[Federal Register Volume 73, Number 229 (Wednesday, November 26, 2008)]
[Proposed Rules]
[Pages 71971-71977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-28087]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket No. RM08-16-000]


Electric Reliability Organization Interpretations of Specific 
Requirements of Frequency Response and Bias and Voltage and Reactive 
Control Reliability Standards

Issued November 20, 2008.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: Pursuant to section 215 of the Federal Power Act, the Federal 
Energy Regulatory Commission proposes to: approve NERC's proposed 
interpretation of certain specific requirements of one Commission-
approved Reliability Standard, BAL-003-0, Frequency Response and Bias; 
and remand NERC's proposed interpretation of VAR-001-1, Voltage and 
Reactive Control, for reconsideration consistent with this rulemaking.

DATES: Comments are due December 26, 2008.

ADDRESSES: You may submit comments, identified by docket number by any 
of the following methods:
     Agency Web Site: http://ferc.gov. Documents created 
electronically using word processing software should be filed in native 
applications or print-to-PDF format and not in a scanned format.
     Mail/Hand Delivery: Commenters unable to file comments 
electronically must mail or hand deliver an original and 14 copies of 
their comments to: Federal Energy Regulatory Commission, Secretary of 
the Commission, 888 First Street, NE., Washington, DC 20426.

FOR FURTHER INFORMATION CONTACT: 

Patrick Harwood (Technical Information), Office of Electric 
Reliability, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, Telephone: (202) 502-6125, 
[email protected].
Richard M. Wartchow (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, Telephone: (202) 502-8744.

SUPPLEMENTARY INFORMATION: 

Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, 
Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.
    1. Pursuant to section 215 of the Federal Power Act, the Federal 
Energy Regulatory Commission proposes to approve the interpretation 
proposed by the North American Electric Reliability Corporation (NERC) 
of certain specific requirements of Commission-approved Reliability 
Standard BAL-003-0, Frequency Response and Bias, but remand NERC's 
proposed interpretation of Reliability Standard VAR-001-1, Voltage and 
Reactive Control, for additional clarification.\1\
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    \1\ The Commission is not proposing any new or modified text to 
its regulations. As set forth in 18 CFR part 40, proposed 
Reliability Standards will not become effective until approved by 
the Commission, and the ERO must post on its Web site each effective 
Reliability Standard. The proposed interpretations would assist 
entities in complying with the Reliability Standards.
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I. Background

A. EPAct 2005 and Mandatory Reliability Standards

    2. Section 215 of the FPA requires a Commission-certified Electric 
Reliability Organization (ERO) to develop mandatory and enforceable 
Reliability Standards, which are subject to Commission review and 
approval. Once approved, the Reliability Standards may be enforced by 
the ERO, subject to Commission oversight, or by the Commission 
independently.\2\
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    \2\ See 16 U.S.C. 824o(e)(3).
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    3. Pursuant to section 215 of the FPA, the Commission established a 
process to select and certify an ERO \3\ and, subsequently, certified 
NERC as the ERO.\4\ On April 4, 2006, as modified on August 28, 2006, 
NERC submitted to the Commission a petition seeking approval of 107 
proposed Reliability Standards. On March 16, 2007, the Commission 
issued a final rule, Order No. 693, approving 83 of these 107 
Reliability Standards and directing other action related to these 
Reliability Standards.\5\ In addition, pursuant to section 215(d)(5) of 
the FPA, the Commission directed NERC to develop modifications to 56 of 
the 83 approved Reliability Standards.\6\
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    \3\ 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).
    \4\ North American Electric Reliability Corp., 116 FERC ] 
61,062, order on reh'g & compliance, 117 FERC ] 61,126 (2006), 
appeal docketed sub nom. Alcoa, Inc. v. FERC, No. 06-1426 (D.C. Cir. 
Dec. 29, 2006).
    \5\ 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).
    \6\ 16 U.S.C. 824o(d)(5). Section 215(d)(5) provides, ``The 
Commission * * * may order the Electric Reliability Organization to 
submit to the Commission a proposed reliability standard or a 
modification to a reliability standard that addresses a specific 
matter if the Commission considers such a new or modified 
reliability standard appropriate to carry out this section.''
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    4. NERC's Rules of Procedure provide that a person that is 
``directly and materially affected'' by Bulk-Power System reliability 
may request an interpretation of a Reliability Standard.\7\ The ERO's 
``standards process manager'' will assemble a team with relevant 
expertise to address the requested interpretation and also form a 
ballot pool. NERC's Rules provide that, within 45 days, the team will 
draft an interpretation of the Reliability Standard, with subsequent 
balloting. If approved by ballot, the interpretation is appended to the 
Reliability Standard and filed with the applicable regulatory authority 
for regulatory approval.\8\
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    \7\ NERC Rules of Procedure, Appendix 3A, Reliability Standards 
Development Procedure, Version 6.1, at 26-27 (2007).
    \8\ We note that, while the NERC Board of Trustees approved the 
interpretations of the Reliability Standards submitted by NERC for 
approval in this proceeding, Appendix 3A of NERC's Rules of 
Procedure is silent on the need for NERC Board of Trustees' approval 
of interpretations before they are filed. NERC's Rules of Procedure 
should expressly require such approval.
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B. NERC Filing

