-user’s generation for consumption. Commission Determination 183. We find that exclusion E2 provides additional clarity to the definition of bulk electric system, and we disagree that exclusion E2 is contrary to the reliability of the bulk 153 NERC VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 155 PSEG PO 00000 Comments at 14. Frm 00027 Fmt 4701 Sfmt 4700 829 electric system. We agree with ELCON that such configurations are commonly employed by industrial users of electricity. Indeed, this exclusion is similar to the exclusion for such facilities in NERC’s Registry Criteria.156 With regard to ISO New England’s and PSEG Companies specific examples, to the extent such scenario exists, they may be eligible for inclusion or exclusion through use of the exception process. 184. We decline to define the additional terms cited by commenters, such as Barrick and the IUU, who believe additional clarification is needed for the terms ‘‘retail meter’’ and ‘‘net capacity.’’ These terms are in common use in the electric power industry. Therefore, we do not see a need to adopt a formal definition. 8. Exclusion E3 (Local Networks) NOPR Proposal 185. NERC’s proposed exclusion E3 defines the term ‘‘local networks’’ as: A group of contiguous transmission Elements operated at or above 100 kV but less than 300 kV that distribute power to Load rather than transfer bulk-power across the interconnected system. LN’s emanate from multiple points of connection at 100 kV or higher to improve the level of service to retail customer Load and not to accommodate bulk-power transfer across the interconnected system. Exclusion E3 also identifies three criteria that must be satisfied for the exclusion to apply: (a) Limit on connected generation to 75 MVA aggregate capacity of non-retail generation (gross nameplate rating); (b) power flows only into the local network and does not transfer through the local network; and (c) the local network is not part of a flowgate or transfer path. 186. In the NOPR, the Commission requested comment on: (1) Whether generation resources are excluded by this exclusion; (2) how the exclusion applies to a looped lower voltage system; (3) whether the 300 kV ceiling is appropriate for the application of the exclusion; and (4) whether the prohibition for generation produced inside a local network is not transporting power to other markets outside the local network applies in both normal and emergency operating conditions.157 The Commission also sought further explanation regarding the design and technical justification of a local network. These issues are 156 NERC Statement of Compliance Registry Criteria, section III.c.4. 157 NOPR, 139 FERC ¶ 61,247 at P 89. E:\FR\FM\04JAR2.SGM 04JAR2 830 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations discussed in detail in the following sections. a. Local Network Design and Technical Justification NOPR Proposal 187. In the NOPR, the Commission requested explanation and comment on the statement in NERC’s petition that ‘‘neither will the local network’s separation or retirement diminish the reliability of the interconnected electric transmission network.’’ 158 In its petition, NERC stated that the design and operation of local networks is such that at the point of connection with the interconnected transmission network is similar to that of a radial facility, in particular that power always flows in the direction from the interconnected transmission network into the local network.159 Further, according to NERC, ‘‘[l]ocal networks provide local electrical distribution service and are not planned, designed or operated to benefit or support the balance of the interconnected transmission network.’’ 160 188. In the NOPR, the Commission observed that, while a radial facility emanates from one point of connection to the interconnected transmission network, a local network by definition has multiple points of connection to the interconnected transmission network. Thus, regarding a local network, a contingency situation may arise where one of the multiple connections to the interconnected transmission network separates, while other local network connections maintain connectivity with the bulk electric system. Accordingly, the Commission requested comments to better understand how an entity with a candidate local network would analyze such contingencies to determine potential impacts to the reliable operation of the interconnected transmission network. mstockstill on DSK4VPTVN1PROD with Comments 189. EEI, MISO and other commenters generally support exclusion E3.161 With respect to the issue raised by the Commission regarding how an entity’s local network separation will not diminish the reliability of the interconnected transmission network, NERC explains that the reliability of the interconnected transmission network is not impacted by the existence or absence of the local network. NERC 158 NERC BES Petition, Exhibit G at 2. (Local Network Technical Justification). 159 NERC BES Petition at 22. 160 Id. 161 E.g., NRECA, ELCON, BPA, and G&T Cooperatives. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 maintains that excludable facilities under exclusion E3 will naturally satisfy this principle because the exclusion E3 conditions were crafted in such a way to ensure reliability is not adversely impacted by the disconnection of the local network. While specific analyses are not necessary to support exclusion of facilities under exclusion E3, NERC states that transmission operators or other functional entities need to be aware of the change of status of all devices on the system and the impact to the system from device changes. According to NERC, exclusion of a local network does not obviate the transmission operator or other functional entity from the responsibility to assess the system impact on any bulk electric system facility due to the separation of one local network connection while the remainder of the local network remains connected with the bulk electric system.162 190. TAPS agrees with NERC stating ‘‘sophisticated engineering analysis should not be needed to determine the applicability of [i]nclusions and [e]xclusions.’’ 163 Likewise, WREA agrees with NERC’s assertion that the entity with a local network does not need to analyze local network contingencies since this analysis is already made by the transmission planner and transmission operator responsible for the bulk electric system facilities feeding the local network. Regarding the transmission planner responsibilities, WREA states the NERC Reliability Standard TPL–002 requires the transmission planner to study N–1 contingencies and prepare plans for reliable operation. WREA further explains that the transmission operator is required to plan to meet unscheduled changes in system configuration pursuant to Reliability Standard TOP– 002, R6 and ‘‘if there are non-[bulk electric system] facilities that are significant, that have not been properly represented in a [transmission operator’s] models, [then] when the [transmission operator] performs its required model accuracy validation (TOP–002, R19), the [transmission operator] would observe a modeling inconsistency and would be able to take steps to correct the modeling error.’’ 164 191. AEP advocates for a baseline or cut-off point, which would be determined by the size (in MW) of the local network. Idaho Power believes that the statement means that total separation or loss of the local network elements does not cause a reliability Comments at 26. Comments at 9. 164 WREA Comments at 8–9. performance impact on the remaining bulk electric system elements. Idaho Power explains that it would analyze such contingencies by evaluating overload levels and voltage performance impacts on the remaining bulk electric system elements as well as overload levels and voltage performance on the remaining local network elements. 192. Southern Companies state that such a contingency would be incorporated into planning studies regardless of whether the local network was part of the bulk electric system.165 BPA believes that before a candidate local network is excluded, it must be evaluated by the impacted balancing authority, transmission operator and planning authority to ensure the integrity of the bulk grid is not compromised.166 Commission Determination 193. The Commission approves exclusion E3. The Commission accepts NERC’s explanation about the statement that ‘‘neither will the local network’s separation or retirement diminish the reliability of the interconnected transmission network.’’ The Commission also accepts NERC’s comments relating to how an entity with a candidate local network would analyze such contingencies to determine potential impacts to the reliable operation of the interconnected transmission network. In particular, the Commission agrees that the exclusion of a local network does not obviate the transmission operator or other functional entity from the responsibility to assess the system impact of separating one local network connection while the remainder of the local network remains connected with the bulk electric system. We will not direct NERC to modify the provision as suggested by AEP and BPA. Rather, as NERC indicates, AEP and BPA may raise these suggestions with NERC in the Phase 2 development effort. b. Figure 5, Contiguous Transmission Elements and the 100 kV Lower Limit 194. Exclusion E3 defines local networks as ‘‘[a] group of contiguous transmission Elements operated at or above 100 kV but less than 300 kV that distribute power to Load rather than transfer bulk-power across the interconnected system.’’ While the local network exclusion applies to contiguous transmission elements operating at a minimum of 100 kV, the Commission stated in the NOPR that it is unclear how the exclusion applies to a looped 162 NERC 163 TAPS PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 165 Southern 166 BPA E:\FR\FM\04JAR2.SGM Companies Comments at 13. Comments at 7–8. 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations 831 depicted in figure 5 in the NOPR which shows a 69 kV looped system emanating from two points of connection at 100 kV or higher. 195. In the NOPR, the Commission stated that figure 5 depicts a group of elements that are contiguous through a 69 kV loop and requested comment whether the configuration in figure 5 qualifies as a local network and, in particular, whether the configuration satisfies the conditions that a local network be contiguous and operated at or above 100 kV. single point of interconnection at 230 kV and only serve load. Accordingly, NERC states that 230 kV lines 1 and 2 are included in the bulk electric system with the only other included elements being the lines extending from lines 1 and 2. However, according to NERC, the elements between 230 kV line 1 and transformer 2 and between 230 kV line 2 and transformer 1 are each subject to exclusion E1(a) because each separate set of elements is contiguous and emanate from a single point of connection of 100 kV or higher. NERC asserts that the elements below the 69 kV side of transformers 1 and 2 are excluded because they are less than 100 kV. NERC explains that transformers 1 and 2 are excluded because they bridge voltages of 69 kV and 230 kV and therefore, inclusion I1 is not applicable because a transformer must have two terminals over 100 kV to qualify for inclusion I1. According to NERC, the definition should focus on looped or networked connections at 100 kV or greater because such connections, when operated below 100 kV, generally do not carry significant parallel flow because of the higher impedance associated with lower voltage facilities.168 197. Exelon states that the clear intent of the definition is that configurations such as shown in figure 5 are radial systems subject to exclusion E1 (radial systems). According to Exelon, had this not been the intent of exclusion E1, exclusion E3 would have allowed for a local network where the tie was below 100 kV to avoid a reliability gap. Exelon believes that the configuration shown in figure 5, which is identical to figure 3, does not qualify as a local network within the terms of exclusion E3 and supports NERC’s view that figure 5 represents two radial systems that qualify under exclusion E1. Exelon cautions that, if the Commission determines that the systems depicted in figure 5 do not qualify under exclusion E1 because of the low voltage tie and does not qualify under exclusion E3 because the tie is at low voltage and not a 100 kV or above, such a decision would leave a gap under which a substantial number of facilities that are not part of the bulk electric system mstockstill on DSK4VPTVN1PROD with Comments 196. NERC views figure 5 the same as figure 3—as a looped system below 100 kV—that is not considered under this exclusion because the elements below 100 kV are presumed to be not part of the bulk electric system.167 NERC maintains that, if it is determined that the sub-100 kV looped system is necessary for the reliable operation of the interconnected transmission network, the exception process may be utilized to include the appropriate elements. NERC states that figure 5 depicts two separate and distinct groups of elements that each emanate from a 167 Figure 5 and figure 3 set forth in the NOPR are identical configurations. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 168 NERC E:\FR\FM\04JAR2.SGM Comments at 27–28. 04JAR2 ER04JA13.004</GPH> lower voltage system. The Commission provided an example of its concern 832 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with would be classified as such. Exelon states that it would have to go through the separate exception process for dozens of substations, at great cost and for no useful purpose. Exelon states that the Commission should clarify that the configuration shown in figures 3 and 5 qualifies as a radial system and is excluded pursuant to exclusion E1. 198. Other commenters disagree with NERC’s position. Idaho Power believes the network configuration with a 69 kV loop belongs to a local network category pursuant to exclusion E3 and that these types of networks should be studied to identify if there is any resulting voltage, overload, or stability violation that could propagate and impact the reliability of the system. Idaho Power believes that the 69 kV loop can tie the 230 kV systems together; therefore, outages in the 230 kV system could cause loop flow in the 69 kV system. According to Idaho Power, planning studies would have to be performed to determine the amount of loop flow and whether the loop flow could lead to outages on the 69 kV system, resulting in further impact to the bulk electric system.169 WREA also notes figure 5 is the same as figure 3 and states that the 230 kV elements described in the figure would not qualify for the radial system exclusion E1 because the 230 kV elements are networked via facilities less than 100 kV. WREA concludes the elements above 100 kV in the figure might qualify for the local network exclusion and the below 100 kV facilities in this configuration are nonbulk electric system on the basis of the core definition unless the facilities are included via the exception process.170 AEP believes that figure 5 could be considered for exclusion E3, provided that it is understood that at some point on the local network, the network could be of the size that would have a potential impact on the bulk electric system and would still need to meet the parameters of exclusion E3.171 Commission Determination 199. As discussed above, the Commission is directing a modification to exclusion E3 to better capture local networks like those depicted in figure 5. The Commission notes that Exelon believes that the configuration shown in figure 5, which is identical to figure 3, does not qualify as a local network within the terms of exclusion E3. While figures 3 and 5 are a networked configuration through a 69 kV loop, they do not qualify for the local network 169 Idaho Power Comments at 11. Comments at 9. 171 AEP Comments at 10. exclusion because exclusion E3 defines local networks as ‘‘[a] group of contiguous transmission Elements operated at or above 100 kV but less than 300 kV that distribute power to Load rather than transfer bulk-power across the interconnected system.’’ The configuration in figure 5 includes elements that are below 100 kV, and does not have contiguous elements operating at or above 100 kV but less than 300 kV. As noted above, while the Commission finds that these configurations should not be eligible for exclusion E1, we believe that they should be eligible for the local network exclusion. Therefore, we direct NERC to modify exclusion E3 to remove the 100 kV minimum operating voltage in the local network definition. Within 30 days of the effective date of this Final Rule, we direct NERC to submit a schedule outlining how and when it will make the modification to the definition. c. 300 kV Cap NOPR Proposal 200. NERC explained the selection of a 300 kV cap for the applicability of an exclusion for a local network was based upon recent NERC standards development work in Project 2006–02 ‘‘Assess Transmission Future Needs and Develop Transmission Plans’’ which sets a voltage level of 300 kV to differentiate extra high voltage (EHV) facilities from high voltage facilities acting as a threshold to distinguish between expected system performance criteria.172 In the NOPR, the Commission noted that NERC provided an example of the electrical interaction between a typical local network and the bulk electric system which depicted a local network operating at 115 kV. However, the Commission observed that NERC did not provide examples of a local network operating within the 200 to 300 kV range. The Commission expressed concern whether the 300 kV ceiling is appropriate and reflects actual system configurations that serve local distribution, the stated purpose of the local network exclusion. Thus, the Commission requested comment whether the 300 kV ceiling is appropriate for the application of exclusion E3 and requested examples of systems between 200 and 300 kV that would qualify for this exclusion. Comments 201. NERC asserts that the 300 kV cap is appropriate. NERC reiterates that the voltage cap is consistent with the distinction being made between extra 170 WREA VerDate Mar<15>2010 17:19 Jan 03, 2013 high voltage and high voltage in the Reliability Standard TPL–001–2. NERC adds that the important attributes of a local network are the limit on capacity of connected non-retail generation, prohibition of power flow out of, or through, the local network, and prohibition of local networks containing flowgates or major transfer paths. NERC maintains that these attributes, rather than the operating voltage of the local network facilities, assure that local networks do not impact reliability of the interconnected transmission network. 202. Most commenters agree that the 300 kV threshold is appropriate.173 With respect to the Commission’s request for examples of systems between 200 and 300 kV that would qualify for this exclusion, ICNU states that, one of its members operates a large industrial facility that takes service from the bulk electric system from two transformers, both of which operate at 230 kV on the high side, but step down to 13.5 kV for distribution within the complex. According to ICNU, this industrial plant serves no reliability function and serves only the retail load, but if the ceiling for exclusion E3 were lowered to 200 kV, this network potentially would not be excluded because it contains some elements operating between 200–300 kV. ICNU believes that the function of a local network, rather than its voltage, is the critical factor in excluding it from the bulk electric system and therefore, recommends a local network exclusion based on function, not voltage. Nonetheless, to the extent a ceiling is deemed necessary, ICNU states that the 300 kV threshold is appropriate. 203. WPPC supports the 300 kV ceiling and WPPC states that the ceiling reflect industry’s extensive use of 115– 230 kV system to provide distribution service through a local network. WPPC points out that in low density areas it is more economical to serve load using one 230 kV network rather than four 69 kV networks. WPPC adds that many 55 and 69 kV networks that serve towns and cities have been upgraded to 115 or 230 kV for economic, technical and environmental reasons, but raising the voltage does not change their function. 204. In contrast, BPA, Hydro One, and WREA express concern regarding the 300 kV cap. BPA states that the 300 kV ceiling may not ‘‘reflect[] actual system configurations that serve local distribution, the stated purpose of the local network exclusion.’’ 174 BPA believes that exclusion E3 should not apply to any facility above 200 kV, without appropriate review, analysis, 173 E.g. 172 NERC Jkt 229001 PO 00000 BES Petition at 23. Frm 00030 Fmt 4701 Sfmt 4700 National Grid, AEP, ICNU, and WPPC. Comments at 8. 174 BPA E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations and concurrence, from the impacted transmission operator, planning authority, and reliability coordinator. BPA states that fault magnitudes on systems between 200 kV and 300 kV are much higher than fault magnitudes on systems operated below 200 kV. According to BPA, these systems have a much higher potential for serious impacts than networks operating below 200 kV if something fails to operate properly, including cascading outages, transient instability, and post transient voltage instability. 205. Hydro One believes that the 300 kV cap associated with the applicability of exclusion E3 is not justifiable on technical grounds, and submits that certain systems with greater than 300 kV should be able to qualify for exclusion E3 based on their own merits. Hydro One states that a radial or a local network below 300 kV can have as much or more impact on the reliability of the interconnected transmission network than a local network operating at 300 kV or above depending upon its location and configuration. WREA also disagrees with the 300 kV ceiling and recommends that the Commission delete this limitation entirely. Commission Determination 206. The Commission approves the 300 kV voltage threshold for local networks for the initial implementation of the definition. While we approve the 300 kV threshold, the limited number of examples provided for 200–300 kV systems cause us to seek additional information. Thus, following implementation when actual exclusion data is available, the Commission directs NERC to submit a compliance filing within one year of the implementation date identifying in sufficient detail the types of local network configurations that have been excluded from the bulk electric system under this exclusion. This will assist us in better understanding the type and magnitude of systems that fall into above 200 kV category. d. Criterion (a)—Limits on Connected Generation mstockstill on DSK4VPTVN1PROD with NOPR Proposal 207. Exclusion E3 criterion (a) provides that the local network and its underlying elements do not include the blackstart resources identified in inclusion I3 and do not have an aggregate capacity of non-retail generation greater than 75 MVA gross nameplate rating. In addition, criterion (a) does not limit the amount of generation besides ‘‘non-retail generation’’ connected to the local VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 network. The Commission stated in the NOPR that it agrees with NERC that ‘‘local networks’’ do not include blackstart resources and agrees with the limits on the connected generation imposed by this exclusion. The Commission also stated that similar to the discussion of the definition of ‘‘radial systems’’ in exclusion E1, the exclusion E3 local network exclusion applies to ‘‘transmission Elements,’’ but does not exclude generation resources connected to a local network that otherwise satisfy inclusion I2. Comments 208. NERC concurs with the Commission’s statement that ‘‘local networks’’ do not include blackstart resources and agrees with the limits on the connected generation imposed by this exclusion. NERC, EEI, Alameda, Hydro One, and WREA state that, whether or not generation is included in the bulk electric system is determined by inclusions I2 through I4 and exclusion E2. In addition, NERC confirms that exclusion E3 does not exclude generation resources. 209. In contrast, some commenters are concerned about allowing generators identified in inclusion I2 to be connected to local networks. Idaho Power states that it is not appropriate to exclude a local network if it contains generation that would normally be included in the bulk electric system through inclusion I2.175 PSEG Companies states that ‘‘there is confusion created by the fact that generators included in the [bulk electric system] definition per [inclusion] I2 are at the same time excluded under [exclusions] E2 and E3.’’ 176 According to PSEG Companies, a generator cannot be included under one provision of the bulk electric system definition and excluded under another provision and that this issue requires clarification and, once clarified, the bulk electric system definition needs to be modified accordingly. 210. Some commenters seek clarification of exclusion E3 criterion (a) regarding the term ‘‘non-retail.’’ 177 Barrick and the IUU raise several questions about exclusion E3. First, they claim that the phrase ‘‘not * * * nonretail generation’’ is unclear and question whether it means generation used for retail. They also question whether exclusion E3 excludes generation resources for an owner’s own use or generation used for wholesale. 175 Idaho Power Comments at 10. Comments at 11. 177 E.g., Barrick, IUU, and PSEG. 176 PSEG PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 833 They also ask how the term ‘‘non-retail’’ relates to ‘‘net capacity.’’ 211. While Holland supports the exclusion of local networks from the bulk electric system, Holland argues that criteria (a) and (b) should be eliminated because they limit the amount of connected generation, even where the connected generation is distributed locally. Holland states that exclusion E3(a) improperly maintains the aggregate 75 MVA limit for connected generation. Holland believes this limit is inconsistent with the concept of a local network and should be removed. Holland explains that if the local network does not accommodate bulk power transfer across the interconnected system, then the amount of generation that exists and is distributed within that system, regardless of size, is distributed and consumed locally, and is therefore beyond the scope of FPA Section 215. Holland maintains that, if the Commission does not remove exclusion E3(a) in its entirety, it should require the limitation to be based on the net of the local network’s total load, rather than the gross nameplate rating. 212. NESCOE contends that three conditions in exclusion E3 would unnecessarily include some New England networks in the bulk electric system without any clear reliability benefit. In particular, NESCOE states that the limits on connected generation should be raised to 300 MVA instead of 75 MVA, stating that the northeast portion of the eastern interconnection defines a 1200 MVA loss of source as the largest contingency to which the control area is designed to operate. Therefore, NESCOE believes that 25 percent of that contingency at 300 MVA falls well within typical loss of source expectations for the northeast. Alameda suggests that the Commission raise the connected generation limitation for local network exclusions to 150 MVA. According to Alameda, since the local network is comparable to two radials, limiting a local network to 75 MVA could result in entities choosing to operate two less reliable radial systems, each with 75 MVA of generation, rather than one local network with 150 MVA of generation to avoid a designation as bulk electric system for their local network. Commission Determination 213. We find that the local network exclusion only applies to ‘‘transmission Elements’’ and does not allow the exclusion of generation resources otherwise included in the bulk electric system pursuant to inclusion I2, as E:\FR\FM\04JAR2.SGM 04JAR2 834 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations exclusion E1, the Commission directs NERC to implement exclusion E3 so that the exclusion for local networks does not apply to bulk electric system generator tie-lines operated at or above 100 kV as shown in the figure below. local network and the local network does not transfer energy originating outside the local network for delivery through the local network. The Commission noted in the NOPR that, pursuant to criterion (b), generation produced inside a local network is not transporting power to other markets outside the local network. The Commission stated in the NOPR that it understands that criterion (b) applies in both normal and emergency operating conditions.178 219. NERC states that prohibitions on outbound power flow and transportation of power to other markets beyond the local network apply in all conditions, both normal and contingent, and will eliminate the exclusion of facilities which may contribute power flow into the bulk electric system under contingent or unusual circumstances. According to NERC, basing the determination solely on normal conditions could lead to inconsistent application of this exclusion and would introduce subjectivity into the application of the definition. 220. Duke Energy agrees with NERC’s comment that prohibitions on outbound power flow beyond the local network apply in ‘‘both normal and contingent conditions,’’ but believes that ‘‘contingent’’ should be further clarified as limited to N–1 contingencies for the bright line definition. Idaho Power also agrees, and comments that additional clarification is needed to define whether the meaning of ‘‘emergency conditions’’ includes contingencies within the local network itself. In contrast, Southern Companies states that criterion (b) would apply in normal but not emergency operating conditions. MISO cautions against precluding local e. Criterion (b)—Power Flows Only Into the Local Network NOPR Proposal 217. Exclusion E3 criterion (b) specifies that, to qualify for the exclusion, power can only flow into the VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 Comments 218. NERC confirms, and TAPS, Idaho Power and others concur with the Commission’s understanding that, pursuant to criterion (b), generation produced inside a local network is not transporting power to other markets outside the local network. NERC and other commenters also agree that criterion (b) applies in both normal and emergency operating conditions. 178 See NOPR, 139 FERC ¶ 61,247 at P 98 (citing NERC BES Petition, Exh. E at 59 (‘‘The Commission directed NERC to revise its BES definition to ensure that the definition encompasses all Facilities necessary for operating an interconnected electric Transmission network. The SDT interprets this to include operation under both normal and Emergency conditions * * *.’’)). PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 E:\FR\FM\04JAR2.SGM 04JAR2 ER04JA13.005</GPH> the inclusion I2 should not qualify for exclusion as radial systems or local networks. Rather the tie-lines can be considered for exclusion under NERC’s exception process. Accordingly, consistent with the Commission’s directive discussed above regarding 215. In response to Barrick’s and IUU’s requests for clarification, we decline to clarify the terms/phrases ‘‘non-retail,’’ ‘‘gross plant/facility,’’ ‘‘not necessary,’’ ‘‘aggregate,’’ ‘‘net capacity,’’ and ‘‘retail meter.’’ We believe the terms/phrases are sufficiently clear. However, Barrick and IUU may pursue further clarification from NERC in an appropriate forum such as NERC’s Phase 2 project. 216. With regard to the comments of Holland, NESCOE and Alameda, we will not direct any change in the connected generation limitation for the local network exclusion. The limit on connected generation within the local network is consistent with the existing threshold above which a generating plant in aggregate becomes subject to registration under the NERC Registry Criteria. Entities may avail themselves of the exception process to exclude a local network that otherwise does not qualify pursuant to exclusion E3. mstockstill on DSK4VPTVN1PROD with discussed above in our determination regarding exclusion E1. 214. Further, as discussed above regarding exclusion E1, the Commission agrees with Idaho Power, PSEG Companies, SmartSenseCom, and AEP that tie-lines for generators identified in mstockstill on DSK4VPTVN1PROD with Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations networks from sending electricity to the transmission system in emergency conditions when doing so could improve the availability of electricity. 221. Portland notes that the application of criterion (b) in both normal and emergency operating conditions is similar to one element of the Seven Factor Test that states that power rarely if ever flows out. Portland suggests that the Commission should clarify the relationship between the Seven Factor Test and the local distribution exception in the reliability regulatory context. 222. Alameda believes that the power flow prohibition should apply only where the flow from the local network is necessary for the reliable operation of the interconnected transmission network. Alameda contends that these conditions would typically apply during peak or near-peak operating conditions and that it would be inappropriate to include a local network in the bulk electric system because generation flowed outside the local network only under off peak conditions when these flows were not vital to reliability. Alameda suggests that the power flow prohibition be modified to allow flows of less than 75 MVA to flow outside the network, making the local networks electrically comparable to radial systems with a 75 MVA generator. 223. ISO New England believes the NOPR suggests an implicit expectation regarding the determination of local networks in that there is no stated requirement for contingency analyses in that determination. ISO New England believes that the Commission understanding of criterion (b) implies that criterion (b) needs to be analyzed both pre- and post-contingency. In such a case, this issue needs to be defined in the exclusion. Additionally, ISO New England requests clarification whether this indicates that one must apply a first contingency to the analysis or a second contingency in determining if the criterion is met. 224. Dow asserts that the requirement that power may only flow into a local network should be clarified to apply only to power that originates outside of, and flows through, a local network. Dow believes that it should not apply to power generated by non-retail generation resources meeting applicable size or export quantity thresholds that are connected to local networks. Dow maintains such a clarification is consistent with other language in the exclusion specifying that up to 75 MVA of non-retail generation may be attached to a local network. Dow views the reference to non-retail generation as intended to apply to generation VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 resources that are used to make wholesale sales which requires that power be able to flow into the bulk electric system for delivery to downstream buyers. Dow also states that exclusion E3 should be clarified to address situations in which a local network does not qualify for the local network exclusion because it is not clear ‘‘whether all facilities rated 100 kV and above that are part of the local network would be considered part of the [bulk electric system] and become subject to transmission-related reliability standards * * *.’’ 179 225. Valero contends that criterion (b) indicates that the existence of a power flow that ‘‘transfers through the local network’’ would disqualify an element from satisfying the exclusion. On the other hand, Valero points to the excerpt from the NERC BES Petition which implies that this meaning of criterion (b) might not be the appropriate interpretation.180 Valero requests that the Commission either clarify as stated above or modify criterion (b) to allow for transfers through the local network if such transfers are not necessary for the reliability of the interconnected transmission network. 226. NESCOE and G&T Cooperatives state that minimal transfers may and do occur, and local networks should not necessarily be ineligible for exclusion E3 simply because some amount of power may transfer out of the network. NESCOE states that the Commission should direct NERC to reevaluate exclusion E3 to allow these minimal flows up to a 100 MVA limit.181 G&T Cooperatives state that even with optimal load projections, there may be times when energy flows into the local network that exceed the load, and in those cases the local network may need to export the excess energy back to the bulk electric system which could create perverse incentives to restrict flows into and out of the local network. G&T Cooperatives suggest that criterion (b) should be read to allow exclusion E3 to cover local networks in which ‘‘normally’’ power flows into the local network and the local network does not transfer energy originating outside the local network for delivery through the local network. 227. Holland states that the exclusion E3(b) criterion is unnecessary and 179 Dow Comments at 6. NERC statement is quoted in the NOPR at P 81: ‘‘[l]ocal networks provide local electrical distribution service and are not planned, designed or operated to benefit or support the balance of the interconnected transmission network.’’ 181 NESCOE states that this represents 25 percent of the rated value of a typical 345/115 kV substation. 180 The PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 835 should be removed. Holland states that exclusion E3(b) appears to be concerned with flows originating from outside of the local network, coming into the local network, and then exiting the local network to loads outside of the local network. According to Holland, however, exclusion E3(c) appears to address this concern because it fails to recognize that a local network may have internal generation that is less than its peak load but in excess of off-peak load levels. Holland states that, if exclusion E3(b) is maintained, then the clause, ‘‘[p]ower flows only into the [local network],’’ should be deleted because it is inconsistent with the second clause, ‘‘the [local network] does not transfer energy originating outside the [local network] for delivery through the [local network].’’ Commission Determination 228. The Commission finds that: (1) pursuant to exclusion E3 criterion (b), generation produced inside a local network should not transport power to other markets outside the local network; and (2) exclusion E3 criterion (b) applies in both normal and emergency operating conditions. The Commission agrees with NERC’s statements that basing the determination solely on normal or optimal conditions could lead to inconsistent application of this exclusion and hence the definition itself, and would also introduce a degree of subjectivity in the application of the definition that is not in the interest of reliability. 229. MISO and other commenters suggest that local networks should be allowed to deliver power to the bulk electric system in some circumstances.182 The Commission agrees that the facilities should supply such power if needed, but disagrees that facilities expected to be needed in this way should nonetheless be excluded from the bulk electric system. If a local network is expected to be needed to operate the interconnected transmission network, i.e., to meet reliability performance criteria in transmission planning assessments, it should not be excluded from the bulk electric system under exclusion E3. The Commission also rejects Holland’s suggestion to remove criterion (b) because NERC has presented an acceptable technical justification for this and the other criteria in exclusion E3.183 In response to Alameda’s comment that some power should be permitted to flow out of a local network during off-peak hours, the 182 E.g. Southern Companies, Alameda, Dow, Valero, NESCOE, Holland and G&T Cooperatives. 183 NERC BES Petition at 22–24. E:\FR\FM\04JAR2.SGM 04JAR2 836 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations Commission disagrees that the brightline definition should be modified for case-specific circumstances. Entities can seek to exclude configurations that do not meet the exclusion E3 criteria through the exception process on a caseby-case basis. The Commission agrees with Portland that criterion (b) is similar to one element of the Seven Factor Test but otherwise addresses what constitutes local distribution above. 230. In response to Idaho Power and ISO New England asking for how emergency conditions are defined to determine if a candidate configuration meets exclusion E3 criterion (b), the Commission believes that the best way to show that a local network meets criterion (b) is through historical power flow data. 231. We will not direct NERC to allow minimal flows up to a 100 MVA limit as NESCOE requests. NESCOE may choose to pursue this matter further with NERC, with the Phase 2 project being one appropriate forum. Similarly, Dow may raise its contention that exclusion E3 should not apply to certain non-retail generation resources during Phase 2. Regarding Dow’s argument that exclusion E3 should be further clarified, we believe our discussion above regarding figure 5 adequately addresses Dow’s concern. mstockstill on DSK4VPTVN1PROD with f. Criterion (c)—Not Part of a Flowgate or Transfer Path 232. Exclusion E3 criterion (c) specifies a ‘‘local network’’ does not contain a monitored facility of a permanent flowgate in the Eastern Interconnection, a major transfer path within the Western Interconnection, or a comparable monitored facility in the ERCOT or Quebec Interconnections, and is not a monitored facility included in an interconnection reliability operating limit. NERC stated that the presence of a local network is not for the operability of the interconnected electric transmission network; neither will the local network’s separation or retirement diminish the reliability of the interconnected electric transmission network.’’ 184 The Commission stated in the NOPR that it believes that this is an appropriate criterion. Comments 233. G&T Cooperatives state that criterion (c) should be clarified to allow local networks to come under exclusion E3 even if they are interconnected with a ‘‘monitored facility of a permanent Flowgate’’ in the Eastern Interconnection or a ‘‘major transfer 184 NOPR, 139 FERC ¶ 61,247 at P 93 (citing NERC BES Petition, Exhibit G at 2). VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 path’’ in the Western interconnection. G&T Cooperatives recognize that such monitored facilities and major transmission paths are important to reliability, but criterion (c) could be read in a manner that would prevent a local network interconnected with such major facilities from qualifying under exclusion E3. G&T Cooperatives do not believe that NERC intended such a broad reading. Commission Determination 234. The Commission finds that exclusion E3 criterion (c) is an appropriate criterion. We agree with NERC that facilities with, e.g., permanent flowgates, cannot be included in a local network as the separation of such facilities during a system event could have an adverse impact on the operation of the interconnected transmission network. The language for criterion (c) only prohibits flowgates and their associated monitored elements from being within a candidate local network. Therefore, we believe the language is sufficiently clear and will not direct NERC to modify this provision in response to G&T Cooperatives request for clarification. 9. Exclusion E4 (Reactive Power Devices) NOPR Proposal 235. Exclusion E4 excludes from the bulk electric system ‘‘Reactive Power devices owned and operated by the retail customer solely for its own use.’’ NERC explained that exclusion E4 is the technical equivalent of exclusion E2 for reactive power devices and that the currently effective bulk electric system definition is unclear as to how these devices are to be treated. In the NOPR, the Commission stated that this is an appropriate exclusion that provides additional clarity and granularity to the definition of bulk electric system. Comments 236. NERC, ELCON and EEI support the Commission’s proposal. Steel Manufacturers Association supports a definitive exclusion for reactive power equipment that is installed and used to benefit end use loads. The exclusion, however, in the Steel Manufacturers Association’s opinion, should not be confined to such devices that are owned and operated by a retail customer solely for its own use because there are instances in which capacitor banks have been installed for the benefit of a steelmaking facility but, for various reasons, that equipment is owned, operated and maintained by its local utility. Consequently, the Steel Manufacturers Association suggests that exclusion E4 PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 be revised to read: ‘‘Reactive Power devices owned and operated by, or installed solely for the benefit of, retail customers.’’ Commission Determination 237. The Commission finds that exclusion E4 is an appropriate exclusion that provides additional clarity and granularity to the definition of bulk electric system. In response to the Steel Manufacturers Association, we will not direct the suggested clarifying change to exclusion E4 criterion. Rather, Steel Manufacturers Association may choose to pursue this matter further with NERC in its Phase 2 project. E. The NERC Rules of Procedure Exception Process, RM12–7–000 NOPR Proposal 238. As described above in section I.D.2, NERC proposed revisions to its Rules of Procedure to provide an ‘‘exceptions process’’ to add elements to, and remove elements from, the bulk electric system, on a case-by-case basis. NERC stated, inter alia, that the exception process decisions to approve or disapprove exception requests will be made by NERC, rather than by the Regional Entities. 239. In the NOPR, the Commission proposed to find that, pursuant to section 215(f) of the FPA, the exception process is just, reasonable, not unduly discriminatory or preferential, and in the public interest and satisfies the requirements of section 215(c). Further, the Commission proposed to find that the proposed exception process satisfies the statement in Order No. 743 that NERC establish an exception process for excluding facilities that are not necessary for the reliable operation of the interconnected transmission network from the definition of the bulk electric system.185 Comments 240. Many commenters support the exception process as proposed. Commenters state that the exception process will be able to handle the more unusual situations that need to be addressed on a case-by-case basis, including sub-100 kV transmission elements that are necessary for the reliable operation of the interconnected transmission network.186 They further state that the exception process balances the need for effective and efficient administration with due process and clarity of expectations and promotes consistency in determinations and 185 See NOPR, 139 FERC ¶ 61,247 at PP 103–04 (citing Order No. 743, 133 FERC ¶ 61,150 at P 16). 186 E.g., ELCON, TAPS, and Southern Companies. E:\FR\FM\04JAR2.SGM 04JAR2 mstockstill on DSK4VPTVN1PROD with Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations eliminates regional discretion by having all decisions on exception requests made at NERC. Southern Companies support approval of the exception process and assert that the Commission should allow time for NERC, Regional Entities and industry to implement the definition and exception process and determine at a later date whether it is sufficiently capturing the appropriate facilities. 241. MISO states that RTOs, as reliability coordinators, planning coordinators or authorities, and balancing authorities, should be allowed to file exception requests. MISO also states that there should be fewer requirements for filing exception requests by RTOs because they have been assigned substantial authority over facilities under their authority by their member transmission owners and operators, and because they utilize rigorous stakeholder processes. Specifically, MISO requests that the Commission direct NERC to modify the exception process to recognize RTO stakeholder processes and their results as evidence that the RTO as the submitting entity conferred with the owner about the reasons for an exception and either an agreement was reached between the entities that an exception should be filed and that the RTO should submit the exception, or that the entities could not reach agreement regarding the submission of such an exception request. 242. NYISO comments that the exception process needs to provide interested parties notice and an opportunity to be heard. NYISO states that ISOs and RTOs have an interest in participating in an exception proceeding prior to a final determination by the Regional Entity or NERC because exception requests may affect them operationally or in their planning studies depending upon the final determination made on the specific exception request. 243. NYPSC and NESCOE are concerned that NERC’s proposal does not give state commissions an opportunity to participate directly in the process. NESCOE states that, without state participation, NERC will not address the full range of substantive concerns that may arise in any given case, and, if the Commission is asked to review an exemption determination, the record presented will not reflect the states’ views. NESCOE is also concerned that the exceptions process lacks a mechanism for a state regulatory authority to initiate review of the classification of an element. NESCOE contends that states may have an interest in the proper classification of VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 bulk electric system facilities, but they are not in a position to submit an exception request because they lack the detailed information required for a submission under the proposal. NESCOE suggests that this can be remedied by allowing a state to request a review from the relevant Regional Entity and to require the Regional Entity to submit a formal exception request if it finds that the classification is inaccurate. In addition, NESCOE believes that a state should have a right to seek review from NERC of the Regional Entity’s determination. 244. In reply comments, NERC disagrees with MISO and explains that the exception process needs to be applied consistently and that the required information should be the same regardless of the identity of the submitter. NERC states that the Detailed Information Form is intended to ensure that a consistent baseline of technical information is provided to the Regional Entity and NERC with all exception requests, in addition to the specific information and arguments submitted by the submitting entity in support of its exception request. The MISO Transmission Owners and AMP support NERC’s comments. 245. NERC also explains that RTOs and ISOs have the ability to file an exception request where they are acting in their capacity as planning authorities, reliability coordinators, transmission operators, transmission planners, or balancing authorities. NERC states that ‘‘the exceptions process is technical and is based on engineering expertise, and these are the necessary parties with the required information.’’ 187 NERC also disagrees regarding a state or third party role and the need for notice and access to information. NERC states that state commissions have other means and methods at their disposal for working with entities to identify candidates for an exception request. NERC notes that the exception process provides that detailed notice of any request would be provided to every registered entity with reliability oversight obligation (e.g., planning authorities, reliability coordinators, transmission operators, transmission planners, or balancing authorities) for the element subject to the request and that general information about an exception request will be publicly posted. NERC also notes that third parties including state regulatory agencies will have adequate opportunity to provide comments regarding the request without formally participating in the process. 187 NERC PO 00000 Reply Comments at 5. Frm 00035 Fmt 4701 Sfmt 4700 837 246. ICNU states that the Commission should make clear that utilities and Regional Entities, not end-use customers should be required to perform the studies to determine if a facility of an end-use customer should be included or excluded. Alameda suggests that the Commission set forth a future date for review of the definition seeking both an effectiveness report from NERC as well as industry comment. 247. IUU and Barrick believe that NERC’s explanation that an exception may be obtained by showing that the element is ‘‘not necessary’’ for reliable operation of the interconnected transmission system is too ambiguous and does not give adequate information as to what may or may not be eligible for an exception. They believe guidance is necessary as to the types of evidence that should be presented in an exception request and the criteria to which the evidence will be subjected. 248. Redding states that the exception process provides that entities are not required to use the exception process to affirmatively demonstrate they fall within the general local distribution carve-out in the core definition or meet one of the exclusions. Redding notes that new section 509 of the Rules of Procedure states that application of the entire definition will determine what facilities qualify as bulk electric system components. Therefore, Redding argues that section 509 confirms that no exception request is necessary if the facility fits within either the local distribution carve-out language of the core definition, or the explicitly identified exclusions. Furthermore, Redding argues that this is confirmed by NERC’s statement that the definition expressly excludes both ‘‘facilities used in the local distribution of electric energy,’’ and radial systems as described in Exclusion E1 of the definition. Redding believes this statement recognizes that facilities that are excluded from the definition at the outset—through either the core definition or the specific exclusions— need not submit any requests through the exemption process confirming that exclusion. 249. Holland is concerned that the exception process is too narrowly focused on excluding facilities that are not necessary for the reliable operation of the interconnected transmission network. Holland does not believe that exceptions should be limited to a demonstration that the facilities lack a material impact to the bulk electric system. Holland supports the exception process for this purpose; however, the lack of materiality demonstration is independent of the question of whether E:\FR\FM\04JAR2.SGM 04JAR2 838 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with the facilities should be excluded on the grounds that they are used in local distribution. Holland believes the Commission should clarify that, for exceptions seeking exclusion based upon a claim of being local distribution, NERC must evaluate additional information submitted, and not merely rely on the criteria in Exclusions E1 through E4. 250. Steel Manufacturers Association is concerned that because the Rules of Procedure provide that only a Regional Entity may submit an exception request for the inclusion in the bulk electric system of an element owned by an owner that is not a registered entity, they do not contemplate that the owner will be notified that its facilities are being considered for inclusion in the bulk electric system. Commission Determination 251. Pursuant to FPA section 215(f), we approve the NOPR proposal and find that the exception process is just, reasonable, not unduly discriminatory or preferential, and in the public interest. Further, we find that the proposal satisfies the statement in Order No. 743 that NERC establish an exception process for excluding facilities that are not necessary for the reliable operation of the interconnected transmission network from the definition of the bulk electric system.188 The exception process balances the need for effective and efficient administration with due process and clarity of expectations and promotes consistency in determinations and eliminates regional discretion by having all decisions on exception requests made at NERC. The exception process also provides for involvement of persons with applicable technical expertise in making decisions on exception requests and allows for an entity to appeal a final NERC decision to the Commission. 252. The exception process provides a reasonable mechanism for the ERO to determine whether a facility or element should be added to, or removed from, the bulk electric system on a case-bycase basis. However, for the reasons explained above in our discussion in section II.C regarding local distribution, the case-by-case determination of whether an element or facility is used in local distribution will be decided by the Commission. 253. We also find that NERC’s explanation, that it was not feasible to develop a single set of technical criteria that would be applicable to all 188 See Order No. 743, 133 FERC ¶ 61,150 at P 16. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 exception requests so it developed the Detailed Information Form (discussed in detail below) to ensure that a consistent baseline of technical information is provided for NERC to make a decision on all exception requests, is reasonable. We find that this information, coupled with the proposed exception process, allows NERC to provide consistent determinations on exception requests submitted from different regions involving the same or similar facts and circumstances, and allows NERC to take into account the aggregate impact on the bulk electric system of approving or denying all the exception requests. Thus, we find that NERC’s proposal is clear, transparent, and uniformly applicable and is as equally efficient and effective as the Order No. 743 directive to establish an exception process for excluding facilities that are not necessary for the reliable operation of the interconnected transmission network. 254. We are not persuaded by Barrick’s and IUU’s comments that more guidance is necessary. Order No. 743 tasked NERC with developing a revised definition and exemption process. NERC noted that it was not feasible to develop a single set of criteria. The Commission believes that applying the 100 kV threshold in the definition, the inclusions and exclusions and the information required in the Detailed Information Form will be a sufficient starting point to enable the ERO to make determinations as to whether an element is necessary for reliable operation of the interconnected transmission network. The body of exception decisions that NERC promulgates will further assist entities in presenting the relevant facts and circumstances when seeking an exception. 255. In response to MISO’s request, we note that RTOs and ISOs, in their capacity as planning authorities, reliability coordinators, transmission operators, transmission planners, or balancing authorities, have the ability to file an exception request.189 We are not persuaded that fewer requirements should apply to exception requests submitted by RTOs and ISOs, and we agree with NERC, MISO Transmission Owners and AMP that the exception process needs to be applied consistently and that the required information should be the same regardless of the identity of the submitter. 256. NYISO comments that the exception process should provide interested parties—particularly ISOs 189 See NERC ROP Petition, Attachment 1, Proposed Appendix 5C, Section 4.1. PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 and RTOs—notice and an opportunity to be heard. As we note above, the exception process affords ISOs and RTOs, in their capacity as planning authorities, reliability coordinators, transmission operators, transmission planners, or balancing authorities, notice and opportunity to comment on elements within their scope of responsibility. 257. Similarly, with regard to NYPSC’s and NESCOE’s comments on the role of state commissions in the exception process, we believe that NERC’s proposal is reasonable and provides an adequate opportunity for state regulator participation. Specifically, NERC explains in its ROP petition that, in developing the proposed Rules, state regulators and others raised concerns about their ability to participate in the exception process. NERC responded that ‘‘the exception process should be one based on the technical reliability issues of the specific case presented.* * * [A] procedure that encouraged or even invited multi-party filings would unduly complicate the process without any concomitant benefit in reliability.’’ 190 However, to provide transparency and some opportunity for participation, the proposed exception process provides that ‘‘(1) detailed notice of any request would be provided to every Registered Entity with reliability oversight obligation for the Element subject to the Request and (2) general information about the request will be publicly posted,’’ thereby allowing third parties including state regulators ‘‘adequate opportunity to provide comments regarding the request without formally participating in the process.’’ 191 We agree that NERC’s proposal strikes an appropriate balance between efficient processing of highly technical decisions and the opportunity for states and other entities to comment in the exception process. Nonetheless, as discussed above, requests for exclusion from the bulk electric system on local distribution grounds will be determined by the Commission on a case-by-case basis. In such proceedings, state regulatory authorities will have an opportunity to intervene and provide comments. 258. We disagree with Redding’s characterization of how the exception process is not necessary for determining whether an element is used for local distribution. Redding’s characterization 190 NERC ROP Petition, Att. 9 (‘‘The Development Process and Basis for the ROP Team’s Recommended Provisions—How Stakeholder Comments were Considered and Addressed’’) at 7. 191 Id. E:\FR\FM\04JAR2.SGM 04JAR2 mstockstill on DSK4VPTVN1PROD with Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations of the exception process leaves the determination of whether an element is used for local distribution in the hands of registered entities or NERC. However, as we explain in the local distribution discussion above, in circumstances where there is a factual question as to whether facilities not otherwise excluded from the bulk electric system by the core definition and four exclusions should nonetheless be excluded because they are used in local distribution, a determination should be made by this Commission. In addition, in our discussion in section II.C above regarding local distribution, we provide direction with respect to how an entity may seek a determination of whether an element is used in local distribution. 259. Regarding Steel Manufacturers Association’s concern that the Rules of Procedure do not contemplate that an owner of an element that is not a registered entity will be notified by a Regional Entity that its facilities are being considered for inclusion in the bulk electric system, we note that section 4.1 of Appendix 5C the Rules of Procedure states that when a Regional Entity requests an exception, the Regional Entity ‘‘shall prepare and submit copies of its exception request (or portions thereof) to all applicable entities* * *.’’ 192 Further, section 4.4 of Appendix 5C provides that, if the submitting entity is not the owner (i.e., is a Regional Entity, planning authority, balancing authority, etc) it must provide a copy of the exception request to the owner. Therefore, if a Regional Entity submits an exception request for an element owned by a non-registered entity, the owner is notified. 260. With respect to Holland’s request for clarification for what must be submitted for a claim of being local distribution, we believe that our discussion above regarding how local distribution elements will be determined addresses Holland’s concerns. 261. In response to ICNU’s comments, the Commission notes that NERC has identified the entities that are responsible for providing the information necessary for an exception request. Section 3.2 of the exception process states that ‘‘the burden to provide a sufficient basis for approval of an exception request in accordance with the provisions of the exception procedure is on the submitting entity.’’ Additionally, in section 4.1 of the exception process, NERC lists the eligible submitting entities as the owner of an element, or a Regional Entity, 192 NERC Rules of Procedure, Appendix 5C, section 4.1. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 planning authority, reliability coordinator, transmission operator, transmission planner, or balancing authority that has (or will have upon inclusion in the bulk electric system) the elements covered by an exception request within its scope of responsibility. 262. Southern Companies state that the Commission should allow time for NERC, Regional Entities and industry to implement the definition and exception process and determine at a later date whether it is sufficiently capturing the appropriate facilities. Similarly, Alameda suggests that the Commission set forth a future date for review of the definition seeking both an effectiveness report from NERC as well as industry comment. First, as discussed below, the Commission is granting NERC’s request for a 24 month implementation plan. The Commission believes that this is sufficient to implement the definition and exception process. In addition, the Commission declines to set a future date to determine effectiveness of the definition and the exception process. 1. How Entities Will Review and Seek Inclusion of Necessary Elements NOPR Proposal 263. In Order Nos. 743 and 743–A, the Commission indicated that our goal is that the definition of bulk electric system should include all facilities necessary for the operation of the interconnected transmission network, except for local distribution. Further, while the Commission explained that one way to meet the goal was to establish a 100 kV ‘‘bright line’’ threshold, the Commission also made clear that the ‘‘bright line’’ threshold would be a ‘‘first step or proxy’’ in determining what facilities should be included in the bulk electric system.193 The NOPR reiterated that, in Order Nos. 743 and 743–A, the Commission held that NERC should not necessarily stop at 100 kV and should, through the development of the exception process, ensure that ‘‘critical facilities operated at less than 100 kV, and that the Regional Entities determine [which facilities] are necessary for operating the transmission network.’’ 194 The Commission clarified that the inclusion of sub-100 kV facilities should be done in an ‘‘appropriate and consistent’’ manner.195 Finally, in the NOPR, the Commission noted that the September 2011 Blackout Report reinforced statements in Order Nos. 743 and 743– 193 Order No. 743–A, 134 FERC ¶ 61,210 at P 40; see also NOPR, 139 FERC ¶ 61,247 at P 106. 194 Order No. 743, 133 FERC ¶ 61,150 at P 121. 195 Order No. 743–A, 134 FERC ¶ 61,210 at P 103. PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 839 A with respect to ensuring that sub-100 kV facilities, as appropriate, are included in the bulk electric system.196 The Commission further noted that the NERC proposals at issue in this rulemaking take steps to address the treatment of sub-100 kV facilities, as well as other facilities, necessary for the operation of the interconnected transmission network, through the exception process. However, in light of the September 2011 Blackout Report, the Commission requested comment on how the relevant entities who control and run facilities on the interconnected transmission network will seek inclusion of sub-100 kV facilities, as well as other facilities, to ensure that all facilities that are necessary for the operation of the bulk power system are designated as bulk electric system elements.197 Comments 264. NERC proposes that entities can identify sub-100 kV facilities for inclusion in a variety of ways: In the course of performing planning assessments, from day-to-day operating experience, or assessment of system events that indicate facilities not identified by application of the definition are necessary for reliable operation of the interconnected transmission network. NERC further states that an entity that requests the inclusion or exclusion of a facility must provide certain technical and engineering support for its request. NERC also points out that the exception process provides for the appeal of a decision to NERC as to whether a facility is part of the bulk electric system. NERC believes this process adequately addresses the issue of whether certain sub-100 kV facilities are included in the bulk electric system. 265. ELCON states that the NOPR’s suggestion that the entities would not take cognizance of Commission or NERC findings related to any sub-100 kV elements that have a material impact on system reliability would call into question the efficacy of the entire construct established by the Commission to address reliability issues. 266. APPA believes that it will be excessively burdensome to industry and small entities if they have to conduct a study of all their sub-100 kV elements. APPA asserts that it would require small registered entities to hire consultants to perform studies to assess the impact of large numbers of non-bulk electric system facilities. 196 NOPR, 197 NOPR, E:\FR\FM\04JAR2.SGM 139 FERC ¶ 61,247 at P 107. 139 FERC ¶ 61,247 at PP 109–10. 04JAR2 840 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with 267. Idaho Power believes that entities could periodically (e.g. every five years) review the impact of sub-100 kV facilities and verify if any of the inclusions would require them to be included and explain why certain sub100 kV facilities are excluded. 268. ISO New England and National Grid believe that, during the conduct of transmission planning system assessments, performed in accordance with requirements of the NERC Transmission Planning Reliability Standards, facilities required for inclusion in the bulk electric system may be identified. Commission Determination 269. As we held in Order Nos. 743 and 743–A, the goal of revising the definition of bulk electric system is to ensure that all necessary facilities are included in the bulk electric system. As we noted in Order No. 743, applying the definition of bulk electric system should be a ‘‘first step or proxy’’ in determining which facilities should be included in the bulk electric system.198 The Commission stated that NERC should not end the inquiry at 100 kV and should, through the development of the exception process, ensure that ‘‘critical’’ facilities operated at less than 100 kV, and that the Regional Entities determine are necessary for operating the interconnection network are included.199 We continue to expect entities to identify and include sub-100 kV facilities, as well as other facilities, necessary for the operation of the interconnected transmission network. In the NOPR we asked how the entities responsible for including elements in the bulk electric system will assure that the all facilities, including sub-100 kV elements, that are necessary for operating the interconnected transmission network will be included in the bulk electric system. We find NERC’s response to that question reasonable: That Regional Entities, planning authorities, reliability coordinators, transmission operators, transmission planners, balancing authorities, and owners of system elements will include, through the exception process, facilities identified in the course of performing planning assessments, from day-to-day operating experience, or assessment of system events that are not included by application of the definition but are necessary for reliable operation of the interconnected transmission network. We believe that entities, having 198 NOPR, 139 FERC ¶ 61,247 at P 106 (citing Order No. 743–A, 134 FERC ¶ 61,210 at P 40). 199 Order No. 743, 133 FERC ¶ 61,150 at P 121. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 knowledge of their systems and the concomitant planning assessments and system impact studies, will identify an element that is necessary for reliable operation of the integrated transmission network while conducting their day-today operations and planning and performing studies. If the element does not fall within the definition, we expect that the entity will submit the element for inclusion through the exception process. Use of this process should ensure that the all sub-100 kV elements, as well as other facilities, necessary for the operation of the interconnected transmission network are included in an ‘‘appropriate and consistent’’ manner. By identifying and seeking inclusion of sub-100 kV facilities, and other facilities, in the bulk electric system through performance of these routine functions, such as those identified by ISO New England and National Grid, we do not expect that entities will have to perform studies indiscriminately to make such determinations. Indeed, comments indicate that the determination of which elements, including sub 100 kV elements, should be included in the bulk electric system is a natural part of an entities’ process for assuring the reliable operation of the grid.200 Thus, the Commission believes that, if a study is needed outside the ordinary course of operations, it would be infrequent. By adopting this approach, we believe that APPA’s concerns about burdensome tasks are alleviated. 2. NERC Role in Identifying Necessary Elements 270. In the NOPR, the Commission observed that, despite NERC’s statutory functions to develop and enforce Reliability Standards, its continent-wide perspective, and technical understanding that can provide valuable assistance in the identification of bulk electric system facilities, the exception process does not provide that NERC may initiate an exception request. Accordingly, the Commission requested comments on the role NERC should have in initiating the designation of or directing others to initiate the designation of sub-100 kV facilities, or any other facilities, necessary for the operation of the interconnected transmission network for inclusion in the bulk electric system.201 The Commission also requested comment on the role NERC should have in designating sub-100 kV facilities, and other facilities, for inclusion in the bulk electric system, directing Regional 200 E.g., ELCON Comments at 8. 139 FERC ¶ 61,247 at P 111. 201 NOPR, PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 Entities or others to conduct such reviews, or itself nominating an element to be included in the bulk electric system. Comments 271. NERC states that inherent in its oversight of the Regional Entities is the ability to request a Regional Entity or others to propose inclusion of sub-100 kV facilities, and other facilities in the bulk electric system. NERC further states that the Rules of Procedure do not limit its ability to perform this function and such action is fully consistent with NERC’s obligations and authority as the ERO. 272. Dominion believes that if NERC wants to nominate a sub-100 kV facility, it could do so through the broad powers assigned to NERC through its Rules of Procedure and/or regional delegation agreements. TAPS maintains that if, through its investigations, risk assessments, or analysis of events, NERC identifies facilities that should be included in (or excluded from) the bulk electric system, it would be appropriate for NERC to have the authority to make such a proposal through the exception process, provided that it implements due process safeguards such as the designation of decisional and nondecisional staff. 273. Several commenters state that NERC should have the ability to nominate a facility for inclusion. SmartSenseCom believes NERC should have authority to initiate an exception request because, even with a bright line standard, there remains the possibility of inconsistent interpretation and application of the definition. ISO–NE states that NERC should have the ability to nominate a facility for inclusion, but the Regional Entities along with planning authorities, reliability coordinators, transmission operators, transmission planners and balancing authorities should be provided an opportunity to review and comment on this nomination. 274. AEP believes that RTOs or Regional Entities ‘‘are equipped to facilitate the efforts to be effective with the exception process.’’ 202 AEP also suggests that NERC and the Commission could assign review of sub-100 kV facilities to the RTOs. AEP states that the RTO processes could be modified to address the exceptions. AEP defers to the judgment of the Commission and NERC in regions where there are currently no functioning RTOs. 275. Other commenters do not support a NERC role as contemplated in the NOPR. SoCal Edison believes that 202 AEP E:\FR\FM\04JAR2.SGM Comments at page 11. 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations NERC should not initiate exception requests to include facilities within the bulk electric system. Rather, SoCal Edison posits that NERC’s role is to communicate to the Regional Entities their obligation to review systems in their area that operate in parallel with the bulk electric system and to include such systems in the bulk electric system. APPA supports consideration of a NERC role in Phase 2 of the project to identify specific reliability gaps but objects to NERC being able to step into the shoes of the Regional Entity. of impropriety, NERC must develop appropriate safeguards. 278. In response to AEP, the Commission will not direct modifications to provide RTOs and ISOs the authority to address exception requests. RTOs and ISOs can submit exception requests in their capacity as planning authorities, reliability coordinators, transmission operators, transmission planners, and/or balancing authorities. Commission Determination 276. NERC states that, as the ERO, and in its oversight of the Regional Entities, it has the ability to request a Regional Entity or others to propose inclusion of sub-100 kV facilities, and other facilities, in the bulk electric system. NERC believes that nothing in the proposed Rules of Procedure limits its oversight obligations and authority as the ERO. The Commission finds NERC’s approach to be reasonable. Section 215(e)(4)(C) of the FPA authorizes the Commission to issue regulations authorizing the ERO to enter into an agreement to delegate authority to Regional Entities if the agreement promotes effective and efficient administration of Bulk-Power System reliability.203 Subsequently, the Commission approved delegation agreements between NERC and the eight Regional Entities.204 Pursuant to the delegation agreements, NERC may issue guidance or directions as to the manner in which a Regional Entity performs delegated functions and related activities.205 Thus, the Commission agrees with NERC that, as the ERO, NERC has the authority to request a Regional Entity or other eligible submitting entity to propose inclusion of sub-100 kV facilities, or other facilities, in the bulk electric system. 277. TAPS supports NERC having the ability to initiate the designation of facilities or elements as part of the bulk electric system, provided that NERC implements due process safeguards such as the designation of appropriate decisional and non-decisional staff. We agree that, to avoid actual or appearance NOPR Proposal 279. In the NOPR, the Commission requested comment on the role the Commission should have with respect to the designation of sub-100 kV facilities, or other facilities, necessary for the operation of the interconnected transmission network for inclusion in the bulk electric system. The Commission observed that ‘‘there may be circumstances (like the September 2011 Blackout Report) where the Commission, through the performance of its statutory functions, may conclude that certain sub-100 kV facilities not already included in the bulk electric system are necessary for the operation of the interconnected transmission network and thus should be included in the bulk electric system.’’ 206 The Commission stated that it expected that Regional Entities and others ‘‘will take affirmative steps to review and include sub-100 kV elements and facilities, and other facilities, necessary for the operation of the interconnected transmission system in the bulk electric system,’’ and requested comment as to how the Commission could ensure that such facilities are considered for inclusion in the bulk electric system.207 The Commission also requested comment on instances when the Commission itself should designate or direct others to designate sub-100 kV facilities, or other facilities, necessary for the operation of the interconnected transmission grid for inclusion in the bulk electric system. 203 16 U.S.C. 824o (2006). American Electric Reliability Corp., 119 FERC ¶ 61,060, order on reh’g, 120 FERC ¶ 61,260 (2007). 205 See, e.g., section 8(d) of the Amended and Restated Delegation Agreement between NERC and Midwest Reliability Organization (* * * the NERC Board (or a Board committee to which the Board has delegated authority) may issue guidance or directions as to the manner in which Midwest Reliability Organization and, if applicable, other Regional Entities, shall perform delegated functions and related activities.’’). mstockstill on DSK4VPTVN1PROD with 204 North VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 3. Commission Role in Identifying Necessary Elements Comments 280. NERC notes that the Commission has authority pursuant to FPA section 215(d)(5) to initiate a Reliability Standards development process that ‘‘addresses a specific matter.’’ According to NERC, for the Commission to play a more active role in the designation of such facilities would be inconsistent with its role as the adjudicator of disputes. 281. Some commenters assert that the Commission has the authority to designate a facility as part of the bulk electric system.208 SmartSenseCom states that, if the Commission is concerned that a facility is necessary for the operation of the interconnected transmission system, it possesses authority to order NERC or a Regional Entity to address that matter. Specifically, SmartSenseCom points to section 215(b) and section 215(d)(5) where the Commission has plenary authority over the ERO and ‘‘all users, owners, and operators of the bulk-power system’’ for the purposes of approving reliability standards and enforcing compliance with those standards.209 SmartSenseCom states that, pursuant to the statutory authority, the Commission could, on its own motion, ‘‘order [NERC] to submit * * * a modification to a reliability standard that addresses a specific matter if the Commission considers such * * * modified reliability standard appropriate to carry out this section.’’ 210 282. Furthermore, SmartSenseCom states that the Commission should be able to review NERC exceptions decisions. SmartSenseCom asserts that NERC decisions should be subject to the discretionary review of the Commission and the Commission should retain the ability to remand or reject an exception determination, pursuant to the Commission’s FPA section 215 statutory authority to approve, disapprove, or remand NERC-proposed Reliability Standards. While the Commission should give NERC’s exception decision ‘‘due weight’’ as required by section 215, SmartSenseCom asserts that the availability of review would ensure reliable operation of existing and future Bulk-Power System facilities. SmartSenseCom also suggests that Commission review of exception decisions would provide industry stakeholders with valuable precedent and clarity on the treatment of certain facilities. 283. Other commenters claim that the Commission does not possess the authority to designate elements as part of the bulk electric system. ISO New England contends that the Commission, as the ultimate decision making authority, should not have a role in nominating facilities for inclusion in the bulk electric system. APPA does not believe that the FPA gives the Commission authority to designate specific elements for inclusion in the 208 E.g., Dominion and SmartSenseCom. Comments at 14, quoting 16 U.S.C. 824o(b). 210 Id. at 14, quoting 16 U.S.C. 824o(d)(5). 209 SmartSenseCom 206 NOPR, 207 NOPR, PO 00000 139 FERC ¶ 61,247 at P 112. 139 FERC ¶ 61,247 at P 112. Frm 00039 Fmt 4701 Sfmt 4700 841 E:\FR\FM\04JAR2.SGM 04JAR2 mstockstill on DSK4VPTVN1PROD with 842 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations bulk electric system. Rather, according to APPA, the Commission’s role is to review NERC decisions. APPA states that policy considerations and Congressional intent also ‘‘militate against direct [Commission] identification of specific facilities or classes of facilities to be included in the [bulk electric system] definition.’’ 211 APPA asserts that, during the course of a Part 1b investigation or other inquiry, the Commission may identify facts that indicate that a registered entity has not properly applied the definition. APPA points to FPA section 215(e)(3) which provides that, after notice and opportunity for hearing, the Commission may enforce compliance by a particular user, owner or operator of the Bulk-Power System with a Reliability Standard, which could include application of the definition within the context of a specific reliability standard. APPA argues, that section 215 contemplates a standard development and enforcement framework in which rules of general applicability, i.e., Reliability Standards, are developed by the ERO on a continent-wide, and are subject to Commission approval prior to the enforcement of such Reliability Standards. In contrast, APPA argues that section 215 contemplates the delegation of enforcement authority by the ERO to Regional Entities that are organized to accomplish this specific purpose. APPA concludes that the Commission, like NERC, should focus its resources on ensuring that Regional Entities enforce compliance with the definition and the Rules of Procedure. 284. SoCal Edison does not support active Commission involvement in designating facilities for inclusion in the bulk electric system. According to SoCal Edison, because the Commission has the authority to review NERC’s decisions in the exceptions procedure, the Commission’s role should be limited to providing to NERC information that the Commission develops on facility categories that should potentially be included in the bulk electric system. Further, SoCal Edison states that NERC should be responsible for communicating that information to Regional Entities for further action and ensuring that those Regional Entities take the appropriate action with respect to such information, and the Commission should ensure that NERC and the regional authorities act upon the information provided by the Commission with respect to such facilities. Commission Determination 285. For the reasons discussed below, we conclude that the Commission has the authority to designate an element as part of the bulk electric system pursuant to our authority set forth in sections 215(a)(1) and (b)(1) of the FPA. We are cognizant of the concerns stated by SoCal Edison and other commenters regarding the appellate role of the Commission, and the desire to allow registered entities and Regional Entities to take the lead in identifying sub-100 kV elements, and other elements, that should be included in the bulk electric system. As explained above, we expect entities to identify and include sub-100 kV elements, and other elements, that are necessary for operating the interconnected transmission network in the bulk electric system. Nonetheless, we believe that in appropriate circumstances, for example, where an event analysis of a system disturbance indicates the operational importance of sub-100 kV elements, and other elements, to bulk electric system reliability, the Commission may find it necessary for the reliable operation of the interconnected transmission network to designate facilities to be included in the bulk electric system. We anticipate that such circumstances will be rare. Consistent with the approach discussed in the NOPR, the Commission would provide public notice and opportunity for public comment before designating facilities as part of the bulk electric system.212 286. Commenters are mistaken in characterizing the Commission’s designation of facilities as bulk electric system as a modification to the bulk electric system definition or other Reliability Standard. Rather, our authority to designate facilities is based on the statutory definition of BulkPower System and the jurisdictional authority vested in the Commission pursuant to section 215 of the FPA. Specifically, section 215(b)(1) of the FPA provides that ‘‘the Commission shall have jurisdiction, within the United States, over * * * all users, owners and operators of the bulk-power system * * * for purposes of approving Reliability Standards established under this section and enforcing compliance with this section.’’ 213 Section 215(a)(1) of the FPA, in turn, defines ‘‘BulkPower System’’ to mean ‘‘facilities and control systems necessary for operating an interconnected electric energy transmission network (or any portion thereof); and electric energy from 212 NOPR, 211 APPA Comments at 20. VerDate Mar<15>2010 17:19 Jan 03, 2013 213 16 Jkt 229001 PO 00000 139 FERC ¶ 61,247 at P 112, n.127. U.S.C. 824o(b)(1). Frm 00040 Fmt 4701 Sfmt 4700 generation facilities needed to maintain transmission system reliability.’’ 214 If an entity owns or operates sub-100 kV elements, or other elements, ‘‘necessary for operating an interconnected electric energy transmission network,’’ the Commission has jurisdiction pursuant to FPA section 215(b)(1) to ‘‘enforc[e] compliance with this section,’’ and to ensure that the approved definition is being implemented properly. 287. For example, an entity may operate sub-100 kV elements, or other elements, that are, pursuant to the modified definition approved in this Final Rule, not treated as part of the bulk electric system. However, an event analysis may reveal that such facilities are ‘‘necessary for operating an interconnected electric energy transmission network.’’ As an appropriate prospective remedy, pursuant to the FPA section 215(b)(1) authority to ‘‘enforc[e] compliance with this section,’’ the Commission could designate the facilities as part of the bulk electric system. This approach is consistent with Commission precedent regarding unregistered entities whose facilities are involved in a violation of Reliability Standards. The Commission determined that, in such situations, the appropriate remedy is to register the entity so that, prospectively, the entity must comply with the relevant Reliability Standards based on the functions performed by that entity.215 288. The Commission would not modify the language of the definition of bulk electric system or the specific inclusions and exclusions. Rather, the Commission would initiate the designation of elements to ensure that the definition is properly applied. To be clear, when, for example, a system disturbance or other event demonstrates the necessity of sub-100 kV elements, or other elements, for reliable operations, we expect in the normal course that registered entities, Regional Entities and NERC will proactively identify and include sub-100 kV elements, or other elements, in the bulk electric system. The Commission’s strong preference is that registered entities review their facilities to determine which are needed for operating the interconnected transmission network and include them in the bulk electric system. However, when it is recognized that an element is necessary for the operation of the interconnected transmission network and no other entity steps forward to 214 16 U.S.C. 824o(a)(1). Reliability Standard Compliance and Enforcement in Regions with Regional Transmission Organizations or Independent System Operators, 122 FERC ¶ 61,247, at P 19 (2008). 215 See E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations designate the element as included in the bulk electric system for purposes of section 215, the Commission has the authority to do so. We anticipate that such instances will be rare. Should the Commission find it necessary and appropriate to exercise this authority, we anticipate that the Commission would, for example, issue either a notice or order proposing to designate a specific element or elements as part of the bulk electric system, and explain the rationale for the proposal. The Commission would make a final determination after providing notice and opportunity for comment by interested parties. 4. Technical Review Panel NOPR Proposal 289. NERC’s exception process provides that the Regional Entity shall not recommend disapproval of the exception request without review by a technical review panel. The Regional Entity is not bound by the opinion of the panel, but the panel’s evaluation becomes part of the record associated with the exception request and provided to NERC. In the NOPR, the Commission stated that it saw value in the Regional Entity receiving the opinion of a qualified technical review panel. The Commission observed that NERC did not explain why the proposed exception process only requires a technical review panel to provide an opinion where the Regional Entity recommends disapproval of an exception request. Accordingly, the Commission requested comment from NERC explaining why the review is only required when a Regional Entity disapproves a request and whether NERC should modify the exception process to require Regional Entities to submit all proposed determinations to a technical review panel regardless of the recommendation and receive the panel’s opinion on each request. mstockstill on DSK4VPTVN1PROD with Comments 290. NERC stated that it considered obtaining the opinion of a technical panel for all Regional Entity recommendations; however, NERC concluded that a review should only be required when a Regional Entity disapproves a request due to concerns regarding administrative efficiency. NERC determined that negative technical reviews would be sufficient to promote consistency and that the additional costs and work of a review of all proposed determinations would outweigh the benefits. NERC further states the record of every request is reviewed by a panel of experts at the VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 NERC level as part of the decision making process. 291. Several entities support NERC’s explanation.216 ELCON believes NERC’s approach will avoid the burden, inefficiency and delay inherent in unnecessary referrals to a technical review panel. ELCON notes that the exception process already calls for submission of in-depth technical information through the Detailed Information Form, initial review by the Regional Entity, and subsequent review and final decision by NERC. ELCON believes that considerable technical expertise will, therefore, be available to both the Regional Entity and to NERC as they assess exception requests. 292. In contrast, some entities believe that a technical panel be convened for either approval or denial of all exceptions.217 They believe that using a panel for all requests will ensure that the requests receive adequate consideration and vetting before a final decision is rendered. WPPC requests that the Commission obtain additional information from NERC with respect to why the Technical Review Panels are not required to review all exception requests that are rejected on procedural grounds. Commission Determination 293. The Commission accepts NERC’s explanation that requiring a technical panel review of all Regional Entity recommendations will likely cause an additional administrative burden on Regional Entities, delaying final recommendations to NERC. While the Commission sees benefits in utilizing a technical review panel for all requests, we are not persuaded that these benefits will outweigh the costs associated with the increased administrative burden likely to be imposed. Additionally, if the Technical Review Panel does not provide an opinion on all exception requests, the exception process is not without other levels of technical review. On the contrary, the exceptions process provides multiple levels of technical review before a final determination is made by NERC, including a substantive review by the Regional Entity and a subsequent review by a panel of technical experts at the NERC level. For these reasons, the Commission approves the Technical Review Panel as proposed by NERC. 294. In response to WPPC’s request, the Commission declines to seek further information from NERC with respect to why the Technical Review Panels are 843 not required to review all exception requests that are rejected on procedural grounds. Section 5.1.5(a) of Appendix 5C to the Rules of Procedure requires a Regional Entity to reject an exception request if it is not from an eligible submitting entity and/or it does not contain all the required information specified in section 4.0. The Commission does not believe a Technical Review Panel needs to determine if an exception request was properly submitted by an eligible entity and/or contains all the required information. Additionally, as WPPC states in its comments, submitting entities may appeal Regional Entity rejections of exception requests to NERC through the procedure provided in section 7.0 of the exception process. Requiring Technical Review Panel review of all rejections of exception requests, as well as all recommendations of disapprovals, would unnecessarily impose administrative burdens as if the Technical Review Panel was required to review all exception request recommendations. For these reasons, the Commission declines WPPC’s request to obtain further information from NERC on this matter. 5. Use of Industry Subject Matter Experts NOPR Proposal 295. Section 8 of the proposed exception process sets forth the procedures for NERC’s review of a Regional Entity’s recommendation. The NERC President will appoint a team of at least three persons with the relevant technical background to evaluate an exception request. NERC contemplated that its review teams would be drawn from NERC staff resources, supplemented by contractors as necessary, but situations may arise in which NERC may need to call on industry subject matter experts to participate as members of review teams. In the NOPR the Commission supported NERC’s proposal to use staff resources, supplemented by contractors as necessary, to make up the exception request review teams. We stated that consistent appointment of the same NERC staff and contractor resources, based on subject matter expertise, will promote a more uniform and consistent review of the Regional Entities’ exception request recommendations. Comments 216 E.g., Idaho Power, ELCON, and G&T Cooperatives. 217 E.g., ISO New England and BPA. PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 296. No comments were received on this issue. E:\FR\FM\04JAR2.SGM 04JAR2 844 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations Commission Determination 297. The Commission agrees with NERC’s proposal to use staff resources, supplemented by contractors as necessary, and potentially industry subject matter experts to make up the exception request review teams. The Commission believes that ensuring that members of the NERC review teams have the required technical background necessary to evaluate exception requests, review supporting technical documents, and assess technical recommendations, is essential to providing consistent technically sound determinations on exception requests. The Commission believes that consistent appointment of the same NERC staff, contractor resources and industry subject matter experts, based on subject matter expertise, will promote a more uniform and consistent review of the Regional Entities’ exception request recommendations. 6. NERC’s Detailed Information Form mstockstill on DSK4VPTVN1PROD with NOPR Proposal 298. NERC developed the Detailed Information Form that the Regional Entity and NERC can use in evaluating whether or not the elements that are the subject of an exception request are necessary for operating the interconnected transmission network. In the NOPR, the Commission stated that this information will provide consistency with respect to the technical information provided with all exception requests and is an equally efficient and effective approach to developing a substantive set of technical criteria for granting and rejecting exception requests and proposed to approve the Detailed Information Form. Comments 299. ELCON supports the Detailed Information Form and agrees that it is ‘‘more feasible to develop a common set of data and information that could be used by the Regional Entities and NERC to evaluate exception requests’’ than to develop the detailed criteria and that the information specified in the form is relevant and appropriate for exception requests. 300. Holland and Alameda state that there should be some basic guidelines to evaluate an exception request. Alameda states that having no technical criteria provides entities with no guidance considering a request for exception. Alameda submits that parties should have a reasonable basis for determining the outcome of a potential exception request in advance of taking the time and effort to make the request. Alameda suggests that the Commission direct VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 NERC to develop appropriate technical exception criteria, recognizing that each criterion may not apply to all requests and that the criterion may even change over time as specific requests are evaluated in detail. Alameda also seeks clarification that parties may seek exceptions for proposed facilities, and not just for existing facilities as allowing exceptions to be requested for proposed facilities would provide an opportunity for entities to make reasoned decisions about planned system improvements. Commission Determination 301. We approve the Detailed Information Form and find that it will provide consistency with respect to the technical information provided with all exception requests and is an equally efficient and effective approach to developing a substantive set of technical criteria for granting and rejecting exception requests. We decline to adopt Alameda’s suggestion that the Commission direct NERC to develop appropriate technical exception criteria. We accept NERC’s conclusion that it was more feasible to develop a common set of data and information that could be used by the Regional Entities and NERC to evaluate exception requests than to develop the detailed criteria. NERC’s proposal provides the needed flexibility to allow Regional Entities to make a recommendation of whether or not an element is necessary for the reliable operation of the interconnected transmission network. Thus, the detailed criteria that NERC requires, plus other information that an entity is free to include in its submission will provide applicants a reasonable basis for determining whether an element is necessary for the reliable operation of the interconnected transmission network. We also decline to direct NERC to determine how to treat exceptions for proposed facilities. 7. NERC’s Implementation Plan NOPR Proposal 302. NERC requests that the effective date for revised definition should be the first day of the second calendar quarter after receiving applicable regulatory approval, or, in those jurisdictions where no regulatory approval is required, the revised bulk electric system definition should go into effect on the first day of the second calendar quarter after its adoption by the NERC Board. NERC also requested that compliance obligations for all newlyidentified elements to be included in the bulk electric system based on the revised definition should begin twentyfour months after the applicable PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 effective date of the revised definition. NERC stated that sufficient time is needed to implement transition plans, for exceptions to be filed and processed, for owners of newly-included elements to train their personnel on compliance with the Reliability Standards. In the NOPR, the Commission supported NERC’s justification for its implementation and proposed to approve NERC’s implementation plan. Comments 303. A number of commenters support the NOPR proposal.218 ELCON states that the twenty-four month time period gives sufficient time to accommodate planning for and changes resulting from the new definition, including any exception requests and compliance obligations, without causing undue delay. Consumers believes the twenty-four month period should be sufficient in most cases but believes that the Commission should make specific provision for longer periods to be allowed on a case-by-case basis under special circumstances. Barrick and IUU also support the implementation plan but believe further clarification is necessary with respect to an entity’s status during the exception process. Commission Determination 304. We agree with commenters that the twenty-four month time period gives sufficient time to accommodate planning for and changes resulting from the new definition, including any exception requests and compliance obligations. Therefore, we approve NERC’s proposal to implement a twenty-four month implementation plan. In response to Consumers’ comment regarding the need for additional time for special circumstances, an entity or NERC may petition for an extension of time. In response to the comments raised by Barrick and IUU, we clarify that the status of an element remains unchanged during the exception process. 8. NERC List of Facilities Granted Exceptions NOPR Proposal 305. In the NOPR, the Commission noted that the proposed exception process does not include provisions for NERC to maintain a list of facilities that have received exceptions, as requested in Order No. 743. In its petition, NERC indicated that this is an internal administrative matter for NERC to implement that does not need to be embedded in the Rules of Procedure. NERC stated it will develop a specific 218 E.g., E:\FR\FM\04JAR2.SGM Consumers Energy, ELCON, and NYISO. 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations internal plan and procedures for maintaining a list of facilities for which exceptions have been granted and notes that Regional Entities will maintain lists of elements within their regions for which exceptions have been granted, in order to monitor compliance with the requirement to submit periodic certifications. 306. In the NOPR, the Commission proposed that NERC make an informational filing within 90 days of the effective date of a final rule, detailing its plans to maintain a list and how it will make this information available to the Commission, Regional Entities, and potentially to other interested persons.219 The Commission also requested comment on whether NERC’s proposal should be modified to include an obligation for the registered entity to inform NERC or the Regional Entity of the entity’s self-determination through application of the definition and specific exclusions E1 through E4 that an element is no longer part of the bulk electric system. mstockstill on DSK4VPTVN1PROD with Comments 307. NERC confirms that it is continuing to develop details regarding how the list of facilities that have received exceptions will be maintained. According to NERC, a 90-day window of time in which to submit an informational filing is reasonable. 308. Other entities support NERC’s plan.220 AEP cautions that the process of submitting a filing must not overstep the confidentiality provisions of Critical Energy Infrastructure Information as part of the gathering and dissemination of list(s). 309. The Massachusetts DPU supports NERC’s keeping a list of exceptions and requests that the Commission requires that state regulatory authorities have appropriate access to the list. ISO New England proposes that NERC submit a compliance filing detailing its internal process for tracking exception requests. ISO New England also believes that NERC and/or the Regional Entities should be required to maintain a database that lists the bulk electric system elements within their respective footprints and should make this data available for affected entities. Commission Determination 310. We adopt the NOPR proposal and direct NERC to make an informational filing within 90 days of the effective date of this Final Rule detailing its plans to maintain a list and how it will make this information 219 NOPR, 139 FERC ¶ 61,247 at P 123. and NRECA. 220 ELCON VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 available to the Commission, Regional Entities, and potentially to other interested persons. We find that the suggestions of the Massachusetts DPU and ISO New England are premature as these comments are more appropriate for consideration after NERC makes its compliance filing. 9. Declassification of Facilities NOPR Proposal 311. In the NOPR, the Commission observed that, while NERC will maintain a list of facilities that have received an exception pursuant to the case-specific exception process, NERC does indicate whether it will track an entity’s ‘‘declassification’’ of current bulk electric system facilities based on the entity’s self-application of the bulk electric system definition.221 The Commission expressed concern particularly when an entity selfdetermines that an element is no longer part of the bulk electric system but the entity is large enough to otherwise remain on the NERC Compliance Registry. Accordingly, the Commission requested comment on whether NERC’s proposal should be modified to include an obligation for the registered entity to inform NERC or the Regional Entity of the entity’s self-determination through application of the definition and specific exclusions E1 through E4 that an element is no longer part of the bulk electric system. Comments 312. NERC asserts that registered entities are obligated to inform the Regional Entity of any selfdetermination that an element is no longer part of the bulk electric system. NERC points to section 501 of the currently-effective Rules of Procedure, which provides that each registered entity must notify its Regional Entity of any matters that affect the registered entities’ responsibilities with respect to Reliability Standards. NERC contends that a determination that an element is no longer part of the bulk electric system would necessarily affect an entity’s responsibilities with respect to the Reliability Standards. Further, NERC states that an entity’s failure to notify would not relieve it of any obligations it may have associated with such failure. 313. Idaho Power and National Grid support that registered entities should inform NERC or the Regional Entity of elements that have been declassified. National Grid supports an obligation for each registered entity to inform the respective reliability coordinators and 221 NOPR, PO 00000 139 FERC ¶ 61,247 at P 123. Frm 00043 Fmt 4701 Sfmt 4700 845 Regional Entity of the entity’s selfdetermination through application of the definition and specific exclusions that an element is no longer part of the bulk electric system. 314. PSEG Companies do not support requiring self reporting. PSEG Companies point out that when the NERC Functional Model was first put in place, registered entities made determinations of which facilities should be included and excluded from the bulk electric system without any reporting requirements for those decisions. PSEG Companies assert that a registered entity should only be contacting its Regional Entity regarding status changes if those changes impact the registered entity’s registration (e.g., if a registered Transmission Owner disposes of all its 100 kV or higher assets or a generation owner acquires its first BES generator). According to PSEG Companies, facility changes that impact a facility’s bulk electric system status do not presently require reporting. The proposed reporting self-determined exclusions could lead to extensive facility-by-facility tracking and reporting of all status changes which would be overly burdensome to Registered Entities. 315. AEP believes that it is imperative to keep the process simple in the beginning, and thus advocates that no specific information submission requirements be implemented at this time. If NERC or the Regional Entities determine this approach is problematic in the future, AEP states that any issues can be addressed through a change in the NERC Rules of Procedure. 316. ICNU states that if NERC requires an end-use retail customer to provide notice of declassification, such notice should not involve extensive or burdensome reporting requirements because, as noted above, end-use customers do not have the required resources or expertise. On the other hand, ICNU believes that non-registered end-use retail customers who, based on the new BES definition, determine that they remain excluded from the BES should not be listed or required to report such determination to NERC or the appropriate Regional Entity. Commission Determination 317. We agree with NERC that registered entities are obligated to inform the Regional Entity of any selfdetermination that an element is no longer part of the bulk electric system. PSEG Companies claim that there is currently no requirement to report the change in status of facilities. NERC, however, cites section 501 of the currently-effective Rules of Procedure, E:\FR\FM\04JAR2.SGM 04JAR2 846 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations which provides that each registered entity must notify its Regional Entity of any matters that affect the registered entities’ responsibilities with respect to Reliability Standards. Section 501 also requires entities to inform the Regional Entity of any self-determination that an element is no longer part of the bulk electric system. Section 501, Part 1.3.5 provides: Each Registered Entity identified on the NCR shall notify its corresponding Regional Entity(s) of any corrections, revisions, deletions, changes in ownership, corporate structure, or similar matters that affect the Registered Entity’s responsibilities with respect to the Reliability Standards. Failure to notify will not relieve the Registered Entity from any responsibility to comply with the Reliability Standards or shield it from any Penalties or sanctions associated with failing to comply with the Reliability Standards applicable to its associated Registration. Thus, a registered entity that concludes that an element is no longer part of the bulk electric system must notify the Regional Entity of such change. Further, we disagree with PSEG Companies that such notification is unnecessary. PSEG Companies point out that NERC did not require such notification when the Functional Model was first put into place. Regardless of past practice, we find that such notification is a necessary feature of the changes being implemented by NERC. As explained in the NOPR: mstockstill on DSK4VPTVN1PROD with A large utility with hundreds or thousands of transmission lines may initially determine that a configuration on its system does not qualify for the exclusion E3 local network exclusion, but subsequently determines that the configuration can be excluded. NERC’s petition does not indicate whether an entity in such circumstance is obligated to inform NERC or the appropriate Regional Entity of that self-determination. It appears that NERC and the Regional Entities would need this information for their compliance programs, for audit purposes, and to understand the contours of the bulk electric system within a particular region. Further, the revised definition allows entities the discretion to ‘‘declassify’’ certain facilities as part of the bulk electric system, and NERC, Regional Entities and the Commission need notification of such instances to assure that the entities are appropriately implementing the revised definition. 318. We affirm ICNU’s assertion that this task does not involve new, extensive or burdensome reporting requirements. We view this as an identification and notification task so that a Regional Entity and NERC will know what elements are or not part of the bulk electric system. This will provide the entities tasked with overseeing the reliable operation of the VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 interconnected transmission network with having an adequate level of information and transparency to fulfill those obligations. We disagree with PSEG Companies that this is an overly burdensome requirement. First, such information sharing is already contemplated by the Rules of Procedure. Second, as noted above, we do not view this requirement as one that involves anything more than notification. It does not require a justification of why the element is being excluded. III. Information Collection Statement 319. The Office of Management and Budget (OMB) requires that OMB approve certain information collection and data retention requirements imposed by agency rules.222 Upon approval of a collection(s) of information, OMB will assign an OMB control number and an expiration date. Respondents subject to the filing requirements of a rule will not be penalized for failing to respond to these collections of information unless the collections of information display a valid OMB control number. Public Reporting Burden and Information Collection Costs 320. In the NOPR, the Commission solicited comment on the need for collecting the information that is required to be prepared, maintained and/or submitted pursuant to this Final Rule, whether the information will have practical utility, the accuracy of the burden estimates, ways to enhance the quality, utility, and clarity of the information to be collected or retained, and any suggested methods for minimizing respondents’ burden, including the use of automated information techniques. The NOPR also included a chart that identified the estimated public reporting burdens for the proposed reporting requirements, as well as a projection of the costs of compliance for the reporting requirements. The Commission asked that any revised burden estimates submitted by commenters be supported by sufficient detail to understand how the estimates are generated. The Commission based its burden estimate on the revised definition of bulk electric system developed by NERC. 321. In the NOPR, the Commission stated that the proposal would result in entities reviewing systems and creating qualified asset lists, submitting exception requests where appropriate, and certain responsible entities having to comply with requirements to collect and maintain information in mandatory 222 5 PO 00000 CFR 1320.11 (2011). Frm 00044 Fmt 4701 Sfmt 4700 Reliability Standards with respect to certain facilities for the first time. The Commission requested comment on the estimated number of entities that will have an increased reporting burden associated with the identification of new bulk electric system elements as a result of the modified definition. In developing an estimate of the reporting burden associated with the inclusion of additional elements, like NERC, the Commission assumed that entities in the NPCC Region will be most affected, with a lesser affect in other regions. Comments 322. NRECA and APPA do not take a position on the estimates but observe that modifications to the proposed definition or directives to NERC may result in substantial changes to the burden estimates and the assessment of whether the which would require the Commission to re-assess its burden and small business impact determinations. Similarly, APPA and WPPC believe that any changes to the proposed definition in the Final Rule that would include additional facilities would cause a significant increase in the reporting burden on the industry. APPA believes that if the Commission were to direct NERC to make revisions to the specific inclusions or exclusions without technical justification, the exception process would quickly become overloaded, with burdens on those seeking exceptions and those ruling on them. 323. A number of commenters state that the NOPR underestimated the burden of the rulemaking in terms of hours required to comply. APPA believes that the Commission underestimates the information collection costs and the costs of compliance for small utilities. For example, the Commission’s assumption that utility staff would be used to conduct an analysis is not merited in the case of many small entities. APPA states that many of its smaller members do not have the in-house employees and resources to conduct such reliability analyses and would have to rely on outside consultants and legal firms. Therefore, APPA estimates that the fees small utilities would pay for each of the services, based on information and belief, as follows: Consulting Engineer, $225/hour; Record Keeping, $75/hour; and Legal, $500/hour. 324. Idaho Power contemplates five local network exclusions which contain sixty 100 kV and above lines, and its estimates for the time involved to document these exceptions leads it to believe the Commission is underestimating the number of engineer E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations hours per entity’s responses. According to Idaho Power, based on an initial review of potential exceptions, Idaho Power may seek approximately 9–12 exceptions. Idaho Power agrees with the estimate that transmission owners, generator owners, and distribution providers will experience more significant reporting burdens than other categories of registered entities. 325. ISO New England believes that there could be a significant burden on planning coordinators and transmission planners which is not addressed in the table shown in the NOPR. ISO New England states that, while it has not performed a similar analysis, it appears that the ‘‘Year 1’’ estimates in the table in the NOPR are significantly understated in view of the resources that it believes will be necessary to establish the initial list. According to ISO New England, the estimate of approximately $13 million expended over the entire system seems overly optimistic. BPA anticipates, based on customer feedback, that the BPA footprint alone will experience several hundred exception requests in the first two years. BPA estimates the additional workload from evaluating the exception requests will be approximately five to six full time equivalents which includes one full time coordinator, a customer service engineer for system verification, a planner to run studies, an operations engineer, and dispatch personnel for real-time system impacts. NYPSC and the Massachusetts DPU contend that the costs of compliance with the definition will be excessive. NYPSC cites to a 2009 report from NERC and NPCC, that the compliance costs would exceed $280 million. mstockstill on DSK4VPTVN1PROD with Commission Determination 326. Commenters raise concerns that modifications to the proposed definition or directives to NERC may result in substantial changes to the burden estimates. While the Commission is requiring one modification to the language in the NERC proposal, the VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 Commission finds that it does not need to reassess the burden estimates because the change is intended to simply make more explicit what NERC and other commenters indicate is the expected application of the proposed definition to a low-voltage, looped system as depicted in figures 3 and 5 above. Therefore, we do not anticipate the one modification to result in a significant change to what elements are considered part of the bulk electric system or applications for case-by-case exceptions. The burden estimates in this Final Rule represent the incremental burden changes related only to increased reporting burden associated with the identification of new bulk electric system elements as a result of the modified definition. Furthermore, we acknowledge that NPCC may be subject to additional reporting requirements, however, the burden estimates are averages for all of the filers. Idaho Power’s observation that the Commission is underestimating the number of engineering hours is not supported by analysis. Similarly, we are not persuaded by ISO New England’s position that there may be a significant burden on planning coordinators and transmission planners associated with proposed definition because it does not offer any analysis to support this assertion. The Commission expects any burden for planning coordinators and transmission planners to be de minimis or incorporated under their existing responsibilities. In any event, Idaho Power and ISO New England did not provide any estimates of the number of hours that it would take to determine exceptions, nor suggest alternative estimates. In response to APPA’s hourly estimates that are higher than the estimates in the NOPR the Commission notes that its hourly rate estimates for the burden estimates are averages for all of the filers and are based on national wage data for utilities obtained from the Bureau of Labor Statistics (for engineers and legal) and NPCC’s assessment of Bulk Electric System Definition (for PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 847 completing implementation plans and compliance), and Commission staff outreach (recordkeeping). Thus, the Commission adopts the burden estimates that it set forth in the NOPR. 327. The Commission disagrees with BPA that there may be a large number of exception requests generated from entities within its footprint that may have to be processed and the significant addition of FTEs. First, BPA has not provided any analysis or evidence to support its claim. Nevertheless, the Commission’s expectation, like NERC’s, is that application of the definition with its inclusions and exclusions should not materially change what is considered part of the bulk electric system today. Thus, the number of exception requests should not be excessive. 328. Some comments address the potential impact the requirements would have on small entities but did not provide specific estimates on this impact. Because these comments are also the subject of the analysis performed under the Regulatory Flexibility Act, the Commission has provided a response under that section of this rulemaking. 329. We are not persuaded by NYPSC and Massachusetts DPU that the costs for compliance will be $280 million. First, NYPSC nor Massachusetts do not dispute or address the specific information collection cost estimates in the NOPR. In addition, the vast majority (approximately $234 million) of the costs included in the report to which the commenters cite appear to be capital costs which are not applicable to an information collection estimate. Further, the report does not account for the revised language in the definition of bulk electric system and the specific inclusions and exclusions that we are approving in this Final Rule. 330. After consideration of comments, the Commission adopts the NOPR proposal for the Public Reporting Burden and the information collection costs as follows. E:\FR\FM\04JAR2.SGM 04JAR2 848 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations Number and type of entity 223 (1) Number of responses per entity (2) Average number of hours per response (3) 333 Transmission Owners 1 response ........................ 80 (engineer hours) .......... 26,640 Yr 1. 16 (engineer hours) .......... 24 (engineer hours) .......... 94 (60 engineer hrs, 32 recordkeeping hrs, 2 legal hrs). 13,488 Yr 1. 13,296 Yr 1. 24,393 hrs in Yrs 1 and 2. 1,880 hrs in Yr 3 and ongoing. 1,386.67 hrs ...................... 12,480 hrs in Yrs 1 and 2. 77,700 hrs 38,850 hrs going. 52,500 hrs 26,250 hrs going. Requirement System Review and List Creation 224. Regional and ERO Handling of Exception Requests 226. Implementation Plans and Compliance 227. Totals .......................... .260 responses each in Yrs 1 and 2. 20 responses in Yr 3 and ongoing. 1 response ........................ 111 NPCC Region Registered Entities 228. 1 response ........................ 75 Registered Entities from 7 other Regions. Exception Requests 225 ..... 843 Generator Owners ..... 554 Distribution Providers 1,730 total Transmission Owners, Generator Owners and Distribution Providers. NERC and 8 Regional Entities. 1 response ........................ 700 hrs 350 hrs ing. 700 hrs 350 hrs ing. ........................................... ........................................... ........................................... Costs to Comply mstockstill on DSK4VPTVN1PROD with • Year 1: $13,641,200. • Year 2: $10,435,760. • Year 3 and ongoing: $4,343,520. For the first two burden categories above, the loaded (salary plus benefits) 223 The ‘‘entities’’ listed in this table are describing a role a company is registered for in the NERC registry. For example, a single company may be registered as a transmission owner and generator owner. The total number of companies applicable to this rule is 1,522, based on the NERC registry. The total number of estimated roles is 1,730. 224 This requirement corresponds to Step 1 of NERC’s proposed transition plan, which requires each U.S. asset owner to apply the revised bulk electric system definition to all elements to determine if those elements are included in the bulk electric system pursuant to the revised definition. See NERC BES Petition at 38. 225 We recognize that not all 1,730 transmission owners, generator owners, and distribution providers will submit an exception request. Rather, from the total 1,730 entities, we estimate an average of 260 requests per year in the first two years, based on a low to high range of 87 to 433 requests per year. Therefore, the estimated total number of hours per year for years 1 and 2, using an average of 260 requests per year, is 24,393 hours. We estimate 20 requests per year in year 3 and ongoing. 226 Based on the assumption of two full-time equivalent employees added to NERC staff and 0.5 full-time equivalent employees added to each region’s staff, each full-time equivalent at $120,000/ year (salary + benefits). 227 The Commission does not expect a significant number of registered entities outside of the NPCC region to identify new elements under the revised bulk electric system definition. NERC also states that the other Regional Entities do not expect an extensive amount of newly-included facilities. See NERC BES Petition at 38. ‘‘Compliance’’ refers to entities with new elements under the new bulk electric system definition required to comply with the data collection and retention requirements in certain Reliability Standards that they did not previously have to comply with. 228 The estimated range of affected NPCC Region Registered Entities is from 66 to 155 entities. VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 costs are: $60/hour for an engineer; $27/ hour for recordkeeping; and $106/hour for legal. The breakdown of cost by item and year follows: • System Review and List Creation (year 1 only): (26,640 hrs + 13,488 hrs + 13,296 hrs) =53,424 hrs * 60/hr = $3,205,440. • Exception Requests (years 1 and 2): (sum of hourly expense per request * number of exception requests) = ((60 hrs * $60/hr) + (32 hrs * $27/hr) + (2hrs * $106/hr)) * 260 requests) = $1,215,760. • Exception Requests (year 3): (sum of hourly expense per request * number of exception requests) = ((60 hrs * $60/hr) + (32 hrs * $27/hr) + (2 hrs * $106/hr)) * 20 requests) = $93,520. • Regional and ERO handling of Exception Requests: Between NERC and Regional Entities we estimate 6 full time equivalent (FTE) engineers will be added at an annual cost of $120,000/ FTE ($120,000/FTE * 6 FTE = $720,000). This cost is only expected in years 1 and 2. • Implementation Plans and Compliance 229 (years 1 and 2): (hourly expense per entity * hours per response * sum of NPCC and non-NPCC entities) = ($64/hour * 700 hours per response * 186 responses) = $8,332,800. 229 The cost and hourly burden calculations for this category are based on a past assessment (NPCC Assessment of Bulk Electric System Definition, September 14, 2009.). In that assessment NPCC indicated $8.9 million annually for operations, maintenance and additional costs. We estimated that roughly half of that cost actually relates to information collection burden. Using the resulting figure, we used a composite wage and benefit figure of $64/hour to estimate the hourly burden figures presented in the burden table. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 in Yrs 1 and 2 ...... in Yr 3 and ongoin Yrs 1 and 2 ...... in Yr 3 and ongo- Total burden hours (1)*(2)*(3) in Yrs 1 and 2. in Yr 3 and onin Yrs 1 and 2. in Yr 3 and on- 220,497 hrs in Yr 1. 167,073 hrs in Yr 2. 66,980 hrs in Yr 3 and ongoing. • Implementation Plans and Compliance (year 3 and beyond): We estimate the ongoing cost for year 3 and beyond, at 50% of the year 1 and 2 costs, to be $4,166,400. Title: FERC–725–J ‘‘Definition of the Bulk Electric System’’.230 Action: Proposed Collection of Information. OMB Control No: 1902–0259. Respondents: Business or other for profit, and not for profit institutions. Frequency of Responses: On Occasion. Necessity of the Information: The revision to NERC’s definition of the term bulk electric system implements the Congressional mandate of the Energy Policy Act of 2005 to develop mandatory and enforceable Reliability Standards to better ensure the reliability of the nation’s Bulk-Power System. Specifically, the revised definition ensures that certain facilities needed for the operation of the nation’s bulk electric system are subject to mandatory and enforceable Reliability Standards. Internal review: The Commission has reviewed the proposed definition and made a determination that its action is necessary to implement section 215 of the FPA. The Commission has assured itself, by means of its internal review, that there is specific, objective support for the burden estimate associated with the information requirements. 331. Interested persons may obtain information on the reporting requirements by contacting the Federal Energy Regulatory Commission, Office 230 All of the information collection requirements for years 1–3 in the proposed rule are being accounted for under the new collection FERC–725J. E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations of the Executive Director, 888 First Street NE., Washington, DC 20426 [Attention: Ellen Brown, email: DataClearance@ferc.gov, phone: (202) 502–8663, fax: (202) 273–0873]. 332. For submitting comments concerning the collection of information and the associated burden estimate, please send your comments to the Office of Management and Budget, Office of Information and Regulatory Affairs, Washington, DC 20503 [Attention: Desk Officer for the Federal Energy Regulatory Commission, phone: (202) 395–4718, fax: (202) 395–7285]. For security reasons, comments to OMB should be submitted by email to: oira_submission@omb.eop.gov. Comments submitted to OMB should include Docket Number RM12–6 and OMB Control Number 1902–0259. mstockstill on DSK4VPTVN1PROD with IV. Regulatory Flexibility Act Analysis 333. The Regulatory Flexibility Act of 1980 (RFA) 231 generally requires a description and analysis of Proposed Rules that will have a significant economic impact on a substantial number of small entities. The RFA mandates consideration of regulatory alternatives that accomplish the stated objectives of a proposed rule and that minimize any significant economic impact on a substantial number of small entities. The Small Business Administration’s (SBA) Office of Size Standards develops the numerical definition of a small business.232 The SBA has established a size standard for electric utilities, stating that a firm is small if, including its affiliates, it is primarily engaged in the transmission, generation and/or distribution of electric energy for sale and its total electric output for the preceding twelve months did not exceed four million megawatt hours.233 NOPR Proposal 334. In the NOPR, the Commission estimated that approximately 418 of the 1,730 registered transmission owners, generator owners and distribution service providers may fall within the definition of small entities. Further, the Commission estimated that of the 418 small entities affected there are 50 within the NPCC region that would have to comply with the rulemaking. The Commission contemplated that the rulemaking would affect more small entities in the NPCC Region than those outside NPCC because there are more elements in the NPCC region that would be added to the bulk electric system 231 5 U.S.C. 601–612 (2006). CFR 121.101. 233 13 CFR 121.201, Sector 22, Utilities & n.1. 232 13 VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 based on the new definition than elsewhere. The Commission estimated the first year affect on small entities within the NPCC region to be $39,414.234 This figure is based on information collection costs plus additional costs for compliance.235 The Commission estimated the average annual affect per small entity outside of NPCC will be less than for the entities within NPCC. In the NOPR, the Commission stated that it did not consider this to be a significant economic impact for either class of entities because it should not represent a significant percentage of the operating budget. Comments 335. APPA asserts that the Commission underestimates the costs of compliance for small utilities. According to APPA, the Commission’s assumption that utility staff would conduct an analysis is not merited in the case of many small entities. APPA states that many of its smaller members do not have the in-house employees and resources to conduct such reliability analyses and would have to rely on outside consultants and legal firms. Therefore, APPA estimates that the fees small utilities would pay for each of the services as follows, based on information and belief: Consulting Engineer, $225/hour; Record Keeping, $75/hour; and Legal, $500/hour. According to APPA, these increased dollar estimates alone substantially increase the burden estimates on smaller utilities to comply with the Commission’s proposals. WPPC believes that the cost to satisfy transmission owner/transmission operator certification alone would be $80,000. WPPC points to one small municipallyowned utility paid $40,000 for third party expertise and review of the utility’s required compliance. WPPC adds that the municipality had two staff members spend a week reviewing a modifying city policies to ensure compliance with reliability standards. WPPC points out that these costs only represent the initial subject matter review and do not include subsequent implementation, training or material purchase costs. WPPC also states that 234 For companies registered as more than one entity in the NERC compliance registry this figure will increase accordingly. That is, if a company is registered as a transmission owner and generator owner then the cost burden would be $78,828 ($39,414 * 2 = $78,828). 235 We use fifty percent of the first year ‘‘number of hours per response’’ figure in the information collection statement for calculation under the assumption that smaller entities do not have complicated systems or will not have as many new elements on average as larger entities do. PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 849 small entities have to divert employees from other tasks to compliance tasks which represents a significant burden on staffing. 336. ISO New England does not believe that the NOPR cost estimate captures the cost of physical upgrades that might be necessary on the system. The cost estimates do not reflect the true financial burden that might be borne by these smaller entities. 337. BPA is concerned that the Commission is underestimating the costs and resources associated with reliability compliance. BPA disagrees with the Commission’s estimated annual costs of $39,414 for entities that are required to newly comply with Reliability Standards as a result of adopting the definition. BPA believes that the Commission’s figure vastly underestimates the actual effort and costs associated with compliance. In BPA’s experience with its customers, the smallest customer impact is equivalent to at least one FTE, and larger customers have indicated they have an even higher burden. BPA asserts that the Commission’s estimates also overlook indirect compliance costs and their impact on small and large entities alike. BPA disagrees with the Commission’s conclusion that the compliance burden is not ‘‘a significant economic impact * * * because it should not represent a significant percentage of the operating budget.’’ It is BPA’s experience that implementing a fully functioning compliance program requires committed personnel, budget, and resources, which is never insignificant. Commission Determination 338. The Commission disagrees with commenters that challenge the Commission’s conclusion that the rule will not have a significant economic impact on a substantial number of small entities. We are not persuaded by APPA, BPA and ISO New England’s assertions regarding how the Commission’s analysis is erroneous or in what ways the Final Rule will have a significant economic impact on a substantial number of small entities. As the Commission stated in its NOPR, most transmission owners, transmission operators and transmission service providers do not fall within the definition of small entities. In addition, the requirement to comply with the definition of bulk electric system is not new. The reason for revising the definition of bulk electric system is to comply with the Commission’s directives and address the technical and policy concerns expressed in Order Nos. 743 and 743–A, which NERC E:\FR\FM\04JAR2.SGM 04JAR2 850 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations accomplished by eliminating the explicit basis of authority for Regional Entity discretion in the current definition, and establishing specific threshold criteria rather than general guidelines of facilities operated or connected at or above 100 kV. Thus, while the Commission recognizes that some small entities within the NPCC territory may have an increased burden due to multiple registration classifications or increased compliance with the Reliability Standards due to the elimination of the regional discretion, the average annual affect per small entity outside of NPCC will be less than for the entities within NPCC and should not materially change. The Commission also does not consider this to be a significant economic impact for either class of entities because our estimated costs for complying with the revised definition should not represent a significant percentage of the operating budget. Further, while NYPSC and Massachusetts DPU assert that the costs for compliance will be $280 million they make no specific reference to the cost for small businesses and, as noted above, their estimate does not account for the revised language in the definition of bulk electric system and the specific inclusions and exclusions that we are approving in this Final Rule. Accordingly, the Commission certifies that this Final Rule will not have a significant economic impact on a substantial number of small entities. mstockstill on DSK4VPTVN1PROD with V. Environmental Analysis 339. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment.236 The Commission has categorically excluded certain actions from this requirement as not having a significant effect on the human environment. The actions in this rule fall within the categorical exclusion in the Commission’s regulations for rules that are clarifying, corrective or procedural, for information gathering, analysis, and dissemination.237 Accordingly, neither an environmental impact statement nor environmental assessment is required. VI. Document Availability 340. In addition to publishing the full text of this document in the Federal Register, the Commission provides all interested persons an opportunity to 236 Regulations Implementing the National Environmental Policy Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. Regulations Preambles 1986–1990 ¶ 30,783 (1987). 237 18 CFR 380.4(a)(5). VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 view and/or print the contents of this document via the Internet through FERC’s Home Page (http://www.ferc.gov) and in FERC’s Public Reference Room during normal business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC 20426. 341. From FERC’s Home Page on the Internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field. 342. User assistance is available for eLibrary and the FERC’s Web site during normal business hours from FERC Online Support at (202) 502–6652 (toll free at 1–866–208–3676) or email at ferc onlinesupport@ferc.gov, or the Public Reference Room at (202) 502–8371, TTY (202) 502–8659. Email the Public Reference Room at public. referencerom@ferc.gov. VII. Effective Date and Congressional Notification 343. These regulations are effective March 5, 2013. The Commission has determined, with the concurrence of the Administrator of the Office of Information and Regulatory Affairs of OMB, that this rule is not a ‘‘major rule as defined in section 351 of the Small Business Regulatory Enforcement Fairness Act of 1996. By the Commission. Commissioner Clark is not participating. Nathaniel J. Davis, Sr., Deputy Secretary. Note: Appendix A will not be published in the Code of Federal Regulations. Appendix A—List of Commenters American Electric Power Service Corporation (AEP) American Municipal Power, Inc. (AMP) American Public Power Association (APPA) American Wind Energy Association (AWEA) Arizona Public Service Company (Arizona Public Service) Barrick Goldstrike Mines Inc. (Barrick) Associated Electric Cooperative, Inc., Basin Electric Power Cooperative, Tri-State Generation and Transmission Association, Inc. (the G&T Cooperatives) Bonneville Power Administration (BPA) City of Alameda, California (Alameda) City of Anaheim, California (Anaheim) City of Redding, California (Redding) City of Riverside, California (Riverside) Cogeneration Association of California and the Energy Producers and Users Coalition Consumers Energy Company (Consumers) Dominion Resources Services, Inc. (Dominion) PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 Dow Chemical Company (Dow) Duke Energy Corporation (Duke Energy) Edison Electric Institute (EEI) Electricity Consumers Resource Council (ELCON) Exelon Corporation (Exelon) Florida Reliability Coordinating Council, Midwest Reliability Organization, Northeast Power Coordinating Council, Inc., ReliabilityFirst Corporation, Southwest Power Pool Regional Entity, SERC Reliability Corporation, Texas Reliability Entity, Inc., Western Electricity Coordinating Council (the Regional Entities) City of Holland, Michigan Board of Public Works (Holland) Hydro One Networks Inc. and the Independent Electricity System Operator (Hydro One) Hydro Quebec Transenergie (Hydro Quebec) Idaho Power Company (Idaho Power) Imperial Irrigation District (IID) Industrial Customers of Northwest Utilities (ICNU) Industrial Users of Utah (IUU) International Transmission Company d/b/a ITC Transmission, Michigan Electric Transmission Company, LLC, ITC Midwest LLC and ITC Great Plains LLC (ITC) ISO New England Inc. (ISO New England) Kansas City Power & Light Company and KCP&L Greater Missouri (KCP&L) Large Public Power Council (LPPC) Massachusetts Department of Public Utilities (Massachusetts DPU) Midwest Independent Transmission System Operator, Inc. (MISO) MISO Transmission Owners National Association of Regulatory Utility Commissioners (NARUC) National Grid USA (National Grid) National Rural Electric Cooperative Association (NRECA) Nevada Power Company and Sierra Pacific Power Company (NV Energy) New England States Committee on Electricity (NESCOE) New York Independent System Operator, Inc. (NYISO) New York State Public Service Commission (NYPSC) North American Electric Reliability Corporation (NERC) North Carolina Eastern Municipal Power Agency (‘‘NCEMPA’’) and North Carolina Municipal Power Agency Number 1 (‘‘NCMPA1’’) (together ‘‘Power Agencies’’) Oglethorpe Power Corporation, Georgia Transmission Corporation and Georgia System Operations Corporation Old Dominion Electric Cooperative (ODEC) Occidental Energy Ventures Corp Pennsylvania Public Utility Commission Pepco Holdings, Inc., Potomac Electric Power Company, Delmarva Power & Light Company, Atlantic City Electric Company (PHI Companies) Portland General Electric Company (Portland) Public Service Electric and Gas Company, PSEG Power LLC, and PSEG Energy Resources & Trade LLC (PSEG Companies) SmartSenseCom, Inc. (SmartSenseCom) Snohomish County PUD No. 1 (Snohomish) Southern California Edison Company (SoCal Edison) E:\FR\FM\04JAR2.SGM 04JAR2 Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with Southern Company Services, Inc. (Southern Companies) Springfield Utility Board (Springfield) Steel Manufacturers Association VerDate Mar<15>2010 17:19 Jan 03, 2013 Jkt 229001 Transmission Access Policy Study Group (TAPS) Utility Services, Inc. Valero Services, Inc (Valero) Western Public Power Coalition (WPPC) PO 00000 Frm 00049 Fmt 4701 Sfmt 9990 White River Electric Association, Inc. (WREA) [FR Doc. 2012–31142 Filed 1–3–13; 8:45 am] BILLING CODE 6717–01–P E:\FR\FM\04JAR2.SGM 04JAR2 851