    5. On July 28, 2008, NERC submitted a Petition for Approval of 
Formal Interpretations to Reliability Standards (Petition), seeking 
Commission approval of interpretations of two Commission-approved 
Reliability Standards: BAL-003-0, Frequency Response and Bias, 
Requirements R2 and R5; and VAR-001-1, Voltage and Reactive Control, 
Requirement R4.

[[Page 71972]]

    6. For BAL-003-0, Electric Reliability Council of Texas (ERCOT) 
requested clarification that the provision in BAL-003-0, Requirement 
R2, permitting use of a variable bias setting, did not conflict with 
BAL-003-0, Requirement R5, which states that the frequency bias setting 
for Balancing Authorities serving native load should be at least one 
percent of yearly peak demand. For VAR-001-1, Dynegy, Inc. (Dynegy) 
requested clarification whether there are implicit requirements that 
the voltage schedule and associated tolerance band to be provided by 
the transmission operator under Requirement R4 be technically based, 
reasonable and practical for a generator to maintain.
    7. Consistent with the NERC Rules of Procedure, NERC assembled a 
team to respond to the requests for interpretation and presented the 
proposed interpretations to industry ballot, using a process similar to 
the process it uses for the development of Reliability Standards.\9\ 
According to NERC, the interpretations were developed and approved by 
industry stakeholders using the NERC Reliability Standards Development 
Procedure and approved by the NERC Board of Trustees (Board).\10\ The 
interpretations do not modify the language contained in the 
requirements under review. NERC requests that the Commission approve 
the interpretations and make them effective immediately after approval, 
consistent with the Commission's procedures.
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    \9\ Id.
    \10\ NERC Petition at 3.
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II. Discussion

A. BAL-003-0

    8. Order No. 693 explains that the purpose of BAL-003-0 is to 
ensure that a balancing authority's frequency bias setting is 
accurately calculated to match its actual frequency response.\11\ A 
frequency bias setting is a value expressed in MW/0.1 Hz, set into a 
balancing authority area control error (ACE) algorithm, which allows 
the balancing authority to contribute its frequency response to the 
Interconnection.\12\ The actual frequency response is the change in 
output or consumption from generators and non-generation resources, 
respectively, after the loss of a generator and determines the 
frequency at which electric supply and demand return to balance.
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    \11\ Order No. 693 at P 357.
    \12\ NERC's glossary, which provides definitions of the relevant 
terms, defines ACE as ``The instantaneous difference between a 
balancing authority's net actual and scheduled interchange, taking 
into account the effects of frequency bias and correction for meter 
error.''
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    9. Requirement R2.2 states that a Balancing Authority may use a 
variable frequency bias value, which is calculated by analyzing 
frequency response taking into account factors such as load, 
generation, governor characteristics, and frequency. Requirement R5 
states that balancing authorities that serve native load shall have a 
monthly average frequency bias setting that is at least one percent of 
estimated yearly peak demand per 0.1 Hz change. The BAL-003-0 
Requirements at issue state:

    Requirement R2: Each Balancing Authority shall establish and 
maintain a Frequency Bias Setting that is as close as practical to, 
or greater than, the Balancing Authority's Frequency Response. 
Frequency Bias may be calculated several ways:
    R2.2. The Balancing Authority may use a variable (linear or non-
linear) bias value, which is based on a variable function of Tie 
Line deviation to Frequency deviation. The Balancing Authority shall 
determine the variable frequency bias value by analyzing Frequency 
Response as it varies with factors such as load, generation, 
governor characteristics, and frequency.
    Requirement R5: Balancing Authorities that serve native load 
shall have a monthly average Frequency Bias Setting that is at least 
1% of the Balancing Authority's estimated yearly peak demand per 0.1 
Hz change.
    R5.1. Balancing Authorities that do not serve native load shall 
have a monthly average Frequency Bias Setting that is at least 1% of 
its estimated maximum generation level in the coming year per 0.1 Hz 
change.
1. ERCOT Request
    10. ERCOT requested clarification from NERC that a balancing 
authority may use a variable bias value as authorized under Requirement 
R2.2, despite the fact that doing so could, according to ERCOT, cause a 
violation of Requirement R5.\13\ According to ERCOT, if a balancing 
authority uses a variable bias in conformance with Requirement R2.2, it 
would violate Requirement R5 if its analysis resulted in a value less 
than one percent of its yearly peak demand (or maximum generation). 
ERCOT states that Requirement R2.2 is only viable if Requirement R5 is 
interpreted to apply only to balancing authorities using a fixed bias 
setting. ERCOT proposes that an alternate method be used to calculate a 
floor setting for balancing authorities that utilize a variable bias 
setting. Under ERCOT's proposal, the correct corresponding minimum 
setting for a balancing authority using a variable bias setting would 
be no less than one percent of estimated peak (or maximum generation) 
for the period in which the variable bias setting is active. ERCOT 
supported its interpretation as being consistent with a January 2003 
NERC Resources Subcommittee analysis, which stated ``for Control Areas 
utilizing variable bias, the Control Area's average Bias Setting for a 
month must be at least one percent of the Control Area's estimated peak 
load for that month (or one percent of peak generation for a generation 
only Control Area forecast for that month).'' \14\ ERCOT suggested that 
the failure to provide for a variable bias option in Requirement R5 
appears to be an oversight. Furthermore, according to ERCOT, failure to 
adopt its interpretation would force ERCOT to abandon its longstanding 
practice of using a variable bias setting, without any corresponding 
improvement in reliability.
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    \13\ On July 21, 2008, the Commission approved a previous 
interpretation of BAL-003-0, Requirement R3, which requires each 
balancing authority to operate its automatic generation control on 
tie line frequency basis, unless such operation would diminish 
system interconnection reliability. See Modification of Interchange 
and Transmission Loading Relief Reliability Standards; and Electric 
Reliability Organization Interpretation of Specific Requirements of 
Four Reliability Standards, Order No. 713, 73 FR 43613 (July 28, 
2008), 124 FERC ] 61,071 (2008).
    \14\ NERC Petition at 6 (citing ERCOT request for interpretation 
at 1-2, available at http://www.nerc.com/docs/standards/sar/Request_Interpretation_BAL-003_ERCOT_27Jul07.pdf).
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2. NERC Proposed Interpretation
    11. NERC rejected ERCOT's proposal, finding that the variable bias 
setting under Requirement R2 does not conflict with the minimum setting 
required under Requirement R5. NERC found that its interpretation 
provides clarity and supports the reliability purpose of BAL-003-0, 
which it describes as providing a consistent methodology for 
calculating the frequency bias component of ACE. According to NERC, 
Requirement R2 requires a balancing authority to analyze its system as 
a first step in determining its frequency bias setting, which may be a 
fixed or variable bias setting. Requirement R5 establishes a minimum 
reliability threshold for an Interconnection and also a minimum 
contribution for all balancing authorities within an Interconnection. 
NERC states that the one percent minimum bias setting provides a 
minimum level of automatic generation control to stabilize frequency in 
response to a disturbance. As a second justification for the minimum 
setting, NERC states that the one percent minimum also helps ensure a 
consistent measure of control performance among balancing

[[Page 71973]]

authorities within a multi-balancing authority Interconnection.
    12. NERC points out that ERCOT is a single balancing authority 
Interconnection. NERC supports its proposed interpretation stating:

    The bias settings ERCOT uses do produce, on average, the best 
level of automatic generation control action to meet control 
performance metrics. The bias value in a single Balancing Authority 
interconnection does not impact the measure of control performance.