Agencies

[Federal Register Volume 78, Number 3 (Friday, January 4, 2013)]
[Rules and Regulations]
[Pages 803-851]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-31142]



[[Page 803]]

Vol. 78

Friday,

No. 3

January 4, 2013

Part II





 Department of Energy





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Federal Energy Regulatory Commission





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18 CFR Part 40





Revisions to Electric Reliability Organization Definition of Bulk 
Electric System and Rules of Procedure; Final Rule

Federal Register / Vol. 78, No. 3 / Friday, January 4, 2013 / Rules 
and Regulations

[[Page 804]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket Nos. RM12-6-000 and RM12-7-000; Order No. 773]


Revisions to Electric Reliability Organization Definition of Bulk 
Electric System and Rules of Procedure

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: In this Final Rule, pursuant to section 215 of the Federal 
Power Act, the Federal Energy Regulatory Commission (Commission) 
approves modifications to the currently-effective definition of ``bulk 
electric system'' developed by the North American Electric Reliability 
Corporation (NERC), the Commission-certified Electric Reliability 
Organization. The Commission finds that the modified definition of 
``bulk electric system'' removes language allowing for regional 
discretion in the currently-effective bulk electric system definition 
and establishes a bright-line threshold that includes all facilities 
operated at or above 100 kV. The modified definition also identifies 
specific categories of facilities and configurations as inclusions and 
exclusions to provide clarity in the definition of ``bulk electric 
system.''
    In this Final Rule, the Commission also approves: NERC's revisions 
to its Rules of Procedure, which create an exception process to add 
elements to, or remove elements from, the definition of ``bulk electric 
system'' on a case-by-case basis; NERC's form entitled ``Detailed 
Information To Support an Exception Request'' that entities will use to 
support requests for exception from the ``bulk electric system'' 
definition; and NERC's implementation plan for the revised ``bulk 
electric system'' definition.

DATES: This Final Rule will become effective March 5, 2013.

FOR FURTHER INFORMATION CONTACT:
Susan Morris (Technical Information), Office of Electric Reliability, 
Division of Reliability Standards, Federal Energy Regulatory 
Commission, 888 First Street NE., Washington, DC 20426, Telephone: 
(202) 502-6803.
Nicholas Snyder (Technical Information), Office of Energy Market 
Regulation, Division of Electric Power Regulation--Central, Federal 
Energy Regulatory Commission, 888 First Street NE., Washington, DC 
20426, Telephone: (202) 502-6408.
Robert Stroh (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street NE., Washington, 
DC 20426, Telephone: (202) 502-8473.

SUPPLEMENTARY INFORMATION:
141 FERC ] 61,236
Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, 
John R. Norris, and Cheryl A. LaFleur.

FINAL RULE

(Issued December 20, 2012)

Table of Contents

I. Background...................................................      5.
    A. Section 215 of the FPA...................................      5.
    B. Order No. 693............................................      6.
    C. Order No. 743............................................      8.
    D. NERC Petitions...........................................     11.
        1. Revised Definition of Bulk Electric System...........     12.
        2. NERC Petition for Approval of Revisions to Rules of       26.
         Procedure To Adopt an Exception Process................
    E. Commission NOPR..........................................     29.
II. Discussion..................................................     31.
    A. Approval of the Revised Bulk Electric System Definition..     32.
        NOPR Proposal...........................................     32.
        Comments................................................     33.
        Commission Determination................................     38.
    B. The Core Definition of Bulk Electric System..............     45.
        NOPR Proposal...........................................     45.
        Comments................................................     46.
    C. Local Distribution.......................................     57.
        Comments................................................     58.
        Commission Determination................................     66.
    D. Inclusions and Exclusions in the Definition of Bulk           74.
     Electric System............................................
        1. Inclusion I1 (Transformers)..........................     75.
        Commission Determination................................     80.
        2. Inclusion I2 (Generating Resources)..................     83.
        3. Inclusion I3 (Blackstart Resources)..................     97.
        4. Inclusion I4 (Dispersed Power Producing Resources)...    104.
        5. Inclusion I5 (Static or Dynamic Reactive Power           116.
         Devices)...............................................
        Exclusions..............................................    125.
        6. Exclusion E1 (Radial Systems)........................    127.
        7. Exclusion E2 (Behind the Meter Generation)...........    178.
        8. Exclusion E3 (Local Networks)........................    185.
        9. Exclusion E4 (Reactive Power Devices)................    235.
    E. The NERC Rules of Procedure Exception Process, RM12-7-000    238.
        NOPR Proposal...........................................    238.
        1. How Entities Will Review and Seek Inclusion of           263.
         Necessary Elements.....................................
        2. NERC Role in Identifying Necessary Elements..........    270.
        3. Commission Role in Identifying Necessary Elements....    279.
        4. Technical Review Panel...............................    289.
        NOPR Proposal...........................................    289.
        5. Use of Industry Subject Matter Experts...............    295.
        6. NERC's Detailed Information Form.....................    298.
        7. NERC's Implementation Plan...........................    302.
        NOPR Proposal...........................................    302.
        8. NERC List of Facilities Granted Exceptions...........    305.
        9. Declassification of Facilities.......................    311.

[[Page 805]]

 
III. Information Collection Statement...........................    319.
IV. Regulatory Flexibility Act Analysis.........................    333.
V. Environmental Analysis.......................................    339.
VI. Document Availability.......................................    340.
VII. Effective Date and Congressional Notification..............    343.
 

    1. Pursuant to section 215(d) of the Federal Power Act (FPA),\1\ 
the Commission approves modifications to the currently-effective 
definition of ``bulk electric system'' developed by the North American 
Electric Reliability Corporation (NERC), the Commission-certified 
Electric Reliability Organization (ERO). The Commission finds that the 
modified definition of ``bulk electric system'' improves upon the 
currently-effective definition by establishing a bright-line threshold 
that includes all facilities operated at or above 100 kV and removing 
language that allows for broad regional discretion. The modified 
definition also provides improved clarity by identifying specific 
categories of facilities and configurations as inclusions and 
exclusions to the definition of ``bulk electric system.''
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    \1\ 16 U.S.C. 824o(d) (2006).
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    2. We believe that the proposed ``core'' definition, together with 
the more granular inclusions and exclusions, should produce consistency 
in identifying bulk electric system elements across the reliability 
regions. In addition, we find that NERC's proposed case-by-case 
exception process to add elements to, and remove elements from, the 
definition of the bulk electric system adds transparency and uniformity 
to the determination of what constitutes the bulk electric system.
    3. We recognize the substantial work invested by NERC and industry 
participants in developing the modified bulk electric system 
definition. We also appreciate that NERC timely submitted the revised 
definition within the twelve month time frame directed by the 
Commission in the underlying order, Order No. 743, which tasked NERC 
with this project.\2\ We believe that NERC and industry's efforts 
provide a technically grounded and legally supportable foundation for 
identifying elements and facilities that make up the bulk electric 
system. Other highlights of the Final Rule include:
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    \2\ Revision to Electric Reliability Organization Definition of 
Bulk Electric System, Order No. 743, 133 FERC ] 61,150 (2010), order 
on reh'g, Order No. 743-A, 134 FERC ] 61,210 (2011).
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     Accepts NERC's revisions to its Rules of Procedure, which 
creates an exception procedure to add elements to, or remove elements 
from, the definition of ``bulk electric system'' on a case-by-case 
basis;
     approves NERC's implementation plan for the revised ``bulk 
electric system'' definition;
     approves NERC's form entitled ``Detailed Information to 
Support an Exception Request'' that entities will use to support 
requests for exception from the ``bulk electric system'' definition;
     finds that the Commission can designate sub-100 kV 
facilities, or other facilities, as part of the bulk electric system, 
provided that the Commission provides opportunity for notice and 
comment; and
     establishes a process pursuant to which an entity can seek 
a determination by the Commission whether facilities are ``used in 
local distribution'' as set forth in the Federal Power Act.
    4. In the Notice of Proposed Rulemaking (NOPR), the Commission 
requested comment on certain aspects of NERC's petition to better 
understand the application of the ``core'' definition, as well as the 
specific inclusions and exclusions.\3\ The explanations provided by 
NERC and other entities in their comments have assisted in our 
understanding of the parameters of the definition, and we adopt many of 
these explanations in the Final Rule. However, in two particular 
circumstances we believe further action is necessary. We direct NERC to 
implement the bulk electric system definition consistent with the 
Commission determinations below. Specifically, we direct NERC to 
implement the exclusions for radial systems and local networks so that 
they do not apply to tie-lines for bulk electric system generators. In 
addition, we direct NERC to modify the local network exclusion to 
remove the 100 kV minimum operating voltage to allow systems that 
include one or more looped configurations connected below 100 kV, (as 
shown in figures 3 and 5 below) to be eligible for the local network 
exclusion. Further explanation of these configurations and the 
rationale for our determinations is provided below.
---------------------------------------------------------------------------

    \3\ Revision to Electric Reliability Organization Definition of 
Bulk Electric System and Rules of Procedure, Notice of Proposed 
Rulemaking, 77 FR 39857 (July 5, 2012) 139 FERC ] 61,247 (2012) 
(NOPR).
---------------------------------------------------------------------------

I. Background

A. Section 215 of the FPA

    5. Section 215 of the FPA requires a Commission-certified ERO to 
develop mandatory and enforceable Reliability Standards, subject to 
Commission review and approval. Once approved, the Reliability 
Standards may be enforced by the ERO, subject to Commission oversight, 
or by the Commission independently.\4\ The Commission established a 
process to select and certify an ERO \5\ and, subsequently, certified 
NERC as the ERO.\6\
---------------------------------------------------------------------------

    \4\ See 16 U.S.C. 824o(e)(3) (2006).
    \5\ Rules Concerning Certification of the Electric Reliability 
Organization; and Procedures for the Establishment, Approval and 
Enforcement of Electric Reliability Standards, Order No. 672, FERC 
Stats. & Regs. ] 31,204, order on reh'g, Order No. 672-A, FERC 
Stats. & Regs. ] 31,212 (2006).
    \6\ North American Electric Reliability Corp., 116 FERC ] 61,062 
(2006), order on reh'g and compliance, 117 FERC ] 61,126 (2006) 
(certifying NERC as the ERO responsible for the development and 
enforcement of mandatory Reliability Standards), aff'd sub nom. 
Alcoa Inc. v. FERC, 564 F.3d 1342 (D.C. Cir. 2009).
---------------------------------------------------------------------------

B. Order No. 693

    6. On March 16, 2007, in Order No. 693, pursuant to section 215(d) 
of the FPA, the Commission approved 83 of 107 proposed Reliability 
Standards, six of the eight proposed regional differences, and the NERC 
Glossary, which includes NERC's definition of bulk electric system.\7\ 
That definition provides:
---------------------------------------------------------------------------

    \7\ Mandatory Reliability Standards for the Bulk-Power System, 
Order No. 693, FERC Stats. & Regs. ] 31,242, order on reh'g, Order 
No. 693-A, 120 FERC ] 61,053 (2007).

    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.\8\
---------------------------------------------------------------------------

    \8\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 75 n.47.

    7. In approving NERC's definition of bulk electric system, the 
Commission stated that ``at least for an initial period, the Commission 
will rely on the NERC definition of bulk electric system and NERC's 
registration process to provide as much certainty as possible regarding 
the applicability to and the responsibility of specific entities to

[[Page 806]]

comply with the Reliability Standards.'' \9\ The Commission also stated 
that ``[it] remains concerned about the need to address the potential 
for gaps in coverage of facilities.'' \10\
---------------------------------------------------------------------------

    \9\ Id. P 75; see also Order No. 693-A, 120 FERC ] 61,053 at P 
19 (``the Commission will continue to rely on NERC's definition of 
bulk electric system, with the appropriate regional differences, and 
the registration process until the Commission determines in future 
proceedings the extent of the Bulk-Power System'').
    \10\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 77.
---------------------------------------------------------------------------

C. Order No. 743

    8. On November 18, 2010, the Commission revisited the definition of 
``bulk electric system'' in Order No. 743, which directed NERC, through 
NERC's Reliability Standards Development Process, to revise its 
definition of the term ``bulk electric system'' to ensure that the 
definition encompasses all facilities necessary for operating an 
interconnected transmission network.\11\ The Commission also directed 
NERC to address the Commission's technical and policy concerns. Among 
the Commission's concerns were inconsistencies in the application of 
the definition and a lack of oversight and exclusion of facilities from 
the bulk electric system required for the operation of the 
interconnected transmission network. In Order No. 743, the Commission 
concluded that the best way to address these concerns was to eliminate 
the Regional Entity discretion to define bulk electric system without 
NERC or Commission review, maintain a bright-line threshold that 
includes all facilities operated at or above 100 kV except defined 
radial facilities, and adopt an exemption process and criteria for 
removing from the bulk electric system facilities that are not 
necessary for operating the interconnected transmission network. In 
Order No. 743, the Commission allowed NERC to ``propose a different 
solution that is as effective as, or superior to, the Commission's 
proposed approach in addressing the Commission's technical and other 
concerns so as to ensure that all necessary facilities are included 
within the scope of the definition.'' \12\ The Commission directed NERC 
to file the revised definition of bulk electric system and its process 
to exempt facilities from inclusion in the bulk electric system within 
one year of the effective date of the final rule.\13\
---------------------------------------------------------------------------

    \11\ Order No. 743, 133 FERC ] 61,150 at P 16.
    \12\ Id.
    \13\ Id. P 113.
---------------------------------------------------------------------------

    9. In Order No. 743-A, the Commission reaffirmed its determinations 
in Order No. 743. In addition, the Commission clarified that the issue 
the Commission directed NERC to rectify was the discretion the Regional 
Entities have under the current definition to define the bulk electric 
system in their regions without any oversight from the Commission or 
NERC.\14\ The Commission also clarified that the 100 kV threshold was a 
``first step or proxy'' for determining which facilities should be 
included in the bulk electric system.\15\
---------------------------------------------------------------------------

    \14\ Order No. 743-A, 134 FERC ] 61,210 at P 11.
    \15\ Id. PP 40, 67, 102-103.
---------------------------------------------------------------------------

    10. The Commission further clarified that the statement in Order 
No. 743, ``determining where the line between `transmission' and `local 
distribution' lies * * * should be part of the exemption process the 
ERO develops'' was intended to grant discretion to NERC, as the entity 
with technical expertise, to develop criteria to determine how to 
differentiate between local distribution and transmission facilities in 
an objective, consistent, and transparent manner.\16\ The Commission 
stated that the ``Seven Factor Test'' adopted in Order No. 888 could be 
relevant and possibly a logical starting point for determining which 
facilities are local distribution for reliability purposes.\17\ 
However, the Commission left it to NERC to determine if and how the 
Seven Factor Test should be considered in differentiating between local 
distribution and transmission facilities for purposes of determining 
whether a facility should be classified as part of the bulk electric 
system.\18\ Order No. 743-A re-emphasized that local distribution 
facilities are excluded from the definition of Bulk-Power System and, 
therefore, must be excluded from the definition of bulk electric 
system.\19\
---------------------------------------------------------------------------

    \16\ Id. P 68. See Promoting Wholesale Competition Through Open 
Access Non-Discriminatory Transmission Services by Public Utilities; 
Recovery of Stranded Costs by Public Utilities and Transmitting 
Utilities, Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,783-84 
(1996), order on reh'g, Order No. 888-A, FERC Stats. & Regs. ] 
31,048, order on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), 
order on reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in 
relevant part sub nom. Transmission Access Policy Study Group v. 
FERC, 225 F.3d 667 (D.C. Cir. 2000), aff'd sub nom. New York v. 
FERC, 535 U.S. 1 (2002).
    \17\ Order No. 743-A, 134 FERC ] 61,210 at P 69.
    \18\ Id. P 70.
    \19\ Id. PP 25, 58.
---------------------------------------------------------------------------

D. NERC Petitions

    11. On January 25, 2012, NERC submitted two petitions pursuant to 
the directives in Order No. 743: (1) NERC's proposed revision to the 
definition of ``bulk electric system'' which includes provisions to 
include and exclude facilities from the ``core'' definition; and (2) 
revisions to NERC's Rules of Procedure to add a procedure creating an 
exception process to classify or de-classify an element as part of the 
``bulk electric system.''
1. Revised Definition of Bulk Electric System
    12. In Docket No. RM12-6-000, NERC filed a petition requesting 
Commission approval of a revised definition of ``bulk electric system'' 
in the NERC Glossary (NERC BES Petition). The definition consists of a 
``core'' definition and a list of facilities configurations that will 
be included or excluded from the ``core'' definition. NERC proposed the 
following ``core'' definition of bulk electric system:

    Unless modified by the [inclusion and exclusion] lists shown 
below, all Transmission Elements operated at 100 kV or higher and 
Real Power and Reactive Power resources connected at 100 kV or 
higher. This does not include facilities used in the local 
distribution of electric energy.

    NERC also requested approval of the proposed ``Detailed Information 
to Support an Exception Request'' form as satisfying the requirement in 
Order No. 743 that NERC develop ``technical criteria'' to address 
exception requests. Finally, NERC requested Commission approval of its 
plan for implementation of the revised definition of ``bulk electric 
system.''
a. Inclusions and Exclusions to the Definition of Bulk Electric System
    13. As part of the revised definition, NERC developed inclusions 
and exclusions to eliminate discretion in application of the revised 
``bulk electric system'' definition. The inclusions address five 
specific facilities configurations to provide clarity that the 
facilities described in these configurations are included in the bulk 
electric system.

    Inclusions:
    I1--Transformers with the primary terminal and at least one 
secondary terminal operated at 100 kV or higher unless excluded 
under Exclusion E1 or E3.
    I2--Generating resource(s) with gross individual nameplate 
rating greater than 20 MVA or gross plant/facility aggregate 
nameplate rating greater than 75 MVA including the generator 
terminals through the high-side of the step-up transformer(s) 
connected at a voltage of 100 kV or above.
    I3--Blackstart Resources identified in the Transmission 
Operator's restoration plan.
    I4--Dispersed power producing resources with aggregate capacity 
greater than 75 MVA (gross aggregate nameplate rating) utilizing a 
system designed primarily for aggregating capacity, connected at a 
common point at a voltage of 100 kV or above.
    I5--Static or dynamic devices (excluding generators) dedicated 
to supplying or absorbing Reactive Power that are connected at 100 
kV or higher, or through a dedicated

[[Page 807]]

transformer with a high-side voltage of 100 kV or higher, or through 
a transformer that is designated in Inclusion I1.

    14. NERC also explained that the facilities described in inclusions 
I1, I2, I4, and I5 are each operated or connected at or above 100 kV. 
According to NERC, inclusion I3 encompasses blackstart resources 
identified in a transmission operator's restoration plan, which are 
necessary for the operation of the interconnection transmission system 
and should be included in the bulk electric system regardless of their 
size (MVA) or the voltage at which they are connected. NERC stated that 
the inclusions will further reduce the potential for the exercise of 
discretion and subjectivity to exclude such configurations from the 
bulk electric system.
    15. NERC explained that inclusion I1 includes transformers with the 
primary terminal and at least one secondary terminal operated at 100 kV 
or higher unless excluded under exclusion E1 or E3. NERC stated that 
transformers operating at 100 kV or higher are part of the existing 
definition, but since transformers have windings operating at different 
voltages, and multiple windings in some circumstances, clarification 
was required to explicitly identify which transformers are included in 
the bulk electric system.
    16. According to NERC, inclusion I2 includes in the bulk electric 
system the generator terminals through the high-side of the step-up 
transformers connected at a voltage of 100 kV or above. NERC states 
that this inclusion mirrors the text of the NERC Registry Criteria 
(Appendix 5B of the NERC Rules of Procedure) for generating units.\20\
---------------------------------------------------------------------------

    \20\ See section III.c.1 and III.c.2 of Appendix 5B of the NERC 
Rules of Procedure.
---------------------------------------------------------------------------

    17. As noted above, inclusion I3 includes blackstart resources 
identified in the transmission operator's restoration plan in the bulk 
electric system. NERC added inclusion I4 to accommodate the effects of 
variable generation on the bulk electric system and inclusion I5 to 
address static or dynamic devices dedicated to supplying or absorbing 
reactive power that are connected at 100 kV or higher.
    18. NERC's modified definition of bulk electric system also 
provides four exclusions regarding facilities configurations that are 
not included in the bulk electric system. Generally, the exclusions 
address radial systems, behind-the-meter generation and local networks 
that distribute power to load:

    Exclusions:
    E1--Radial systems: A group of contiguous transmission Elements 
that emanates from a single point of connection of 100 kV or higher 
and:
    (a) Only serves Load. Or,
    (b) Only includes generation resources, not identified in 
Inclusion I3, with an aggregate capacity less than or equal to 75 
MVA (gross nameplate rating). Or,
    (c) Where the radial system serves Load and includes generation 
resources, not identified in Inclusion I3, with an aggregate 
capacity of non-retail generation less than or equal to 75 MVA 
(gross nameplate rating).
    Note--A normally open switching device between radial systems, 
as depicted on prints or one-line diagrams for example, does not 
affect this exclusion.
    E2--A generating unit or multiple generating units on the 
customer's side of the retail meter that serve all or part of the 
retail Load with electric energy if: (i) The net capacity provided 
to the BES does not exceed 75 MVA; and (ii) standby, back-up, and 
maintenance power services are provided to the generating unit or 
multiple generating units or to the retail Load by a Balancing 
Authority, or provided pursuant to a binding obligation with a 
Generator Owner or Generator Operator, or under terms approved by 
the applicable regulatory authority.
    E3--Local networks (LN): A group of contiguous transmission 
Elements operated at or above 100 kV but less than 300 kV that 
distribute power to Load rather than transfer bulk-power across the 
interconnected system. LN's emanate from multiple points of 
connection at 100 kV or higher to improve the level of service to 
retail customer Load and not to accommodate bulk-power transfer 
across the interconnected system. The LN is characterized by all of 
the following:
    (a) Limits on connected generation: The LN and its underlying 
Elements do not include generation resources identified in Inclusion 
I3 and do not have an aggregate capacity of non-retail generation 
greater than 75 MVA (gross nameplate rating);
    (b) Power flows only into the LN and the LN does not transfer 
energy originating outside the LN for delivery through the LN; and
    (c) Not part of a Flowgate or transfer path: The LN does not 
contain a monitored Facility of a permanent Flowgate in the Eastern 
Interconnection, a major transfer path within the Western 
Interconnection, or a comparable monitored Facility in the ERCOT or 
Quebec Interconnections, and is not a monitored Facility included in 
an Interconnection Reliability Operating Limit (IROL).
    E4--Reactive Power devices owned and operated by the retail 
customer solely for its own use.
    Note--Elements may be included or excluded on a case-by-case 
basis through the Rules of Procedure exception process.

    19. NERC explained that exclusion E1 is intended to enhance the 
clarity of the radial facilities exclusion and that criteria ``b'' and 
``c'' of exclusion E1 identify the maximum amount of generation allowed 
on the radial facility while still qualifying for the radial facilities 
exclusion. NERC added the ``normally open switch'' note at the end of 
exclusion E1 to address a common network configuration in which two 
separate sets of facilities would be recognized as radial systems and 
not included in the bulk electric system are connected by a ``normally 
open switch'' which is a switch is set to the open position for 
reliability purposes.\21\
---------------------------------------------------------------------------

    \21\ NOPR, 139 FERC ] 61,247 at P 27 (citing NERC BES Petition 
at 19).
---------------------------------------------------------------------------

    20. NERC explained that the normally open switch note avoids 
numerous exception requests because this configuration is common and 
subjecting two sets of radial facilities that are normally unconnected 
to each other because the switch between them is open to the 
Reliability Standards during the limited time periods when the switch 
is closed for maintenance-related or outage-related circumstances is 
impractical and unworkable.
    21. According to NERC, exclusion E2 excludes a generating unit or 
units on the customer's side of the retail meter that serves all or 
part of the retail load subject to allowing a limited amount of 
generating capacity to be connected and that standby, back-up, and 
maintenance power services are provided to the generating unit. NERC 
stated that these generating units are not necessary for the operation 
of the interconnected transmission network because they serve a single 
retail load, provide a limited amount of capacity to the bulk electric 
system, and are fully backed up by other resources.
    22. With respect to the ``local network'' exclusion (exclusion E3), 
NERC explained that it encompasses local networks of transmission 
elements operated at between 100 kV and 300 kV that distribute power to 
load rather than transfer bulk power across the interconnected system. 
NERC further explained that local networks are not intended to provide 
transfer capacity for the interconnected transmission network and such 
networks should not be included in the bulk electric system, and the 
conditions established in exclusion E3 are sufficient to ensure that 
such local networks are being used exclusively for local distribution 
purposes. NERC adds that facilities used for the local distribution of 
electric energy are expressly excluded from the bulk electric system by 
the core definition as well as by the local network exclusion.\22\
---------------------------------------------------------------------------

    \22\ See NOPR, 139 FERC ] 61,247 at P 30; See also NERC BES 
Petition at 22-23.

---------------------------------------------------------------------------

[[Page 808]]

b. Detailed Information To Support an Exception Request
    23. In response to the Order No. 743 directive to develop technical 
criteria to use in addressing requests for exceptions to the definition 
of the bulk electric system, NERC developed an alternative approach 
because it would be more feasible to develop a common set of data and 
information that Regional Entities and NERC could use to evaluate 
exception requests rather than to develop the detailed criteria.\23\ 
The Detailed Information Form contains a common set of data that 
entities seeking an exception must submit with every exception request. 
According to NERC, the information that an applicant may submit in 
support of an exception request is not limited to the Detailed 
Information Form. Rather, an applicant is expected to submit all 
relevant data, studies and other information that support the exception 
request, and the Regional Entity and NERC may ask an applicant to 
provide other data and studies in addition to the Detailed Information 
Form.
---------------------------------------------------------------------------

    \23\ NERC BES Petition at 26.
---------------------------------------------------------------------------

c. Implementation Plan for Revised Definition of ``Bulk Electric 
System''
    24. NERC requested that the revised definition become effective on 
the first day of the second calendar quarter after receiving applicable 
regulatory approval, or, in those jurisdictions where no regulatory 
approval is required, on the first day of the second calendar quarter 
after its adoption by the NERC Board of Trustees. NERC stated that the 
proposed effective date is appropriate to provide a reasonable time 
between the date of regulatory approval, which is not under the control 
of NERC or the industry, and the effective date of the revised 
definition of bulk electric system.
    25. NERC also requested that compliance obligations for all newly-
identified elements to be included in the bulk electric system should 
begin twenty-four months after the applicable effective date of the 
revised definition. While the Commission stated in Order Nos. 743 and 
743-A that the transition period should not exceed 18 months, NERC 
explained that it is requesting a longer transition period in light of 
the actions that entities will need to complete in connection with the 
revised definition.
2. NERC Petition for Approval of Revisions To Rules of Procedure To 
Adopt an Exception Process
    26. In Docket No. RM12-7-000, NERC filed proposed revisions to its 
Rules of Procedure for the purpose of adopting an ``exception process'' 
mechanism to add elements to, and remove elements from, the bulk 
electric system. NERC stated that decisions to approve or disapprove 
exception requests will be made by NERC, rather than by the Regional 
Entities, thereby eliminating the potential for inconsistency and 
subjectivity. Further NERC explained that the exception process is 
``not intended to be used to resolve ambiguous situations,'' i.e., the 
exception process is only available after an initial determination has 
been made regarding whether an element is part of or not part of the 
bulk electric system through the application of the definition to the 
element.'' \24\
---------------------------------------------------------------------------

    \24\ NOPR, 139 FERC ] 61,247 at P 38, quoting NERC ROP Petition 
at 10-11.
---------------------------------------------------------------------------

    27. NERC stated that an owner of an element may submit a request to 
the applicable Regional Entity to include the element in, or remove it 
from, the bulk electric system.\25\ In addition, a Regional Entity, 
planning authority, reliability coordinator, transmission operator, 
transmission planner, or balancing authority that has the elements 
covered by an exception request within its scope of responsibility may 
submit an exception request for the inclusion of an element or elements 
owned by a registered entity. Upon receiving an exception request, the 
applicable Regional Entity will review the exception request and will 
issue a recommendation to NERC. NERC will evaluate the Regional Entity 
recommendation, the accompanying technical documents, the Technical 
Review Panel opinion (if any), and any comments submitted, and will 
issue a final determination. Finally, NERC stated that an exception 
request will be subject to review to verify continuing justification 
for the exception. NERC also stated that an entity must certify every 
36 months to the appropriate Regional Entity that the basis for the 
exception request remains valid. Further, NERC also included a method 
for an entity to challenge the NERC decision on an exception request to 
a NERC Compliance Committee. The entity may also appeal the final NERC 
decision to the Commission within 30 days following the date of the 
Compliance Committee`s decision, or within such time period as the 
Commission's legal authority permits.
---------------------------------------------------------------------------

    \25\ See NOPR, 139 FERC ] 61,247 at PP 39-45, detailing the 
three-step exception process.
---------------------------------------------------------------------------

    28. In response to the Order No. 743 Commission statement that NERC 
should maintain a list of exempted facilities that can be made 
available to the Commission upon request, NERC maintained that the 
proposed exception process does not include provisions for such a list, 
adding that this is an internal administrative matter for NERC to 
implement that does not need to be embedded in the Rules of 
Procedure.\26\ NERC stated it will develop a specific internal plan and 
procedures for maintaining a list of facilities for which exceptions 
have been granted.
---------------------------------------------------------------------------

    \26\ NERC ROP Petition at 49.
---------------------------------------------------------------------------

E. Commission NOPR

    29. The Commission issued the NOPR on June 22, 2012, and required 
that comments be filed within 60 days after publication in the Federal 
Register, or September 4, 2012. While seeking comment on various 
provisions of NERC's petitions, the NOPR proposed to approve NERC's 
modification to the currently-effective definition of bulk electric 
system and changes to the Rules of Procedure to add the exception 
process. The NOPR also requested comment on the appropriate role for 
NERC and the Commission in the identification of bulk electric system 
facilities and elements.
    30. The Commission received more than sixty comments on the 
proposed rulemaking. NERC and other commenters, inter alia, respond to 
the Commissions questions regarding the application of the proposed 
bulk electric system definition. These comments have assisted us in 
developing this Final Rule. A list of commenters appears in Appendix A 
to this Final Rule.\27\
---------------------------------------------------------------------------

    \27\ Further, NERC, MISO, Consumers, MISO Transmission Owners, 
Barrick, ITC Companies, and AMP filed reply comments. Although the 
NOPR did not allow for reply comments, we will accept these 
pleadings because they have assisted our understanding of NERC's 
proposal in this Final Rule.
---------------------------------------------------------------------------

II. Discussion

    31. For the reasons discussed below, the Commission adopts the NOPR 
proposal and approves NERC's revised definition of bulk electric system 
and the specific inclusions and exclusions set forth in the definition, 
as just, reasonable, not unduly discriminatory or preferential, and in 
the public interest. Likewise, the Commission approves NERC's revised 
Rules of Procedure that set forth an exceptions process for determining 
whether elements and facilities are included in the bulk electric 
system on a case-by-case basis. While we discuss below specific 
provisions of the NERC proposal, provisions of the modified bulk 
electric system definition and related Rules of Procedures not 
specifically mentioned are approved in

[[Page 809]]

this Final Rule. Below, we address the following matters: (A) Approval 
of the NERC definition; (B) issues concerning the ``core'' bulk 
electric system definition; (C) local distribution; (D) exclusions and 
inclusions in the bulk electric system definition; and (E) NERC's Rules 
of Procedures exceptions process.

A. Approval of the Revised Bulk Electric System Definition NOPR 
Proposal

    32. In the NOPR, the Commission proposed to approve a modification 
to the currently-effective definition of ``bulk electric system'' 
because it removes language allowing for regional discretion in the 
currently-effective bulk electric system definition, establishes a 
bright-line threshold that includes all facilities operated at or above 
100 kV and identifies specific categories of facilities and 
configurations as inclusions and exclusions to provide clarity in the 
definition of bulk electric system.\28\
---------------------------------------------------------------------------

    \28\ NOPR, 139 FERC ] 61,247 at P 18.
---------------------------------------------------------------------------

Comments
    33. NERC, Regional Entities, trade organizations and a majority of 
commenters from various industry segments support the Commission's 
proposal to approve NERC's proposals. APPA ``strongly support[s]'' 
NERC's proposed definition.\29\ EEI supports NERC's proposals and 
states that any changes to the definition should be made through the 
standard development process, not through directives. LPPC, NRECA, and 
WPPC also support approval of the definition and urge the Commission to 
adopt the NERC proposal and to refrain from pursuing additional 
regulatory mandates. Snohomish and WPPC agree that NERC has developed a 
``clear and workable definition'' of the bulk electric system that 
markedly improves the existing definition. They also opine that the 
definition creates a foundation for reliability that focuses on core 
elements of the interconnected bulk transmission system, and provides a 
means for lower-voltage or peripheral elements of the electric system 
to be excluded from the bulk electric system. Other commenters state 
that the definition is consistent, repeatable and verifiable and will 
provide clarity that will assist NERC and affected entities in 
implementing Reliability Standards.
---------------------------------------------------------------------------

    \29\ APPA Comments at 7.
---------------------------------------------------------------------------

    34. Other commenters, while noting that the NOPR represents a 
``positive development,'' believe additional modifications are 
necessary ``to achieve consistency within the limitations'' of section 
215 of the FPA and the Commission's directives in Order Nos. 743 and 
743-A.\30\
---------------------------------------------------------------------------

    \30\ Holland Comments at 2.
---------------------------------------------------------------------------

    35. Some commenters oppose approval on various grounds. For 
example, NARUC is concerned that, even though the definition appears to 
honor the exclusion of local distribution from the bulk electric 
system, the definition does not go far enough to ensure ``that a costly 
analysis * * * is not required to be performed with regard to local 
distribution elements that are by law excluded.'' \31\ NARUC is also 
concerned that exclusion E3 (local networks) will exclude some, but not 
all, local distribution elements. According to NARUC, this could cause 
confusion as to the status of local distribution elements that are not 
also described in exclusion E3. Consequently, NARUC believes that the 
definition does not appropriately reflect the statutory limits of the 
Commission's authority under FPA section 215 and its implementation 
could unnecessarily overreach into state jurisdictional local 
distribution facilities.
---------------------------------------------------------------------------

    \31\ NARUC Comments at 4.
---------------------------------------------------------------------------

    36. NYPSC believes that the proposed definition will likely result 
in classifying certain facilities as part of the bulk electric system 
despite their being unnecessary for operating an interconnected 
transmission network. NYPSC states that the majority of the 138 kV 
lines within New York City serve as direct feeders to the networked 
distribution system serving load. NYPSC also states that there is no 
technical justification for a 100 kV bright-line definition.\32\ NYPSC 
contends that, even with the exclusions and the exception process, it 
is uncertain whether an exclusion or exception would apply to the 138 
kV lines noted above. NYPSC believes that this approach presumes the 
Commission has jurisdiction over all facilities operated at 100 kV or 
above, unless proven otherwise, which inappropriately shifts the legal 
and technical burdens to the states.
---------------------------------------------------------------------------

    \32\ NYPSC Comments at 3. See also Massachusetts DPU Comments at 
6-7.
---------------------------------------------------------------------------

    37. NYPSC, NARUC, and the Massachusetts DPU argue that the revised 
definition does not include a cost impact analysis that weighs costs 
related to the modified definition against the reliability benefits 
that the new definition would achieve. They contend that the lack of a 
cost-benefit analysis accompanying the revised definition represents an 
additional gap in the process for developing this Reliability Standard. 
NYPSC and the Massachusetts DPU contend that the costs of compliance 
with the definition will be excessive. NYPSC states that, according to 
NERC and the Northeast Power Coordinating Council, Inc. (NPCC), it 
would exceed $280 million. Thus, they advocate that, given the 
significant costs that the revised definition could impose on 
consumers, the Commission should reject NERC's proposed modifications 
until they are supported by a cost-benefit analysis.
Commission Determination
    38. Pursuant to section 215(d)(2) of the FPA, we approve NERC's 
revised definition of bulk electric system and the specific inclusions 
and exclusions set forth in the definition, as just, reasonable, not 
unduly discriminatory or preferential, and in the public interest. 
NERC's proposal provides additional clarity and granularity that will 
allow for greater transparency and consistency in the identification of 
elements and facilities that make up the bulk electric system and is 
responsive to the technical and policy concerns discussed in Order No. 
743.
    39. NERC's proposal adequately ensures that all facilities 
necessary for operating an interconnected electric energy transmission 
network are included under the bulk electric system. As we observed in 
Order No. 743,

    ``[U]niform Reliability Standards, and uniform implementation, 
should be the goal and the practice, the rule rather than the 
exception, absent a showing that a regional variation is superior or 
necessary due to regional differences. Consistency is important as 
it sets a common bar for transmission planning, operation, and 
maintenance necessary to achieve reliable operation * * * . [W]e 
have found several reliability issues with allowing Regional 
Entities broad discretion without ERO or Commission oversight.\33\
---------------------------------------------------------------------------

    \33\ Order No. 743, 133 FERC ] 61,150 at P 82 (footnote 
omitted).

    The core definition eliminates the provision that allows broad 
regional discretion, and establishes a 100 kV bright-line threshold for 
determining, in the first instance, those elements and facilities that 
are included in the bulk electric system. The definition also includes 
specific inclusions and exclusions that address typical system 
facilities and configurations such as generation and radial systems, 
providing additional granularity that improves consistency and provides 
a practical means to determine the status of common system 
configurations. Thus, we agree with commenters that the modified 
definition is consistent, repeatable and verifiable and will provide 
clarity that will assist NERC

[[Page 810]]

and affected entities in implementing Reliability Standards.
    40. Accordingly, the Commission finds that NERC's proposal 
satisfies the directives of Order No. 743 to develop modifications to 
the currently-effective definition of bulk electric system to ensure 
that the definition encompasses all facilities necessary for operating 
an interconnected transmission network and remove the Regional Entity 
discretion that currently allows for regional variations without review 
or oversight. We also find that NERC's definition satisfies the 
Commission's technical concerns in Order No. 743 through the use of a 
bright-line 100 kV threshold, with specific inclusions and exclusions 
within the definition, for identifying bulk electric system elements 
and the establishment of an exception process for facilities that are 
not necessary for operating the interconnected transmission network.
    41. Moreover, we are not persuaded by the rationale of the 
commenters who advocate that we remand the NERC proposal. We disagree 
with NYPSC that the proposed definition will likely result in 
classifying certain facilities as part of the bulk electric system 
despite their being unnecessary for operating an interconnected 
transmission network. An entity that believes its facility is 
improperly classified as part of the bulk electric system by 
application of the definition may avail itself of the exception process 
to have the facility removed from inclusion in the definition. With 
regard to NYPSC's claim that there is no technical justification for 
the 100 kV threshold, in Order No. 743, the Commission found ``that 
many facilities operated at 100 kV and above have a significant effect 
on the overall functioning of the grid and that the majority of 100 kV 
and above facilities in the United States operate in parallel with 
other high voltage and extra high voltage facilities, interconnect 
significant amounts of generation sources and operate as part of a 
defined flowgate.'' The Commission explained that this ``illustrates 
their parallel nature and therefore their necessity to the reliable 
operation of the interconnected transmission system'' and that 
``[p]arallel facilities operated at 100-200 kV will experience similar 
loading as higher voltage parallel facilities at any given time and the 
lower voltage facilities will be relied upon during contingency 
scenarios.'' \34\ In addition, in Order No. 743 the Commission 
identified the reliability concerns created by the current definition 
and a method to ensure that certain facilities needed for the reliable 
operation of the nation's bulk electric system are subject to mandatory 
and enforceable Reliability Standards. The Commission noted that the 
material impact assessments implemented, for example, by NPCC ``are 
subjective in nature, and results from such tests are inconsistent in 
application, as shown through the exclusion of facilities that clearly 
are needed for reliable operation.'' \35\ The Commission also found 
that the vast majority of 100 kV and above facilities are part of 
parallel networks with high voltage and extra high voltage facilities 
and are necessary for reliable operation.\36\ Thus, the Commission 
found that NERC should ``establish a uniform definition that eliminates 
subjectivity and regional variation in order to ensure reliable 
operation of the bulk electric system'' and that ``the existing NPCC 
impact test is not a consistent, repeatable, and comprehensive 
alternative to the bright-line, 100kV definition we prefer.'' \37\
---------------------------------------------------------------------------

    \34\ Order No. 743, 133 FERC ] 61,150 at P 73.
    \35\ Order No. 743, 133 FERC ] 61,150 at P 96.
    \36\ Id.
    \37\ Id.
---------------------------------------------------------------------------

    42. NERC already applies a general 100 kV threshold, and today all 
regions, with the exception of NPCC, also apply a 100 kV threshold. We 
also note NYPSC cites to the same methodology that the Commission found 
dubious in Order No. 743-A where the Commission explained that it had:

serious concerns about NPCC's [] methodology. The Commission stated 
that, as a threshold matter, the material impact tests proffered by 
commenters did not measure whether specific system elements were 
necessary for operating the system, but, rather, measure the impact 
of losing the element. The Commission's extensive discussion of the 
NPCC test further noted that the NPCC methodology is unduly 
subjective, and results in an inconsistent process that excludes 
facilities necessary for operating the bulk electric system from the 
definition.\38\
---------------------------------------------------------------------------

    \38\ Order No. 743-A, 134 FERC ] 61,210 at P 47 (footnotes 
omitted) (citing Order No. 743, 133 FERC ] 61,150 at PP 74, 76 and 
85).

    43. We also disagree with NYPSC's contention that this approach 
presumes the Commission has jurisdiction over all facilities operated 
at 100 kV or above, unless proven otherwise, which inappropriately 
shifts the legal and technical burdens to the states. As noted above 
and in Order No. 743-A, the suggested solution of a 100 kV threshold 
paired with an exemption process, in essence, ``merely clarifies the 
current NERC definition, which classifies facilities operating at 100 
kV or above as part of the bulk electric system.'' \39\ Thus, we are 
not persuaded that NERC's proposal inappropriately shifts legal or 
technical burdens. In addition, the Commission has maintained that the 
bright-line threshold would be a ``first step or proxy'' in determining 
which facilities should be included in the bulk electric system. The 
definition, coupled with the exception process will ensure that 
facilities not necessary for the operation of the interconnected 
transmission network will be properly categorized. Further, the 
Commission's approach for determining whether elements are used for 
local distribution on a case-by-case basis, as discussed more fully 
below, addresses NARUC's concerns as to the status of local 
distribution elements that are not also described in exclusion E3 and 
that the definition does not appropriately reflect the statutory limits 
of the Commission's authority under FPA section 215 as well as NYPSC's 
concern about the Commission having jurisdiction over all facilities 
operated at 100 kV or above. With regard to the specific examples cited 
by NYPSC, we find that such determinations are more appropriate for the 
exception process and beyond the scope of this proceeding.
---------------------------------------------------------------------------

    \39\ Order No. 743-A, 134 FERC ] 61,210 at P 36.
---------------------------------------------------------------------------

    44. We also disagree with NYPSC and Massachusetts DPU that NERC's 
proposal is flawed because NERC's petition did not include a formal 
cost analysis. Order No. 743 did not require such an analysis. Rather, 
Order No. 743 tasked NERC with certain directives and NERC's petitions 
are intended to comply with those directives. In addition, while cost 
of implementation can be relevant in Commission review of a proposed 
Reliability Standard, the foremost concern is the reliability of the 
interconnected transmission network.\40\ Therefore, we find that NERC's 
petition adequately addresses the Commission's Order No. 743 
directives.
---------------------------------------------------------------------------

    \40\ See Order No. 672, FERC Stats. & Regs. ] 31,204 at P 330.
---------------------------------------------------------------------------

B. The Core Definition of Bulk Electric System

NOPR Proposal
    45. In the NOPR, the Commission proposed to approve the bulk 
electric system ``core'' definition developed by NERC which states as 
follows:

    Unless modified by the lists shown below, all Transmission 
Elements operated at 100 kV or higher and Real Power and Reactive 
Power resources connected at 100 kV or higher. This does not include 
facilities used in the local distribution of electric energy.

In the NOPR, the Commission noted that NERC's proposal appears to 
satisfy the objectives set forth in Order No. 743.

[[Page 811]]

The Commission also stated that NERC's ``core'' definition establishes 
the fundamental threshold for inclusion of facilities in the bulk 
electric system as those that are operated at 100 kV or higher, if they 
are transmission elements, or are connected at 100 kV or higher, if 
they are real power or reactive power resources. In addition, the 
Commission stated that the core definition also establishes a 100 kV 
criterion as a bright-line threshold, rather than as a general 
guideline as in the current definition, i.e., the phrase ``generally 
operated at'' in the current definition is eliminated.
Comments
    46. NERC and a majority of commenters including most trade 
organizations believe that the core definition satisfies the Order No. 
743 directives. By eliminating the language ``as defined by the 
Regional Reliability Organization'' and ``generally operated at,'' they 
state that the revised definition eliminates the subjectivity and 
regional variations that are possible under the current definition.\41\ 
WPPC supports the NERC proposals but is concerned that the NOPR could 
be read as attempting to impose nationally uniform standards without 
allowing regional variation. WPPC believes that FPA section 215 
requires deference to Regional Entities in developing Reliability 
Standards and is concerned that the NOPR's references to uniformity of 
the definition of bulk electric system must be limited by the deference 
accorded to Regional Entities in the statute.
---------------------------------------------------------------------------

    \41\ See e.g., NERC, APPA, EEI, NRECA, ELCON, the Regional 
Entities, NV Energy, National Grid, Southern Companies, Duke Energy, 
International Transmission Company, TAPS, BPA, Hydro One and IESO, 
and Snohomish.
---------------------------------------------------------------------------

    47. Other commenters seek modification of the core definition. For 
example, PSEG Companies believe that the core definition will introduce 
subjectivity because it omits facilities and systems necessary to 
operate the facilities above 100 kV, such as protection systems, 
underfrequency load shedding systems and control centers.\42\ PSEG 
Companies suggest the addition of demand response above 75 MW within a 
balancing authority into the definition. In the same vein, ISO New 
England suggests including capacity resources connected below 100 kV 
and identifies protection systems, under-frequency and under-voltage 
load shedding systems, inclusion of non-bulk electric system facilities 
into transmission and operational planning, and control rooms as items 
that are important to operating the bulk electric system but not in the 
definition. ISO New England, therefore, believes that NERC should make 
the determination whether or not these facilities and control systems 
must comply with Reliability Standards independent of their 
designation. Valero seeks clarification that the core definition 
excludes elements ``that are owned and used by an industrial end-user 
to serve its load.'' \43\
---------------------------------------------------------------------------

    \42\ PSEG Comments at 4-6.
    \43\ Valero Comments at 3.
---------------------------------------------------------------------------

    48. Similarly, IUU and Barrick state that industrial generators are 
intrastate facilities that serve only the owner's load and believe that 
they are excluded from the jurisdiction of the Commission.\44\ IUU and 
Barrick believe that some of the Reliability Standards appear to reach 
beyond the limits imposed by Congress and into these intrastate 
industrial generator facilities. According to IUU and Barrick, the 
definition needs an additional exclusion that excludes these intrastate 
facilities.
---------------------------------------------------------------------------

    \44\ See also Barrick Reply Comments at 2-3.
---------------------------------------------------------------------------

    49. Several commenters that support the NERC proposal also comment 
on matters not specifically raised in the NOPR. APPA recommends that 
the Commission state that it expects NERC will continue to treat the 
Phase 2 bulk electric system definition project as a priority in the 
2013 budget year. APPA also requests that the Commission direct NERC to 
expedite the deregistration process for those entities or facilities 
that are no longer designated as part of the bulk electric system under 
the new definition or through application of the Rules of Procedure 
exception process. APPA believes that an expedited deregistration 
process would reduce the associated burden on entities that are no 
longer required to document compliance due to the revisions in the bulk 
electric system definition and the exception process.
    50. Redding requests that, due to the connection between the 
definition and the NERC Functional Model, the Commission should direct 
revisions to the NERC Functional Model to accommodate entities that own 
or operate facilities that technically qualify as transmission but that 
have a limited, if any, impact on reliability.
Commission Determination
    51. We find that the ``core'' definition satisfies the Order No. 
743 directives to remove the subjectivity and regional variations that 
are possible under the current definition by eliminating the language 
``as defined by the Regional Reliability Organization'' and ``generally 
operated at,'' in the revised definition. The ``core'' definition, 
quoted above, establishes the fundamental threshold for inclusion of 
facilities in the bulk electric system as those that are operated at 
100 kV or higher, if they are transmission elements, or are connected 
at 100 kV or higher, if they are real power or reactive power 
resources. The core definition also establishes a 100 kV criterion as a 
bright-line threshold, rather than as a general guideline as in the 
current definition, i.e., the phrase ``generally operated at'' in the 
current definition is eliminated. The core definition also continues to 
capture equipment associated with the facilities included in the bulk 
electric system.
    52. Other than the directive to modify exclusion E3 as discussed 
below, the Commission declines to direct NERC to further modify the 
definition or the specified inclusions and exclusions. Specifically, we 
will not direct further revisions to address demand response, 
protection systems and other facilities or equipment as separate 
inclusions or exclusions as advocated by ISO New England, PSEG 
Companies, IUU or Barrick.\45\ Rather, NERC has indicated that it has 
initiated a Phase 2 of the development project for the definition of 
bulk electric system, and interested stakeholders have the opportunity 
in the first instance to raise their ideas in that forum regarding 
possible additions, inclusions and exclusion set forth in the bulk 
electric system definition.\46\
---------------------------------------------------------------------------

    \45\ We note that, in Order No. 693, the Commission recognized 
demand side management as a type of resource for contingency reserve 
that should be treated on a comparable basis with other resources; 
and must meet similar technical requirements as other resources 
providing this service. Order No. 693, FERC Stats. & Regs. ] 31,242 
at PP 330-335.
    \46\ According to NERC, due to time constraints in meeting the 
compliance deadline set in Order No. 743, NERC separated the 
development of the revised definition into two phases. See NERC 
Petition at 46. NERC stated that Phase 1 culminated in the language 
of the proposed modified definition that is the primary subject of 
this Final Rule. Phase 2, which is ongoing, intends to focus on 
other industry concerns raised during Phase 1.
---------------------------------------------------------------------------

    53. Moreover, in the NOPR we acknowledged NERC's statement that the 
core definition also continues to capture equipment associated with the 
facilities included in the bulk electric system.\47\ In the NOPR we 
agreed with NERC that while the new definition does not use the term 
``associated equipment,'' the phrase is included in the definition 
through the defined term ``Transmission Elements.'' \48\ We adopt the 
NOPR proposal that the term ``associated equipment,'' is included in 
the definition through the defined term ``Transmission Elements'' which 
could

[[Page 812]]

include the facilities identified by PSEG Companies.
---------------------------------------------------------------------------

    \47\ NOPR, 139 FERC ] 61,247 at PP 16, 55.
    \48\ NOPR, 139 FERC ] 61,247 at P 55 n.69.
---------------------------------------------------------------------------

    54. With regard to Valero's clarification, that the core definition 
excludes elements ``that are owned and used by an industrial end-user 
to serve its load,'' Valero can either seek to have this matter 
addressed generically, if appropriate, in NERC's Phase 2, or seek to 
have this addressed on a case-by-case basis in the exception process 
that we approve in this Final Rule.
    55. We decline, as APPA requests, to direct NERC to expedite the 
deregistration process for those entities who own or operate facilities 
that are no longer designated as part of the bulk electric system. We 
do not expect there to be significant numbers of entities either 
needing to register or deregister due to the change in definition.\49\ 
To the extent entities seek to deregister, NERC, as the ERO, can 
determine the appropriate timeframe for making such a determination. We 
also decline to order NERC to modify the Functional Model as Redding 
requests as the issues Redding raises are outside the scope of this 
proceeding. In response to WPPC's concern, this Final Rule adopts the 
revised definition which eliminates regional discretion for determining 
whether an element is part of the bulk electric system. It does not 
address or subsume the ability of Regional Entities to develop 
Reliability Standards for their regions that meet criteria for regional 
Reliability Standards.
---------------------------------------------------------------------------

    \49\ See NOPR, 139 FERC ] 61,247 at P 132.
---------------------------------------------------------------------------

    56. In summary, the Commission finds that NERC's proposal 
adequately addresses the concerns articulated in Order No. 743 
regarding regional discretion and the need for a consistent approach 
and satisfies the concerns regarding the elimination of inconsistencies 
across regions.

C. Local Distribution

NOPR Proposal
    57. The NOPR noted that, although Order No. 743 acknowledged that 
``Congress has specifically exempted `facilities used in the local 
distribution of electric energy' '' it still is necessary to determine 
which facilities are local distribution, and which are 
transmission.\50\ The NOPR observed that Order No. 743-A stated that 
``[w]hether facilities are used in local distribution will in certain 
instances raise a question of fact, which the Commission has 
jurisdiction to determine.'' \51\ In addressing what constitutes local 
distribution, NERC stated in its petition that facilities used for the 
local distribution of electric energy are expressly excluded from the 
bulk electric system by the core definition as well as by the local 
network exclusion, exclusion E3.\52\ In the NOPR, the Commission 
requested comment regarding how NERC's proposed definition is 
responsive to the Commission's directives in Order Nos. 743 and 743-A. 
Specifically, the Commission requested comment on how NERC's proposal 
adequately differentiates between local distribution and transmission 
facilities in an objective, consistent, and transparent manner.
---------------------------------------------------------------------------

    \50\ Order No. 743-A, 134 FERC ] 61,210 at P. 67.
    \51\ NOPR, 139 FERC ] 61,247 at P. 58, quoting Order No. 743-A, 
134 FERC ] 61,210 at P. 67.
    \52\ NOPR, 139 FERC ] 61,247 at P. 59, (citing NERC BES Petition 
at 16).
---------------------------------------------------------------------------

Comments
    58. NERC and numerous commenters state that the definition 
adequately differentiates between local distribution and 
transmission.\53\ NERC states that the revised definition distinguishes 
between bulk electric system facilities and non-bulk electric system 
facilities and local distribution facilities fall into the latter 
category.\54\ NERC adds that, by applying the definition, facilities 
used for local distribution will not be included due to their specific 
exclusion in the core definition. NERC and others also state that the 
exception process can be used to determine whether facilities are used 
for local distribution when an entity believes such facilities have 
been improperly included.\55\
---------------------------------------------------------------------------

    \53\ See e.g., APPA Comments at 8-9, EEI Comments at 4, NRECA 
Comments at 7, Hydro One Comments at 3, NV Energy Comments at 3-4, 
PHI Companies Comments at 3, TAPS Comments at 3, BPA Comments at 3, 
WPPC Comments at 27-30.
    \54\ NERC Comments at 6.
    \55\ See e.g. WPPC Comments at 28.
---------------------------------------------------------------------------

    59. While ELCON generally agrees with NERC's position, ELCON 
comments that NERC's proposal does not fully respond to the 
Commission's directive in Order Nos. 743 and 743-A. ELCON maintains 
that a definition of ``local distribution'' is necessary to avoid 
including assets that are clearly used for the local distribution as 
part of the bulk electric system. ELCON expresses concern that 
industrial consumers' equipment that is rated 100 kV or above will be 
designated as a component of the bulk electric system, irrespective of 
whether such elements are material for the reliable operation of the 
interconnected Bulk-Power System. ELCON recommends that the Commission 
address this issue by establishing a joint working group with NARUC to 
draft a proposed definition of local distribution to exclude certain 
facilities from the scope of the definition of bulk electric system.
    60. Some entities that generally agree with NERC also suggest 
clarifications to improve the distinction between local distribution 
and transmission. MISO suggests that, to identify local distribution 
facilities, the Commission direct NERC to clarify the last sentence of 
the core definition by ``cross-referencing'' the exclusion criteria in 
the definition.\56\ Snohomish requests that the Commission clarify that 
the Seven Factor Test established in Order No. 888 is one element that 
can be used to evaluate an exception request in addition to other 
engineering and technical considerations.\57\
---------------------------------------------------------------------------

    \56\ MISO Comments at 4.
    \57\ Snohomish Comments at 3.
---------------------------------------------------------------------------

    61. Other commenters contend that NERC's proposal does not 
adequately differentiate between local distribution and transmission 
facilities or reflect the statutory limits of the Commission's 
authority under FPA section 215.\58\ As noted above, NARUC states that 
the NERC definition does not appropriately reflect the statutory limits 
of the Commission's authority under Federal Power Act Section 215 and 
its implementation could unnecessarily overreach into state 
jurisdictional local distribution facilities. NARUC maintains that, 
while the definition of bulk electric system appears to exclude local 
distribution by restating the law, the definition does not go far 
enough to ensure that a costly analysis applying for an ``exception'' 
is not required to be performed with regard to local distribution 
elements that are by law ``excluded.'' NARUC contends that the mere 
fact that a subset of local distribution elements expressly excluded 
from the bulk electric system by the core definition are specifically 
identified in exclusion E3 could cause confusion as to the status of 
local distribution elements that are not also described in E3. 
Similarly, the Steel Manufacturers Association states that the 
Commission cannot allow NERC's exception process to determine the 
boundaries of the Commission's jurisdiction.
---------------------------------------------------------------------------

    \58\ E.g., NARUC, Holland, NYPSC, and SmartSenseCom.
---------------------------------------------------------------------------

    62. Consumers Energy believes that the definition does not 
differentiate between transmission and local distribution because 
``Transmission Elements'' and ``local distribution'' are undefined. 
Consumers Energy states that the Commission should clarify that any 
facilities that have been found by the Commission to be local 
distribution pursuant to the Seven Factor Test are

[[Page 813]]

also local distribution under FPA section 215 and therefore outside the 
bulk electric system.\59\ Consumers references a prior Commission 
declaratory order accepting the Michigan Public Service Commission's 
determination of transmission and local distribution facilities.\60\ 
Consumers notes that it sold all of its ``bulk electric system 
elements'' to Michigan Electric Transmission Company, who is the 
registered transmission owner. ITC Companies and MISO filed reply 
comments requesting that the Commission reject the coordination and 
continuity aspect of Consumers' proposal to automatically exclude from 
the definition those facilities that are ``in series'' with 
transmission facilities that are included in the bulk electric system 
definition.\61\ In addition, they state that this is not the proper 
proceeding to address whether specific facilities may or may not be 
part of the bulk electric system. Consumers filed a motion to strike 
the MISO reply comments.
---------------------------------------------------------------------------

    \59\ Consumers Comments at 3-8.
    \60\ Consumers Comments at 4 (citing July 29, 1998 letter order 
in Docket No. EL98-21-000).
    \61\ ITC Reply Comments at 6-7.
---------------------------------------------------------------------------

    63. Portland is concerned that the Commission is assessing its 
reliability jurisdiction without addressing ``the inconsistency between 
its reliability jurisdiction and its traditional `transmission' 
jurisdiction under FPA section 201(b).'' Portland states that the 
Commission could clarify that for entities who apply the local 
distribution exception in good faith, any future regulatory 
determination that such distribution facilities are to be treated as 
part of the bulk electric system within the scope of FPA section 215 
regulation will be prospective only.\62\
---------------------------------------------------------------------------

    \62\ Portland Comments at 4.
---------------------------------------------------------------------------

    64. Holland argues that, aside from the exclusions in the core 
definition, there are no criteria or guidelines that exclude local 
distribution facilities from the bulk electric system. Holland also 
argues that if an entity challenges a registration, there is no 
guidance as to what information NERC will consider whether to recognize 
the facilities in question as local distribution and exclude them from 
the bulk electric system. Holland contends that the proposed Rules of 
Procedure fail to provide any distinction between those facilities that 
must be excluded because they are local distribution versus those that 
should be excluded because, although they meet the [bulk electric 
system] bright-line criteria, they are not necessary for the reliable 
operation of the interconnected transmission system. Holland claims 
that the exception process does not make ``any distinction between 
criteria necessary for determining those facilities that must be 
excluded because they are local distribution versus those that should 
be excluded because they [ ] meet the [bulk electric system] criteria, 
but are not material.'' \63\ Holland adds that ``because the exclusions 
are not comprehensive, and because the `exceptions' process provides no 
further guidance on the proper exclusion of these facilities, there 
would be no basis to support a conclusion that the NOPR has effectively 
and transparently identified, let alone justified, a second class or 
test for identifying local distribution for purposes of Section 215 of 
the FPA.'' \64\ Similarly, Massachusetts DPU comments that exception 
requests will inevitably involve difficult questions regarding whether 
a facility is ``used in the local distribution of electric energy,'' an 
area over which states have exclusive authority under the FPA.\65\
---------------------------------------------------------------------------

    \63\ Holland Comments at 6.
    \64\ Holland Comments at 9. See also Barrick Reply Comments at 
2.
    \65\ Massachusetts DPU Comments at 10.
---------------------------------------------------------------------------

    65. Valero requests that the Commission direct NERC to develop 
criteria based on a ``primary function test'' to exclude facilities 
used in local distribution. In addition, Valero states that the 
Commission should ``provide guidance to NERC by [ ] stating that, to 
constitute distribution, a facility need not be used exclusively for 
distribution purposes.\66\ Further, Valero contends that NERC's 
``distribution use only'' position contradicts the plain language of 
sections 201 and 215 of the FPA. Valero states that its ``discrete on-
site electrical equipment'' is designed only to serve load at its 
refineries. While the facilities may enhance the reliability of 
electric service, Valero asserts they are only used by an industrial 
end-user of electricity for ``the local distribution of electric 
energy'' and must be excluded from the bulk electric system. The Power 
Agencies ask for clarification of footnote 79 in the NOPR and assume 
that the Commission is clarifying that certain facilities may not 
satisfy the revised definition, but may constitute transmission 
facilities for purposes other than applying FPA section 215.\67\
---------------------------------------------------------------------------

    \66\ Valero Comments at 8-12 (emphasis in original) (citing 
Detroit Edison v. FERC, 334 F.3d 48, 54 (D.C. Cir. 2003)).
    \67\ See NOPR, 139 FERC ] 61,247 at P 60 n.79 stating that ``an 
element that falls outside of the definition of bulk electric system 
is not necessarily local distribution.''
---------------------------------------------------------------------------

Commission Determination
    66. For the reasons discussed below, we find that NERC's ``core'' 
definition of bulk electric system definition, together with exclusion 
E3 (local networks), is consistent with the section 215 exclusion of 
local distribution facilities. We also find that, while NERC's case-by-
case exceptions process is appropriate to determine the technical issue 
of whether facilities are part of the bulk electric system, the 
jurisdictional question of whether facilities are used in local 
distribution should be decided by the Commission.
    67. NERC's ``core'' definition provides a 100 kV threshold for 
determining whether elements or facilities are included in the bulk 
electric system. As we indicated in Order No. 743, the 100 kV threshold 
is a reasonable ``first step or proxy'' for determining which 
facilities should be included in the bulk electric system. Indeed, it 
is reasonable to anticipate that this threshold will remove from the 
bulk electric system the vast majority of facilities that are used in 
local distribution, which tend to be operated at lower, sub-100 kV 
voltages. Moreover, applying the four exclusions in NERC's proposed 
definition should serve to further exclude facilities used in local 
distribution from the bulk electric system. In particular, as NERC 
indicates, exclusion E3 (local networks)--although not synonymous with 
local distribution--should serve to reasonably exclude many above-100 
kV facilities that are used in local distribution. Based on the 
information provided in NERC's petition, as well as the supporting 
comments of EEI and others, we anticipate that the ``core'' definition 
together with exclusion E3 should provide a reasonable means to 
accurately and consistently determine on a generic basis whether 
facilities are part of the bulk electric system. In other words, most 
local distribution facilities will be excluded by the 100 kV threshold 
or exclusion E3 without needing to seek a Commission jurisdictional 
determination. Accordingly, we find this aspect of NERC's petition 
reasonable.
    68. In addition to the definition, NERC also submitted revisions to 
the Rules of Procedure (discussed below in greater detail) that allow 
for a case-by-case exception process. Included in this process is an 
opportunity for entities to seek to exclude facilities from the bulk 
electric system because they are used in local distribution. NERC's 
petition does not provide criteria or guidance that it would apply in 
the case-by-case exception process to determine whether

[[Page 814]]

an element above 100 kV should be excluded as local distribution, as 
directed in Order No. 743.\68\ Thus, we cannot conclude that the case-
by-case exception process will ``adequately differentiate[] between 
local distribution and transmission facilities in an objective, 
consistent, and transparent manner.'' \69\
---------------------------------------------------------------------------

    \68\ The Commission, in Order No. 743-A, explained that ``the 
Seven Factor Test could be relevant and possibly is a logical 
starting point for determining which facilities are local 
distribution for reliability purposes, while also allowing NERC 
flexibility in applying the test or developing an alternative 
approach as it deems necessary.'' Order No. 743-A, 134 FERC ] 61,210 
at P 69. NERC, in its petition, did not adopt a specific test or 
criteria for determining whether a facility is local distribution, 
but indicated that an entity seeking an exception for local 
distribution facilities could provide a ``seven factor'' analysis as 
one means to support the petition. NERC BES Petition at 49.
    \69\ See NOPR, 139 FERC 61,247 at P 59.
---------------------------------------------------------------------------

    69. In Order No. 743, the Commission stated that determining the 
line between transmission and local distribution should be part of the 
exception process and left it to NERC in the first instance to 
determine how to make such a determination.\70\
---------------------------------------------------------------------------

    \70\ Order No. 743, 133 FERC ] 61,150 at P 38.
---------------------------------------------------------------------------

    After further review of NERC's proposal in this proceeding, and 
upon consideration of the comments submitted, we believe that it is 
more appropriate that the Commission make such case-by-case 
jurisdictional determinations when necessary, and to apply the Seven 
Factor Test set forth in Order No. 888 to make such determinations. The 
determination whether an element or facility is ``used in local 
distribution,'' as the phrase is used in the FPA, requires a 
jurisdictional analysis that is more appropriately performed by the 
Commission.\71\ Further, Commission review of whether a facility is 
used in local distribution comports with relevant legal precedent. As 
we explained in Order No. 743-A, ``[w]hether facilities are used in 
local distribution will in certain instances raise a question of fact, 
which the Commission has jurisdiction to determine.'' \72\
---------------------------------------------------------------------------

    \71\ Standardization of Generator Interconnection Agreements and 
Procedures, Order No. 2003, FERC Stats. & Regs. ] 31,146, at P 803 
(2003), order on reh'g, Order No. 2003-A, FERC Stats. & Regs. ] 
31,160, order on reh'g, Order No. 2003-B, FERC Stats. & Regs. ] 
31,171 (2004), order on reh'g, Order No. 2003-C, FERC Stats. & Regs. 
] 31,190 (2005), aff'd sub nom. Nat'l Ass'n of Regulatory Util. 
Comm'rs v. FERC, 475 F.3d 1277 (D.C. Cir. 2007), cert. denied, 552 
U.S. 1230 (2008) (```Local distribution' is a legal term; under FPA 
Section 201(b)(1), the Commission lacks jurisdiction over local 
distribution facilities.'').
    \72\ Order No. 743-A, 134 FERC ] 61,210 at P 67 and n.78, 
(citing California Pacific Electric Co., LLC, 133 FERC ] 61,018 at 
n.59 (2010) (citing FPC v. Southern California Edison Co., 376 U.S. 
205, 210 n.6 (1964) (asserting that ``the Supreme Court has 
determined that whether facilities are used in local distribution 
involves a question of fact to be decided by the [Commission] as an 
original matter.''))). See also Connecticut Light & Power Co. v. 
Federal Power Commission, 324 U.S. 515, 534-35 (1945).
---------------------------------------------------------------------------

    70. As noted above, application of the ``core'' definition and the 
four exclusions should serve to exclude most facilities used in local 
distribution from the bulk electric system. However, there may be 
certain circumstances that present a factual question as to whether a 
facility that remains in the bulk electric system after applying the 
``core'' definition and the four exclusions should nonetheless be 
excluded because it is used in local distribution. In such 
circumstances, which we expect will be infrequent, an entity must 
petition the Commission seeking a determination that the facility is 
used in local distribution.\73\ Such petitions should include 
information that will assist the Commission in making such 
determination, and notice of the petition must be provided to NERC and 
relevant Regional Entities.
---------------------------------------------------------------------------

    \73\ Such petitions will be assigned an ``RC'' docket prefix. 
The determinations would be public proceedings subject to notice and 
comment requirements which will allow NERC and interested parties 
(including state regulators) to provide input on a petition.
---------------------------------------------------------------------------

    71. In addressing such petitions, the Commission will apply the 
Seven Factor Test set forth in Order No. 888. In Order No. 888, the 
Commission articulated the Seven Factor Test to determine, on a case-
by-case basis, whether a facility is a local distribution facility or a 
transmission facility.\74\ However, the Commission has found that the 
factors identified in the Seven Factor Test are not exclusive when 
determining whether an element is used for local distribution. 
Specifically, the Commission recognized that the Seven Factor Test does 
not resolve all possible issues and that ``there may be other factors 
that should be taken into account in particular situations.'' \75\ The 
Commission will apply a similar analysis in determining in the context 
of FPA section 215 whether a facility is used in local distribution. In 
other words, while the starting point for the Commission's analysis 
will be an analysis based on the Seven Factor Test, the Commission will 
consider other factors that should be taken into account in particular 
situations.
---------------------------------------------------------------------------

    \74\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,771, 
31,783-84, Appendix G.
    \75\ Order No. 888-A, FERC Stats. & Regs. ] 31,048 at 30,242.
---------------------------------------------------------------------------

    72. To reiterate, we expect that the 100 kV threshold as a ``first 
step or proxy'' for determining which facilities should be included in 
the bulk electric system, plus the four exclusions (in particular the 
local network exclusion E3), will exclude many facilities that are used 
in local distribution and thus should be excluded from the bulk 
electric system. This approach recognizes that, although local 
distribution facilities are excluded from the definition, it still may 
be necessary to determine which facilities are local distribution, and 
which are transmission. Whether facilities are used in local 
distribution will in certain instances raise a question of fact, which 
the Commission has jurisdiction to determine. We decline to clarify, as 
Portland requests, that for entities who apply the local distribution 
exception in good faith, any future regulatory determination that such 
distribution facilities are to be treated as part of the bulk electric 
system within the scope of FPA section 215 regulation will be 
prospective only. As explained above, in circumstances where a factual 
question remains after applying the ``core'' definition and the 
exclusions, entities must apply to the Commission for a determination 
of whether an element is used in local distribution. We believe this 
approach provides a means to maintain consistency and transparency 
across the various reliability regions but still have the necessary 
flexibility to make case-by-case determinations appropriate for 
reliability.
    73. To the extent the various reply comments by ITC Companies, MISO 
and Consumers raise questions about the status of specific facilities, 
we decline to address them in this Final Rule as this rulemaking 
proceeding is not the proper forum to decide such matters.

D. Inclusions and Exclusions in the Definition of Bulk Electric System 
NOPR Proposal

    74. In the NOPR, the Commission proposed to approve, in addition to 
the core definition, specific inclusions and exclusions because the 
inclusions and exclusions provide added clarity regarding which 
elements are part of the bulk electric system as compared to the 
existing definition. In the NOPR, the Commission also posed questions 
about how some of the inclusions and exclusions will be applied to 
better understand potential applications of the inclusions and 
exclusions, their effect on identifying the facilities or elements for 
bulk electric system reliability, and whether possible gaps exist. We 
address these questions below.

[[Page 815]]

1. Inclusion I1 (Transformers)
NOPR Proposal
    75. Inclusion I1 includes as part of the bulk electric system 
``[t]ransformers with the primary terminal and at least one secondary 
terminal operated at 100 kV or higher unless excluded under [the radial 
system or local network exclusion].'' In its petition, NERC explained 
that, due to transformers having multiple windings operating at 
differing voltages, the intent of inclusion I1 includes transformers 
operating at 100 kV or higher on the primary winding and at least one 
secondary winding.\76\
---------------------------------------------------------------------------

    \76\ NERC BES Petition at 17.
---------------------------------------------------------------------------

    76. In the NOPR, the Commission stated that NERC's approach to 
inclusion I1 ``is a reasonable approach to identifying transformers 
that are appropriately included as part of the bulk electric system.'' 
\77\ However, the Commission expressed concern whether a particular 
transformer--operated at 100 kV or higher on the primary winding but 
all secondary terminals are operated below 100 kV--should be part of 
the bulk electric system or whether the exception process would be 
sufficient to include these transformers.\78\ The Commission also 
requested comment on whether transformers that have a terminal operated 
at 100 kV or above on the high side and below 100 kV on the low side 
should be designated as part of the bulk electric system.
---------------------------------------------------------------------------

    \77\ NOPR, 139 FERC ] 61,247 at P 63.
    \78\ In the NOPR the Commission noted that the joint NERC and 
Commission staff report on the September 8, 2011, Arizona-Southern 
California blackout explains how transformers of this type were not 
monitored or analyzed by the reliability coordinator, transmission 
operators and balancing authorities. NOPR, 139 FERC ] 61,247 at P 
63.
---------------------------------------------------------------------------

Comments
    77. NERC supports allowing the exception process to include the 
transformers described by the Commission. NERC states that the ``vast 
majority'' of transformers with low side voltages step down to a 
voltage class that is designed for distribution to load. NERC adds that 
the 100 kV threshold for secondary windings provides a ``clear 
demarcation'' between facilities used to transfer power as opposed to 
those that serve load. According to NERC, while there are instances 
where transformers with secondary windings below 100 kV are connected 
in parallel with high voltage transmission lines, it is not possible to 
craft a bright-line inclusion of such transformers because the 
distinction may hinge on function as opposed to the physical 
characteristics of the transformer. NERC states that the exception 
process can evaluate whether such transformers should be included in 
the bulk electric system. A majority of commenters share NERC's 
position and believe that most transformers with the configuration 
described by the Commission in the NOPR do not impact the bulk electric 
system and those that do can be classified as part of the bulk electric 
system through the exception process.\79\
---------------------------------------------------------------------------

    \79\ E.g. APPA, EEI, ELCON, WREA, Anaheim, Riverside, Imperial 
Irrigation District, G&T Cooperatives, NV Energy, NESCOE, and TAPS.
---------------------------------------------------------------------------

    78. SoCal Edison agrees with NERC, but identifies transformers 
operated in parallel with the bulk electric system as those that should 
be designated as part of the bulk electric system irrespective of the 
operational voltage of the transformer. SoCal Edison argues that 
information regarding such transformers should be provided to the 
impacted entities, e.g., reliability coordinators and neighboring 
regional entities. SoCal Edison contends that including these types of 
transformers in the bulk electric system would have made the Regional 
Entities, reliability coordinators, transmission operators and 
balancing authorities aware of the contingencies of the transformers 
and their impact on the bulk electric system in the September 2011 
blackout.
    79. SmartSenseCom states that transformers that operate at 100 kV 
or above with any secondary windings below 100 kV should be included. 
On the other hand, Consumers does not support inclusion I1 because it 
goes beyond the Commission's jurisdiction and would confuse the 
distinction between the bulk electric system and local distribution. 
Consumers argues that inclusion I1 may create a ``moving registration 
target'' if related facilities are added to the bulk electric 
system.\80\
---------------------------------------------------------------------------

    \80\ Consumers Comments at 9-10.
---------------------------------------------------------------------------

Commission Determination
    80. We find that inclusion I1 is a reasonable approach to 
identifying transformers that are appropriately included as part of the 
bulk electric system. We agree with NERC that inclusion I1 includes 
transformers operating at 100 kV or higher on the primary winding and 
at 100 kV or higher on at least one secondary winding. With regard to 
the Commission's concern in the NOPR about inclusion of a transformer 
that is operated at 100 kV or higher on the primary winding but all 
secondary terminals are operated below 100 kV, we agree with NERC that 
it is appropriate for such transformers to be considered for inclusion 
through the exception process. We are persuaded that transformers with 
low side voltages stepped down to a voltage class that is designed to 
distribute power to load and, therefore, the 100 kV threshold for 
secondary windings provides an initial screening between facilities 
used to transfer power as opposed to those that serve load. We agree 
with NERC's assessment that crafting an inclusion for transformers 
described by the Commission is difficult because the distinction may 
hinge on function as opposed to the physical characteristics of the 
transformer. Therefore, we decline to include such transformers in 
inclusion I1.
    81. With regard to the specific configurations identified by SoCal 
Edison (transformers that operate in parallel with the bulk electric 
system irrespective of the operational voltage of the transformer), we 
will not make a determination of general application. Rather, such 
matters should be addressed in the case-by-case exception process.
    82. We do not agree with Consumers that inclusion I1 would be 
ineffective because it would include lower voltage distribution 
facilities that were not designed to provide reliability to the bulk 
electric system or prevent cascading outages. The 100 kV threshold for 
secondary windings provides a bright line between facilities used to 
transfer power as opposed to those that serve load, and if a 
transformer is included pursuant to inclusion I1, but an entity 
believes it is not necessary for operation of the interconnected 
transmission network, it may be considered for exclusion through the 
exception process.
2. Inclusion I2 (Generating Resources)
NOPR Proposal
    83. Inclusion I2 of the bulk electric system definition provides 
for specific inclusion of generating resources with gross individual 
nameplate rating greater than 20 MVA or gross plant/facility aggregate 
nameplate rating greater than 75 MVA. NERC developed this inclusion 
based on the text of the Registry Criteria for generating units while 
providing clarity by including ``the generator terminals through the 
high-side of the step-up transformer connected at a voltage of 100 kV 
or above.'' \81\
---------------------------------------------------------------------------

    \81\ NERC BES Petition at 17.
---------------------------------------------------------------------------

    84. In the NOPR, the Commission agreed that inclusion I2 is 
consistent with the individual and aggregate nameplate rating 
thresholds set forth in

[[Page 816]]

the Registry Criteria but noted the differing descriptions of the 
connection point of the generating resources.\82\ Inclusion I2 
specifies ``generator terminals through the high-side of the step-up 
transformer(s) connected at a voltage of 100 kV or above,'' and the 
Registry Criteria specifies a ``direct connection'' to the Bulk-Power 
System. Accordingly, the Commission requested comment whether inclusion 
I2 will result in a material change to registration of existing 
generating units due to the difference in the language regarding the 
connection point. The Commission also requested comment if a generating 
unit, with a gross individual nameplate rating greater than 20 MVA 
connected through the high-side of the step-up transformer connected at 
a voltage of 100 kV or above when the low side of the transformer is 
less than 100 kV, is included in the bulk electric system pursuant to 
inclusion I2. Further, the Commission asked how this result differs for 
a generation resource with two or more step-up transformers where the 
last transformer in the series operates at 100 kV or above.
---------------------------------------------------------------------------

    \82\ NOPR, 139 FERC ] 61,247 at P 65.
---------------------------------------------------------------------------

Comments
    85. Most commenters do not believe that inclusion I2 will 
materially change registration of generating resources. NERC states 
that inclusion I2 connection point language merely clarifies the 
``directly connected'' language in the Registry Criteria. NERC explains 
that while most generation is connected through a unit transformer on 
the high voltage bus within a facility, there are instances where 
generators are connected to lower voltages within a facility. NERC adds 
that most of these types of configurations are in older facilities 
where the higher voltage bus was added after the original generators. 
NERC confirms that the specific scenario described by the Commission 
would result in the generator being included in the bulk electric 
system provided that the transformers reside within a single site 
boundary and are used only to step-up the output voltage of the 
generator.\83\ APPA and others agree with NERC's view. APPA adds that, 
if the transformers in question are also used to deliver power to serve 
local load, the generation resources and transformers should be 
excluded from the bulk electric system.\84\ PSEG Companies believe that 
inclusion I2 addresses the issue regarding two step-up transformers in 
series. PSEG Companies explain that both step-up transformers are part 
of the generator per inclusion I2 if the purpose of the transformers is 
to solely step-up the output voltage.
---------------------------------------------------------------------------