    13. NERC notes that ERCOT is subject to a Regional Difference 
exempting it from certain requirements of a related Reliability 
Standard. ERCOT's Regional Difference addresses Requirement R2 of the 
related BAL-001-0 Reliability Standard, Real Power Balancing Control 
Performance, which adopts one of NERC's historical balancing control 
performance standards, known as CPS2.\15\ The purpose of Reliability 
Standard BAL-001-0 is to maintain interconnection steady-state 
frequency within defined limits by balancing power demand and supply in 
real-time. BAL-001-0 uses two averages as compliance measures: 
Requirement R1 covers the one-minute ACE performance (CPS1) and 
Requirement R2 covers the 10-minute ACE performance (CPS2). Requirement 
R1 obligates each balancing authority, on a rolling 12-month basis, to 
maintain its clock-minute averages of ACE, modified by its frequency 
bias and the interconnection frequency, within a specific limit based 
on historical performance. Requirement R2 obligates each balancing 
authority, on a monthly basis, to maintain an average ACE within a 
specific limit based on historical performance for at least 90 percent 
of 10-minute periods within an hour. NERC presents two reasons 
supporting ERCOT's Regional Difference for BAL-001-0, namely (1) to 
accommodate ERCOT's asynchronous connections with other 
Interconnections; and (2) to recognize the fact that ERCOT employs a 
more stringent methodology to identify the frequency controls necessary 
to maintain reliable operations.\16\
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    \15\ See NERC, Approval of ERCOT Waiver Request--Control 
Performance Standard 2 (Nov. 21, 2002), available at http://www.nerc.com/commondocs.php?cd=2 (under ``Links to Regional 
Differences'' tab), which was approved in Order No. 693 at P 314.
    \16\ NERC Petition at 8.
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    14. During the ballot process, NERC responded to comments raising 
two issues. NERC indicated that it was sympathetic to comments that 
Requirement R5 is vague, finding that the requirement that each 
balancing authority have a monthly average bias greater than or equal 
to one percent of its projected annual peak load (or generation if it 
does not serve load), could be better drafted. However, NERC found that 
revising the requirement is beyond the scope of the interpretation 
process. Also, NERC states that it addressed a second comment by 
indicating that a balancing authority that is the sole balancing 
authority for an Interconnection must comply with Requirement R5 and 
also that a balancing authority that uses a variable bias setting must 
comply with Requirement R5 in BAL-003-0.
    15. The formal interpretation was approved by the ballot pool in 
September 2007 and by the NERC Board in February 2008.
3. Commission Proposal
    16. The Commission proposes to approve the ERO's formal 
interpretation of Requirements R2 and R5 of BAL-003-0 and requests 
comment on its proposal. The ERO's interpretation is reasonable in that 
it provides for consistent determination of frequency bias settings, 
used in calculating ACE. In addition, the one percent minimum set aside 
established by Requirement R5 ensures that an adequate level of 
generation will be set aside to provide frequency response in the event 
of system disturbances due to imbalances.
    17. Furthermore, the ERO's interpretation is consistent with the 
Commission's discussion in Order No. 693, which reviewed a similar 
objection, and found that the requirements of BAL-003-0 do not conflict 
with one another.\17\ Order No. 693 addressed the suggestion that 
Requirement R5 should be required in lieu of Requirement R2 for certain 
balancing authorities and found that Requirements R2 and R5 do not 
conflict. While, in this case, ERCOT is arguing the reverse, namely, 
that balancing authorities that meet the requirement of Requirement R2 
should not have to meet Requirement R5, similar reasoning suggests no 
conflict in the two requirements. According to Order No. 693, 
Requirement R2 states that the frequency bias setting should be as 
close as practical to, or greater than, the balancing authority's 
frequency response, while Requirement R5 and R5.1 provide minimum 
frequency bias values for specific types of balancing authorities.\18\
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    \17\ Order No. 693 at P 370.
    \18\ See id. at P 362, 370.
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    18. As noted above, NERC's interpretation states that ERCOT's bias 
settings produce, on average, the best level of automatic generation 
control action to meet control performance metrics and the bias value 
in a single balancing authority interconnection does not impact the 
measure of control performance. We interpret this statement as 
providing that the second goal of the one percent minimum setting, to 
establish a consistent measure of control performance among balancing 
authorities, is not implicated by this interpretation. Nevertheless, 
the other justifications for the BAL-003-0, Requirement R5 minimum bias 
setting still apply namely, to establish a consistent methodology for 
one of the inputs into the ACE determination and to provide for a 
minimum threshold of reliability from frequency response.\19\
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    \19\ The Commission notes that NERC's statement above could 
arguably be interpreted to suggest that the ERCOT methodology, by 
using a methodology that results in ``the best level of automatic 
generation control action to meet control performance metrics,'' may 
be a preferable methodology. That question is not before us, and 
thus we need not and do not address it. Should ERCOT wish to 
demonstrate that its alternate methodology under its Regional 
Difference is a superior alternate measure to that established under 
BAL-003-0, Requirement R5, ERCOT should pursue a Regional Difference 
supporting a departure from the requirement. While ERCOT is a 
single-balancing-authority Interconnection and does not need to 
allocate automatic generation control responsibility among balancing 
authorities, the other justifications for Requirement R5, supporting 
a consistent ACE calculation methodology and providing a minimum 
standard for reliability, remain valid justifications for the 
minimum setting.19
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    19. The Commission invites comment on its proposal.