    \83\ NERC Comments at 9-10. See also comments of EEI.
    \84\ APPA Comments at 14-15. See also comments of National Grid, 
TAPS, NESCOE, and G&T Cooperatives.
---------------------------------------------------------------------------

    86. Arizona Public Service requests that the Commission clarify 
whether the voltage connection language in inclusion I2 applies only to 
the aggregated 75 MVA threshold or also to the 20 MVA threshold for 
individual generating units. Southern Companies believe that there are 
instances where generators may be connected to lower voltages that may 
fit under inclusion I2 but would not necessarily fit in the Registry 
Criteria.
    87. Some commenters do not support inclusion I2 for varying 
reasons. Dominion opposes inclusion of elements such as those provided 
for in inclusion I2 that are already subject to reliability standards 
because the element meets the criteria in the NERC Compliance Registry. 
ISO New England states that the connection language in inclusion I2 
should be eliminated. ISO New England maintains that interpreting 
inclusion I2 to be based on generator plant size, independent of the 
voltage connection, is important from a generator stability modeling 
view point. This is because generators connected at voltages less than 
100 kV can have a significant impact on system stability.\85\ ISO New 
England supports adding generators connected at lower voltages but not 
the system to which the generators are connected. ISO New England 
believes that adding generators, regardless of their connection voltage 
levels, would increase the universe of registered generators and would 
enhance reliability.
---------------------------------------------------------------------------

    \85\ ISO New England Comments at 4.
---------------------------------------------------------------------------

    88. MISO recommends that the Commission clarify that operators of 
generating resources included through inclusion I2 will only be subject 
to Reliability Standards for generators unless a specific determination 
is made that other standards should apply to a particular piece of 
equipment. MISO believes that, without this clarification, inclusion I2 
could increase the number of transmission operators by including 
generation equipment.
    89. Barrick believes that the term ``gross plant/facility'' in 
inclusion I2 needs to be clarified. Barrick states that it is not clear 
whether the terms are based on geographic proximity or structural 
definition. Barrick is also concerned that inclusion I2 is based on 
``gross'' rating while exclusion E2 is based on net capacity and 
exclusion E3(a) is based on a non-retail basis, and that read together 
inclusion I2 and exclusions E2 and E3(a) appear to be in conflict.\86\ 
In reply comments, Barrick suggests that, instead of focusing on 
nameplate ratings, the focus should be on the normal configuration and 
operation of generation.
---------------------------------------------------------------------------

    \86\ Barrick Comments at 10.
---------------------------------------------------------------------------

    90. SmartSenseCom states that the Commission should direct NERC to 
modify inclusion I2 to include generating units that are stepped up to 
100 kV or above containing a transformer with a low side below 100 kV 
because, at these levels, generating resources should be presumed to 
impact reliability. SmartSenseCom contends that Reliability Standards 
should apply to such facilities ``in light of their potential impact to 
system reliability, especially given the increasing levels of 
distributed generation penetration that is expected in the near 
future.'' \87\ Springfield questions whether multiple individual units 
are considered one unit if they have a shared bus. Springfield believes 
that such instances should not be considered individually.
---------------------------------------------------------------------------

    \87\ SmartSenseCom Comments at 12.
---------------------------------------------------------------------------

Commission Determination
    91. The Commission approves inclusion I2. Based on the language of 
inclusion I2, its derivation from the Registry Criteria and the 
statements from NERC and commenters, the Commission concludes that 
application of inclusion I2 will not materially change registration of 
generating resources. The Commission accepts NERC's explanation that 
the inclusion I2 connection point language merely clarifies the 
``directly connected'' language in the NERC Registry Criteria, section 
III.c.1. Further, the Commission agrees with NERC and other commenters 
that multiple step-up transformers that are solely used to deliver the 
generation to the bulk electric system at 100 kV or above qualify the 
generator and the step-up transformers pursuant to inclusion I2.
    92. APPA and commenters claim that, if a transformer is also used 
to deliver power to serve local load, through, for example a 69 kV 
network, the generation resources and transformers should be excluded 
from the bulk electric system. The Commission agrees with the specific 
example. In such cases, local load refers to end-user load and not 
generator-specific station service load. This example depicts a 
generator whose step-up transformer delivers the generation to a 
voltage level of 69 kV and thus does not meet the criteria in inclusion 
I2. A second

[[Page 817]]

transformer in this example that connects the 69 kV network to the bulk 
electric system is not solely delivering the generation to the bulk 
electric system but also delivers power from the bulk electric system 
to the 69 kV network.
    93. Regarding Arizona Public Service's request for clarification, 
the Commission finds that the voltage connection language in inclusion 
I2 applies to both the aggregated 75 MVA threshold for a plant/facility 
and the 20 MVA threshold for individual units.
    94. The Commission disagrees with Dominion's contention that 
inclusion I2 is not needed because the elements identified in inclusion 
I2 already meet the Registry Criteria. The NERC registration process 
uses element criteria to identify and register functional entities, not 
the actual equipment. In contrast, the focus of the bright-line 
definition is the facilities, not the owners or operators of the 
facilities. Similarly, with regard to Southern Companies' belief that 
there are instances where generators may be connected to lower voltages 
that may fit under inclusion I2 but would not necessarily fit in the 
Registry Criteria, the Commission agrees that the Registry Criteria 
allows the Regional Entities and NERC to consider other factors 
regarding entity registration which may result in cases where the bulk 
electric system status and registry status differs for certain 
equipment owners and operators.
    95. Regarding ISO New England's assertion that generators that 
connect to the bulk electric system via transmission facilities with 
voltages below 100 kV are needed for reliability, the Commission 
believes these generators can be added to the bulk electric system 
through the exception process, and if registration is warranted for the 
owners and operators of these generators, the Registry Criteria 
provides NERC and the Regional Entities the option of registering 
``[a]ny generator, regardless of size, that is material to the 
reliability of the Bulk Power System.'' \88\ Aggregate stability 
impacts of generation below 100 kV could fall into this category of 
``material to the reliability of the Bulk Power System.''
---------------------------------------------------------------------------

    \88\ NERC Statement of Compliance Registry Criteria, section 
III.c.4.
---------------------------------------------------------------------------

    96. With respect to the suggestions and requests for clarification 
submitted by MISO, Barrick, SmartSenseCom and Springfield, commenters 
may raise these suggestions in NERC's Phase 2 development effort.
3. Inclusion I3 (Blackstart Resources)
NOPR Proposal
    97. NERC included as part of the bulk electric system definition 
``Blackstart Resources identified in a Transmission Operator's 
restoration plan.'' In the NOPR, the Commission agreed with NERC that 
inclusion of blackstart resources in the definition is vital to 
reliability and is an improvement to the definition. The Commission 
requested clarification whether the term ``restoration plan'' refers to 
the system restoration plans required in the Emergency Preparedness and 
Operations (EOP) Reliability Standards or included in a Commission 
approved tariff.\89\ The Commission also expressed concern whether a 
reliability gap exists with regard to cranking paths. The Commission 
explained that cranking paths are an important element of system 
restoration, and questioned ``whether reliability can be adequately 
maintained when blackstart generators are defined as part of the bulk 
electric system but not the transmission paths that are used to deliver 
the energy from blackstart generators to the integrated transmission 
system.'' \90\ Accordingly, the Commission requested comment on whether 
a reliability gap exists and also requested comment on the appropriate 
role, if any, of state regulators in ensuring that energy from 
blackstart generation is reliably delivered through cranking paths to 
restart the system after an event.
---------------------------------------------------------------------------

    \89\ NOPR, 139 FERC ] 61,247 at P 67. Reliability Standard EOP-
005-1, System Restoration Plans, requires a transmission operator to 
create ``a restoration plan to reestablish its electric system in a 
stable and orderly manner in the event of a partial or total 
shutdown of its system.''
    \90\ NOPR, 139 FERC ] 61,247 at P 68.
---------------------------------------------------------------------------

Comments
    98. NERC confirms that the ``restoration plan'' in inclusion I3 
refers to the restoration plans in the EOP Reliability Standards. Other 
commenters support NERC's explanation.\91\ With regard to cranking 
paths, NERC explains that cranking paths above 100 kV are included in 
the bulk electric system by the core definition. NERC states that some 
cranking paths identified in a restoration plan ``are composed of 
distribution system elements.'' \92\ NERC adds that certain Reliability 
Standards, such as Reliability Standards CIP-002-4 and EOP-005-2, 
address reliability of cranking paths without regard to voltage which 
demonstrates there are other ways to ensure reliable operation of the 
bulk electric system without including non-bulk electric system 
cranking paths within the definition. In contrast, PSEG Companies 
request that, if the Commission supports NERC's exclusion of cranking 
paths below 100 kV, the Commission confirm that below 100 kV cranking 
paths would be excluded from being enforced in Reliability Standards 
that address cranking paths unless they are added to the bulk electric 
system by the exception process.\93\
---------------------------------------------------------------------------

    \91\ E.g. EEI, APPA, Southern Companies, SoCal Edison, PSEG 
Companies, and NV Energy.
    \92\ NERC Comments at 11.
    \93\ PSEG Comments at 10.
---------------------------------------------------------------------------

    99. Other commenters agree that no reliability gap exists and that 
the Commission correctly noted that including cranking paths may 
improperly bring distribution level elements into the bulk electric 
system. Southern Companies and others contend that if a cranking path 
that does not fall within the definition of bulk electric system but is 
needed for reliability, the exception process would be the place to 
make that determination.\94\ NESCOE states that cranking paths are 
generally part of the distribution system and state regulators have the 
responsibility to ensure the reliability of these lower voltage 
facilities and are acutely aware of the importance of effective 
blackstart capability. NESCOE adds that these facilities are needed for 
restoration not for continuous operation.\95\ ODEC is concerned that 
including cranking paths will create an incentive for generators not 
making their units available for blackstart services. Alameda suggests 
that ``any potential gap can be closed by requiring [t]ransmission 
[o]perators (``TOPs'') that identify blackstart generation and a 
related cranking path or paths in their system restoration plans to 
analyze and enter into an operating agreement with the owner of 
identified cranking path facilities not owned by the [transmission 
operator].'' \96\
---------------------------------------------------------------------------

    \94\ Southern Companies Comments at 7. See also TAPS Comments at 
5.
    \95\ NESCOE Comments at 10.
    \96\ Alameda Comments at 6.
---------------------------------------------------------------------------

    100. While other commenters agree that the term ``restoration 
plan'' refers to the EOP Reliability Standards, they assert that 
cranking paths should be included in the bulk electric system. Idaho 
Power, ITC Companies and BPA assert that cranking paths are crucial to 
system restoration and implicate reliability even if they are local 
distribution or below 100 kV facilities.\97\ ITC Companies state that 
not including cranking paths will cause regional differences and 
inconsistent application resulting in some owners electing to

[[Page 818]]

exclude such assets. Without cranking paths included in the definition, 
ITC Companies state that they will be ``required to ensure its 
blackstart plan does not include blackstart generators connected to 
transmission facilities at voltages below 100 kV since [they] could not 
be assured that the proper standards are being followed for these 
blackstart cranking paths.'' \98\
---------------------------------------------------------------------------

    \97\ Idaho Power Comments at 4, ITC Companies at 3-4. See also 
BPA Comments at 3-4.
    \98\ ITC Comments at 5.
---------------------------------------------------------------------------

    101. MISO recommends that the Commission clarify that the term 
``restoration plan'' refers to the EOP Reliability Standards but not 
include all blackstart resources in a Commission-approved tariff. MISO 
is concerned that including blackstart resources from sources other 
than the EOP Reliability Standards is not necessary for reliability and 
could encourage generators to remove blackstart resources in order to 
avoid being subject to ``unduly complex requirements.'' \99\
---------------------------------------------------------------------------

    \99\ MISO Comments at 6.
---------------------------------------------------------------------------

Commission Determination
    102. We find that NERC's inclusion of blackstart resources in the 
definition is an improvement to the definition. We also agree with 
NERC's statement that the ``restoration plan'' in inclusion I3 refers 
to the restoration plans in the EOP Reliability Standards. With regard 
to cranking paths, the Commission declines to include all cranking 
paths regardless of voltage level. The Commission finds that cranking 
paths operating at or above 100 kV are included in the bulk electric 
system by the core definition, and if a cranking path that does not 
fall within the definition of bulk electric system, (i.e. operating at 
or above 100 kV) but is needed for reliability, such elements can be 
included in the bulk electric system through the exception process. We 
also disagree that not including cranking paths will cause regional 
differences and inconsistent application resulting in some owners 
electing to exclude such assets. The revised definition includes all 
Transmission Elements at or above 100 kV. Thus, to the extent a 
cranking path is operating at or above 100 kV and a ``Transmission 
Element,'' it would be included in the bulk electric system. If a 
cranking path is below 100 kV and is necessary for operation of the 
interconnected transmission network or operates at or above 100 kV and 
is not necessary for the operation of the interconnected transmission 
network, the status of the cranking path may be determined in the 
exception process. These steps will ensure consistent treatment across 
the regions. In response to ITC Companies' concern that, without 
cranking paths included in the definition it will be required to ensure 
its blackstart plan does not include blackstart generators connected to 
transmission facilities at voltages below 100 kV, we note that such 
elements can be considered for inclusion through the exception process. 
Similarly, with regard to NESCOE's statement that lower voltage 
cranking paths are generally part of the distribution system, we note 
that facilities operating below 100 kV would be excluded as part of 
applying of the core definition. In addition, as we discuss above, in 
certain instances the Commission will make determinations as to which 
facilities are used in local distribution and thus should be excluded 
from the bulk electric system.\100\
---------------------------------------------------------------------------

    \100\ See supra PP 66-73.
---------------------------------------------------------------------------

    103. With regard to PSEG Companies' request that the Commission 
confirm that Reliability Standards do not apply to below 100 kV 
cranking paths unless they are added to the bulk electric system by the 
exception process, we find that PSEG Companies' request is outside the 
scope of this proceeding but note that Reliability Standard EOP-005-2 
addresses cranking paths with no voltage limits.\101\
---------------------------------------------------------------------------

    \101\ Reliability Standard EOP-005-2, Requirement R6 states 
``[e]ach [t]ransmission [o]perator shall verify through analysis of 
actual events, steady state and dynamic simulations, or testing that 
its restoration plan accomplishes its intended function. This shall 
be completed every five years at a minimum.'' Requirement R6.1 
states that the transmission operator shall verify ``[t]he 
capability of [b]lackstart [r]esources to meet the [r]eal and 
[r]eactive [p]ower requirements of the [c]ranking [p]aths and the 
dynamic capability to supply initial [l]oads.''
---------------------------------------------------------------------------

4. Inclusion I4 (Dispersed Power Producing Resources)
NOPR Proposal
    104. NERC asserts inclusion I4, dispersed power producing resources 
with aggregate capacity greater than 75 MVA (gross aggregate nameplate 
rating), is needed ``to accommodate the effects of variable 
generation'' on the bulk electric system.\102\ NERC further stated that 
even though inclusion I4 could be considered subsumed in inclusion I2 
(generating resources), NERC believes it is appropriate ``to expressly 
cover dispersed power producing resources utilizing a system designed 
primarily for aggregating capacity.'' \103\
---------------------------------------------------------------------------

    \102\ NERC BES Petition at 18.
    \103\ Id.
---------------------------------------------------------------------------

    105. In the NOPR the Commission stated that inclusion I4 provides 
``useful granularity'' in the bulk electric system definition, but 
requested comment whether inclusion I4 includes ``the individual 
elements (from each energy-producing resource at the site through the 
collector system to the common point at a voltage of 100 kV or above) 
used to aggregate the capacity and any step-up transformers used to 
connect the system to a common point at a voltage of 100 kV or above.'' 
\104\
---------------------------------------------------------------------------

    \104\ NOPR, 139 FERC ] 61,247 at P 71.
---------------------------------------------------------------------------

Comments
    106. NERC states that the inclusion is meant to address the 
dispersed power producing resources themselves, not the individual 
elements of the collector systems operated below 100 kV. With regard to 
energy delivery elements in collector systems and interconnection 
facilities, NERC states these items were specifically not included in 
inclusion I4. According to NERC, this decision was intended to avoid 
categorically including as part of the bulk electric system assets that 
may include local distribution facilities. EEI believes that inclusion 
I4 applies to generating resources meeting the threshold in the 
aggregate, not the individual generating units. EEI agrees with NERC 
that the inclusion does not include individual elements of the 
collector systems operated below 100 kV. LPPC believes that generating 
units aggregating to 75 MVA are often very small and non-dispatchable, 
and the reliability implications of these units will be negligible but 
the compliance burden would be quite high.
    107. Several commenters urge the Commission to not interpret 
inclusion I4 as including wind turbines and electrical collector 
systems within a wind plant and only include the electrical equipment 
at the point of interconnection with the bulk electric system.\105\ 
AWEA believes that including all this equipment will potentially burden 
the owners with NERC compliance processes that were intended for large 
scale generators. AWEA argues that the ``main transformer's high-side 
terminal and the generator lead/tie line'' should also be excluded 
unless another generator connects to the initial generator's 
facilities.\106\ AWEA asserts that no one has demonstrated that there 
is any material reliability benefit from including resources envisioned 
by inclusion I4. AWEA and others state that if the Commission believes 
such resources should be included, such inclusion should be done on a 
case-by-case basis rather than generically.\107\
---------------------------------------------------------------------------

    \105\ See, e.g., AWEA, Southern Companies, Consumer Energy, BPA. 
Hydro One, G&T Cooperatives, and ISO New England.
    \106\ AWEA Comments at 2.
    \107\ E.g., Idaho Power.

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[[Page 819]]

    108. Along the same lines, NESCOE believes that, absent a 
reliability risk a generic inclusion could adversely impact state 
policies to encourage renewable generation development by imposing 
additional costs. NESCOE states that setting the line for inclusion at 
75 MVA is not supported by technical analysis since intermittent 
sources of power deliver only a fraction of their nameplate rating. 
NESCOE believes 300 MVA is a better threshold.
    109. ISO New England contends that the term ``common point'' is 
unclear and notes that the inclusion could be interpreted to mean that 
if the individual generating units are ``all collected at 34.5 kV, the 
`common point' is at 34.5 kV and the entire group of resources should 
be found to be [not part of the bulk electric system].'' \108\ ISO New 
England believes this is not an appropriate interpretation because it 
would defeat the intent of the inclusion which is to classify large 
aggregated generating stations as part of the bulk electric system. 
Similarly, Springfield questions the meaning of ``collector system'' 
and proposes language to define it.\109\
---------------------------------------------------------------------------

    \108\ ISO New England Comments at 7.
    \109\ Springfield proposes to add the following sentence at the 
end of inclusion I4: ``For purposes of this inclusion, a Collector 
System is any infrastructure not connected to load--where parasitic 
load associated with a generation unit or units is not considered 
load.''
---------------------------------------------------------------------------

    110. SmartSenseCom states that facilities over a certain 
significant nameplate rating that are stepped up to over 100 kV should 
be subject to Reliability Standards in light of their potential impact 
to system reliability. SmartSenseCom suggests that the Commission 
direct NERC to modify inclusions I2 and I4 in order to ensure that 
generating units that are stepped up to 100 kV or above by the use of a 
transformer with a low side of less than 100 kV (or multiple contiguous 
transformers of less than 100 kV on the low side) are also included 
within this definition.\110\
---------------------------------------------------------------------------

    \110\ SmartSenseCom Comments at 12.
---------------------------------------------------------------------------

    111. MISO recommends that the Commission withdraw its proposal to 
approve inclusion I4. MISO believes inclusion I4 is unnecessary given 
the criteria in inclusion I2. MISO states that elements meeting the 
criteria in inclusion I2 would be considered part of the bulk electric 
system, irrespective of whether it is considered a dispersed power 
producing resource. MISO adds that a specific inclusion for dispersed 
power producing resources could subject the collector systems to 
unnecessary monitoring by the reliability coordinator or other 
registered entities as collector systems at dispersed power producing 
facilities generally do not affect the reliability of the bulk electric 
system.
Commission Determination
    112. The Commission finds that inclusion I4 provides useful 
granularity in the bulk electric system definition. The clarifying 
language in inclusion I4 regarding the collector system language is 
consistent with language in the Registry Criteria, section III.c.2. The 
Commission agrees that it is appropriate ``to expressly cover dispersed 
power producing resources utilizing a system designed primarily for 
aggregating capacity.'' \111\
---------------------------------------------------------------------------

    \111\ NERC BES Petition at 18.
---------------------------------------------------------------------------

    113. As the Commission previously stated in the inclusion I2 
discussion, multiple step-up transformers that are solely used to 
deliver the generation to the bulk electric system at 100 kV or above 
qualify the generator or plant/facility and the step-up transformers 
for inclusion in the bulk electric system.
    114. Similarly, the collector system in inclusion I4, described by 
NERC and others as being designed for aggregating capacity and solely 
used to deliver the aggregated capacity to the bulk electric system at 
100 kV and above, falls into the category of multiple step-up 
transformers through the high side of the main transformer that 
connects to 100 kV or above. NERC reasons that proposed inclusion I4 
was intended to avoid categorically including assets that may include 
local distribution facilities. While we believe most collector systems 
operate below 100 kV, the Commission disagrees that collector systems 
described in inclusion I4 that solely deliver aggregated generation to 
the bulk electric system contain local distribution facilities because 
power is delivered from the collector system to the bulk electric 
system. However, the Commission will not direct NERC to categorically 
include collector systems pursuant to inclusion I4.
    115. We disagree with AWEA and other commenters that contend that 
inclusion I4 should be interpreted to not include the dispersed power 
producing resources within a wind plant in the bulk electric system. We 
agree with NERC's statement that the purpose of this inclusion is to 
include such variable generation (e.g., wind and solar resources). NERC 
noted that, while such generation could be considered subsumed in 
inclusion I2 (because the gross aggregate nameplate rating of the power 
producing resources must be greater than 75 MVA), NERC considered it 
appropriate for clarity to add this separately-stated inclusion to 
expressly cover dispersed power producing resources using a system 
designed primarily for aggregating capacity. In addition, although 
dispersed power producing resources (wind, solar, etc.) are typically 
variable suppliers of electrical generation to the interconnected 
transmission network, there are geographical areas that depend on these 
types of generation resources for the reliable operation of the 
interconnected transmission network. The Commission believes that 
owners and operators of these resources that meet the 75 MVA gross 
aggregate nameplate rating threshold are, in some cases, already 
registered and have compliance responsibilities as generator owners and 
generator operators. Regarding AWEA's request that a transformer's 
high-side terminal and the generator lead line should also be excluded, 
such determinations may be made on a case-by-case basis in the 
exception process. With regard to commenters who believe that dispersed 
power producing resources should be included on a case-by-case basis 
rather than generically, this would be inconsistent with the bright-
line concept that NERC developed to have consistent application of the 
definition across the country. If such generating resources are 
included through inclusion I4, they are eligible for exclusion through 
use of the exception process. With respect to the concern raised by ISO 
New England regarding the term ``common point,'' ISO New England may 
raise this concern in NERC's Phase 2 development effort.
5. Inclusion I5 (Static or Dynamic Reactive Power Devices)
NOPR Proposal
    116. Inclusion I5 identifies as part of the bulk electric system 
``[s]tatic or dynamic devices (excluding generators) dedicated to 
supplying or absorbing Reactive Power that are connected at 100 kV or 
higher, or through a dedicated transformer with a high-side voltage of 
100 kV or higher, or through a transformer that is designated in 
Inclusion I1.'' In its petition, NERC explained that this inclusion is 
the technical equivalent of inclusion I2 (generating resources), for 
reactive power devices and points out that the existing definition is 
unclear as to how these devices are treated.\112\ NERC stated inclusion 
I5 provides clarity by ``providing specific criteria for Reactive Power 
devices, thereby further limiting subjectivity and the potential for

[[Page 820]]

discretion'' in the application of the revised definition.\113\
---------------------------------------------------------------------------

    \112\ NERC BES Petition at 18.
    \113\ Id.
---------------------------------------------------------------------------

    117. In the NOPR, the Commission agreed with NERC that inclusion I5 
adds clarity to the application of the bulk electric system definition 
by providing specific criteria for reactive power devices. For cases 
where the reactive power device is connected through a transformer 
designated in inclusion I1, the Commission requested comment whether 
both the reactive power device and the transmission elements connecting 
the reactive power device to the transformer are included as part of 
the bulk electric system pursuant to inclusion I5.\114\
---------------------------------------------------------------------------

    \114\ NOPR, 139 FERC ] 61,247 at P 73.
---------------------------------------------------------------------------

Comments
    118. NERC and other commenters note that inclusion I5 is intended 
to include the reactive resource itself and the other portions of the 
definition are intended to designate whether the remaining electrical 
components are part of the bulk electric system.\115\ NERC, EEI, 
National Grid, Utility Services and G&T Cooperatives refer to inclusion 
I1 as the proper place to determine whether transformers connected to 
reactive devices are included as part of the bulk electric system.
---------------------------------------------------------------------------

    \115\ E.g., EEI.
---------------------------------------------------------------------------

    119. BPA and WPPC support excluding both the reactive device and 
the transformer from the bulk electric system if the device supports 
local distribution. Conversely, if the facilities provide reactive and 
voltage support to the bulk electric system, the reactive device and 
associated equipment, such as the transformer, should be classified as 
a bulk electric system facility.
    120. AEP considers the transmission elements connecting the 
reactive power device to the transformer to be included in the bulk 
electric system definition and should be deemed part of inclusion 
I5.\116\ Idaho Power contends that both the reactive device and the 
transformer should be included in the bulk electric system. Idaho Power 
states that if the transformer is included as part of inclusion I1, 
then it should be included.\117\
---------------------------------------------------------------------------

    \116\ AEP Comments at 4.
    \117\ Idaho Power Comments at 5.
---------------------------------------------------------------------------

    121. PSEG Companies view the issue as one of ``bulk electric system 
contiguity'' and therefore should be addressed during Phase 2. MISO 
recommends that the Commission require NERC to include a size threshold 
or an impact test. According to MISO, this will avoid creating 
incentives to owners of small reactive devices to disconnect them to 
avoid being classified as transmission owners or operators. With regard 
to transformers, MISO states that both the reactive power device and 
the transmission elements are included, but because these facilities 
have a generally localized impact on reliability, MISO recommends that 
the Commission clarify that they are not transmission equipment that 
subjects their owners and operators to the requirements applicable to 
registered transmission operators under the NERC Reliability Standards.
    122. G&T Cooperatives suggest two clarifications. First, inclusion 
I5 should not apply to reactive power devices that are connected to the 
bulk electric system by a radial line excluded by exclusion E1 or a 
local network excluded by exclusion E3. G&T Cooperatives view this 
exclusion as implicit in inclusion I5, which references devices 
``connected at 100 kV or higher, or through a dedicated transformer 
with a high-side voltage of 100 kV or higher, or through a transformer 
that is designated in [i]nclusion I1.'' Second, G&T Cooperatives 
believe that inclusion I5 should be clarified to include a minimum size 
threshold similar to the size threshold for generating resources under 
Inclusion I2. According to G&T Cooperatives because inclusion I2 does 
not apply to all generating resources and inclusion I5 is the 
``technical equivalent'' of inclusion I2, a size threshold comparable 
to that found in inclusion I2 is implicit for reactive power devices.
Commission Determination
    123. The Commission approves inclusion I5 and finds that the 
inclusion adds clarity to the application of the bulk electric system 
definition by providing specific criteria for reactive power devices. 
The Commission also accepts NERC's response for cases where the 
reactive power device is connected through a transformer designated in 
inclusion I1--that the reactive resource itself is included in the bulk 
electric system pursuant to inclusion I5 and the transmission elements 
connecting the reactive power device to the transformer are addressed 
in other portions of the definition. The Commission notes that this 
interpretation is different from inclusion I2 because inclusion I2 
specifies including the equipment (step-up transformers) that connects 
generators to the bulk electric system. Nonetheless inclusion I5 
provides criteria for reactive power devices that are not explicitly 
addressed in the existing definition. The Commission does not agree 
with G&T Cooperatives that exclusions E1 and E3 override inclusion I5 
and exclude the reactive power devices. Exclusions E1 and E3 exclude 
transmission elements only and not resources.
    124. The Commission agrees with PSEG Companies that issues, such as 
whether the connecting equipment for reactive devices should be 
included pursuant to inclusion I5, can be raised in Phase 2. Similarly, 
the issues raised by AEP, Idaho Power, MISO and G&T Cooperatives may be 
raised in NERC's Phase 2 effort.
Exclusions
    125. The proposed definition identifies four facilities 
configurations that should not be included in the bulk electric system: 
(1) Radial systems; (2) behind-the-meter generating units; (3) local 
networks; and (4) retail customer reactive power devices.
    126. We agree that the proposed exclusions provide clarity and 
granularity. For example, the exclusion of generating units on the 
customer's side of the retail meter that serves all or part of the 
retail load (exclusion E2) and the exclusion for reactive power devices 
owned and operated by a retail customer for its own use (exclusion E4) 
provide reasonable limitations on bulk electric system elements. While 
we approve in the Final Rule the language of exclusions E1, E2 and E4, 
we have concerns with regard to the application of exclusions E1 and E3 
in specific situations and, thus, direct NERC to implement or apply 
these exclusions consistent with the determinations set forth below. In 
addition, we direct NERC to remove the 100 kV minimum operating 
threshold language from exclusion E3.
6. Exclusion E1 (Radial Systems)
    127. Exclusion E1 provides as follows:

    Radial systems: A group of contiguous transmission Elements that 
emanates from a single point of connection of 100 kV or higher and:
    (a) Only serves Load. Or,
    (b) Only includes generation resources, not identified in 
Inclusion I3, with an aggregate capacity less than or equal to 75 
MVA (gross nameplate rating). Or,
    (c) Where the radial system serves Load and includes generation 
resources, not identified in Inclusion I3, with an aggregate 
capacity of non-retail generation less than or equal to 75 MVA 
(gross nameplate rating).
    Note--A normally open switching device between radial systems, 
as depicted on prints or one-line diagrams for example, does not 
affect this exclusion.


[[Page 821]]


In its petition, NERC explained that radial facilities are excluded 
under the currently effective bulk electric system definition, and the 
detailed criteria in the revised definition provide enhanced 
clarity.\118\
---------------------------------------------------------------------------

    \118\ NERC BES Petition at 18.
---------------------------------------------------------------------------

Commission Determination
    128. The Commission approves exclusion E1. We agree with NERC that 
the currently-effective definition of bulk electric system excludes 
radial facilities, and the modifications provide additional granularity 
regarding the radial exclusion. In the NOPR, the Commission requested 
comment regarding specific applications of the E1 radial system 
exclusion. Below, we discuss these applications and comments received, 
and provide further explanation or direction as we deem appropriate.
a. Exclusion E1 Does Not Apply to Whether Generation Is Included or 
Excluded
NOPR Proposal
    129. In the NOPR, the Commission requested comment on whether 
exclusion E1 removes from the bulk electric system ``generation 
connected to a radial system that otherwise satisfies inclusion I2.'' 
\119\ The Commission sought to ensure that the conditions in exclusion 
E1 would not ``lead to conflicting results when applying inclusion I2 
and exclusion E1.\120\ The Commission noted that exclusion E1 applies 
to ``a group of contiguous transmission Elements that emanates from a 
single point of connection of 100 kV or higher * * *.'' \121\ The 
Commission observed that the term ``Elements'' includes the term 
generator, and that the use of the term ``transmission'' before 
``Elements'' indicates that exclusion E1 applies only to transmission 
elements.\122\ Thus, the Commission stated that ``transmission 
Elements'' do not include generating resources that are bulk electric 
system resources pursuant to the generating resources included in 
inclusion I2 connected to a radial line operated at 100 kV above.\123\
---------------------------------------------------------------------------

    \119\ NOPR, 139 FERC ] 61,247 at P 76.
    \120\ Id.
    \121\ NOPR, 139 FERC ] 61,247 at P 77.
    \122\ ``Element'' is defined in the NERC Glossary as ``[a]ny 
electrical device with terminals that may be connected to other 
electrical devices such as a generator, transformer, circuit 
breaker, bus section, or transmission line. An element may be 
comprised of one or more components.'' (emphasis added).
    \123\ See NOPR, 139 FERC ] 61,247 at P 77 and n.100 (citing NERC 
BES Petition, Exh. D, Consideration of Comments Report, at 223 
(``Exclusion E1 is an exclusion for the contiguous transmission 
Elements connected at or above 100 kV.'')).
---------------------------------------------------------------------------

Comments
    130. NERC confirms that exclusion E1 does not apply to nor is it 
determinative of whether any generation is included or excluded from 
the bulk electric system. NERC states that, whether or not generation 
is included in the bulk electric system is determined by inclusions I2 
through I4 and exclusion E2. Other commenters, including EEI, SoCal 
Edison, TAPS, Hydro One, and Alameda, also state that exclusion E1 does 
not apply to generating resources. Southern Companies suggest that the 
use of the term ``includes'' in subparts (b) and (c) could lead to some 
ambiguity because the implication is that a radial system includes 
generating resources. Southern Companies suggests that, the word 
``serves'' should replace the word ``include'' to better reflect the 
intent of the provision.
    131. PSEG Companies state there is confusion created by the fact 
that generators included in one provision of the definition (inclusion 
I2) are excluded under others (exclusions E1 through E3). According to 
PSEG Companies, a generator cannot be included under one provision of 
the bulk electric system definition and excluded under another 
provision and that this issue requires clarification and, once 
clarified, the bulk electric system definition needs to be modified 
accordingly.\124\
---------------------------------------------------------------------------

    \124\ PSEG Comments at 11-13.
---------------------------------------------------------------------------

    132. SmartSenseCom states that in the event of a conflict between 
an inclusion and exclusion, ``there should exist a presumption that the 
[e]lement be considered included, absent an [e]xception'' and asks that 
the Commission direct NERC to include a provision that states this 
presumption.\125\
---------------------------------------------------------------------------

    \125\ SmartSenseCom Comments at 13.
---------------------------------------------------------------------------

Commission Determination
    133. The Commission finds that the radial system exclusion only 
applies to ``transmission Elements'' and does not apply to nor is it 
determinative of whether any generation is included or excluded from 
the bulk electric system. This understanding is consistent with NERC's 
defined terms, and consistent with the comment of NERC and other 
commenters. Further, in response to Southern Companies, AEP and PSEG 
Companies, we believe that the language of exclusion E1 is sufficiently 
clear that it does not exclude generation facilities that are otherwise 
included as part of the bulk electric system pursuant to inclusion I2. 
Thus, we will not direct NERC to modify exclusion E1 to state this more 
explicitly. We agree with SmartSenseCom that exclusion E1 should not 
lead to conflicting results when applying inclusion I2, but we decline 
to direct NERC to include a provision that specifically states this 
presumption.
b. Definition of ``Radial Systems,'' Figure 1 and Condition (a) Radials 
Only Serving Load
NOPR Proposal
    134. Exclusion E1 defines the term ``radial systems'' as ``a group 
of contiguous transmission Elements that emanates from a single point 
of connection of 100 kV or higher.'' In the NOPR, the Commission 
requested comment on how NERC's proposal would be applied in the three 
scenarios. Figure 1 in the NOPR depicted facilities configurations in 
which all of the 230 kV and 69 kV transmission elements emanate from a 
single point of connection of 100 kV or higher. The Commission 
requested comment on whether each of the radial systems shown in figure 
1, the 230 kV elements above each transformer to the point of 
connection to each 230 kV line, respectively, are excluded from the 
bulk electric system pursuant to exclusion E1.

[[Page 822]]

[GRAPHIC] [TIFF OMITTED] TR04JA13.000

Comments
    135. NERC and other commenters state that both radial systems 
depicted in figure 1 would be subject to exclusion E1(a) because they 
each only serve load.\126\ ELCON agrees with NERC adding that these 
types of radial systems pose no reliability risk to the interconnected 
transmission network if the system is lost due to a fault condition. 
Similarly, SoCal Edison states that the figure 1 facilities would 
either be excluded or not part of the bulk electric system. SoCal 
Edison asserts that, because transformers 1 and 2 each have secondary 
voltages that are less than 100 kV, they do not meet the inclusion I1 
requirements and, thus, are not included in the bulk electric system. 
In other words, SoCal Edison believes exclusion E1 should exclude all 
radial facilities that are greater than 100 kV up to the point where 
``the system is no longer radial, as indicated in figure 1 by the 
brackets where the 230 kV lines meet [lines 1 and 2].'' \127\ APPA 
believes that all the scenarios described by the Commission could 
create reliability concerns ``if taken in isolation and operated in a 
certain matter'' and believes that the exception process can capture 
configurations that pose a significant risk to the reliable operation 
of the interconnected transmission network. Idaho Power maintains that 
it is inappropriate to apply exclusion E1 for 230 kV elements in the 
scenarios if the breakers are part of the protection scheme for a three 
terminal 230 kV line. Idaho Power adds that if either breaker only 
opens for transformer protection, the exclusion would be applicable.
---------------------------------------------------------------------------

    \126\ E.g., Southern Companies, AEP, National Grid, TAPS, ISO 
New England, Barrick, IUU, and WPPC.
    \127\ SoCal Edison Comments at 5.
---------------------------------------------------------------------------

    136. Anaheim agrees that the radials shown in figure 1 should be 
excluded and requests clarification that the associated bus work and 
protection system equipment installed on those radial lines are also 
excluded. Anaheim advocates that the exclusion should also apply to 
protection system equipment on the excluded facilities that provide 
backup protection for devices that are part of the bulk electric 
system, i.e. lines 1 and 2 in figure 1.
    137. BPA is concerned about excluding the 230 kV lines without 
review by a planning authority or transmission operator because the 
fault magnitude on voltages above 200 kV are much higher than below 200 
kV lines. BPA states that since actual power flows on systems above 200 
kV are much higher, these systems have a higher risk for serious 
impacts on the interconnected transmission system.
    138. Holland supports the exclusion of radial systems but contends 
that the phrase ``emanates from a single point of connection'' could be 
too narrowly interpreted. According to Holland, multiple buses within a 
single substation could be viewed as multiple points of connections. 
Holland believes that an entity whose connection emanates from a single 
substation should not be denied an exclusion solely because it connects 
to multiple buses at the single substation.
    139. Consumers argues that the exclusion of 100 kV radial systems 
that only serve load exceeds the Commission's jurisdiction and the 
Seven Factor Test.\128\ Consumers believes that exclusion E1(a) would 
exclude radials that only serve load and this phrase expands the 
Commission's jurisdiction by classifying 100 kV distribution systems 
that primarily serve load but could also have a secondary purpose. 
Consumers also argues that this exclusion is inconsistent with the 
Seven Factor Test which examines

[[Page 823]]

whether local distribution facilities are ``primarily'' radial in 
character. Further, Consumers argues that the Commission should not 
adopt a rule that exceeds its jurisdiction or constitutes a collateral 
attack on the local distribution findings of the Seven Factor Test.
---------------------------------------------------------------------------

    \128\ Consumers cites to Detroit Edison Co. v. FERC, 334 F.3d 48 
(D.C. Cir 2003) as support for its belief that the Commission cannot 
rewrite the FPA to exclude only facilities used exclusively in local 
distribution. See Consumers comments at 7.
---------------------------------------------------------------------------

Commission Determination
    140. The Commission agrees with NERC that the radial systems shown 
in figure 1 meet the definition of ``radial system'' in exclusion E1. 
This configuration would result in the 230 kV lines between 
transformers 1 and 2 to the two 230 kV lines, respectfully, being 
excluded from the bulk electric system. The Commission agrees with NERC 
and other commenters that both radial systems depicted in figure 1 
would be subject to exclusion E1 condition (a) because they each only 
serve load.
    141. Idaho Power, BPA and Anaheim raise concerns about protection 
system equipment and design, needed for analysis by the planning 
authority and transmission operator, while APPA states that all 
scenarios described by the Commission could create reliability 
concerns. Regarding these concerns, the Commission agrees with APPA 
that the exception process can be used to add to the bulk electric 
system specific configurations that pose a significant risk to the 
operation of the interconnected transmission network.
    142. The Commission disagrees with Holland's interpretation that 
the phrase ``emanates from a single point of connection'' can refer to 
multiple buses. The phrase refers to a single point, and if there is 
more than one point of connection the configuration does not meet the 
radial system definition as stated in exclusion E1. NERC, in the 
standard development process, emphasized that radial systems cannot 
have multiple connections at 100 kV or higher. Networks that have 
multiple connections at 100 kV or higher may qualify under exclusion 
E3.\129\
---------------------------------------------------------------------------

    \129\ NERC BES Petition, Exhibit E, ``Complete Development 
Record of the Proposed Revised Definition of ``Bulk Electric 
System,'' Consideration of Comments on Initial Ballot--Definition of 
BES,'' at 259.
---------------------------------------------------------------------------

    143. The Commission also disagrees with Consumers that the 
exclusion of 100 kV radial systems that only serve load expands the 
Commission's jurisdiction by classifying 100 kV distribution systems 
that primarily serve load, but may also have a secondary purpose, as 
transmission. First, exclusion E1 condition (a) reflects the language 
contained in the current bulk electric system definition and therefore, 
is itself not an expansion from the existing definition. In addition, 
as NERC stated, application of the definition is a three-step process. 
In step 1, the core definition is used to establish the bright line of 
100 kV, the overall demarcation point between bulk electric system and 
non-bulk electric system elements. Step 2, applying the specific 
inclusions, provides additional clarification for the purposes of 
identifying specific elements that are included in the bulk electric 
system. Step 3 is to evaluate specific situations for potential 
exclusion from the bulk electric system. Further, an entity may seek a 
case-specific exception if it believes that facilities with radial 
qualities that are not excluded pursuant to exclusion E1 or petition 
the Commission when seeking a determination whether a facility, 
otherwise included in the bulk electric system, is used in local 
distribution. Thus, merely applying the definition, and the inclusions 
or exclusions is not necessarily the end of the inquiry regarding 
whether an element is part of the bulk electric system.
c. Figure 2 and Condition (a) Radials Serving Only Load
NOPR Proposal
    144. In the NOPR, the Commission requested comment on the scenario 
shown in figure 2 which shows a 115 kV loop, with the configuration 
emanating from two points of connection of 100 kV or higher. 
Specifically, the Commission requested comment on whether ``the 115 kV 
and 230 kV elements above Transformers 1 and 2 to the points of 
connection to the two 230 kV lines would be excluded from the bulk 
electric system pursuant to exclusion E1.'' \130\ The Commission asked 
for comment on whether it is more appropriate to analyze figure 2 
pursuant to the ``local network'' exclusion E3 and, if so, what if any 
elements operated at or above 100 kV would be excluded pursuant to 
exclusion E3.
---------------------------------------------------------------------------

    \130\ NOPR, 139 FERC ] 61,247 at P 80.

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[[Page 824]]

[GRAPHIC] [TIFF OMITTED] TR04JA13.001

Comments
    145. NERC states that figure 2 is a non-radial loop on the 115 kV 
system. According to NERC, the 115 kV elements above transformers 1 and 
2 to the point of interconnection with lines 1 and 2 would not be 
eligible for exclusion E1 because they do not emanate from a single 
point of connection. NERC also states that it would be appropriate to 
evaluate figure 2 under exclusion E3 as a potential local network.\131\ 
For such a candidate local network to qualify for exclusion, NERC 
states that additional technical analysis is needed to determine if all 
the exclusion E3 criteria are satisfied.\132\ NERC asserts that without 
such a technical analysis, the 115 kV elements above transformers 1 and 
2 should be considered part of the bulk electric system.
---------------------------------------------------------------------------

    \131\ See also Comments of NESCOE, BPA, Idaho Power, ITC 
Companies, and National Grid.
    \132\ E.g., ISO New England Comments at 10, MISO Comments at 7.
---------------------------------------------------------------------------

    146. Likewise, Idaho Power, ITC Companies, and National Grid 
contend that the figure 2 configuration should be included in the bulk 
electric system. Southern Companies believe exclusion E1 may apply from 
the breakers down and that the configuration may belong to exclusion 
E3. AEP assumes that each of the facilities below the 115 kV loop shown 
in figure 2, and including breaker 1 and breaker 2, are radial and 
excluded pursuant to exclusion E1. According to AEP, the facilities 
above breakers 1 and 2 may be excluded pursuant to exclusion E3 
depending on the circumstances.\133\
---------------------------------------------------------------------------

    \133\ AEP Comments at 7.
---------------------------------------------------------------------------

    147. Valero states that the figure 2 configuration is very similar 
to common facilities configurations employed in many industrial 
facilities involving the interconnection of the industrial facility to 
the utility through two high voltage feeder lines that originate at 
different utility owned and operated substations. Valero requests that 
the Commission include in the final rule an additional exclusion that 
would ``categorically exclude from the [bulk electric system] any on-
site high voltage switchyard facilities (less than 300 kV) owned by the 
industrial end-user where the predominant function of the facilities is 
to distribute electricity in an inward direction to the end-user's 
load.'' \134\ WPPC argues that figure 2 shows both radial and network 
systems and that the system from the 115 kV loop upwards would be 
assessed under exclusion E3 and below that point would be assessed by 
exclusion E1.
---------------------------------------------------------------------------

    \134\ Valero Comments at 8.
---------------------------------------------------------------------------

Commission Determination
    148. The Commission affirms NERC's statement that figure 2 is a 
non-radial loop and thus would not be eligible for exclusion E1 because 
it does not emanate from a single point of connection. The Commission 
agrees with commenters that the elements below the 115 kV loop should 
be assessed as two separate radial systems pursuant to exclusion E1. 
The remaining elements (the 115 kV loop, transformers 3 and 4 and the 
230 kV tie lines above the transformers to the two 230 lines 1 and 2) 
should be assessed pursuant to exclusion E3 and if the configuration 
meets the criteria of exclusion E3, the elements could be excluded.
    149. Regarding Valero's request for an additional exclusion if 
equipment owners' configurations cannot meet the exclusion E3 criteria, 
Valero can request that the elements be excluded through the exception 
process. The exception process allows equipment owners to request an 
exception regardless of the owner's registration status.

[[Page 825]]

d. Figure 3 and Condition (a) Radials Only Serving Load
NOPR Proposal
    150. In the NOPR, the Commission agreed with NERC's proposal that 
radial systems only serving load and emanating from a single point of 
connection of 100 kV or higher should be excluded from the bulk 
electric system. However, the Commission expressed concern ``that the 
exclusion could allow elements operating at 100 kV or higher in a 
configuration that emanates from two or more points of connection ``to 
be deemed ``radial'' even though the configuration remains contiguous 
through elements that are operated below 100 kV.'' \135\ Figure 3 in 
the NOPR illustrated this concern, and the Commission asked for comment 
on how to evaluate the configuration relative to the radial system 
definition. The Commission also requested comment on the 
appropriateness of examining elements below 100 kV to determine if the 
configuration meets exclusion E1, i.e., whether figure 3 depicts ``a 
system emanating from two points of connection at 230 kV and, 
therefore, the 230 kV elements above the transformers to the points of 
connection to the two 230 kV lines would not be eligible for the 
exclusion E1 notwithstanding the connection below 100 kV.'' \136\
---------------------------------------------------------------------------

    \135\ NOPR, 139 FERC ] 61,247 at P 81.
    \136\ Id.
    [GRAPHIC] [TIFF OMITTED] TR04JA13.002
    
Comments
    151. NERC disagrees with the Commission's characterization of 
figure 3 in the NOPR. NERC states that figure 3 does not depict a 
configuration with two points of 100 kV or higher or a system emanating 
from two points of connection at 230 kV. According to NERC, except for 
lines 1 and 2, all the other elements depicted in figure 3 are excluded 
from the bulk electric system. NERC explains that the elements between 
line 1 and transformer 2 and from line 2 to transformer 1 are excluded 
by exclusion E1(a) because ``each separate set of [e]lements [described 
above] is contiguous and emanate from a single point of connection of 
100 kV or higher.'' \137\ NERC states that the elements below the 69 kV 
side of transformers 1 and 2 are excluded from the definition because 
they are less than 100 kV, and transformers 1 and 2 are excluded 
because they ``bridge voltages of 69 kV and 230 kV'' and therefore do 
not meet inclusion I1.
---------------------------------------------------------------------------

    \137\ NERC Comments at 19.
---------------------------------------------------------------------------

    152. NERC further explains that the focus of the definition of bulk 
electric system is on looped or networked connections at or above 100 
kV. According to NERC, connections operated below 100 kV, generally do 
not carry significant parallel flow due to the higher impedance of 
lower voltage facilities. If such facilities are necessary for the 
reliable operation of the interconnected transmission network, NERC 
states that the exception process can be used to include such 
facilities.
    153. Exelon agrees with NERC and explains that it has many 
connections similar to the one shown in figure 3 and provides a 
specific example where a 138 kV substation is fed by two radially 
connected 138 kV lines which in turn are connected through 40 MVA 
transformers to a 12 kV bus section. Exelon states that in its example 
the 40 MVA transformers cross bus sections so that if one of the 138 kV 
lines is out of service, each side of the 12 kV bus retains service. 
Exelon believes that due to the high impedance of the transformers, 
little energy flows between the buses in Exelon's

[[Page 826]]

example.\138\ Exelon states that owners and operators of these 
configurations would be required to go through the exception process.
---------------------------------------------------------------------------

    \138\ Exelon Comments at 6. TAPS states that impedance is 
inversely proportional to the square of the voltage of the network 
and power flow is inversely proportional to the impedance. According 
to TAPS, impedance factors are very significant in limiting the 
amount of parallel path flows. TAPS Comments at 7.
---------------------------------------------------------------------------

    154. Other commenters believe that the figure 3 configuration may 
not be eligible for exclusion E1. SoCal Edison explains that the 69 kV 
loop is not open and therefore is a parallel path to the 230 kV system. 
BPA, Alameda and WREA do not view the figure 3 system as eligible for 
exclusion E1 because the system is networked. Idaho Power states that 
the 230 kV lines would be included only if there is a protection system 
in place for the 230 kV lines. According to Idaho Power, the elements 
above the transformers in figure 3 would not be excluded from the bulk 
electric system. Idaho Power believes this configuration should be 
evaluated under exclusion E3.
Commission Determination
    155. The Commission finds figure 3, which is identical to figure 5, 
is a networked configuration through a 69 kV loop and does not qualify 
for exclusion E1. The Commission also finds that, because the load in 
figure 3 can be served by either 230 kV line, it does not depict a 
``radial system.'' However, the facilities below 100 kV may or may not 
be necessary for the operation of the interconnected transmission 
network, and this decision can be made case-by-case in the exception 
process. In other words, such facilities below 100 kV depicted in 
figure 3 would be excluded under the general threshold of the core 
definition unless found on a case-specific basis as necessary for the 
reliable operation of the interconnected transmission network. Thus, 
the Commission, while disagreeing with NERC's interpretation, does not 
propose to include the below 100 kV elements in figure 3 in the bulk 
electric system, unless determined otherwise in the exception process. 
Further, as we discuss below in connection with exclusion E3 and figure 
5, while we find that the configuration shown in figures 3 and 5 would 
not be eligible for exclusion E1, we believe that such configurations 
should be eligible for exclusion E3 for local networks. However, 
exclusion E3 as written requires the candidate local network to be 
contiguous and above 100 kV, thus, the exclusion E3 language as written 
does not allow for figures 3 and 5 to be eligible for the local network 
exclusion because they are not contiguous and include facilities that 
are not above 100 kV. Therefore, we direct NERC to modify exclusion E3 
to remove the 100 kV minimum operating voltage in the local network 
definition. This modification will enable configurations similar to 
figures 3 and 5 to be assessed for the local network exclusion. The 
Commission believes this modification, together with satisfying the 
criteria outlined in exclusion E3, will appropriately exclude local 
network configurations that are not necessary to the reliable operation 
of the interconnected transmission network.\139\
---------------------------------------------------------------------------

    \139\ NERC and Exelon contend that looped or networked 
connections operating below 100 kV generally do not carry 
significant parallel flow because of higher impedance 
characteristics and thus need not be evaluated as part of a radial 
system. However, the Commission believes that excluding these 
configurations solely on the level of impedance does not consider 
other factors, including voltage, the system configuration, type of 
conductors, length of conductors, and proximity of the networked 
system in the interconnected transmission network. Regardless of our 
disagreement with NERC and Exelon regarding the consideration of 
impedance, however, as we discuss above, configurations such as 
those described by Exelon may be assessed for exclusion through 
exclusion E3, which apply criteria to determine whether such 
facilities are necessary for reliable operation of the 
interconnected transmission network. Accordingly, the inclusion or 
exclusion of such facilities is better determined through 
application of exclusion E3, or case-by-case in the exception 
process.
---------------------------------------------------------------------------

e. Condition (b)--Radials With Limited Generation and Condition (c)--
Radials With Limited Generation and Load
NOPR Proposal
    156. Exclusion E1, condition (b) describes generation connected to 
a radial system with no load, and condition (c) describes generation 
connected to a radial system with generation and load. In its petition, 
NERC stated that conditions (b) and (c) are ``intended to address the 
circumstances of small utilities (including municipal utilities and 
cooperatives).'' \140\
---------------------------------------------------------------------------

    \140\ NERC BES Petition at 19.
---------------------------------------------------------------------------

    157. In the NOPR, the Commission requested comment regarding the 
specific circumstances that conditions (b) and (c) are intended to 
address. In addition, the Commission observed that the power generated 
on these radial systems would be ``delivered or injected to the bulk 
electric system and transported to other markets.'' \141\ The 
Commission noted that it appeared that a line 100 kV or above connected 
to a generator with a capacity 75 MVA or below would not be included in 
the bulk electric system. The Commission requested comment on the 
appropriateness of excluding such radial facilities.
---------------------------------------------------------------------------

    \141\ NOPR, 139 FERC ] 61,247 at P 83.
---------------------------------------------------------------------------

Comments
    158. With respect to applicability to small utilities, NERC states 
that exclusion E1, conditions (b) and (c) are not intended solely for 
such entities. According to NERC, these conditions are intended to 
exclude radial systems that have limited benefit to the reliability of 
the interconnected transmission network. NERC states that the 
configurations described in exclusion E1(b) and (c) ``pose no 
reliability risk to the interconnected transmission network when the 
radial system is lost due to a failure or fault condition.'' \142\
---------------------------------------------------------------------------

    \142\ NERC Comments at 20.
---------------------------------------------------------------------------

    159. NERC states that the basis for exclusion E1(b) ``is dependent 
on a single point of failure causing the radial system to separate'' 
from the bulk electric system, which will result in a limited loss of 
generation without an adverse reliability impact to the interconnected 
transmission network.'' \143\ NERC explains that exclusion E1(c) 
addresses the installation of limited amounts of generation that are 
installed within a radial system and are intended to serve local load 
within that radial system.
---------------------------------------------------------------------------

    \143\ NERC Comments at 20.
---------------------------------------------------------------------------

    160. In response to the Commission's question about the delivery or 
injection of power from the radial systems described in these 
exclusions, NERC states that because of the limitation of the 
generation in exclusion E1(b) and (c), the power generated on the 
radial system would be delivered to the embedded load within the radial 
system and injected into the bulk electric system in very limited 
quantities. NERC argues that subjecting the elements associated with 
this type of radial system to all the Reliability Standards has limited 
benefit to the reliability of the interconnected transmission network. 
NERC believes it is more appropriate to identify these elements through 
the ``the applicability in specific standards where a reliability 
benefit can be identified.'' \144\
---------------------------------------------------------------------------

    \144\ NERC Comments at 21-22.
---------------------------------------------------------------------------

    161. A number of commenters agree with NERC.\145\ Idaho Power 
states that the exclusion is appropriate if the generation connected to 
the radials is not relied on to meet reliability performance criteria 
on bulk electric system elements. Idaho Power indicates that it follows 
the WECC guidelines and

[[Page 827]]

thresholds (10 MVA individually, 20 MVA aggregate) to determine the 
appropriateness of excluding the power from components from radial 
connected generation. Alameda contends that the radial systems in these 
exclusions have only a minor impact on the bulk electric system and 
that system planning and operation assessments must provide for 
reliable operation under N-1 contingency operations including loss of 
the exclusion E1(b) and (c) configurations. WPPC states that the 
generator thresholds in these conditions are a logical cut-off to 
separate radial systems with generation that is not likely to be 
meaningful to operation of the bulk electric system.
---------------------------------------------------------------------------

    \145\ E.g. Idaho Power, National Grid, AEP, Hydro One, ISO New 
England, and BPA.
---------------------------------------------------------------------------

    162. Anaheim urges the Commission to clarify that the presence of 
generation resources connected at voltages below 100 kV ``does not 
invalidate the availability of the radial exclusion for lines that are 
operated at greater than 100 kV unless the generating unit is actually 
connected to the higher voltage line.'' \146\ PSEG Companies state 
there is confusion regarding the generation limits in exclusion E1(b) 
and (c) and in exclusion E3. They contend that it is not clear if the 
generation limit only applies to generators connected at 100 kV or 
higher. PSEG Companies also ask for clarification regarding the 
definition of the phrase ``non-retail generation.'' \147\
---------------------------------------------------------------------------

    \146\ Anaheim Comments at 7.
    \147\ PSEG Comments at 3.
---------------------------------------------------------------------------

    163. AEP does not believe that the three conditions of exclusion E1 
would remove the generation connected to the radial system from the 
bulk electric system definition but states that the conditions may have 
the consequence of removing the radial line itself from the definition 
in error. According to AEP, this would be in cases of a 25 MVA 
generator (meeting I2 properties) but less than 75 MVA aggregate. AEP 
suggests that the conditions in (b) and (c) be revised to reference 
non-bulk electric system generation.\148\
---------------------------------------------------------------------------

    \148\ AEP Comments at 5.
---------------------------------------------------------------------------

Commission Determination
    164. We approve exclusion E1 conditions (b) and (c). However, we 
direct NERC to implement exclusion E1 so that the exclusions for radial 
systems do not apply to tie-lines for bulk electric system generators 
identified in inclusion I2. If the generator is necessary for the 
operation of the interconnected transmission network, the Commission 
believes that it is generally appropriate to have the radial tie-line 
operating at or above 100 kV that delivers the generation to the bulk 
electric system included as well.
    165. In general, we believe that it is appropriate to have the bulk 
electric system contiguous, without facilities or elements ``stranded'' 
or ``cut-off'' from the remainder of the bulk electric system as shown 
in the figure below. However, the contiguous quality of the bulk 
electric system is lost in exclusion E1, condition (b), because it 
removes from the bulk electric system the 100 kV or greater generator 
tie-line that connects the bulk electric system generator to the 
interconnected transmission network. Such tie-lines should be subject 
to appropriate Reliability Standards.
[GRAPHIC] [TIFF OMITTED] TR04JA13.003

    166. NERC explains that the exclusion of radial systems pursuant to 
conditions (b) and (c) is based on the premise that a single point of 
failure causing the radial system to separate from the bulk electric 
system, resulting in the loss of a limited amount of generation will 
not have an adverse reliability impact. However, there are other 
reliability concerns that NERC does not address. For example, both the 
radial line emanating from a generator and the portion of the bulk 
electric system to which it is connected have protective relays that 
require coordination to prevent the lines from tripping. The generator 
needs to coordinate the protective relays with transmission operators, 
otherwise there may not be adequate information to prevent a fault on 
the radial line from causing cascading outages on the bulk electric 
system. The Commission also notes that the phrase ``adverse reliability 
impact,'' which is defined in the NERC Glossary of Terms as ``the 
impact of an event that results in frequency-related instability; 
unplanned tripping of load or generation; or uncontrolled separation or 
cascading outages that affects a

[[Page 828]]

widespread area of the Interconnection,'' is an extreme result that 
should not occur from the loss of a single tie-line for any sized 
generator.\149\ A single contingency that results in an ``adverse 
reliability impact'' violates planning and operating criteria in 
Commission approved Reliability Standards.\150\ NERC also does not 
consider issues, such as the issue raised by Idaho Power, that the 
exclusion is appropriate if the generation connected to the radial 
system is not relied on to meet reliability performance criteria.
---------------------------------------------------------------------------

    \149\ See the NERC Glossary of Terms at http://www.nerc.com/files/Glossary_of_Terms.pdf.
    \150\ See, e.g., Reliability Standards, TPL-002-0b and IRO-004-
2.
---------------------------------------------------------------------------

    167. Some commenters suggest there is a conflict between the 
inclusion I2 and exclusion E1 because they believe that the 100 kV or 
greater tie-line and the generator should remain in the bulk electric 
system. We agree that exclusion E1 as written does not prevent the 
radial tie-line operating at or above 100 kV from the high side of the 
step-up transformer to the bulk electric system from being excluded 
while the generator and associated step-up transformer(s) remain 
included. Inclusion I2 depends on the status of the tie-line based on 
the core definition's 100 kV threshold to determine if a generator and 
its step-up transformers are part of the bulk electric system. Thus, 
this inclusion results in most bulk electric system generators having a 
contiguous connection to the interconnected transmission network. As 
noted above, we believe that it is generally appropriate to have the 
bulk electric system contiguous. Therefore, the Commission directs NERC 
to implement exclusion E1 so that the exclusion for radial systems does 
not apply to tie-lines for bulk electric system generators identified 
in inclusion I2. This directive provides consistent application of the 
entire definition by not allowing exclusion E1 to override the 
qualifying tie-lines pursuant to inclusion I2.
    168. The Commission also rejects NERC's argument that subjecting 
the elements associated with this type of radial system to all the 
Reliability Standards has a limited benefit to the reliability of the 
interconnected transmission network. In cases of radial tie-lines for 
bulk electric system generators where the generator owner also owns the 
tie-line, NERC has exercised discretion, on a case-by-case basis, in 
determining which entities require registration as transmission owners/
operators and identified sub-sets of applicable reliability standard 
requirements for these entities.\151\ In other situations, such 
generator tie-lines may appropriately be considered an extension of the 
generation facility, which would not subject significant additional 
compliance obligations on the generator owner and/or operator.
---------------------------------------------------------------------------

    \151\ E.g., New Harquahala Generating Company, LLC, 123 FERC ] 
61,173, order on clarification, 123 FERC ] 61,311 (2008).
---------------------------------------------------------------------------

    169. In response to the question raised by PSEG Companies about 
whether the generation limit specified in exclusion E1(b) and (c) only 
applies to generators connected at 100 kV or higher, we note that 
exclusions E1(b) and (c) do not specify the generation connected to the 
radial system or local network to any voltage.
f. Normally Open Switches
NOPR Proposal
    170. NERC included a note accompanying the description of exclusion 
E1 stating that ``[a] normally open switching device between radial 
systems, as depicted on prints or one-line diagrams for example, does 
not affect this exclusion.'' NERC drafted this note to address a common 
network configuration in which two separate sets of facilities that, 
each standing alone, would be recognized as radial systems but are 
connected by a switch that is set to the open position for reliability 
purposes. In its petition, NERC explained that these switches are 
installed by entities to provide greater reliability to their end-use 
customers. NERC also explained that ``a normally open switch'' will be 
identified in documents such as prints or one-line diagrams and that 
``[t]he concept and usage of the `normally open switch' in such 
configuration is well understood in the electric utility industry.'' 
\152\
---------------------------------------------------------------------------

    \152\ NERC BES Petition at 19.
---------------------------------------------------------------------------

    171. In the NOPR, the Commission requested comment on NERC's 
characterization and whether the phrase ``normally open'' is subject to 
interpretation or misunderstanding, or whether a ``normally open'' 
configuration is potentially difficult to oversee. The Commission also 
requested comment on the need of transmission operators or other 
functional entities to study the system impacts of the closing of a 
``normally open'' switch, or to take other steps to ensure awareness of 
the impacts of the loop that is created by the closing of the switch if 
the closed loop is not included as part of the bulk electric system.
Comments
    172. NERC explains that the term ``normally opened'' is well 
understood and commonly used in industry for a variety of reasons 
including public and personnel safety. NERC also explains that the 
purpose of recognizing a normally open switch in the definition is to 
preserve the bright-line so that the facilities can be characterized as 
they are planned to be operated which avoids the need to constantly 
reclassify elements to adjust to the changing operating conditions that 
occur on the system. NERC believes that a normally open switch is not 
difficult to oversee.
    173. Nearly all commenters that addressed this issue agree with 
NERC's positions. NRECA highlights NERC's explanation that the 
configuration is so common that to write the definition to include 
radial systems connected by a normally open switch, with the caveat 
that entities can request an exception, would result in a flood of 
exception requests. Steel Manufacturers Association points out that 
such a switch can make a secondary connection point available to a 
large industrial load when needed to improve service reliability and 
continuity. Consumers Energy states that such switches would only be 
closed during emergency conditions and an entity in that instance would 
follow contingency plans and ensure that a proper study is performed on 
a normally open switch that is closed due to the emergency to avoid 
related equipment failures. TAPS agrees with NERC and notes that such 
switches are marked as normally open on one line diagrams.
    174. PSEG Companies state that in effect the switch is irrelevant 
because if the normally open switch is open the systems are radial and 
therefore excluded and when the switch is closed the radial systems are 
also excluded for the same reasons figure 3 facilities should be 
excluded. Alameda submits it documents a normally open switch in 
operational diagrams and SCADA applications and its use is coordinated 
in advance with its transmission operator. Alameda also states that the 
system impacts of closing a normally open switch do not need to be 
required to be studied since it is the operational experience and 
documentation of such switch that is most important.
    175. G&T Cooperatives state that some operational studies would be 
useful if there is an upcoming operational decision to close the 
normally open switch that could parallel the bulk electric system. 
However, G&T Cooperatives explain that the study would be used to 
ensure that the system can operate with the switch closed without 
inadvertently tripping one of the source breakers. G&T Cooperatives 
explain that a normally open switch

[[Page 829]]

would not need to be modeled into any real-time model or contingency 
analysis, nor would it require the interconnecting radial systems to be 
incorporated into the bulk electric system, where such conditions are 
managed through quick changes to the equivalence bus loads or 
generation capacities. Similarly, TAPS states that closing a normally 
open switch does not have an impact on the system that needs to be 
studied because it is only close to change a down stream path on a 
temporary basis and does not create a loop.
Commission Determination
    176. Upon consideration of comments, we are persuaded that the 
concept of a normally open switch is well understood, common and not 
difficult to oversee. We accept NERC's explanation that recognizing a 
normally open switch in the definition will preserve the bright-line so 
that the facilities can be characterized as they are planned to be 
operated and avoids the need to constantly reclassify elements to 
adjust to the changing operating conditions that occur on the system.
    177. With regard to the Commission's question concerning the need 
to study the system impacts of the closing of a ``normally open'' 
switch, at this time we will not require them to be studied. We are 
persuaded that the operational experience and documentation of such 
switch is most important and, thus, we decline to require additional 
studies.
7. Exclusion E2 (Behind the Meter Generation)
NOPR Proposal
    178. NERC stated in its petition that the wording of exclusion E2 
is extracted from the Statement of Compliance Registry Criteria.\153\ 
In the NOPR, the Commission stated that the exclusion of ``[a] 
generating unit or multiple generating units on the customer's side of 
the retail meter * * *'' was an appropriate exclusion that provides 
additional clarity and granularity to the definition of bulk electric 
system.\154\ While the Commission did not ask specific questions about 
exclusion E2, several commenters expressed support for the inclusion, 
while others stated concerns with the exclusion.
---------------------------------------------------------------------------

    \153\ NERC BES Petition at 22.
    \154\ NOPR, 139 FERC ] 61,247 at P 88.
---------------------------------------------------------------------------

Comments
    179. NERC and EEI agree with the Commission that the exclusion 
provides additional clarity. ELCON notes that such configurations are 
commonly employed by industrial users of electricity, and they do not 
affect in any significant way the bulk power system. On the other hand, 
ISO New England believes that exclusion E2 should be eliminated because 
it is contrary to the reliability of the bulk electric system. 
According to ISO New England, a 400 MW generator which is behind the 
meter with a 400 MW load could be excluded even though it could have a 
significant impact on the performance of the bulk electric system. ISO 
New England states that the owner of the generator in this example 
would not need to provide generator stability modeling information nor 
abide by the many normally applicable Reliability Standards. MISO 
believes that the exclusion could encourage entities to move generation 
capacity behind the meter which could adversely impact the bulk 
electric system.
    180. PSEG Companies state that exclusion E2 could exclude 
generation included in inclusion I2. For example, PSEG Companies 
contends that, if a single 200 MVA behind-the-meter generator is 
connected to the bulk electric system at 100 kV or higher, the net 
capacity provided to the bulk electric system does not exceed 75 MVA 
and the generator has standby, backup, and maintenance services, under 
exclusion E2 the generator would be excluded from the bulk electric 
system, but it would be included pursuant to inclusion I2.\155\
---------------------------------------------------------------------------

    \155\ PSEG Comments at 14.
---------------------------------------------------------------------------

    181. Other commenters, such as Barrick and the IUU, believe 
additional clarification is needed for the terms ``retail meter'' and 
``net capacity.'' Specifically, they question what the capacity is 
``net'' of or whether it means the sum of flows at all points of 
connection to the bulk electric system. They also question whether 
``net'' means the capacity of a generator that is made available for 
use by someone other than an owner of the generator or capacity less 
parasitic load only.
    182. Barrick and IUU believe there is more than one use for the 
term ``retail meter,'' and it is not clear whether all situations are 
covered by the use in the proposed exclusion E2. Barrick proposes that 
the term ``retail meter'' should include an end-user's meter at an end-
user's generator when that meter is used to measure the end-user's 
generation for consumption.
Commission Determination
    183. We find that exclusion E2 provides additional clarity to the 
definition of bulk electric system, and we disagree that exclusion E2 
is contrary to the reliability of the bulk electric system. We agree 
with ELCON that such configurations are commonly employed by industrial 
users of electricity. Indeed, this exclusion is similar to the 
exclusion for such facilities in NERC's Registry Criteria.\156\ With 
regard to ISO New England's and PSEG Companies specific examples, to 
the extent such scenario exists, they may be eligible for inclusion or 
exclusion through use of the exception process.
---------------------------------------------------------------------------

    \156\ NERC Statement of Compliance Registry Criteria, section 
III.c.4.
---------------------------------------------------------------------------

    184. We decline to define the additional terms cited by commenters, 
such as Barrick and the IUU, who believe additional clarification is 
needed for the terms ``retail meter'' and ``net capacity.'' These terms 
are in common use in the electric power industry. Therefore, we do not 
see a need to adopt a formal definition.
8. Exclusion E3 (Local Networks)
NOPR Proposal
    185. NERC's proposed exclusion E3 defines the term ``local 
networks'' as:

    A group of contiguous transmission Elements operated at or above 
100 kV but less than 300 kV that distribute power to Load rather 
than transfer bulk-power across the interconnected system. LN's 
emanate from multiple points of connection at 100 kV or higher to 
improve the level of service to retail customer Load and not to 
accommodate bulk-power transfer across the interconnected system.

Exclusion E3 also identifies three criteria that must be satisfied for 
the exclusion to apply: (a) Limit on connected generation to 75 MVA 
aggregate capacity of non-retail generation (gross nameplate rating); 
(b) power flows only into the local network and does not transfer 
through the local network; and (c) the local network is not part of a 
flowgate or transfer path.
    186. In the NOPR, the Commission requested comment on: (1) Whether 
generation resources are excluded by this exclusion; (2) how the 
exclusion applies to a looped lower voltage system; (3) whether the 300 
kV ceiling is appropriate for the application of the exclusion; and (4) 
whether the prohibition for generation produced inside a local network 
is not transporting power to other markets outside the local network 
applies in both normal and emergency operating conditions.\157\ The 
Commission also sought further explanation regarding the design and 
technical justification of a local network. These issues are

[[Page 830]]

discussed in detail in the following sections.
---------------------------------------------------------------------------

    \157\ NOPR, 139 FERC ] 61,247 at P 89.
---------------------------------------------------------------------------

a. Local Network Design and Technical Justification
NOPR Proposal
    187. In the NOPR, the Commission requested explanation and comment 
on the statement in NERC's petition that ``neither will the local 
network's separation or retirement diminish the reliability of the 
interconnected electric transmission network.'' \158\ In its petition, 
NERC stated that the design and operation of local networks is such 
that at the point of connection with the interconnected transmission 
network is similar to that of a radial facility, in particular that 
power always flows in the direction from the interconnected 
transmission network into the local network.\159\ Further, according to 
NERC, ``[l]ocal networks provide local electrical distribution service 
and are not planned, designed or operated to benefit or support the 
balance of the interconnected transmission network.'' \160\
---------------------------------------------------------------------------

    \158\ NERC BES Petition, Exhibit G at 2. (Local Network 
Technical Justification).
    \159\ NERC BES Petition at 22.
    \160\ Id.
---------------------------------------------------------------------------

    188. In the NOPR, the Commission observed that, while a radial 
facility emanates from one point of connection to the interconnected 
transmission network, a local network by definition has multiple points 
of connection to the interconnected transmission network. Thus, 
regarding a local network, a contingency situation may arise where one 
of the multiple connections to the interconnected transmission network 
separates, while other local network connections maintain connectivity 
with the bulk electric system. Accordingly, the Commission requested 
comments to better understand how an entity with a candidate local 
network would analyze such contingencies to determine potential impacts 
to the reliable operation of the interconnected transmission network.
Comments
    189. EEI, MISO and other commenters generally support exclusion 
E3.\161\ With respect to the issue raised by the Commission regarding 
how an entity's local network separation will not diminish the 
reliability of the interconnected transmission network, NERC explains 
that the reliability of the interconnected transmission network is not 
impacted by the existence or absence of the local network. NERC 
maintains that excludable facilities under exclusion E3 will naturally 
satisfy this principle because the exclusion E3 conditions were crafted 
in such a way to ensure reliability is not adversely impacted by the 
disconnection of the local network. While specific analyses are not 
necessary to support exclusion of facilities under exclusion E3, NERC 
states that transmission operators or other functional entities need to 
be aware of the change of status of all devices on the system and the 
impact to the system from device changes. According to NERC, exclusion 
of a local network does not obviate the transmission operator or other 
functional entity from the responsibility to assess the system impact 
on any bulk electric system facility due to the separation of one local 
network connection while the remainder of the local network remains 
connected with the bulk electric system.\162\
---------------------------------------------------------------------------

    \161\ E.g., NRECA, ELCON, BPA, and G&T Cooperatives.
    \162\ NERC Comments at 26.
---------------------------------------------------------------------------

    190. TAPS agrees with NERC stating ``sophisticated engineering 
analysis should not be needed to determine the applicability of 
[i]nclusions and [e]xclusions.'' \163\ Likewise, WREA agrees with 
NERC's assertion that the entity with a local network does not need to 
analyze local network contingencies since this analysis is already made 
by the transmission planner and transmission operator responsible for 
the bulk electric system facilities feeding the local network. 
Regarding the transmission planner responsibilities, WREA states the 
NERC Reliability Standard TPL-002 requires the transmission planner to 
study N-1 contingencies and prepare plans for reliable operation. WREA 
further explains that the transmission operator is required to plan to 
meet unscheduled changes in system configuration pursuant to 
Reliability Standard TOP-002, R6 and ``if there are non-[bulk electric 
system] facilities that are significant, that have not been properly 
represented in a [transmission operator's] models, [then] when the 
[transmission operator] performs its required model accuracy validation 
(TOP-002, R19), the [transmission operator] would observe a modeling 
inconsistency and would be able to take steps to correct the modeling 
error.'' \164\
---------------------------------------------------------------------------

    \163\ TAPS Comments at 9.
    \164\ WREA Comments at 8-9.
---------------------------------------------------------------------------

    191. AEP advocates for a baseline or cut-off point, which would be 
determined by the size (in MW) of the local network. Idaho Power 
believes that the statement means that total separation or loss of the 
local network elements does not cause a reliability performance impact 
on the remaining bulk electric system elements. Idaho Power explains 
that it would analyze such contingencies by evaluating overload levels 
and voltage performance impacts on the remaining bulk electric system 
elements as well as overload levels and voltage performance on the 
remaining local network elements.
    192. Southern Companies state that such a contingency would be 
incorporated into planning studies regardless of whether the local 
network was part of the bulk electric system.\165\ BPA believes that 
before a candidate local network is excluded, it must be evaluated by 
the impacted balancing authority, transmission operator and planning 
authority to ensure the integrity of the bulk grid is not 
compromised.\166\
---------------------------------------------------------------------------

    \165\ Southern Companies Comments at 13.
    \166\ BPA Comments at 7-8.
---------------------------------------------------------------------------

Commission Determination
    193. The Commission approves exclusion E3. The Commission accepts 
NERC's explanation about the statement that ``neither will the local 
network's separation or retirement diminish the reliability of the 
interconnected transmission network.'' The Commission also accepts 
NERC's comments relating to how an entity with a candidate local 
network would analyze such contingencies to determine potential impacts 
to the reliable operation of the interconnected transmission network. 
In particular, the Commission agrees that the exclusion of a local 
network does not obviate the transmission operator or other functional 
entity from the responsibility to assess the system impact of 
separating one local network connection while the remainder of the 
local network remains connected with the bulk electric system. We will 
not direct NERC to modify the provision as suggested by AEP and BPA. 
Rather, as NERC indicates, AEP and BPA may raise these suggestions with 
NERC in the Phase 2 development effort.
b. Figure 5, Contiguous Transmission Elements and the 100 kV Lower 
Limit
    194. Exclusion E3 defines local networks as ``[a] group of 
contiguous transmission Elements operated at or above 100 kV but less 
than 300 kV that distribute power to Load rather than transfer bulk-
power across the interconnected system.'' While the local network 
exclusion applies to contiguous transmission elements operating at a 
minimum of 100 kV, the Commission stated in the NOPR that it is unclear 
how the exclusion applies to a looped

[[Page 831]]

lower voltage system. The Commission provided an example of its concern 
depicted in figure 5 in the NOPR which shows a 69 kV looped system 
emanating from two points of connection at 100 kV or higher.
[GRAPHIC] [TIFF OMITTED] TR04JA13.004

    195. In the NOPR, the Commission stated that figure 5 depicts a 
group of elements that are contiguous through a 69 kV loop and 
requested comment whether the configuration in figure 5 qualifies as a 
local network and, in particular, whether the configuration satisfies 
the conditions that a local network be contiguous and operated at or 
above 100 kV.
Comments
    196. NERC views figure 5 the same as figure 3--as a looped system 
below 100 kV--that is not considered under this exclusion because the 
elements below 100 kV are presumed to be not part of the bulk electric 
system.\167\ NERC maintains that, if it is determined that the sub-100 
kV looped system is necessary for the reliable operation of the 
interconnected transmission network, the exception process may be 
utilized to include the appropriate elements. NERC states that figure 5 
depicts two separate and distinct groups of elements that each emanate 
from a single point of interconnection at 230 kV and only serve load. 
Accordingly, NERC states that 230 kV lines 1 and 2 are included in the 
bulk electric system with the only other included elements being the 
lines extending from lines 1 and 2. However, according to NERC, the 
elements between 230 kV line 1 and transformer 2 and between 230 kV 
line 2 and transformer 1 are each subject to exclusion E1(a) because 
each separate set of elements is contiguous and emanate from a single 
point of connection of 100 kV or higher. NERC asserts that the elements 
below the 69 kV side of transformers 1 and 2 are excluded because they 
are less than 100 kV. NERC explains that transformers 1 and 2 are 
excluded because they bridge voltages of 69 kV and 230 kV and 
therefore, inclusion I1 is not applicable because a transformer must 
have two terminals over 100 kV to qualify for inclusion I1. According 
to NERC, the definition should focus on looped or networked connections 
at 100 kV or greater because such connections, when operated below 100 
kV, generally do not carry significant parallel flow because of the 
higher impedance associated with lower voltage facilities.\168\
---------------------------------------------------------------------------

    \167\ Figure 5 and figure 3 set forth in the NOPR are identical 
configurations.
    \168\ NERC Comments at 27-28.
---------------------------------------------------------------------------

    197. Exelon states that the clear intent of the definition is that 
configurations such as shown in figure 5 are radial systems subject to 
exclusion E1 (radial systems). According to Exelon, had this not been 
the intent of exclusion E1, exclusion E3 would have allowed for a local 
network where the tie was below 100 kV to avoid a reliability gap. 
Exelon believes that the configuration shown in figure 5, which is 
identical to figure 3, does not qualify as a local network within the 
terms of exclusion E3 and supports NERC's view that figure 5 represents 
two radial systems that qualify under exclusion E1. Exelon cautions 
that, if the Commission determines that the systems depicted in figure 
5 do not qualify under exclusion E1 because of the low voltage tie and 
does not qualify under exclusion E3 because the tie is at low voltage 
and not a 100 kV or above, such a decision would leave a gap under 
which a substantial number of facilities that are not part of the bulk 
electric system

[[Page 832]]

would be classified as such. Exelon states that it would have to go 
through the separate exception process for dozens of substations, at 
great cost and for no useful purpose. Exelon states that the Commission 
should clarify that the configuration shown in figures 3 and 5 
qualifies as a radial system and is excluded pursuant to exclusion E1.
    198. Other commenters disagree with NERC's position. Idaho Power 
believes the network configuration with a 69 kV loop belongs to a local 
network category pursuant to exclusion E3 and that these types of 
networks should be studied to identify if there is any resulting 
voltage, overload, or stability violation that could propagate and 
impact the reliability of the system. Idaho Power believes that the 69 
kV loop can tie the 230 kV systems together; therefore, outages in the 
230 kV system could cause loop flow in the 69 kV system. According to 
Idaho Power, planning studies would have to be performed to determine 
the amount of loop flow and whether the loop flow could lead to outages 
on the 69 kV system, resulting in further impact to the bulk electric 
system.\169\ WREA also notes figure 5 is the same as figure 3 and 
states that the 230 kV elements described in the figure would not 
qualify for the radial system exclusion E1 because the 230 kV elements 
are networked via facilities less than 100 kV. WREA concludes the 
elements above 100 kV in the figure might qualify for the local network 
exclusion and the below 100 kV facilities in this configuration are 
non-bulk electric system on the basis of the core definition unless the 
facilities are included via the exception process.\170\ AEP believes 
that figure 5 could be considered for exclusion E3, provided that it is 
understood that at some point on the local network, the network could 
be of the size that would have a potential impact on the bulk electric 
system and would still need to meet the parameters of exclusion 
E3.\171\
---------------------------------------------------------------------------

    \169\ Idaho Power Comments at 11.
    \170\ WREA Comments at 9.
    \171\ AEP Comments at 10.
---------------------------------------------------------------------------

Commission Determination
    199. As discussed above, the Commission is directing a modification 
to exclusion E3 to better capture local networks like those depicted in 
figure 5. The Commission notes that Exelon believes that the 
configuration shown in figure 5, which is identical to figure 3, does 
not qualify as a local network within the terms of exclusion E3. While 
figures 3 and 5 are a networked configuration through a 69 kV loop, 
they do not qualify for the local network exclusion because exclusion 
E3 defines local networks as ``[a] group of contiguous transmission 
Elements operated at or above 100 kV but less than 300 kV that 
distribute power to Load rather than transfer bulk-power across the 
interconnected system.'' The configuration in figure 5 includes 
elements that are below 100 kV, and does not have contiguous elements 
operating at or above 100 kV but less than 300 kV. As noted above, 
while the Commission finds that these configurations should not be 
eligible for exclusion E1, we believe that they should be eligible for 
the local network exclusion. Therefore, we direct NERC to modify 
exclusion E3 to remove the 100 kV minimum operating voltage in the 
local network definition. Within 30 days of the effective date of this 
Final Rule, we direct NERC to submit a schedule outlining how and when 
it will make the modification to the definition.
c. 300 kV Cap
NOPR Proposal
    200. NERC explained the selection of a 300 kV cap for the 
applicability of an exclusion for a local network was based upon recent 
NERC standards development work in Project 2006-02 ``Assess 
Transmission Future Needs and Develop Transmission Plans'' which sets a 
voltage level of 300 kV to differentiate extra high voltage (EHV) 
facilities from high voltage facilities acting as a threshold to 
distinguish between expected system performance criteria.\172\ In the 
NOPR, the Commission noted that NERC provided an example of the 
electrical interaction between a typical local network and the bulk 
electric system which depicted a local network operating at 115 kV. 
However, the Commission observed that NERC did not provide examples of 
a local network operating within the 200 to 300 kV range. The 
Commission expressed concern whether the 300 kV ceiling is appropriate 
and reflects actual system configurations that serve local 
distribution, the stated purpose of the local network exclusion. Thus, 
the Commission requested comment whether the 300 kV ceiling is 
appropriate for the application of exclusion E3 and requested examples 
of systems between 200 and 300 kV that would qualify for this 
exclusion.
---------------------------------------------------------------------------

    \172\ NERC BES Petition at 23.
---------------------------------------------------------------------------

Comments
    201. NERC asserts that the 300 kV cap is appropriate. NERC 
reiterates that the voltage cap is consistent with the distinction 
being made between extra high voltage and high voltage in the 
Reliability Standard TPL-001-2. NERC adds that the important attributes 
of a local network are the limit on capacity of connected non-retail 
generation, prohibition of power flow out of, or through, the local 
network, and prohibition of local networks containing flowgates or 
major transfer paths. NERC maintains that these attributes, rather than 
the operating voltage of the local network facilities, assure that 
local networks do not impact reliability of the interconnected 
transmission network.
    202. Most commenters agree that the 300 kV threshold is 
appropriate.\173\ With respect to the Commission's request for examples 
of systems between 200 and 300 kV that would qualify for this 
exclusion, ICNU states that, one of its members operates a large 
industrial facility that takes service from the bulk electric system 
from two transformers, both of which operate at 230 kV on the high 
side, but step down to 13.5 kV for distribution within the complex. 
According to ICNU, this industrial plant serves no reliability function 
and serves only the retail load, but if the ceiling for exclusion E3 
were lowered to 200 kV, this network potentially would not be excluded 
because it contains some elements operating between 200-300 kV. ICNU 
believes that the function of a local network, rather than its voltage, 
is the critical factor in excluding it from the bulk electric system 
and therefore, recommends a local network exclusion based on function, 
not voltage. Nonetheless, to the extent a ceiling is deemed necessary, 
ICNU states that the 300 kV threshold is appropriate.
---------------------------------------------------------------------------

    \173\ E.g. National Grid, AEP, ICNU, and WPPC.
---------------------------------------------------------------------------

    203. WPPC supports the 300 kV ceiling and WPPC states that the 
ceiling reflect industry's extensive use of 115-230 kV system to 
provide distribution service through a local network. WPPC points out 
that in low density areas it is more economical to serve load using one 
230 kV network rather than four 69 kV networks. WPPC adds that many 55 
and 69 kV networks that serve towns and cities have been upgraded to 
115 or 230 kV for economic, technical and environmental reasons, but 
raising the voltage does not change their function.
    204. In contrast, BPA, Hydro One, and WREA express concern 
regarding the 300 kV cap. BPA states that the 300 kV ceiling may not 
``reflect[] actual system configurations that serve local distribution, 
the stated purpose of the local network exclusion.'' \174\ BPA believes 
that exclusion E3 should not apply to any facility above 200 kV, 
without appropriate review, analysis,

[[Page 833]]

and concurrence, from the impacted transmission operator, planning 
authority, and reliability coordinator. BPA states that fault 
magnitudes on systems between 200 kV and 300 kV are much higher than 
fault magnitudes on systems operated below 200 kV. According to BPA, 
these systems have a much higher potential for serious impacts than 
networks operating below 200 kV if something fails to operate properly, 
including cascading outages, transient instability, and post transient 
voltage instability.
---------------------------------------------------------------------------

    \174\ BPA Comments at 8.
---------------------------------------------------------------------------

    205. Hydro One believes that the 300 kV cap associated with the 
applicability of exclusion E3 is not justifiable on technical grounds, 
and submits that certain systems with greater than 300 kV should be 
able to qualify for exclusion E3 based on their own merits. Hydro One 
states that a radial or a local network below 300 kV can have as much 
or more impact on the reliability of the interconnected transmission 
network than a local network operating at 300 kV or above depending 
upon its location and configuration. WREA also disagrees with the 300 
kV ceiling and recommends that the Commission delete this limitation 
entirely.
Commission Determination
    206. The Commission approves the 300 kV voltage threshold for local 
networks for the initial implementation of the definition. While we 
approve the 300 kV threshold, the limited number of examples provided 
for 200-300 kV systems cause us to seek additional information. Thus, 
following implementation when actual exclusion data is available, the 
Commission directs NERC to submit a compliance filing within one year 
of the implementation date identifying in sufficient detail the types 
of local network configurations that have been excluded from the bulk 
electric system under this exclusion. This will assist us in better 
understanding the type and magnitude of systems that fall into above 
200 kV category.
d. Criterion (a)--Limits on Connected Generation
NOPR Proposal
    207. Exclusion E3 criterion (a) provides that the local network and 
its underlying elements do not include the blackstart resources 
identified in inclusion I3 and do not have an aggregate capacity of 
non-retail generation greater than 75 MVA gross nameplate rating. In 
addition, criterion (a) does not limit the amount of generation besides 
``non-retail generation'' connected to the local network. The 
Commission stated in the NOPR that it agrees with NERC that ``local 
networks'' do not include blackstart resources and agrees with the 
limits on the connected generation imposed by this exclusion. The 
Commission also stated that similar to the discussion of the definition 
of ``radial systems'' in exclusion E1, the exclusion E3 local network 
exclusion applies to ``transmission Elements,'' but does not exclude 
generation resources connected to a local network that otherwise 
satisfy inclusion I2.
Comments
    208. NERC concurs with the Commission's statement that ``local 
networks'' do not include blackstart resources and agrees with the 
limits on the connected generation imposed by this exclusion. NERC, 
EEI, Alameda, Hydro One, and WREA state that, whether or not generation 
is included in the bulk electric system is determined by inclusions I2 
through I4 and exclusion E2. In addition, NERC confirms that exclusion 
E3 does not exclude generation resources.
    209. In contrast, some commenters are concerned about allowing 
generators identified in inclusion I2 to be connected to local 
networks. Idaho Power states that it is not appropriate to exclude a 
local network if it contains generation that would normally be included 
in the bulk electric system through inclusion I2.\175\ PSEG Companies 
states that ``there is confusion created by the fact that generators 
included in the [bulk electric system] definition per [inclusion] I2 
are at the same time excluded under [exclusions] E2 and E3.'' \176\ 
According to PSEG Companies, a generator cannot be included under one 
provision of the bulk electric system definition and excluded under 
another provision and that this issue requires clarification and, once 
clarified, the bulk electric system definition needs to be modified 
accordingly.
---------------------------------------------------------------------------

    \175\ Idaho Power Comments at 10.
    \176\ PSEG Comments at 11.
---------------------------------------------------------------------------

    210. Some commenters seek clarification of exclusion E3 criterion 
(a) regarding the term ``non-retail.'' \177\ Barrick and the IUU raise 
several questions about exclusion E3. First, they claim that the phrase 
``not * * * non-retail generation'' is unclear and question whether it 
means generation used for retail. They also question whether exclusion 
E3 excludes generation resources for an owner's own use or generation 
used for wholesale. They also ask how the term ``non-retail'' relates 
to ``net capacity.''
---------------------------------------------------------------------------

    \177\ E.g., Barrick, IUU, and PSEG.
---------------------------------------------------------------------------

    211. While Holland supports the exclusion of local networks from 
the bulk electric system, Holland argues that criteria (a) and (b) 
should be eliminated because they limit the amount of connected 
generation, even where the connected generation is distributed locally. 
Holland states that exclusion E3(a) improperly maintains the aggregate 
75 MVA limit for connected generation. Holland believes this limit is 
inconsistent with the concept of a local network and should be removed. 
Holland explains that if the local network does not accommodate bulk 
power transfer across the interconnected system, then the amount of 
generation that exists and is distributed within that system, 
regardless of size, is distributed and consumed locally, and is 
therefore beyond the scope of FPA Section 215. Holland maintains that, 
if the Commission does not remove exclusion E3(a) in its entirety, it 
should require the limitation to be based on the net of the local 
network's total load, rather than the gross nameplate rating.
    212. NESCOE contends that three conditions in exclusion E3 would 
unnecessarily include some New England networks in the bulk electric 
system without any clear reliability benefit. In particular, NESCOE 
states that the limits on connected generation should be raised to 300 
MVA instead of 75 MVA, stating that the northeast portion of the 
eastern interconnection defines a 1200 MVA loss of source as the 
largest contingency to which the control area is designed to operate. 
Therefore, NESCOE believes that 25 percent of that contingency at 300 
MVA falls well within typical loss of source expectations for the 
northeast. Alameda suggests that the Commission raise the connected 
generation limitation for local network exclusions to 150 MVA. 
According to Alameda, since the local network is comparable to two 
radials, limiting a local network to 75 MVA could result in entities 
choosing to operate two less reliable radial systems, each with 75 MVA 
of generation, rather than one local network with 150 MVA of generation 
to avoid a designation as bulk electric system for their local network.
Commission Determination
    213. We find that the local network exclusion only applies to 
``transmission Elements'' and does not allow the exclusion of 
generation resources otherwise included in the bulk electric system 
pursuant to inclusion I2, as

[[Page 834]]

discussed above in our determination regarding exclusion E1.
    214. Further, as discussed above regarding exclusion E1, the 
Commission agrees with Idaho Power, PSEG Companies, SmartSenseCom, and 
AEP that tie-lines for generators identified in the inclusion I2 should 
not qualify for exclusion as radial systems or local networks. Rather 
the tie-lines can be considered for exclusion under NERC's exception 
process. Accordingly, consistent with the Commission's directive 
discussed above regarding exclusion E1, the Commission directs NERC to 
implement exclusion E3 so that the exclusion for local networks does 
not apply to bulk electric system generator tie-lines operated at or 
above 100 kV as shown in the figure below.
[GRAPHIC] [TIFF OMITTED] TR04JA13.005

    215. In response to Barrick's and IUU's requests for clarification, 
we decline to clarify the terms/phrases ``non-retail,'' ``gross plant/
facility,'' ``not necessary,'' ``aggregate,'' ``net capacity,'' and 
``retail meter.'' We believe the terms/phrases are sufficiently clear. 
However, Barrick and IUU may pursue further clarification from NERC in 
an appropriate forum such as NERC's Phase 2 project.
    216. With regard to the comments of Holland, NESCOE and Alameda, we 
will not direct any change in the connected generation limitation for 
the local network exclusion. The limit on connected generation within 
the local network is consistent with the existing threshold above which 
a generating plant in aggregate becomes subject to registration under 
the NERC Registry Criteria. Entities may avail themselves of the 
exception process to exclude a local network that otherwise does not 
qualify pursuant to exclusion E3.
e. Criterion (b)--Power Flows Only Into the Local Network
NOPR Proposal
    217. Exclusion E3 criterion (b) specifies that, to qualify for the 
exclusion, power can only flow into the local network and the local 
network does not transfer energy originating outside the local network 
for delivery through the local network. The Commission noted in the 
NOPR that, pursuant to criterion (b), generation produced inside a 
local network is not transporting power to other markets outside the 
local network. The Commission stated in the NOPR that it understands 
that criterion (b) applies in both normal and emergency operating 
conditions.\178\
---------------------------------------------------------------------------

    \178\ See NOPR, 139 FERC ] 61,247 at P 98 (citing NERC BES 
Petition, Exh. E at 59 (``The Commission directed NERC to revise its 
BES definition to ensure that the definition encompasses all 
Facilities necessary for operating an interconnected electric 
Transmission network. The SDT interprets this to include operation 
under both normal and Emergency conditions * * *.'')).
---------------------------------------------------------------------------