B. VAR-001-1

    20. VAR-001-1, Requirement R4 directs each transmission operator to 
provide each generator with a voltage and reactive power output 
schedule, within a tolerance band. A second Reliability Standard, VAR-
002-1, Requirement R2, requires that each generator must meet the 
schedule (typically via automatic control) or provide an explanation 
why it cannot do so. Dynegy asked whether the voltage schedule, and 
associated tolerance band, provided by the transmission operator must 
be technically based, and reasonable and practical. In addition, Dynegy 
asked how a transmission operator would demonstrate compliance with 
such requirements.
    21. VAR-001-1, Requirement R4 and VAR-002-1, Requirement R2, which 
are at issue in this proceeding, state:

VAR-001-1--Voltage and Reactive Control

    Requirement R4. Each Transmission Operator shall specify a 
voltage or Reactive Power schedule \20\ at the interconnection

[[Page 71974]]

between the generator facility and the Transmission Owner's 
facilities to be maintained by each generator. The Transmission 
Operator shall provide the voltage or Reactive Power schedule to the 
associated Generator Operator and direct the Generator Operator to 
comply with the schedule in automatic voltage control mode (AVR 
[automatic voltage regulation] in service and controlling voltage). 
* * *
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    \20\ The voltage schedule is a target voltage to be maintained 
within a tolerance band during a specified period. [Footnote in 
original.]
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VAR-002-1--Generator Operation for Maintaining Network Voltage 
Schedules

    Requirement R2. Unless exempted by the Transmission Operator, 
each Generator Operator shall maintain the generator voltage or 
Reactive Power output (within applicable Facility Ratings) \21\ as 
directed by the Transmission Operator.
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    \21\ When a Generator is operating in manual control, reactive 
power capability may change based on stability considerations and 
this will lead to a change in the associated Facility Ratings. 
[Footnote in original.]
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    R2.1. When a generator's automatic voltage regulator is out of 
service, the Generator Operator shall use an alternative method to 
control the generator voltage and reactive output to meet the 
voltage or Reactive Power schedule directed by the Transmission 
Operator.
    R2.2. When directed to modify voltage, the Generator Operator 
shall comply or provide an explanation of why the schedule cannot be 
met.