Comments
    218. NERC confirms, and TAPS, Idaho Power and others concur with 
the Commission's understanding that, pursuant to criterion (b), 
generation produced inside a local network is not transporting power to 
other markets outside the local network. NERC and other commenters also 
agree that criterion (b) applies in both normal and emergency operating 
conditions.
    219. NERC states that prohibitions on outbound power flow and 
transportation of power to other markets beyond the local network apply 
in all conditions, both normal and contingent, and will eliminate the 
exclusion of facilities which may contribute power flow into the bulk 
electric system under contingent or unusual circumstances. According to 
NERC, basing the determination solely on normal conditions could lead 
to inconsistent application of this exclusion and would introduce 
subjectivity into the application of the definition.
    220. Duke Energy agrees with NERC's comment that prohibitions on 
outbound power flow beyond the local network apply in ``both normal and 
contingent conditions,'' but believes that ``contingent'' should be 
further clarified as limited to N-1 contingencies for the bright line 
definition. Idaho Power also agrees, and comments that additional 
clarification is needed to define whether the meaning of ``emergency 
conditions'' includes contingencies within the local network itself. In 
contrast, Southern Companies states that criterion (b) would apply in 
normal but not emergency operating conditions. MISO cautions against 
precluding local

[[Page 835]]

networks from sending electricity to the transmission system in 
emergency conditions when doing so could improve the availability of 
electricity.
    221. Portland notes that the application of criterion (b) in both 
normal and emergency operating conditions is similar to one element of 
the Seven Factor Test that states that power rarely if ever flows out. 
Portland suggests that the Commission should clarify the relationship 
between the Seven Factor Test and the local distribution exception in 
the reliability regulatory context.
    222. Alameda believes that the power flow prohibition should apply 
only where the flow from the local network is necessary for the 
reliable operation of the interconnected transmission network. Alameda 
contends that these conditions would typically apply during peak or 
near-peak operating conditions and that it would be inappropriate to 
include a local network in the bulk electric system because generation 
flowed outside the local network only under off peak conditions when 
these flows were not vital to reliability. Alameda suggests that the 
power flow prohibition be modified to allow flows of less than 75 MVA 
to flow outside the network, making the local networks electrically 
comparable to radial systems with a 75 MVA generator.
    223. ISO New England believes the NOPR suggests an implicit 
expectation regarding the determination of local networks in that there 
is no stated requirement for contingency analyses in that 
determination. ISO New England believes that the Commission 
understanding of criterion (b) implies that criterion (b) needs to be 
analyzed both pre- and post-contingency. In such a case, this issue 
needs to be defined in the exclusion. Additionally, ISO New England 
requests clarification whether this indicates that one must apply a 
first contingency to the analysis or a second contingency in 
determining if the criterion is met.
    224. Dow asserts that the requirement that power may only flow into 
a local network should be clarified to apply only to power that 
originates outside of, and flows through, a local network. Dow believes 
that it should not apply to power generated by non-retail generation 
resources meeting applicable size or export quantity thresholds that 
are connected to local networks. Dow maintains such a clarification is 
consistent with other language in the exclusion specifying that up to 
75 MVA of non-retail generation may be attached to a local network. Dow 
views the reference to non-retail generation as intended to apply to 
generation resources that are used to make wholesale sales which 
requires that power be able to flow into the bulk electric system for 
delivery to downstream buyers. Dow also states that exclusion E3 should 
be clarified to address situations in which a local network does not 
qualify for the local network exclusion because it is not clear 
``whether all facilities rated 100 kV and above that are part of the 
local network would be considered part of the [bulk electric system] 
and become subject to transmission-related reliability standards * * 
*.'' \179\
---------------------------------------------------------------------------

    \179\ Dow Comments at 6.
---------------------------------------------------------------------------

    225. Valero contends that criterion (b) indicates that the 
existence of a power flow that ``transfers through the local network'' 
would disqualify an element from satisfying the exclusion. On the other 
hand, Valero points to the excerpt from the NERC BES Petition which 
implies that this meaning of criterion (b) might not be the appropriate 
interpretation.\180\ Valero requests that the Commission either clarify 
as stated above or modify criterion (b) to allow for transfers through 
the local network if such transfers are not necessary for the 
reliability of the interconnected transmission network.
---------------------------------------------------------------------------

    \180\ The NERC statement is quoted in the NOPR at P 81: 
``[l]ocal networks provide local electrical distribution service and 
are not planned, designed or operated to benefit or support the 
balance of the interconnected transmission network.''
---------------------------------------------------------------------------

    226. NESCOE and G&T Cooperatives state that minimal transfers may 
and do occur, and local networks should not necessarily be ineligible 
for exclusion E3 simply because some amount of power may transfer out 
of the network. NESCOE states that the Commission should direct NERC to 
reevaluate exclusion E3 to allow these minimal flows up to a 100 MVA 
limit.\181\ G&T Cooperatives state that even with optimal load 
projections, there may be times when energy flows into the local 
network that exceed the load, and in those cases the local network may 
need to export the excess energy back to the bulk electric system which 
could create perverse incentives to restrict flows into and out of the 
local network. G&T Cooperatives suggest that criterion (b) should be 
read to allow exclusion E3 to cover local networks in which 
``normally'' power flows into the local network and the local network 
does not transfer energy originating outside the local network for 
delivery through the local network.
---------------------------------------------------------------------------

    \181\ NESCOE states that this represents 25 percent of the rated 
value of a typical 345/115 kV substation.
---------------------------------------------------------------------------

    227. Holland states that the exclusion E3(b) criterion is 
unnecessary and should be removed. Holland states that exclusion E3(b) 
appears to be concerned with flows originating from outside of the 
local network, coming into the local network, and then exiting the 
local network to loads outside of the local network. According to 
Holland, however, exclusion E3(c) appears to address this concern 
because it fails to recognize that a local network may have internal 
generation that is less than its peak load but in excess of off-peak 
load levels. Holland states that, if exclusion E3(b) is maintained, 
then the clause, ``[p]ower flows only into the [local network],'' 
should be deleted because it is inconsistent with the second clause, 
``the [local network] does not transfer energy originating outside the 
[local network] for delivery through the [local network].''
Commission Determination
    228. The Commission finds that: (1) pursuant to exclusion E3 
criterion (b), generation produced inside a local network should not 
transport power to other markets outside the local network; and (2) 
exclusion E3 criterion (b) applies in both normal and emergency 
operating conditions. The Commission agrees with NERC's statements that 
basing the determination solely on normal or optimal conditions could 
lead to inconsistent application of this exclusion and hence the 
definition itself, and would also introduce a degree of subjectivity in 
the application of the definition that is not in the interest of 
reliability.
    229. MISO and other commenters suggest that local networks should 
be allowed to deliver power to the bulk electric system in some 
circumstances.\182\ The Commission agrees that the facilities should 
supply such power if needed, but disagrees that facilities expected to 
be needed in this way should nonetheless be excluded from the bulk 
electric system. If a local network is expected to be needed to operate 
the interconnected transmission network, i.e., to meet reliability 
performance criteria in transmission planning assessments, it should 
not be excluded from the bulk electric system under exclusion E3. The 
Commission also rejects Holland's suggestion to remove criterion (b) 
because NERC has presented an acceptable technical justification for 
this and the other criteria in exclusion E3.\183\ In response to 
Alameda's comment that some power should be permitted to flow out of a 
local network during off-peak hours, the

[[Page 836]]

Commission disagrees that the bright-line definition should be modified 
for case-specific circumstances. Entities can seek to exclude 
configurations that do not meet the exclusion E3 criteria through the 
exception process on a case-by-case basis. The Commission agrees with 
Portland that criterion (b) is similar to one element of the Seven 
Factor Test but otherwise addresses what constitutes local distribution 
above.
---------------------------------------------------------------------------

    \182\ E.g. Southern Companies, Alameda, Dow, Valero, NESCOE, 
Holland and G&T Cooperatives.
    \183\ NERC BES Petition at 22-24.
---------------------------------------------------------------------------

    230. In response to Idaho Power and ISO New England asking for how 
emergency conditions are defined to determine if a candidate 
configuration meets exclusion E3 criterion (b), the Commission believes 
that the best way to show that a local network meets criterion (b) is 
through historical power flow data.
    231. We will not direct NERC to allow minimal flows up to a 100 MVA 
limit as NESCOE requests. NESCOE may choose to pursue this matter 
further with NERC, with the Phase 2 project being one appropriate 
forum. Similarly, Dow may raise its contention that exclusion E3 should 
not apply to certain non-retail generation resources during Phase 2. 
Regarding Dow's argument that exclusion E3 should be further clarified, 
we believe our discussion above regarding figure 5 adequately addresses 
Dow's concern.
f. Criterion (c)--Not Part of a Flowgate or Transfer Path
    232. Exclusion E3 criterion (c) specifies a ``local network'' does 
not contain a monitored facility of a permanent flowgate in the Eastern 
Interconnection, a major transfer path within the Western 
Interconnection, or a comparable monitored facility in the ERCOT or 
Quebec Interconnections, and is not a monitored facility included in an 
interconnection reliability operating limit. NERC stated that the 
presence of a local network is not for the operability of the 
interconnected electric transmission network; neither will the local 
network's separation or retirement diminish the reliability of the 
interconnected electric transmission network.'' \184\ The Commission 
stated in the NOPR that it believes that this is an appropriate 
criterion.
---------------------------------------------------------------------------

    \184\ NOPR, 139 FERC ] 61,247 at P 93 (citing NERC BES Petition, 
Exhibit G at 2).
---------------------------------------------------------------------------

Comments
    233. G&T Cooperatives state that criterion (c) should be clarified 
to allow local networks to come under exclusion E3 even if they are 
interconnected with a ``monitored facility of a permanent Flowgate'' in 
the Eastern Interconnection or a ``major transfer path'' in the Western 
interconnection. G&T Cooperatives recognize that such monitored 
facilities and major transmission paths are important to reliability, 
but criterion (c) could be read in a manner that would prevent a local 
network interconnected with such major facilities from qualifying under 
exclusion E3. G&T Cooperatives do not believe that NERC intended such a 
broad reading.
Commission Determination
    234. The Commission finds that exclusion E3 criterion (c) is an 
appropriate criterion. We agree with NERC that facilities with, e.g., 
permanent flowgates, cannot be included in a local network as the 
separation of such facilities during a system event could have an 
adverse impact on the operation of the interconnected transmission 
network. The language for criterion (c) only prohibits flowgates and 
their associated monitored elements from being within a candidate local 
network. Therefore, we believe the language is sufficiently clear and 
will not direct NERC to modify this provision in response to G&T 
Cooperatives request for clarification.
9. Exclusion E4 (Reactive Power Devices)
NOPR Proposal
    235. Exclusion E4 excludes from the bulk electric system ``Reactive 
Power devices owned and operated by the retail customer solely for its 
own use.'' NERC explained that exclusion E4 is the technical equivalent 
of exclusion E2 for reactive power devices and that the currently 
effective bulk electric system definition is unclear as to how these 
devices are to be treated. In the NOPR, the Commission stated that this 
is an appropriate exclusion that provides additional clarity and 
granularity to the definition of bulk electric system.
Comments
    236. NERC, ELCON and EEI support the Commission's proposal. Steel 
Manufacturers Association supports a definitive exclusion for reactive 
power equipment that is installed and used to benefit end use loads. 
The exclusion, however, in the Steel Manufacturers Association's 
opinion, should not be confined to such devices that are owned and 
operated by a retail customer solely for its own use because there are 
instances in which capacitor banks have been installed for the benefit 
of a steel-making facility but, for various reasons, that equipment is 
owned, operated and maintained by its local utility. Consequently, the 
Steel Manufacturers Association suggests that exclusion E4 be revised 
to read: ``Reactive Power devices owned and operated by, or installed 
solely for the benefit of, retail customers.''
Commission Determination
    237. The Commission finds that exclusion E4 is an appropriate 
exclusion that provides additional clarity and granularity to the 
definition of bulk electric system. In response to the Steel 
Manufacturers Association, we will not direct the suggested clarifying 
change to exclusion E4 criterion. Rather, Steel Manufacturers 
Association may choose to pursue this matter further with NERC in its 
Phase 2 project.

E. The NERC Rules of Procedure Exception Process, RM12-7-000

NOPR Proposal
    238. As described above in section I.D.2, NERC proposed revisions 
to its Rules of Procedure to provide an ``exceptions process'' to add 
elements to, and remove elements from, the bulk electric system, on a 
case-by-case basis. NERC stated, inter alia, that the exception process 
decisions to approve or disapprove exception requests will be made by 
NERC, rather than by the Regional Entities.
    239. In the NOPR, the Commission proposed to find that, pursuant to 
section 215(f) of the FPA, the exception process is just, reasonable, 
not unduly discriminatory or preferential, and in the public interest 
and satisfies the requirements of section 215(c). Further, the 
Commission proposed to find that the proposed exception process 
satisfies the statement in Order No. 743 that NERC establish an 
exception process for excluding facilities that are not necessary for 
the reliable operation of the interconnected transmission network from 
the definition of the bulk electric system.\185\
---------------------------------------------------------------------------

    \185\ See NOPR, 139 FERC ] 61,247 at PP 103-04 (citing Order No. 
743, 133 FERC ] 61,150 at P 16).
---------------------------------------------------------------------------

Comments
    240. Many commenters support the exception process as proposed. 
Commenters state that the exception process will be able to handle the 
more unusual situations that need to be addressed on a case-by-case 
basis, including sub-100 kV transmission elements that are necessary 
for the reliable operation of the interconnected transmission 
network.\186\ They further state that the exception process balances 
the need for effective and efficient administration with due process 
and clarity of expectations and promotes consistency in determinations 
and

[[Page 837]]

eliminates regional discretion by having all decisions on exception 
requests made at NERC. Southern Companies support approval of the 
exception process and assert that the Commission should allow time for 
NERC, Regional Entities and industry to implement the definition and 
exception process and determine at a later date whether it is 
sufficiently capturing the appropriate facilities.
---------------------------------------------------------------------------

    \186\ E.g., ELCON, TAPS, and Southern Companies.
---------------------------------------------------------------------------

    241. MISO states that RTOs, as reliability coordinators, planning 
coordinators or authorities, and balancing authorities, should be 
allowed to file exception requests. MISO also states that there should 
be fewer requirements for filing exception requests by RTOs because 
they have been assigned substantial authority over facilities under 
their authority by their member transmission owners and operators, and 
because they utilize rigorous stakeholder processes. Specifically, MISO 
requests that the Commission direct NERC to modify the exception 
process to recognize RTO stakeholder processes and their results as 
evidence that the RTO as the submitting entity conferred with the owner 
about the reasons for an exception and either an agreement was reached 
between the entities that an exception should be filed and that the RTO 
should submit the exception, or that the entities could not reach 
agreement regarding the submission of such an exception request.
    242. NYISO comments that the exception process needs to provide 
interested parties notice and an opportunity to be heard. NYISO states 
that ISOs and RTOs have an interest in participating in an exception 
proceeding prior to a final determination by the Regional Entity or 
NERC because exception requests may affect them operationally or in 
their planning studies depending upon the final determination made on 
the specific exception request.
    243. NYPSC and NESCOE are concerned that NERC's proposal does not 
give state commissions an opportunity to participate directly in the 
process. NESCOE states that, without state participation, NERC will not 
address the full range of substantive concerns that may arise in any 
given case, and, if the Commission is asked to review an exemption 
determination, the record presented will not reflect the states' views. 
NESCOE is also concerned that the exceptions process lacks a mechanism 
for a state regulatory authority to initiate review of the 
classification of an element. NESCOE contends that states may have an 
interest in the proper classification of bulk electric system 
facilities, but they are not in a position to submit an exception 
request because they lack the detailed information required for a 
submission under the proposal. NESCOE suggests that this can be 
remedied by allowing a state to request a review from the relevant 
Regional Entity and to require the Regional Entity to submit a formal 
exception request if it finds that the classification is inaccurate. In 
addition, NESCOE believes that a state should have a right to seek 
review from NERC of the Regional Entity's determination.
    244. In reply comments, NERC disagrees with MISO and explains that 
the exception process needs to be applied consistently and that the 
required information should be the same regardless of the identity of 
the submitter. NERC states that the Detailed Information Form is 
intended to ensure that a consistent baseline of technical information 
is provided to the Regional Entity and NERC with all exception 
requests, in addition to the specific information and arguments 
submitted by the submitting entity in support of its exception request. 
The MISO Transmission Owners and AMP support NERC's comments.
    245. NERC also explains that RTOs and ISOs have the ability to file 
an exception request where they are acting in their capacity as 
planning authorities, reliability coordinators, transmission operators, 
transmission planners, or balancing authorities. NERC states that ``the 
exceptions process is technical and is based on engineering expertise, 
and these are the necessary parties with the required information.'' 
\187\ NERC also disagrees regarding a state or third party role and the 
need for notice and access to information. NERC states that state 
commissions have other means and methods at their disposal for working 
with entities to identify candidates for an exception request. NERC 
notes that the exception process provides that detailed notice of any 
request would be provided to every registered entity with reliability 
oversight obligation (e.g., planning authorities, reliability 
coordinators, transmission operators, transmission planners, or 
balancing authorities) for the element subject to the request and that 
general information about an exception request will be publicly posted. 
NERC also notes that third parties including state regulatory agencies 
will have adequate opportunity to provide comments regarding the 
request without formally participating in the process.
---------------------------------------------------------------------------

    \187\ NERC Reply Comments at 5.
---------------------------------------------------------------------------

    246. ICNU states that the Commission should make clear that 
utilities and Regional Entities, not end-use customers should be 
required to perform the studies to determine if a facility of an end-
use customer should be included or excluded. Alameda suggests that the 
Commission set forth a future date for review of the definition seeking 
both an effectiveness report from NERC as well as industry comment.
    247. IUU and Barrick believe that NERC's explanation that an 
exception may be obtained by showing that the element is ``not 
necessary'' for reliable operation of the interconnected transmission 
system is too ambiguous and does not give adequate information as to 
what may or may not be eligible for an exception. They believe guidance 
is necessary as to the types of evidence that should be presented in an 
exception request and the criteria to which the evidence will be 
subjected.
    248. Redding states that the exception process provides that 
entities are not required to use the exception process to affirmatively 
demonstrate they fall within the general local distribution carve-out 
in the core definition or meet one of the exclusions. Redding notes 
that new section 509 of the Rules of Procedure states that application 
of the entire definition will determine what facilities qualify as bulk 
electric system components. Therefore, Redding argues that section 509 
confirms that no exception request is necessary if the facility fits 
within either the local distribution carve-out language of the core 
definition, or the explicitly identified exclusions. Furthermore, 
Redding argues that this is confirmed by NERC's statement that the 
definition expressly excludes both ``facilities used in the local 
distribution of electric energy,'' and radial systems as described in 
Exclusion E1 of the definition. Redding believes this statement 
recognizes that facilities that are excluded from the definition at the 
outset--through either the core definition or the specific exclusions--
need not submit any requests through the exemption process confirming 
that exclusion.
    249. Holland is concerned that the exception process is too 
narrowly focused on excluding facilities that are not necessary for the 
reliable operation of the interconnected transmission network. Holland 
does not believe that exceptions should be limited to a demonstration 
that the facilities lack a material impact to the bulk electric system. 
Holland supports the exception process for this purpose; however, the 
lack of materiality demonstration is independent of the question of 
whether

[[Page 838]]

the facilities should be excluded on the grounds that they are used in 
local distribution. Holland believes the Commission should clarify 
that, for exceptions seeking exclusion based upon a claim of being 
local distribution, NERC must evaluate additional information 
submitted, and not merely rely on the criteria in Exclusions E1 through 
E4.
    250. Steel Manufacturers Association is concerned that because the 
Rules of Procedure provide that only a Regional Entity may submit an 
exception request for the inclusion in the bulk electric system of an 
element owned by an owner that is not a registered entity, they do not 
contemplate that the owner will be notified that its facilities are 
being considered for inclusion in the bulk electric system.
Commission Determination
    251. Pursuant to FPA section 215(f), we approve the NOPR proposal 
and find that the exception process is just, reasonable, not unduly 
discriminatory or preferential, and in the public interest. Further, we 
find that the proposal satisfies the statement in Order No. 743 that 
NERC establish an exception process for excluding facilities that are 
not necessary for the reliable operation of the interconnected 
transmission network from the definition of the bulk electric 
system.\188\ The exception process balances the need for effective and 
efficient administration with due process and clarity of expectations 
and promotes consistency in determinations and eliminates regional 
discretion by having all decisions on exception requests made at NERC. 
The exception process also provides for involvement of persons with 
applicable technical expertise in making decisions on exception 
requests and allows for an entity to appeal a final NERC decision to 
the Commission.
---------------------------------------------------------------------------

    \188\ See Order No. 743, 133 FERC ] 61,150 at P 16.
---------------------------------------------------------------------------

    252. The exception process provides a reasonable mechanism for the 
ERO to determine whether a facility or element should be added to, or 
removed from, the bulk electric system on a case-by-case basis. 
However, for the reasons explained above in our discussion in section 
II.C regarding local distribution, the case-by-case determination of 
whether an element or facility is used in local distribution will be 
decided by the Commission.
    253. We also find that NERC's explanation, that it was not feasible 
to develop a single set of technical criteria that would be applicable 
to all exception requests so it developed the Detailed Information Form 
(discussed in detail below) to ensure that a consistent baseline of 
technical information is provided for NERC to make a decision on all 
exception requests, is reasonable. We find that this information, 
coupled with the proposed exception process, allows NERC to provide 
consistent determinations on exception requests submitted from 
different regions involving the same or similar facts and 
circumstances, and allows NERC to take into account the aggregate 
impact on the bulk electric system of approving or denying all the 
exception requests. Thus, we find that NERC's proposal is clear, 
transparent, and uniformly applicable and is as equally efficient and 
effective as the Order No. 743 directive to establish an exception 
process for excluding facilities that are not necessary for the 
reliable operation of the interconnected transmission network.
    254. We are not persuaded by Barrick's and IUU's comments that more 
guidance is necessary. Order No. 743 tasked NERC with developing a 
revised definition and exemption process. NERC noted that it was not 
feasible to develop a single set of criteria. The Commission believes 
that applying the 100 kV threshold in the definition, the inclusions 
and exclusions and the information required in the Detailed Information 
Form will be a sufficient starting point to enable the ERO to make 
determinations as to whether an element is necessary for reliable 
operation of the interconnected transmission network. The body of 
exception decisions that NERC promulgates will further assist entities 
in presenting the relevant facts and circumstances when seeking an 
exception.
    255. In response to MISO's request, we note that RTOs and ISOs, in 
their capacity as planning authorities, reliability coordinators, 
transmission operators, transmission planners, or balancing 
authorities, have the ability to file an exception request.\189\ We are 
not persuaded that fewer requirements should apply to exception 
requests submitted by RTOs and ISOs, and we agree with NERC, MISO 
Transmission Owners and AMP that the exception process needs to be 
applied consistently and that the required information should be the 
same regardless of the identity of the submitter.
---------------------------------------------------------------------------

    \189\ See NERC ROP Petition, Attachment 1, Proposed Appendix 5C, 
Section 4.1.
---------------------------------------------------------------------------

    256. NYISO comments that the exception process should provide 
interested parties--particularly ISOs and RTOs--notice and an 
opportunity to be heard. As we note above, the exception process 
affords ISOs and RTOs, in their capacity as planning authorities, 
reliability coordinators, transmission operators, transmission 
planners, or balancing authorities, notice and opportunity to comment 
on elements within their scope of responsibility.
    257. Similarly, with regard to NYPSC's and NESCOE's comments on the 
role of state commissions in the exception process, we believe that 
NERC's proposal is reasonable and provides an adequate opportunity for 
state regulator participation. Specifically, NERC explains in its ROP 
petition that, in developing the proposed Rules, state regulators and 
others raised concerns about their ability to participate in the 
exception process. NERC responded that ``the exception process should 
be one based on the technical reliability issues of the specific case 
presented.* * * [A] procedure that encouraged or even invited multi-
party filings would unduly complicate the process without any 
concomitant benefit in reliability.'' \190\ However, to provide 
transparency and some opportunity for participation, the proposed 
exception process provides that ``(1) detailed notice of any request 
would be provided to every Registered Entity with reliability oversight 
obligation for the Element subject to the Request and (2) general 
information about the request will be publicly posted,'' thereby 
allowing third parties including state regulators ``adequate 
opportunity to provide comments regarding the request without formally 
participating in the process.'' \191\ We agree that NERC's proposal 
strikes an appropriate balance between efficient processing of highly 
technical decisions and the opportunity for states and other entities 
to comment in the exception process. Nonetheless, as discussed above, 
requests for exclusion from the bulk electric system on local 
distribution grounds will be determined by the Commission on a case-by-
case basis. In such proceedings, state regulatory authorities will have 
an opportunity to intervene and provide comments.
---------------------------------------------------------------------------

    \190\ NERC ROP Petition, Att. 9 (``The Development Process and 
Basis for the ROP Team's Recommended Provisions--How Stakeholder 
Comments were Considered and Addressed'') at 7.
    \191\ Id.
---------------------------------------------------------------------------

    258. We disagree with Redding's characterization of how the 
exception process is not necessary for determining whether an element 
is used for local distribution. Redding's characterization

[[Page 839]]

of the exception process leaves the determination of whether an element 
is used for local distribution in the hands of registered entities or 
NERC. However, as we explain in the local distribution discussion 
above, in circumstances where there is a factual question as to whether 
facilities not otherwise excluded from the bulk electric system by the 
core definition and four exclusions should nonetheless be excluded 
because they are used in local distribution, a determination should be 
made by this Commission. In addition, in our discussion in section II.C 
above regarding local distribution, we provide direction with respect 
to how an entity may seek a determination of whether an element is used 
in local distribution.
    259. Regarding Steel Manufacturers Association's concern that the 
Rules of Procedure do not contemplate that an owner of an element that 
is not a registered entity will be notified by a Regional Entity that 
its facilities are being considered for inclusion in the bulk electric 
system, we note that section 4.1 of Appendix 5C the Rules of Procedure 
states that when a Regional Entity requests an exception, the Regional 
Entity ``shall prepare and submit copies of its exception request (or 
portions thereof) to all applicable entities* * *.'' \192\ Further, 
section 4.4 of Appendix 5C provides that, if the submitting entity is 
not the owner (i.e., is a Regional Entity, planning authority, 
balancing authority, etc) it must provide a copy of the exception 
request to the owner. Therefore, if a Regional Entity submits an 
exception request for an element owned by a non-registered entity, the 
owner is notified.
---------------------------------------------------------------------------

    \192\ NERC Rules of Procedure, Appendix 5C, section 4.1.
---------------------------------------------------------------------------

    260. With respect to Holland's request for clarification for what 
must be submitted for a claim of being local distribution, we believe 
that our discussion above regarding how local distribution elements 
will be determined addresses Holland's concerns.
    261. In response to ICNU's comments, the Commission notes that NERC 
has identified the entities that are responsible for providing the 
information necessary for an exception request. Section 3.2 of the 
exception process states that ``the burden to provide a sufficient 
basis for approval of an exception request in accordance with the 
provisions of the exception procedure is on the submitting entity.'' 
Additionally, in section 4.1 of the exception process, NERC lists the 
eligible submitting entities as the owner of an element, or a Regional 
Entity, planning authority, reliability coordinator, transmission 
operator, transmission planner, or balancing authority that has (or 
will have upon inclusion in the bulk electric system) the elements 
covered by an exception request within its scope of responsibility.
    262. Southern Companies state that the Commission should allow time 
for NERC, Regional Entities and industry to implement the definition 
and exception process and determine at a later date whether it is 
sufficiently capturing the appropriate facilities. Similarly, Alameda 
suggests that the Commission set forth a future date for review of the 
definition seeking both an effectiveness report from NERC as well as 
industry comment. First, as discussed below, the Commission is granting 
NERC's request for a 24 month implementation plan. The Commission 
believes that this is sufficient to implement the definition and 
exception process. In addition, the Commission declines to set a future 
date to determine effectiveness of the definition and the exception 
process.
1. How Entities Will Review and Seek Inclusion of Necessary Elements
NOPR Proposal
    263. In Order Nos. 743 and 743-A, the Commission indicated that our 
goal is that the definition of bulk electric system should include all 
facilities necessary for the operation of the interconnected 
transmission network, except for local distribution. Further, while the 
Commission explained that one way to meet the goal was to establish a 
100 kV ``bright line'' threshold, the Commission also made clear that 
the ``bright line'' threshold would be a ``first step or proxy'' in 
determining what facilities should be included in the bulk electric 
system.\193\ The NOPR reiterated that, in Order Nos. 743 and 743-A, the 
Commission held that NERC should not necessarily stop at 100 kV and 
should, through the development of the exception process, ensure that 
``critical facilities operated at less than 100 kV, and that the 
Regional Entities determine [which facilities] are necessary for 
operating the transmission network.'' \194\ The Commission clarified 
that the inclusion of sub-100 kV facilities should be done in an 
``appropriate and consistent'' manner.\195\ Finally, in the NOPR, the 
Commission noted that the September 2011 Blackout Report reinforced 
statements in Order Nos. 743 and 743-A with respect to ensuring that 
sub-100 kV facilities, as appropriate, are included in the bulk 
electric system.\196\ The Commission further noted that the NERC 
proposals at issue in this rulemaking take steps to address the 
treatment of sub-100 kV facilities, as well as other facilities, 
necessary for the operation of the interconnected transmission network, 
through the exception process. However, in light of the September 2011 
Blackout Report, the Commission requested comment on how the relevant 
entities who control and run facilities on the interconnected 
transmission network will seek inclusion of sub-100 kV facilities, as 
well as other facilities, to ensure that all facilities that are 
necessary for the operation of the bulk power system are designated as 
bulk electric system elements.\197\
---------------------------------------------------------------------------

    \193\ Order No. 743-A, 134 FERC ] 61,210 at P 40; see also NOPR, 
139 FERC ] 61,247 at P 106.
    \194\ Order No. 743, 133 FERC ] 61,150 at P 121.
    \195\ Order No. 743-A, 134 FERC ] 61,210 at P 103.
    \196\ NOPR, 139 FERC ] 61,247 at P 107.
    \197\ NOPR, 139 FERC ] 61,247 at PP 109-10.
---------------------------------------------------------------------------

Comments
    264. NERC proposes that entities can identify sub-100 kV facilities 
for inclusion in a variety of ways: In the course of performing 
planning assessments, from day-to-day operating experience, or 
assessment of system events that indicate facilities not identified by 
application of the definition are necessary for reliable operation of 
the interconnected transmission network. NERC further states that an 
entity that requests the inclusion or exclusion of a facility must 
provide certain technical and engineering support for its request. NERC 
also points out that the exception process provides for the appeal of a 
decision to NERC as to whether a facility is part of the bulk electric 
system. NERC believes this process adequately addresses the issue of 
whether certain sub-100 kV facilities are included in the bulk electric 
system.
    265. ELCON states that the NOPR's suggestion that the entities 
would not take cognizance of Commission or NERC findings related to any 
sub-100 kV elements that have a material impact on system reliability 
would call into question the efficacy of the entire construct 
established by the Commission to address reliability issues.
    266. APPA believes that it will be excessively burdensome to 
industry and small entities if they have to conduct a study of all 
their sub-100 kV elements. APPA asserts that it would require small 
registered entities to hire consultants to perform studies to assess 
the impact of large numbers of non-bulk electric system facilities.

[[Page 840]]

    267. Idaho Power believes that entities could periodically (e.g. 
every five years) review the impact of sub-100 kV facilities and verify 
if any of the inclusions would require them to be included and explain 
why certain sub-100 kV facilities are excluded.
    268. ISO New England and National Grid believe that, during the 
conduct of transmission planning system assessments, performed in 
accordance with requirements of the NERC Transmission Planning 
Reliability Standards, facilities required for inclusion in the bulk 
electric system may be identified.
Commission Determination
    269. As we held in Order Nos. 743 and 743-A, the goal of revising 
the definition of bulk electric system is to ensure that all necessary 
facilities are included in the bulk electric system. As we noted in 
Order No. 743, applying the definition of bulk electric system should 
be a ``first step or proxy'' in determining which facilities should be 
included in the bulk electric system.\198\ The Commission stated that 
NERC should not end the inquiry at 100 kV and should, through the 
development of the exception process, ensure that ``critical'' 
facilities operated at less than 100 kV, and that the Regional Entities 
determine are necessary for operating the interconnection network are 
included.\199\ We continue to expect entities to identify and include 
sub-100 kV facilities, as well as other facilities, necessary for the 
operation of the interconnected transmission network. In the NOPR we 
asked how the entities responsible for including elements in the bulk 
electric system will assure that the all facilities, including sub-100 
kV elements, that are necessary for operating the interconnected 
transmission network will be included in the bulk electric system. We 
find NERC's response to that question reasonable: That Regional 
Entities, planning authorities, reliability coordinators, transmission 
operators, transmission planners, balancing authorities, and owners of 
system elements will include, through the exception process, facilities 
identified in the course of performing planning assessments, from day-
to-day operating experience, or assessment of system events that are 
not included by application of the definition but are necessary for 
reliable operation of the interconnected transmission network. We 
believe that entities, having knowledge of their systems and the 
concomitant planning assessments and system impact studies, will 
identify an element that is necessary for reliable operation of the 
integrated transmission network while conducting their day-to-day 
operations and planning and performing studies. If the element does not 
fall within the definition, we expect that the entity will submit the 
element for inclusion through the exception process. Use of this 
process should ensure that the all sub-100 kV elements, as well as 
other facilities, necessary for the operation of the interconnected 
transmission network are included in an ``appropriate and consistent'' 
manner. By identifying and seeking inclusion of sub-100 kV facilities, 
and other facilities, in the bulk electric system through performance 
of these routine functions, such as those identified by ISO New England 
and National Grid, we do not expect that entities will have to perform 
studies indiscriminately to make such determinations. Indeed, comments 
indicate that the determination of which elements, including sub 100 kV 
elements, should be included in the bulk electric system is a natural 
part of an entities' process for assuring the reliable operation of the 
grid.\200\ Thus, the Commission believes that, if a study is needed 
outside the ordinary course of operations, it would be infrequent. By 
adopting this approach, we believe that APPA's concerns about 
burdensome tasks are alleviated.
---------------------------------------------------------------------------

    \198\ NOPR, 139 FERC ] 61,247 at P 106 (citing Order No. 743-A, 
134 FERC ] 61,210 at P 40).
    \199\ Order No. 743, 133 FERC ] 61,150 at P 121.
    \200\ E.g., ELCON Comments at 8.
---------------------------------------------------------------------------

2. NERC Role in Identifying Necessary Elements
    270. In the NOPR, the Commission observed that, despite NERC's 
statutory functions to develop and enforce Reliability Standards, its 
continent-wide perspective, and technical understanding that can 
provide valuable assistance in the identification of bulk electric 
system facilities, the exception process does not provide that NERC may 
initiate an exception request. Accordingly, the Commission requested 
comments on the role NERC should have in initiating the designation of 
or directing others to initiate the designation of sub-100 kV 
facilities, or any other facilities, necessary for the operation of the 
interconnected transmission network for inclusion in the bulk electric 
system.\201\ The Commission also requested comment on the role NERC 
should have in designating sub-100 kV facilities, and other facilities, 
for inclusion in the bulk electric system, directing Regional Entities 
or others to conduct such reviews, or itself nominating an element to 
be included in the bulk electric system.
---------------------------------------------------------------------------

    \201\ NOPR, 139 FERC ] 61,247 at P 111.
---------------------------------------------------------------------------

Comments
    271. NERC states that inherent in its oversight of the Regional 
Entities is the ability to request a Regional Entity or others to 
propose inclusion of sub-100 kV facilities, and other facilities in the 
bulk electric system. NERC further states that the Rules of Procedure 
do not limit its ability to perform this function and such action is 
fully consistent with NERC's obligations and authority as the ERO.
    272. Dominion believes that if NERC wants to nominate a sub-100 kV 
facility, it could do so through the broad powers assigned to NERC 
through its Rules of Procedure and/or regional delegation agreements. 
TAPS maintains that if, through its investigations, risk assessments, 
or analysis of events, NERC identifies facilities that should be 
included in (or excluded from) the bulk electric system, it would be 
appropriate for NERC to have the authority to make such a proposal 
through the exception process, provided that it implements due process 
safeguards such as the designation of decisional and non-decisional 
staff.
    273. Several commenters state that NERC should have the ability to 
nominate a facility for inclusion. SmartSenseCom believes NERC should 
have authority to initiate an exception request because, even with a 
bright line standard, there remains the possibility of inconsistent 
interpretation and application of the definition. ISO-NE states that 
NERC should have the ability to nominate a facility for inclusion, but 
the Regional Entities along with planning authorities, reliability 
coordinators, transmission operators, transmission planners and 
balancing authorities should be provided an opportunity to review and 
comment on this nomination.
    274. AEP believes that RTOs or Regional Entities ``are equipped to 
facilitate the efforts to be effective with the exception process.'' 
\202\ AEP also suggests that NERC and the Commission could assign 
review of sub-100 kV facilities to the RTOs. AEP states that the RTO 
processes could be modified to address the exceptions. AEP defers to 
the judgment of the Commission and NERC in regions where there are 
currently no functioning RTOs.
---------------------------------------------------------------------------

    \202\ AEP Comments at page 11.
---------------------------------------------------------------------------

    275. Other commenters do not support a NERC role as contemplated in 
the NOPR. SoCal Edison believes that

[[Page 841]]

NERC should not initiate exception requests to include facilities 
within the bulk electric system. Rather, SoCal Edison posits that 
NERC's role is to communicate to the Regional Entities their obligation 
to review systems in their area that operate in parallel with the bulk 
electric system and to include such systems in the bulk electric 
system. APPA supports consideration of a NERC role in Phase 2 of the 
project to identify specific reliability gaps but objects to NERC being 
able to step into the shoes of the Regional Entity.
Commission Determination
    276. NERC states that, as the ERO, and in its oversight of the 
Regional Entities, it has the ability to request a Regional Entity or 
others to propose inclusion of sub-100 kV facilities, and other 
facilities, in the bulk electric system. NERC believes that nothing in 
the proposed Rules of Procedure limits its oversight obligations and 
authority as the ERO. The Commission finds NERC's approach to be 
reasonable. Section 215(e)(4)(C) of the FPA authorizes the Commission 
to issue regulations authorizing the ERO to enter into an agreement to 
delegate authority to Regional Entities if the agreement promotes 
effective and efficient administration of Bulk-Power System 
reliability.\203\ Subsequently, the Commission approved delegation 
agreements between NERC and the eight Regional Entities.\204\ Pursuant 
to the delegation agreements, NERC may issue guidance or directions as 
to the manner in which a Regional Entity performs delegated functions 
and related activities.\205\ Thus, the Commission agrees with NERC 
that, as the ERO, NERC has the authority to request a Regional Entity 
or other eligible submitting entity to propose inclusion of sub-100 kV 
facilities, or other facilities, in the bulk electric system.
---------------------------------------------------------------------------

    \203\ 16 U.S.C. 824o (2006).
    \204\ North American Electric Reliability Corp., 119 FERC ] 
61,060, order on reh'g, 120 FERC ] 61,260 (2007).
    \205\ See, e.g., section 8(d) of the Amended and Restated 
Delegation Agreement between NERC and Midwest Reliability 
Organization (* * * the NERC Board (or a Board committee to which 
the Board has delegated authority) may issue guidance or directions 
as to the manner in which Midwest Reliability Organization and, if 
applicable, other Regional Entities, shall perform delegated 
functions and related activities.'').
---------------------------------------------------------------------------

    277. TAPS supports NERC having the ability to initiate the 
designation of facilities or elements as part of the bulk electric 
system, provided that NERC implements due process safeguards such as 
the designation of appropriate decisional and non-decisional staff. We 
agree that, to avoid actual or appearance of impropriety, NERC must 
develop appropriate safeguards.
    278. In response to AEP, the Commission will not direct 
modifications to provide RTOs and ISOs the authority to address 
exception requests. RTOs and ISOs can submit exception requests in 
their capacity as planning authorities, reliability coordinators, 
transmission operators, transmission planners, and/or balancing 
authorities.
3. Commission Role in Identifying Necessary Elements
NOPR Proposal
    279. In the NOPR, the Commission requested comment on the role the 
Commission should have with respect to the designation of sub-100 kV 
facilities, or other facilities, necessary for the operation of the 
interconnected transmission network for inclusion in the bulk electric 
system. The Commission observed that ``there may be circumstances (like 
the September 2011 Blackout Report) where the Commission, through the 
performance of its statutory functions, may conclude that certain sub-
100 kV facilities not already included in the bulk electric system are 
necessary for the operation of the interconnected transmission network 
and thus should be included in the bulk electric system.'' \206\ The 
Commission stated that it expected that Regional Entities and others 
``will take affirmative steps to review and include sub-100 kV elements 
and facilities, and other facilities, necessary for the operation of 
the interconnected transmission system in the bulk electric system,'' 
and requested comment as to how the Commission could ensure that such 
facilities are considered for inclusion in the bulk electric 
system.\207\ The Commission also requested comment on instances when 
the Commission itself should designate or direct others to designate 
sub-100 kV facilities, or other facilities, necessary for the operation 
of the interconnected transmission grid for inclusion in the bulk 
electric system.
---------------------------------------------------------------------------

    \206\ NOPR, 139 FERC ] 61,247 at P 112.
    \207\ NOPR, 139 FERC ] 61,247 at P 112.
---------------------------------------------------------------------------

Comments
    280. NERC notes that the Commission has authority pursuant to FPA 
section 215(d)(5) to initiate a Reliability Standards development 
process that ``addresses a specific matter.'' According to NERC, for 
the Commission to play a more active role in the designation of such 
facilities would be inconsistent with its role as the adjudicator of 
disputes.
    281. Some commenters assert that the Commission has the authority 
to designate a facility as part of the bulk electric system.\208\ 
SmartSenseCom states that, if the Commission is concerned that a 
facility is necessary for the operation of the interconnected 
transmission system, it possesses authority to order NERC or a Regional 
Entity to address that matter. Specifically, SmartSenseCom points to 
section 215(b) and section 215(d)(5) where the Commission has plenary 
authority over the ERO and ``all users, owners, and operators of the 
bulk-power system'' for the purposes of approving reliability standards 
and enforcing compliance with those standards.\209\ SmartSenseCom 
states that, pursuant to the statutory authority, the Commission could, 
on its own motion, ``order [NERC] to submit * * * a modification to a 
reliability standard that addresses a specific matter if the Commission 
considers such * * * modified reliability standard appropriate to carry 
out this section.'' \210\
---------------------------------------------------------------------------

    \208\ E.g., Dominion and SmartSenseCom.
    \209\ SmartSenseCom Comments at 14, quoting 16 U.S.C. 824o(b).
    \210\ Id. at 14, quoting 16 U.S.C. 824o(d)(5).
---------------------------------------------------------------------------

    282. Furthermore, SmartSenseCom states that the Commission should 
be able to review NERC exceptions decisions. SmartSenseCom asserts that 
NERC decisions should be subject to the discretionary review of the 
Commission and the Commission should retain the ability to remand or 
reject an exception determination, pursuant to the Commission's FPA 
section 215 statutory authority to approve, disapprove, or remand NERC-
proposed Reliability Standards. While the Commission should give NERC's 
exception decision ``due weight'' as required by section 215, 
SmartSenseCom asserts that the availability of review would ensure 
reliable operation of existing and future Bulk-Power System facilities. 
SmartSenseCom also suggests that Commission review of exception 
decisions would provide industry stakeholders with valuable precedent 
and clarity on the treatment of certain facilities.
    283. Other commenters claim that the Commission does not possess 
the authority to designate elements as part of the bulk electric 
system. ISO New England contends that the Commission, as the ultimate 
decision making authority, should not have a role in nominating 
facilities for inclusion in the bulk electric system. APPA does not 
believe that the FPA gives the Commission authority to designate 
specific elements for inclusion in the

[[Page 842]]

bulk electric system. Rather, according to APPA, the Commission's role 
is to review NERC decisions. APPA states that policy considerations and 
Congressional intent also ``militate against direct [Commission] 
identification of specific facilities or classes of facilities to be 
included in the [bulk electric system] definition.'' \211\ APPA asserts 
that, during the course of a Part 1b investigation or other inquiry, 
the Commission may identify facts that indicate that a registered 
entity has not properly applied the definition. APPA points to FPA 
section 215(e)(3) which provides that, after notice and opportunity for 
hearing, the Commission may enforce compliance by a particular user, 
owner or operator of the Bulk-Power System with a Reliability Standard, 
which could include application of the definition within the context of 
a specific reliability standard. APPA argues, that section 215 
contemplates a standard development and enforcement framework in which 
rules of general applicability, i.e., Reliability Standards, are 
developed by the ERO on a continent-wide, and are subject to Commission 
approval prior to the enforcement of such Reliability Standards. In 
contrast, APPA argues that section 215 contemplates the delegation of 
enforcement authority by the ERO to Regional Entities that are 
organized to accomplish this specific purpose. APPA concludes that the 
Commission, like NERC, should focus its resources on ensuring that 
Regional Entities enforce compliance with the definition and the Rules 
of Procedure.
---------------------------------------------------------------------------

    \211\ APPA Comments at 20.
---------------------------------------------------------------------------

    284. SoCal Edison does not support active Commission involvement in 
designating facilities for inclusion in the bulk electric system. 
According to SoCal Edison, because the Commission has the authority to 
review NERC's decisions in the exceptions procedure, the Commission's 
role should be limited to providing to NERC information that the 
Commission develops on facility categories that should potentially be 
included in the bulk electric system. Further, SoCal Edison states that 
NERC should be responsible for communicating that information to 
Regional Entities for further action and ensuring that those Regional 
Entities take the appropriate action with respect to such information, 
and the Commission should ensure that NERC and the regional authorities 
act upon the information provided by the Commission with respect to 
such facilities.
Commission Determination
    285. For the reasons discussed below, we conclude that the 
Commission has the authority to designate an element as part of the 
bulk electric system pursuant to our authority set forth in sections 
215(a)(1) and (b)(1) of the FPA. We are cognizant of the concerns 
stated by SoCal Edison and other commenters regarding the appellate 
role of the Commission, and the desire to allow registered entities and 
Regional Entities to take the lead in identifying sub-100 kV elements, 
and other elements, that should be included in the bulk electric 
system. As explained above, we expect entities to identify and include 
sub-100 kV elements, and other elements, that are necessary for 
operating the interconnected transmission network in the bulk electric 
system. Nonetheless, we believe that in appropriate circumstances, for 
example, where an event analysis of a system disturbance indicates the 
operational importance of sub-100 kV elements, and other elements, to 
bulk electric system reliability, the Commission may find it necessary 
for the reliable operation of the interconnected transmission network 
to designate facilities to be included in the bulk electric system. We 
anticipate that such circumstances will be rare. Consistent with the 
approach discussed in the NOPR, the Commission would provide public 
notice and opportunity for public comment before designating facilities 
as part of the bulk electric system.\212\
---------------------------------------------------------------------------

    \212\ NOPR, 139 FERC ] 61,247 at P 112, n.127.
---------------------------------------------------------------------------

    286. Commenters are mistaken in characterizing the Commission's 
designation of facilities as bulk electric system as a modification to 
the bulk electric system definition or other Reliability Standard. 
Rather, our authority to designate facilities is based on the statutory 
definition of Bulk-Power System and the jurisdictional authority vested 
in the Commission pursuant to section 215 of the FPA. Specifically, 
section 215(b)(1) of the FPA provides that ``the Commission shall have 
jurisdiction, within the United States, over * * * all users, owners 
and operators of the bulk-power system * * * for purposes of approving 
Reliability Standards established under this section and enforcing 
compliance with this section.'' \213\ Section 215(a)(1) of the FPA, in 
turn, defines ``Bulk-Power System'' to mean ``facilities and control 
systems necessary for operating an interconnected electric energy 
transmission network (or any portion thereof); and electric energy from 
generation facilities needed to maintain transmission system 
reliability.'' \214\ If an entity owns or operates sub-100 kV elements, 
or other elements, ``necessary for operating an interconnected electric 
energy transmission network,'' the Commission has jurisdiction pursuant 
to FPA section 215(b)(1) to ``enforc[e] compliance with this section,'' 
and to ensure that the approved definition is being implemented 
properly.
---------------------------------------------------------------------------

    \213\ 16 U.S.C. 824o(b)(1).
    \214\ 16 U.S.C. 824o(a)(1).
---------------------------------------------------------------------------

    287. For example, an entity may operate sub-100 kV elements, or 
other elements, that are, pursuant to the modified definition approved 
in this Final Rule, not treated as part of the bulk electric system. 
However, an event analysis may reveal that such facilities are 
``necessary for operating an interconnected electric energy 
transmission network.'' As an appropriate prospective remedy, pursuant 
to the FPA section 215(b)(1) authority to ``enforc[e] compliance with 
this section,'' the Commission could designate the facilities as part 
of the bulk electric system. This approach is consistent with 
Commission precedent regarding unregistered entities whose facilities 
are involved in a violation of Reliability Standards. The Commission 
determined that, in such situations, the appropriate remedy is to 
register the entity so that, prospectively, the entity must comply with 
the relevant Reliability Standards based on the functions performed by 
that entity.\215\
---------------------------------------------------------------------------

    \215\ See Reliability Standard Compliance and Enforcement in 
Regions with Regional Transmission Organizations or Independent 
System Operators, 122 FERC ] 61,247, at P 19 (2008).
---------------------------------------------------------------------------

    288. The Commission would not modify the language of the definition 
of bulk electric system or the specific inclusions and exclusions. 
Rather, the Commission would initiate the designation of elements to 
ensure that the definition is properly applied. To be clear, when, for 
example, a system disturbance or other event demonstrates the necessity 
of sub-100 kV elements, or other elements, for reliable operations, we 
expect in the normal course that registered entities, Regional Entities 
and NERC will proactively identify and include sub-100 kV elements, or 
other elements, in the bulk electric system. The Commission's strong 
preference is that registered entities review their facilities to 
determine which are needed for operating the interconnected 
transmission network and include them in the bulk electric system. 
However, when it is recognized that an element is necessary for the 
operation of the interconnected transmission network and no other 
entity steps forward to

[[Page 843]]

designate the element as included in the bulk electric system for 
purposes of section 215, the Commission has the authority to do so. We 
anticipate that such instances will be rare. Should the Commission find 
it necessary and appropriate to exercise this authority, we anticipate 
that the Commission would, for example, issue either a notice or order 
proposing to designate a specific element or elements as part of the 
bulk electric system, and explain the rationale for the proposal. The 
Commission would make a final determination after providing notice and 
opportunity for comment by interested parties.
4. Technical Review Panel
NOPR Proposal
    289. NERC's exception process provides that the Regional Entity 
shall not recommend disapproval of the exception request without review 
by a technical review panel. The Regional Entity is not bound by the 
opinion of the panel, but the panel's evaluation becomes part of the 
record associated with the exception request and provided to NERC. In 
the NOPR, the Commission stated that it saw value in the Regional 
Entity receiving the opinion of a qualified technical review panel. The 
Commission observed that NERC did not explain why the proposed 
exception process only requires a technical review panel to provide an 
opinion where the Regional Entity recommends disapproval of an 
exception request. Accordingly, the Commission requested comment from 
NERC explaining why the review is only required when a Regional Entity 
disapproves a request and whether NERC should modify the exception 
process to require Regional Entities to submit all proposed 
determinations to a technical review panel regardless of the 
recommendation and receive the panel's opinion on each request.
Comments
    290. NERC stated that it considered obtaining the opinion of a 
technical panel for all Regional Entity recommendations; however, NERC 
concluded that a review should only be required when a Regional Entity 
disapproves a request due to concerns regarding administrative 
efficiency. NERC determined that negative technical reviews would be 
sufficient to promote consistency and that the additional costs and 
work of a review of all proposed determinations would outweigh the 
benefits. NERC further states the record of every request is reviewed 
by a panel of experts at the NERC level as part of the decision making 
process.
    291. Several entities support NERC's explanation.\216\ ELCON 
believes NERC's approach will avoid the burden, inefficiency and delay 
inherent in unnecessary referrals to a technical review panel. ELCON 
notes that the exception process already calls for submission of in-
depth technical information through the Detailed Information Form, 
initial review by the Regional Entity, and subsequent review and final 
decision by NERC. ELCON believes that considerable technical expertise 
will, therefore, be available to both the Regional Entity and to NERC 
as they assess exception requests.
---------------------------------------------------------------------------

    \216\ E.g., Idaho Power, ELCON, and G&T Cooperatives.
---------------------------------------------------------------------------

    292. In contrast, some entities believe that a technical panel be 
convened for either approval or denial of all exceptions.\217\ They 
believe that using a panel for all requests will ensure that the 
requests receive adequate consideration and vetting before a final 
decision is rendered. WPPC requests that the Commission obtain 
additional information from NERC with respect to why the Technical 
Review Panels are not required to review all exception requests that 
are rejected on procedural grounds.
---------------------------------------------------------------------------

    \217\ E.g., ISO New England and BPA.
---------------------------------------------------------------------------

Commission Determination
    293. The Commission accepts NERC's explanation that requiring a 
technical panel review of all Regional Entity recommendations will 
likely cause an additional administrative burden on Regional Entities, 
delaying final recommendations to NERC. While the Commission sees 
benefits in utilizing a technical review panel for all requests, we are 
not persuaded that these benefits will outweigh the costs associated 
with the increased administrative burden likely to be imposed. 
Additionally, if the Technical Review Panel does not provide an opinion 
on all exception requests, the exception process is not without other 
levels of technical review. On the contrary, the exceptions process 
provides multiple levels of technical review before a final 
determination is made by NERC, including a substantive review by the 
Regional Entity and a subsequent review by a panel of technical experts 
at the NERC level. For these reasons, the Commission approves the 
Technical Review Panel as proposed by NERC.
    294. In response to WPPC's request, the Commission declines to seek 
further information from NERC with respect to why the Technical Review 
Panels are not required to review all exception requests that are 
rejected on procedural grounds. Section 5.1.5(a) of Appendix 5C to the 
Rules of Procedure requires a Regional Entity to reject an exception 
request if it is not from an eligible submitting entity and/or it does 
not contain all the required information specified in section 4.0. The 
Commission does not believe a Technical Review Panel needs to determine 
if an exception request was properly submitted by an eligible entity 
and/or contains all the required information. Additionally, as WPPC 
states in its comments, submitting entities may appeal Regional Entity 
rejections of exception requests to NERC through the procedure provided 
in section 7.0 of the exception process. Requiring Technical Review 
Panel review of all rejections of exception requests, as well as all 
recommendations of disapprovals, would unnecessarily impose 
administrative burdens as if the Technical Review Panel was required to 
review all exception request recommendations. For these reasons, the 
Commission declines WPPC's request to obtain further information from 
NERC on this matter.
5. Use of Industry Subject Matter Experts
NOPR Proposal
    295. Section 8 of the proposed exception process sets forth the 
procedures for NERC's review of a Regional Entity's recommendation. The 
NERC President will appoint a team of at least three persons with the 
relevant technical background to evaluate an exception request. NERC 
contemplated that its review teams would be drawn from NERC staff 
resources, supplemented by contractors as necessary, but situations may 
arise in which NERC may need to call on industry subject matter experts 
to participate as members of review teams. In the NOPR the Commission 
supported NERC's proposal to use staff resources, supplemented by 
contractors as necessary, to make up the exception request review 
teams. We stated that consistent appointment of the same NERC staff and 
contractor resources, based on subject matter expertise, will promote a 
more uniform and consistent review of the Regional Entities' exception 
request recommendations.
Comments
    296. No comments were received on this issue.