1. Dynegy Request
    22. Dynegy requested clarification whether there are implicit 
requirements for the voltage schedule, and associated tolerance band, 
provided by the transmission operator to be technically based, 
reasonable and practical for a generator to maintain.\22\ According to 
Dynegy, the NERC Rules of Procedure require that each Reliability 
Standard be based on ``sound engineering and operating judgment, 
analysis, or experience[.]'' \23\ Dynegy asserts that Reliability 
Standards must be implemented to meet such a standard and that 
transmission owners must have a technical basis for the specified 
voltage or reactive power schedule and associated tolerance band. 
Dynegy predicts that generator operator compliance with the schedule 
and tolerance band will be improved if the generator understands the 
technical basis for the instructions.
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    \22\ Dynegy's request is provided in the NERC Petition, Exhibit 
B-3, along with the VAR-001-1 interpretation development record.
    \23\ Dynegy request at 2 (citing NERC Rules of Procedure, 
section 302.5, ``Each reliability standard shall be based upon sound 
engineering and operating judgment, analysis, or experience, as 
determined by expert practitioners in that particular field.'').
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    23. Dynegy argues that the lack of a technical basis could result 
in arbitrary target values or overly narrow or overly wide tolerance 
bands and that such flaws could reduce system reliability. For 
instance, Dynegy hypothesizes that overly narrow tolerance bands could 
cause a generator to make numerous short term responses to voltage 
fluctuations that do not improve system reliability, while overly broad 
tolerance bands could result in voltage fluctuations that jeopardize 
system reliability during system disturbances. Dynegy states that 
voltage schedules must be reasonable and that a tolerance band that 
fails to account for measurement error is unreasonable. Dynegy states 
that, if the voltages or reactive power schedule and associated 
tolerance band are to have a technical basis and be reasonable, then 
NERC must develop measures to objectively evaluate compliance with the 
requirement.\24\ According to Dynegy, such a measure should state that 
the voltage schedule and tolerance band should either be (1) consistent 
with the historical variation of system voltage, normalized to 
eliminate abnormal voltage fluctuations such as those caused by system 
disturbances; or (2) consistent with the historical variation of system 
voltage when the plant/unit is not operating, which variation would be 
normalized to eliminate abnormal voltage fluctuations such as those 
caused by system disturbances. According to Dynegy, if either of these 
conditions is not met, a transmission operator should be required to 
have a technical study or analysis that justifies a different voltage 
or reactive power schedule and associated tolerance band.
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    \24\ Id. at 4 (citing NERC Rules of Procedure, section 302.4).
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2. NERC Proposed Interpretation
    24. NERC's proposed interpretation rejects the suggestion that 
there are implicit requirements within VAR-001-1, and finds, as well, 
that there are no requirements in VAR-001-1 to issue a technically 
based, reasonable and practical to maintain voltage or reactive power 
schedule and associated tolerance band, and, consequently, the 
Reliability Standard needs no measures to implement such requirements. 
According to NERC:

    Since there are no requirements in VAR-001-1 to issue a 
``technically based, reasonable and practical to maintain voltage or 
reactive power schedule and associated tolerance band'', there are 
no measures or associated compliance elements in the standard.\25\

    \25\ NERC proposed Interpretation of NERC Standard VAR-001-1 at 
1.
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    The interpretation concludes by citing VAR-002-1, Requirement 2, 
which provides that a generator must meet the voltage schedule or 
provide an explanation why it cannot do so.
    25. The NERC Board requested additional information to address a 
concern whether a generator operator could be in violation of VAR-001-1 
if it deviated from its schedule in order to protect its equipment. 
NERC provided supplemental information, which is not part of the formal 
interpretation, pointing out that VAR-002-1 requires a generator to 
maintain the voltage directed by the transmission operator ``within 
applicable Facility Ratings'' and permits a generator to deviate from 
the voltage schedule with an explanation.\26\ NERC also cited VAR-002-
1, section A(3), stating that the purpose of the Reliability Standard 
is ``To ensure generators provide reactive and voltage control 
necessary to ensure voltage levels, reactive flows, and reactive 
resources are maintained within applicable Facility Ratings to protect 
equipment and the reliable operation of the Interconnection.'' \27\
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    \26\ NERC Petition at 12-13.
    \27\ Id. at 12 (emphasis in original).
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    26. Finally, NERC's transmittal letter also provides additional 
instructive information, which is not part of the interpretation, 
noting that VAR-001-1, Requirement R2 states, ``Each Transmission 
Operator shall acquire sufficient reactive resources within its area to 
protect the voltage levels under normal and Contingency conditions.'' 
NERC states that, in order to fulfill Requirement R2, the transmission 
operator must perform a valid analysis of the system, using models that 
accurately represent equipment capabilities. Therefore, according to 
NERC, while it supports the formal interpretation of Requirement R4 
including the finding that a requirement cannot establish implicit 
obligations, the issue on which Dynegy seeks clarification is better 
resolved through an examination of Requirement R2.\28\
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    \28\ Id. at 14.
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    27. According to NERC, the interpretation supports the intent of 
the requirement and the goal of VAR-001-1, because it reinforces that 
the transmission operator is responsible for identifying voltage 
schedules and associated bandwidth necessary to meet the objectives of 
the Reliability Standard.
    28. In the ballot process, NERC responded to a negative comment 
arguing that the requirements of VAR-001-1 do imply that there will be 
a technical justification for a reactive power schedule. According to 
NERC, the drafting team responded that an implied requirement is not a 
stated