[[Page 844]]

Commission Determination
    297. The Commission agrees with NERC's proposal to use staff 
resources, supplemented by contractors as necessary, and potentially 
industry subject matter experts to make up the exception request review 
teams. The Commission believes that ensuring that members of the NERC 
review teams have the required technical background necessary to 
evaluate exception requests, review supporting technical documents, and 
assess technical recommendations, is essential to providing consistent 
technically sound determinations on exception requests. The Commission 
believes that consistent appointment of the same NERC staff, contractor 
resources and industry subject matter experts, based on subject matter 
expertise, will promote a more uniform and consistent review of the 
Regional Entities' exception request recommendations.
6. NERC's Detailed Information Form
NOPR Proposal
    298. NERC developed the Detailed Information Form that the Regional 
Entity and NERC can use in evaluating whether or not the elements that 
are the subject of an exception request are necessary for operating the 
interconnected transmission network. In the NOPR, the Commission stated 
that this information will provide consistency with respect to the 
technical information provided with all exception requests and is an 
equally efficient and effective approach to developing a substantive 
set of technical criteria for granting and rejecting exception requests 
and proposed to approve the Detailed Information Form.
Comments
    299. ELCON supports the Detailed Information Form and agrees that 
it is ``more feasible to develop a common set of data and information 
that could be used by the Regional Entities and NERC to evaluate 
exception requests'' than to develop the detailed criteria and that the 
information specified in the form is relevant and appropriate for 
exception requests.
    300. Holland and Alameda state that there should be some basic 
guidelines to evaluate an exception request. Alameda states that having 
no technical criteria provides entities with no guidance considering a 
request for exception. Alameda submits that parties should have a 
reasonable basis for determining the outcome of a potential exception 
request in advance of taking the time and effort to make the request. 
Alameda suggests that the Commission direct NERC to develop appropriate 
technical exception criteria, recognizing that each criterion may not 
apply to all requests and that the criterion may even change over time 
as specific requests are evaluated in detail. Alameda also seeks 
clarification that parties may seek exceptions for proposed facilities, 
and not just for existing facilities as allowing exceptions to be 
requested for proposed facilities would provide an opportunity for 
entities to make reasoned decisions about planned system improvements.
Commission Determination
    301. We approve the Detailed Information Form and find that it will 
provide consistency with respect to the technical information provided 
with all exception requests and is an equally efficient and effective 
approach to developing a substantive set of technical criteria for 
granting and rejecting exception requests. We decline to adopt 
Alameda's suggestion that the Commission direct NERC to develop 
appropriate technical exception criteria. We accept NERC's conclusion 
that it was more feasible to develop a common set of data and 
information that could be used by the Regional Entities and NERC to 
evaluate exception requests than to develop the detailed criteria. 
NERC's proposal provides the needed flexibility to allow Regional 
Entities to make a recommendation of whether or not an element is 
necessary for the reliable operation of the interconnected transmission 
network. Thus, the detailed criteria that NERC requires, plus other 
information that an entity is free to include in its submission will 
provide applicants a reasonable basis for determining whether an 
element is necessary for the reliable operation of the interconnected 
transmission network. We also decline to direct NERC to determine how 
to treat exceptions for proposed facilities.
7. NERC's Implementation Plan
NOPR Proposal
    302. NERC requests that the effective date for revised definition 
should be the first day of the second calendar quarter after receiving 
applicable regulatory approval, or, in those jurisdictions where no 
regulatory approval is required, the revised bulk electric system 
definition should go into effect on the first day of the second 
calendar quarter after its adoption by the NERC Board. NERC also 
requested that compliance obligations for all newly-identified elements 
to be included in the bulk electric system based on the revised 
definition should begin twenty-four months after the applicable 
effective date of the revised definition. NERC stated that sufficient 
time is needed to implement transition plans, for exceptions to be 
filed and processed, for owners of newly-included elements to train 
their personnel on compliance with the Reliability Standards. In the 
NOPR, the Commission supported NERC's justification for its 
implementation and proposed to approve NERC's implementation plan.
Comments
    303. A number of commenters support the NOPR proposal.\218\ ELCON 
states that the twenty-four month time period gives sufficient time to 
accommodate planning for and changes resulting from the new definition, 
including any exception requests and compliance obligations, without 
causing undue delay. Consumers believes the twenty-four month period 
should be sufficient in most cases but believes that the Commission 
should make specific provision for longer periods to be allowed on a 
case-by-case basis under special circumstances. Barrick and IUU also 
support the implementation plan but believe further clarification is 
necessary with respect to an entity's status during the exception 
process.
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    \218\ E.g., Consumers Energy, ELCON, and NYISO.
---------------------------------------------------------------------------

Commission Determination
    304. We agree with commenters that the twenty-four month time 
period gives sufficient time to accommodate planning for and changes 
resulting from the new definition, including any exception requests and 
compliance obligations. Therefore, we approve NERC's proposal to 
implement a twenty-four month implementation plan. In response to 
Consumers' comment regarding the need for additional time for special 
circumstances, an entity or NERC may petition for an extension of time. 
In response to the comments raised by Barrick and IUU, we clarify that 
the status of an element remains unchanged during the exception 
process.
8. NERC List of Facilities Granted Exceptions
NOPR Proposal
    305. In the NOPR, the Commission noted that the proposed exception 
process does not include provisions for NERC to maintain a list of 
facilities that have received exceptions, as requested in Order No. 
743. In its petition, NERC indicated that this is an internal 
administrative matter for NERC to implement that does not need to be 
embedded in the Rules of Procedure. NERC stated it will develop a 
specific

[[Page 845]]

internal plan and procedures for maintaining a list of facilities for 
which exceptions have been granted and notes that Regional Entities 
will maintain lists of elements within their regions for which 
exceptions have been granted, in order to monitor compliance with the 
requirement to submit periodic certifications.
    306. In the NOPR, the Commission proposed that NERC make an 
informational filing within 90 days of the effective date of a final 
rule, detailing its plans to maintain a list and how it will make this 
information available to the Commission, Regional Entities, and 
potentially to other interested persons.\219\ The Commission also 
requested comment on whether NERC's proposal should be modified to 
include an obligation for the registered entity to inform NERC or the 
Regional Entity of the entity's self-determination through application 
of the definition and specific exclusions E1 through E4 that an element 
is no longer part of the bulk electric system.
---------------------------------------------------------------------------

    \219\ NOPR, 139 FERC ] 61,247 at P 123.
---------------------------------------------------------------------------

Comments
    307. NERC confirms that it is continuing to develop details 
regarding how the list of facilities that have received exceptions will 
be maintained. According to NERC, a 90-day window of time in which to 
submit an informational filing is reasonable.
    308. Other entities support NERC's plan.\220\ AEP cautions that the 
process of submitting a filing must not overstep the confidentiality 
provisions of Critical Energy Infrastructure Information as part of the 
gathering and dissemination of list(s).
---------------------------------------------------------------------------

    \220\ ELCON and NRECA.
---------------------------------------------------------------------------

    309. The Massachusetts DPU supports NERC's keeping a list of 
exceptions and requests that the Commission requires that state 
regulatory authorities have appropriate access to the list. ISO New 
England proposes that NERC submit a compliance filing detailing its 
internal process for tracking exception requests. ISO New England also 
believes that NERC and/or the Regional Entities should be required to 
maintain a database that lists the bulk electric system elements within 
their respective footprints and should make this data available for 
affected entities.
Commission Determination
    310. We adopt the NOPR proposal and direct NERC to make an 
informational filing within 90 days of the effective date of this Final 
Rule detailing its plans to maintain a list and how it will make this 
information available to the Commission, Regional Entities, and 
potentially to other interested persons. We find that the suggestions 
of the Massachusetts DPU and ISO New England are premature as these 
comments are more appropriate for consideration after NERC makes its 
compliance filing.
9. Declassification of Facilities
NOPR Proposal
    311. In the NOPR, the Commission observed that, while NERC will 
maintain a list of facilities that have received an exception pursuant 
to the case-specific exception process, NERC does indicate whether it 
will track an entity's ``declassification'' of current bulk electric 
system facilities based on the entity's self-application of the bulk 
electric system definition.\221\ The Commission expressed concern 
particularly when an entity self-determines that an element is no 
longer part of the bulk electric system but the entity is large enough 
to otherwise remain on the NERC Compliance Registry. Accordingly, the 
Commission requested comment on whether NERC's proposal should be 
modified to include an obligation for the registered entity to inform 
NERC or the Regional Entity of the entity's self-determination through 
application of the definition and specific exclusions E1 through E4 
that an element is no longer part of the bulk electric system.
---------------------------------------------------------------------------

    \221\ NOPR, 139 FERC ] 61,247 at P 123.
---------------------------------------------------------------------------

Comments
    312. NERC asserts that registered entities are obligated to inform 
the Regional Entity of any self-determination that an element is no 
longer part of the bulk electric system. NERC points to section 501 of 
the currently-effective Rules of Procedure, which provides that each 
registered entity must notify its Regional Entity of any matters that 
affect the registered entities' responsibilities with respect to 
Reliability Standards. NERC contends that a determination that an 
element is no longer part of the bulk electric system would necessarily 
affect an entity's responsibilities with respect to the Reliability 
Standards. Further, NERC states that an entity's failure to notify 
would not relieve it of any obligations it may have associated with 
such failure.
    313. Idaho Power and National Grid support that registered entities 
should inform NERC or the Regional Entity of elements that have been 
declassified. National Grid supports an obligation for each registered 
entity to inform the respective reliability coordinators and Regional 
Entity of the entity's self-determination through application of the 
definition and specific exclusions that an element is no longer part of 
the bulk electric system.
    314. PSEG Companies do not support requiring self reporting. PSEG 
Companies point out that when the NERC Functional Model was first put 
in place, registered entities made determinations of which facilities 
should be included and excluded from the bulk electric system without 
any reporting requirements for those decisions. PSEG Companies assert 
that a registered entity should only be contacting its Regional Entity 
regarding status changes if those changes impact the registered 
entity's registration (e.g., if a registered Transmission Owner 
disposes of all its 100 kV or higher assets or a generation owner 
acquires its first BES generator). According to PSEG Companies, 
facility changes that impact a facility's bulk electric system status 
do not presently require reporting. The proposed reporting self-
determined exclusions could lead to extensive facility-by-facility 
tracking and reporting of all status changes which would be overly 
burdensome to Registered Entities.
    315. AEP believes that it is imperative to keep the process simple 
in the beginning, and thus advocates that no specific information 
submission requirements be implemented at this time. If NERC or the 
Regional Entities determine this approach is problematic in the future, 
AEP states that any issues can be addressed through a change in the 
NERC Rules of Procedure.
    316. ICNU states that if NERC requires an end-use retail customer 
to provide notice of declassification, such notice should not involve 
extensive or burdensome reporting requirements because, as noted above, 
end-use customers do not have the required resources or expertise. On 
the other hand, ICNU believes that non-registered end-use retail 
customers who, based on the new BES definition, determine that they 
remain excluded from the BES should not be listed or required to report 
such determination to NERC or the appropriate Regional Entity.
Commission Determination
    317. We agree with NERC that registered entities are obligated to 
inform the Regional Entity of any self-determination that an element is 
no longer part of the bulk electric system. PSEG Companies claim that 
there is currently no requirement to report the change in status of 
facilities. NERC, however, cites section 501 of the currently-effective 
Rules of Procedure,

[[Page 846]]

which provides that each registered entity must notify its Regional 
Entity of any matters that affect the registered entities' 
responsibilities with respect to Reliability Standards. Section 501 
also requires entities to inform the Regional Entity of any self-
determination that an element is no longer part of the bulk electric 
system. Section 501, Part 1.3.5 provides:

    Each Registered Entity identified on the NCR shall notify its 
corresponding Regional Entity(s) of any corrections, revisions, 
deletions, changes in ownership, corporate structure, or similar 
matters that affect the Registered Entity's responsibilities with 
respect to the Reliability Standards. Failure to notify will not 
relieve the Registered Entity from any responsibility to comply with 
the Reliability Standards or shield it from any Penalties or 
sanctions associated with failing to comply with the Reliability 
Standards applicable to its associated Registration.

Thus, a registered entity that concludes that an element is no longer 
part of the bulk electric system must notify the Regional Entity of 
such change. Further, we disagree with PSEG Companies that such 
notification is unnecessary. PSEG Companies point out that NERC did not 
require such notification when the Functional Model was first put into 
place. Regardless of past practice, we find that such notification is a 
necessary feature of the changes being implemented by NERC. As 
explained in the NOPR:

    A large utility with hundreds or thousands of transmission lines 
may initially determine that a configuration on its system does not 
qualify for the exclusion E3 local network exclusion, but 
subsequently determines that the configuration can be excluded. 
NERC's petition does not indicate whether an entity in such 
circumstance is obligated to inform NERC or the appropriate Regional 
Entity of that self-determination. It appears that NERC and the 
Regional Entities would need this information for their compliance 
programs, for audit purposes, and to understand the contours of the 
bulk electric system within a particular region.

Further, the revised definition allows entities the discretion to 
``declassify'' certain facilities as part of the bulk electric system, 
and NERC, Regional Entities and the Commission need notification of 
such instances to assure that the entities are appropriately 
implementing the revised definition.
    318. We affirm ICNU's assertion that this task does not involve 
new, extensive or burdensome reporting requirements. We view this as an 
identification and notification task so that a Regional Entity and NERC 
will know what elements are or not part of the bulk electric system. 
This will provide the entities tasked with overseeing the reliable 
operation of the interconnected transmission network with having an 
adequate level of information and transparency to fulfill those 
obligations. We disagree with PSEG Companies that this is an overly 
burdensome requirement. First, such information sharing is already 
contemplated by the Rules of Procedure. Second, as noted above, we do 
not view this requirement as one that involves anything more than 
notification. It does not require a justification of why the element is 
being excluded.

III. Information Collection Statement

    319. The Office of Management and Budget (OMB) requires that OMB 
approve certain information collection and data retention requirements 
imposed by agency rules.\222\ Upon approval of a collection(s) of 
information, OMB will assign an OMB control number and an expiration 
date. Respondents subject to the filing requirements of a rule will not 
be penalized for failing to respond to these collections of information 
unless the collections of information display a valid OMB control 
number.
---------------------------------------------------------------------------

    \222\ 5 CFR 1320.11 (2011).
---------------------------------------------------------------------------

Public Reporting Burden and Information Collection Costs

    320. In the NOPR, the Commission solicited comment on the need for 
collecting the information that is required to be prepared, maintained 
and/or submitted pursuant to this Final Rule, whether the information 
will have practical utility, the accuracy of the burden estimates, ways 
to enhance the quality, utility, and clarity of the information to be 
collected or retained, and any suggested methods for minimizing 
respondents' burden, including the use of automated information 
techniques. The NOPR also included a chart that identified the 
estimated public reporting burdens for the proposed reporting 
requirements, as well as a projection of the costs of compliance for 
the reporting requirements. The Commission asked that any revised 
burden estimates submitted by commenters be supported by sufficient 
detail to understand how the estimates are generated. The Commission 
based its burden estimate on the revised definition of bulk electric 
system developed by NERC.
    321. In the NOPR, the Commission stated that the proposal would 
result in entities reviewing systems and creating qualified asset 
lists, submitting exception requests where appropriate, and certain 
responsible entities having to comply with requirements to collect and 
maintain information in mandatory Reliability Standards with respect to 
certain facilities for the first time. The Commission requested comment 
on the estimated number of entities that will have an increased 
reporting burden associated with the identification of new bulk 
electric system elements as a result of the modified definition. In 
developing an estimate of the reporting burden associated with the 
inclusion of additional elements, like NERC, the Commission assumed 
that entities in the NPCC Region will be most affected, with a lesser 
affect in other regions.

Comments

    322. NRECA and APPA do not take a position on the estimates but 
observe that modifications to the proposed definition or directives to 
NERC may result in substantial changes to the burden estimates and the 
assessment of whether the which would require the Commission to re-
assess its burden and small business impact determinations. Similarly, 
APPA and WPPC believe that any changes to the proposed definition in 
the Final Rule that would include additional facilities would cause a 
significant increase in the reporting burden on the industry. APPA 
believes that if the Commission were to direct NERC to make revisions 
to the specific inclusions or exclusions without technical 
justification, the exception process would quickly become overloaded, 
with burdens on those seeking exceptions and those ruling on them.
    323. A number of commenters state that the NOPR underestimated the 
burden of the rulemaking in terms of hours required to comply. APPA 
believes that the Commission underestimates the information collection 
costs and the costs of compliance for small utilities. For example, the 
Commission's assumption that utility staff would be used to conduct an 
analysis is not merited in the case of many small entities. APPA states 
that many of its smaller members do not have the in-house employees and 
resources to conduct such reliability analyses and would have to rely 
on outside consultants and legal firms. Therefore, APPA estimates that 
the fees small utilities would pay for each of the services, based on 
information and belief, as follows: Consulting Engineer, $225/hour; 
Record Keeping, $75/hour; and Legal, $500/hour.
    324. Idaho Power contemplates five local network exclusions which 
contain sixty 100 kV and above lines, and its estimates for the time 
involved to document these exceptions leads it to believe the 
Commission is underestimating the number of engineer

[[Page 847]]

hours per entity's responses. According to Idaho Power, based on an 
initial review of potential exceptions, Idaho Power may seek 
approximately 9-12 exceptions. Idaho Power agrees with the estimate 
that transmission owners, generator owners, and distribution providers 
will experience more significant reporting burdens than other 
categories of registered entities.
    325. ISO New England believes that there could be a significant 
burden on planning coordinators and transmission planners which is not 
addressed in the table shown in the NOPR. ISO New England states that, 
while it has not performed a similar analysis, it appears that the 
``Year 1'' estimates in the table in the NOPR are significantly 
understated in view of the resources that it believes will be necessary 
to establish the initial list. According to ISO New England, the 
estimate of approximately $13 million expended over the entire system 
seems overly optimistic. BPA anticipates, based on customer feedback, 
that the BPA footprint alone will experience several hundred exception 
requests in the first two years. BPA estimates the additional workload 
from evaluating the exception requests will be approximately five to 
six full time equivalents which includes one full time coordinator, a 
customer service engineer for system verification, a planner to run 
studies, an operations engineer, and dispatch personnel for real-time 
system impacts. NYPSC and the Massachusetts DPU contend that the costs 
of compliance with the definition will be excessive. NYPSC cites to a 
2009 report from NERC and NPCC, that the compliance costs would exceed 
$280 million.

Commission Determination

    326. Commenters raise concerns that modifications to the proposed 
definition or directives to NERC may result in substantial changes to 
the burden estimates. While the Commission is requiring one 
modification to the language in the NERC proposal, the Commission finds 
that it does not need to reassess the burden estimates because the 
change is intended to simply make more explicit what NERC and other 
commenters indicate is the expected application of the proposed 
definition to a low-voltage, looped system as depicted in figures 3 and 
5 above. Therefore, we do not anticipate the one modification to result 
in a significant change to what elements are considered part of the 
bulk electric system or applications for case-by-case exceptions. The 
burden estimates in this Final Rule represent the incremental burden 
changes related only to increased reporting burden associated with the 
identification of new bulk electric system elements as a result of the 
modified definition. Furthermore, we acknowledge that NPCC may be 
subject to additional reporting requirements, however, the burden 
estimates are averages for all of the filers. Idaho Power's observation 
that the Commission is underestimating the number of engineering hours 
is not supported by analysis. Similarly, we are not persuaded by ISO 
New England's position that there may be a significant burden on 
planning coordinators and transmission planners associated with 
proposed definition because it does not offer any analysis to support 
this assertion. The Commission expects any burden for planning 
coordinators and transmission planners to be de minimis or incorporated 
under their existing responsibilities. In any event, Idaho Power and 
ISO New England did not provide any estimates of the number of hours 
that it would take to determine exceptions, nor suggest alternative 
estimates. In response to APPA's hourly estimates that are higher than 
the estimates in the NOPR the Commission notes that its hourly rate 
estimates for the burden estimates are averages for all of the filers 
and are based on national wage data for utilities obtained from the 
Bureau of Labor Statistics (for engineers and legal) and NPCC's 
assessment of Bulk Electric System Definition (for completing 
implementation plans and compliance), and Commission staff outreach 
(recordkeeping). Thus, the Commission adopts the burden estimates that 
it set forth in the NOPR.
    327. The Commission disagrees with BPA that there may be a large 
number of exception requests generated from entities within its 
footprint that may have to be processed and the significant addition of 
FTEs. First, BPA has not provided any analysis or evidence to support 
its claim. Nevertheless, the Commission's expectation, like NERC's, is 
that application of the definition with its inclusions and exclusions 
should not materially change what is considered part of the bulk 
electric system today. Thus, the number of exception requests should 
not be excessive.
    328. Some comments address the potential impact the requirements 
would have on small entities but did not provide specific estimates on 
this impact. Because these comments are also the subject of the 
analysis performed under the Regulatory Flexibility Act, the Commission 
has provided a response under that section of this rulemaking.
    329. We are not persuaded by NYPSC and Massachusetts DPU that the 
costs for compliance will be $280 million. First, NYPSC nor 
Massachusetts do not dispute or address the specific information 
collection cost estimates in the NOPR. In addition, the vast majority 
(approximately $234 million) of the costs included in the report to 
which the commenters cite appear to be capital costs which are not 
applicable to an information collection estimate. Further, the report 
does not account for the revised language in the definition of bulk 
electric system and the specific inclusions and exclusions that we are 
approving in this Final Rule.
    330. After consideration of comments, the Commission adopts the 
NOPR proposal for the Public Reporting Burden and the information 
collection costs as follows.

[[Page 848]]



----------------------------------------------------------------------------------------------------------------
                                                           Number of       Average number of
           Requirement            Number and type of    responses  per    hours per response  Total burden hours
                                    entity \223\ (1)      entity (2)              (3)             (1)*(2)*(3)
----------------------------------------------------------------------------------------------------------------
System Review and List Creation   333 Transmission    1 response........  80 (engineer        26,640 Yr 1.
 \224\.                            Owners.                                 hours).
                                  843 Generator                           16 (engineer        13,488 Yr 1.
                                   Owners.                                 hours).
                                  554 Distribution                        24 (engineer        13,296 Yr 1.
                                   Providers.                              hours).
Exception Requests \225\........  1,730 total         .260 responses      94 (60 engineer     24,393 hrs in Yrs
                                   Transmission        each in Yrs 1 and   hrs, 32             1 and 2.
                                   Owners, Generator   2.                  recordkeeping      1,880 hrs in Yr 3
                                   Owners and         20 responses in Yr   hrs, 2 legal hrs).  and ongoing.
                                   Distribution        3 and ongoing.
                                   Providers.
Regional and ERO Handling of      NERC and 8          1 response........  1,386.67 hrs......  12,480 hrs in Yrs
 Exception Requests \226\.         Regional Entities.                                          1 and 2.
Implementation Plans and          111 NPCC Region     1 response........  700 hrs in Yrs 1    77,700 hrs in Yrs
 Compliance \227\.                 Registered                              and 2.              1 and 2.
                                   Entities \228\.                        350 hrs in Yr 3     38,850 hrs in Yr 3
                                                                           and ongoing.        and ongoing.
                                  75 Registered       1 response........  700 hrs in Yrs 1    52,500 hrs in Yrs
                                   Entities from 7                         and 2.              1 and 2.
                                   other Regions.                         350 hrs in Yr 3     26,250 hrs in Yr 3
                                                                           and ongoing.        and ongoing.
                                                                                             -------------------
    Totals......................  ..................  ..................  ..................  220,497 hrs in Yr
                                                                                               1.
                                                                                              167,073 hrs in Yr
                                                                                               2.
                                                                                              66,980 hrs in Yr 3
                                                                                               and ongoing.
----------------------------------------------------------------------------------------------------------------

Costs to Comply

     Year 1: $13,641,200.
     Year 2: $10,435,760.
---------------------------------------------------------------------------

    \223\ The ``entities'' listed in this table are describing a 
role a company is registered for in the NERC registry. For example, 
a single company may be registered as a transmission owner and 
generator owner. The total number of companies applicable to this 
rule is 1,522, based on the NERC registry. The total number of 
estimated roles is 1,730.
    \224\ This requirement corresponds to Step 1 of NERC's proposed 
transition plan, which requires each U.S. asset owner to apply the 
revised bulk electric system definition to all elements to determine 
if those elements are included in the bulk electric system pursuant 
to the revised definition. See NERC BES Petition at 38.
    \225\ We recognize that not all 1,730 transmission owners, 
generator owners, and distribution providers will submit an 
exception request. Rather, from the total 1,730 entities, we 
estimate an average of 260 requests per year in the first two years, 
based on a low to high range of 87 to 433 requests per year. 
Therefore, the estimated total number of hours per year for years 1 
and 2, using an average of 260 requests per year, is 24,393 hours. 
We estimate 20 requests per year in year 3 and ongoing.
---------------------------------------------------------------------------

     Year 3 and ongoing: $4,343,520.

For the first two burden categories above, the loaded (salary plus 
benefits) costs are: $60/hour for an engineer; $27/hour for 
recordkeeping; and $106/hour for legal. The breakdown of cost by item 
and year follows:
---------------------------------------------------------------------------

    \226\ Based on the assumption of two full-time equivalent 
employees added to NERC staff and 0.5 full-time equivalent employees 
added to each region's staff, each full-time equivalent at $120,000/
year (salary + benefits).
    \227\ The Commission does not expect a significant number of 
registered entities outside of the NPCC region to identify new 
elements under the revised bulk electric system definition. NERC 
also states that the other Regional Entities do not expect an 
extensive amount of newly-included facilities. See NERC BES Petition 
at 38. ``Compliance'' refers to entities with new elements under the 
new bulk electric system definition required to comply with the data 
collection and retention requirements in certain Reliability 
Standards that they did not previously have to comply with.
    \228\ The estimated range of affected NPCC Region Registered 
Entities is from 66 to 155 entities.
---------------------------------------------------------------------------

     System Review and List Creation (year 1 only): (26,640 hrs 
+ 13,488 hrs + 13,296 hrs) =53,424 hrs * 60/hr = $3,205,440.
     Exception Requests (years 1 and 2): (sum of hourly expense 
per request * number of exception requests) = ((60 hrs * $60/hr) + (32 
hrs * $27/hr) + (2hrs * $106/hr)) * 260 requests) = $1,215,760.
     Exception Requests (year 3): (sum of hourly expense per 
request * number of exception requests) = ((60 hrs * $60/hr) + (32 hrs 
* $27/hr) + (2 hrs * $106/hr)) * 20 requests) = $93,520.
     Regional and ERO handling of Exception Requests: Between 
NERC and Regional Entities we estimate 6 full time equivalent (FTE) 
engineers will be added at an annual cost of $120,000/FTE ($120,000/FTE 
* 6 FTE = $720,000). This cost is only expected in years 1 and 2.
     Implementation Plans and Compliance \229\ (years 1 and 2): 
(hourly expense per entity * hours per response * sum of NPCC and non-
NPCC entities) = ($64/hour * 700 hours per response * 186 responses) = 
$8,332,800.
---------------------------------------------------------------------------

    \229\ The cost and hourly burden calculations for this category 
are based on a past assessment (NPCC Assessment of Bulk Electric 
System Definition, September 14, 2009.). In that assessment NPCC 
indicated $8.9 million annually for operations, maintenance and 
additional costs. We estimated that roughly half of that cost 
actually relates to information collection burden. Using the 
resulting figure, we used a composite wage and benefit figure of 
$64/hour to estimate the hourly burden figures presented in the 
burden table.
---------------------------------------------------------------------------

     Implementation Plans and Compliance (year 3 and beyond): 
We estimate the ongoing cost for year 3 and beyond, at 50% of the year 
1 and 2 costs, to be $4,166,400.
    Title: FERC-725-J ``Definition of the Bulk Electric System''.\230\
---------------------------------------------------------------------------

    \230\ All of the information collection requirements for years 
1-3 in the proposed rule are being accounted for under the new 
collection FERC-725J.
---------------------------------------------------------------------------

    Action: Proposed Collection of Information.
    OMB Control No: 1902-0259.
    Respondents: Business or other for profit, and not for profit 
institutions.
    Frequency of Responses: On Occasion.
    Necessity of the Information: The revision to NERC's definition of 
the term bulk electric system implements the Congressional mandate of 
the Energy Policy Act of 2005 to develop mandatory and enforceable 
Reliability Standards to better ensure the reliability of the nation's 
Bulk-Power System. Specifically, the revised definition ensures that 
certain facilities needed for the operation of the nation's bulk 
electric system are subject to mandatory and enforceable Reliability 
Standards.
    Internal review: The Commission has reviewed the proposed 
definition and made a determination that its action is necessary to 
implement section 215 of the FPA. The Commission has assured itself, by 
means of its internal review, that there is specific, objective support 
for the burden estimate associated with the information requirements.
    331. Interested persons may obtain information on the reporting 
requirements by contacting the Federal Energy Regulatory Commission, 
Office

[[Page 849]]

of the Executive Director, 888 First Street NE., Washington, DC 20426 
[Attention: Ellen Brown, email: DataClearance@ferc.gov, phone: (202) 
502-8663, fax: (202) 273-0873].
    332. For submitting comments concerning the collection of 
information and the associated burden estimate, please send your 
comments to the Office of Management and Budget, Office of Information 
and Regulatory Affairs, Washington, DC 20503 [Attention: Desk Officer 
for the Federal Energy Regulatory Commission, phone: (202) 395-4718, 
fax: (202) 395-7285]. For security reasons, comments to OMB should be 
submitted by email to: oira_submission@omb.eop.gov. Comments submitted 
to OMB should include Docket Number RM12-6 and OMB Control Number 1902-
0259.

IV. Regulatory Flexibility Act Analysis

    333. The Regulatory Flexibility Act of 1980 (RFA) \231\ generally 
requires a description and analysis of Proposed Rules that will have a 
significant economic impact on a substantial number of small entities. 
The RFA mandates consideration of regulatory alternatives that 
accomplish the stated objectives of a proposed rule and that minimize 
any significant economic impact on a substantial number of small 
entities. The Small Business Administration's (SBA) Office of Size 
Standards develops the numerical definition of a small business.\232\ 
The SBA has established a size standard for electric utilities, stating 
that a firm is small if, including its affiliates, it is primarily 
engaged in the transmission, generation and/or distribution of electric 
energy for sale and its total electric output for the preceding twelve 
months did not exceed four million megawatt hours.\233\
---------------------------------------------------------------------------

    \231\ 5 U.S.C. 601-612 (2006).
    \232\ 13 CFR 121.101.
    \233\ 13 CFR 121.201, Sector 22, Utilities & n.1.
---------------------------------------------------------------------------

NOPR Proposal

    334. In the NOPR, the Commission estimated that approximately 418 
of the 1,730 registered transmission owners, generator owners and 
distribution service providers may fall within the definition of small 
entities. Further, the Commission estimated that of the 418 small 
entities affected there are 50 within the NPCC region that would have 
to comply with the rulemaking. The Commission contemplated that the 
rulemaking would affect more small entities in the NPCC Region than 
those outside NPCC because there are more elements in the NPCC region 
that would be added to the bulk electric system based on the new 
definition than elsewhere. The Commission estimated the first year 
affect on small entities within the NPCC region to be $39,414.\234\ 
This figure is based on information collection costs plus additional 
costs for compliance.\235\ The Commission estimated the average annual 
affect per small entity outside of NPCC will be less than for the 
entities within NPCC. In the NOPR, the Commission stated that it did 
not consider this to be a significant economic impact for either class 
of entities because it should not represent a significant percentage of 
the operating budget.
---------------------------------------------------------------------------

    \234\ For companies registered as more than one entity in the 
NERC compliance registry this figure will increase accordingly. That 
is, if a company is registered as a transmission owner and generator 
owner then the cost burden would be $78,828 ($39,414 * 2 = $78,828).
    \235\ We use fifty percent of the first year ``number of hours 
per response'' figure in the information collection statement for 
calculation under the assumption that smaller entities do not have 
complicated systems or will not have as many new elements on average 
as larger entities do.
---------------------------------------------------------------------------

Comments

    335. APPA asserts that the Commission underestimates the costs of 
compliance for small utilities. According to APPA, the Commission's 
assumption that utility staff would conduct an analysis is not merited 
in the case of many small entities. APPA states that many of its 
smaller members do not have the in-house employees and resources to 
conduct such reliability analyses and would have to rely on outside 
consultants and legal firms. Therefore, APPA estimates that the fees 
small utilities would pay for each of the services as follows, based on 
information and belief: Consulting Engineer, $225/hour; Record Keeping, 
$75/hour; and Legal, $500/hour. According to APPA, these increased 
dollar estimates alone substantially increase the burden estimates on 
smaller utilities to comply with the Commission's proposals. WPPC 
believes that the cost to satisfy transmission owner/transmission 
operator certification alone would be $80,000. WPPC points to one small 
municipally-owned utility paid $40,000 for third party expertise and 
review of the utility's required compliance. WPPC adds that the 
municipality had two staff members spend a week reviewing a modifying 
city policies to ensure compliance with reliability standards. WPPC 
points out that these costs only represent the initial subject matter 
review and do not include subsequent implementation, training or 
material purchase costs. WPPC also states that small entities have to 
divert employees from other tasks to compliance tasks which represents 
a significant burden on staffing.
    336. ISO New England does not believe that the NOPR cost estimate 
captures the cost of physical upgrades that might be necessary on the 
system. The cost estimates do not reflect the true financial burden 
that might be borne by these smaller entities.
    337. BPA is concerned that the Commission is underestimating the 
costs and resources associated with reliability compliance. BPA 
disagrees with the Commission's estimated annual costs of $39,414 for 
entities that are required to newly comply with Reliability Standards 
as a result of adopting the definition. BPA believes that the 
Commission's figure vastly underestimates the actual effort and costs 
associated with compliance. In BPA's experience with its customers, the 
smallest customer impact is equivalent to at least one FTE, and larger 
customers have indicated they have an even higher burden. BPA asserts 
that the Commission's estimates also overlook indirect compliance costs 
and their impact on small and large entities alike. BPA disagrees with 
the Commission's conclusion that the compliance burden is not ``a 
significant economic impact * * * because it should not represent a 
significant percentage of the operating budget.'' It is BPA's 
experience that implementing a fully functioning compliance program 
requires committed personnel, budget, and resources, which is never 
insignificant.

Commission Determination

    338. The Commission disagrees with commenters that challenge the 
Commission's conclusion that the rule will not have a significant 
economic impact on a substantial number of small entities. We are not 
persuaded by APPA, BPA and ISO New England's assertions regarding how 
the Commission's analysis is erroneous or in what ways the Final Rule 
will have a significant economic impact on a substantial number of 
small entities. As the Commission stated in its NOPR, most transmission 
owners, transmission operators and transmission service providers do 
not fall within the definition of small entities. In addition, the 
requirement to comply with the definition of bulk electric system is 
not new. The reason for revising the definition of bulk electric system 
is to comply with the Commission's directives and address the technical 
and policy concerns expressed in Order Nos. 743 and 743-A, which NERC

[[Page 850]]

accomplished by eliminating the explicit basis of authority for 
Regional Entity discretion in the current definition, and establishing 
specific threshold criteria rather than general guidelines of 
facilities operated or connected at or above 100 kV. Thus, while the 
Commission recognizes that some small entities within the NPCC 
territory may have an increased burden due to multiple registration 
classifications or increased compliance with the Reliability Standards 
due to the elimination of the regional discretion, the average annual 
affect per small entity outside of NPCC will be less than for the 
entities within NPCC and should not materially change. The Commission 
also does not consider this to be a significant economic impact for 
either class of entities because our estimated costs for complying with 
the revised definition should not represent a significant percentage of 
the operating budget. Further, while NYPSC and Massachusetts DPU assert 
that the costs for compliance will be $280 million they make no 
specific reference to the cost for small businesses and, as noted 
above, their estimate does not account for the revised language in the 
definition of bulk electric system and the specific inclusions and 
exclusions that we are approving in this Final Rule. Accordingly, the 
Commission certifies that this Final Rule will not have a significant 
economic impact on a substantial number of small entities.

V. Environmental Analysis

    339. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\236\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. The actions in this rule fall within the categorical 
exclusion in the Commission's regulations for rules that are 
clarifying, corrective or procedural, for information gathering, 
analysis, and dissemination.\237\ Accordingly, neither an environmental 
impact statement nor environmental assessment is required.
---------------------------------------------------------------------------

    \236\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. 
Regulations Preambles 1986-1990 ] 30,783 (1987).
    \237\ 18 CFR 380.4(a)(5).
---------------------------------------------------------------------------

VI. Document Availability

    340. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5:00 
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC 
20426.
    341. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    342. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or email at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
public.referencerom@ferc.gov.

VII. Effective Date and Congressional Notification

    343. These regulations are effective March 5, 2013. The Commission 
has determined, with the concurrence of the Administrator of the Office 
of Information and Regulatory Affairs of OMB, that this rule is not a 
``major rule as defined in section 351 of the Small Business Regulatory 
Enforcement Fairness Act of 1996.

    By the Commission. Commissioner Clark is not participating.

Nathaniel J. Davis, Sr.,
Deputy Secretary.

    Note: Appendix A will not be published in the Code of Federal 
Regulations.

Appendix A--List of Commenters

American Electric Power Service Corporation (AEP)
American Municipal Power, Inc. (AMP)
American Public Power Association (APPA)
American Wind Energy Association (AWEA)
Arizona Public Service Company (Arizona Public Service)
Barrick Goldstrike Mines Inc. (Barrick)
Associated Electric Cooperative, Inc., Basin Electric Power 
Cooperative, Tri-State Generation and Transmission Association, Inc. 
(the G&T Cooperatives)
Bonneville Power Administration (BPA)
City of Alameda, California (Alameda)
City of Anaheim, California (Anaheim)
City of Redding, California (Redding)
City of Riverside, California (Riverside)
Cogeneration Association of California and the Energy Producers and 
Users Coalition
Consumers Energy Company (Consumers)
Dominion Resources Services, Inc. (Dominion)
Dow Chemical Company (Dow)
Duke Energy Corporation (Duke Energy)
Edison Electric Institute (EEI)
Electricity Consumers Resource Council (ELCON)
Exelon Corporation (Exelon)
Florida Reliability Coordinating Council, Midwest Reliability 
Organization, Northeast Power Coordinating Council, Inc., 
ReliabilityFirst Corporation, Southwest Power Pool Regional Entity, 
SERC Reliability Corporation, Texas Reliability Entity, Inc., 
Western Electricity Coordinating Council (the Regional Entities)
City of Holland, Michigan Board of Public Works (Holland)
Hydro One Networks Inc. and the Independent Electricity System 
Operator (Hydro One)
Hydro Quebec Transenergie (Hydro Quebec)
Idaho Power Company (Idaho Power)
Imperial Irrigation District (IID)
Industrial Customers of Northwest Utilities (ICNU)
Industrial Users of Utah (IUU)
International Transmission Company d/b/a ITC Transmission, Michigan 
Electric Transmission Company, LLC, ITC Midwest LLC and ITC Great 
Plains LLC (ITC)
ISO New England Inc. (ISO New England)
Kansas City Power & Light Company and KCP&L Greater Missouri (KCP&L)
Large Public Power Council (LPPC)
Massachusetts Department of Public Utilities (Massachusetts DPU)
Midwest Independent Transmission System Operator, Inc. (MISO)
MISO Transmission Owners
National Association of Regulatory Utility Commissioners (NARUC)
National Grid USA (National Grid)
National Rural Electric Cooperative Association (NRECA)
Nevada Power Company and Sierra Pacific Power Company (NV Energy)
New England States Committee on Electricity (NESCOE)
New York Independent System Operator, Inc. (NYISO)
New York State Public Service Commission (NYPSC)
North American Electric Reliability Corporation (NERC)
North Carolina Eastern Municipal Power Agency (``NCEMPA'') and North 
Carolina Municipal Power Agency Number 1 (``NCMPA1'') (together 
``Power Agencies'')
Oglethorpe Power Corporation, Georgia Transmission Corporation and 
Georgia System Operations Corporation
Old Dominion Electric Cooperative (ODEC)
Occidental Energy Ventures Corp
Pennsylvania Public Utility Commission
Pepco Holdings, Inc., Potomac Electric Power Company, Delmarva Power 
& Light Company, Atlantic City Electric Company (PHI Companies)
Portland General Electric Company (Portland)
Public Service Electric and Gas Company, PSEG Power LLC, and PSEG 
Energy Resources & Trade LLC (PSEG Companies)
SmartSenseCom, Inc. (SmartSenseCom)
Snohomish County PUD No. 1 (Snohomish)
Southern California Edison Company (SoCal Edison)

[[Page 851]]

Southern Company Services, Inc. (Southern Companies)
Springfield Utility Board (Springfield)
Steel Manufacturers Association
Transmission Access Policy Study Group (TAPS)
Utility Services, Inc.
Valero Services, Inc (Valero)
Western Public Power Coalition (WPPC)
White River Electric Association, Inc. (WREA)

[FR Doc. 2012-31142 Filed 1-3-13; 8:45 am]
BILLING CODE 6717-01-P