[[Page 71975]]

requirement that can be objectively measured.
    29. The interpretation was approved by ballot in January 2008 and 
by the Board, upon receipt of the additional information, in March 
2008.
3. Commission Proposal
    30. The Commission proposes to remand NERC's interpretation of VAR-
001-1, Requirement R4. The Commission disagrees with the 
interpretation's suggestion that there is no requirement that a voltage 
schedule have a sound technical basis. On the contrary, in Order No. 
693, the Commission stated that all Reliability Standards must be 
designed to achieve a specified reliability goal and must contain a 
technically sound means to achieve this goal.\29\ Therefore, the 
Commission disagrees with NERC's proposed interpretation insofar as it 
suggests that a transmission operator could deliver a voltage schedule 
that lacked any technical basis. A voltage schedule should reflect 
technical analysis, i.e., sound engineering, as well as operating 
judgment and experience.\30\
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    \29\ Order No. 693 at P 5 (``[A] Reliability Standard must 
provide for the Reliable Operation of Bulk-Power System facilities 
and may impose a requirement on any user, owner or operator of such 
facilities. It must be designed to achieve a specified reliability 
goal and must contain a technically sound means to achieve this 
goal. The Reliability Standard should be clear and unambiguous 
regarding what is required and who is required to comply. The 
possible consequences for violating a Reliability Standard should be 
clear and understandable to those who must comply. There should be 
clear criteria for whether an entity is in compliance with a 
Reliability Standard. While a Reliability Standard does not 
necessarily need to reflect the optimal method for achieving its 
reliability goal, a Reliability Standard should achieve its 
reliability goal effectively and efficiently.''); see also Order No. 
672 at P 324.
    \30\ Id.; accord NERC Rules of Procedure, section 302.5.
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    31. In Order No. 693, moreover, the Commission reviewed each 
Reliability Standard and approved those containing Requirements that 
are sufficiently clear as to be enforceable and that do not create due 
process concerns.\31\ In approving VAR-001-1 in Order No. 693, the 
Commission included VAR-001-1 as among the Reliability Standards that 
are sufficiently clear to inform transmission operators what is 
required of them.\32\ While the Commission has elsewhere declined to 
specify in detail how a registered entity should implement a 
Reliability Standard, this does not mean that an entity seeking to 
comply with a Reliability Standard may act in a manner that is not 
technically sound, i.e., in a manner that is not grounded in sound 
engineering, and thus, not reasonable and practical.\33\ NERC's 
proposed interpretation, however, implies that the voltage schedules 
provided under VAR-001-1, Requirement R4 need not have any technical 
basis, and thus need not be reasonable and practical.
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    \31\ See Order No. 693 at P 274. In reviewing specific 
Reliability Standards, the Commission identified for certain 
Reliability Standards implicit obligations that should be 
incorporated into those Reliability Standards and directed NERC to 
revise the standards to explicitly incorporate the obligations; see 
Mandatory Reliability Standards for Critical Infrastructure 
Protection, Order No. 706, 73 FR 7368 (Feb. 7, 2008), 122 FERC ] 
61,040, at P 75 (2008) (directing the ERO to modify the CIP 
Reliability Standards to incorporate an obligation to implement 
plans, policies and procedures); Order No. 693 at P 1787 (``In the 
NOPR, the Commission identified an implicit assumption in the TPL 
Reliability Standards that all generators are required to ride 
through the same types of voltage disturbances and remain in service 
after the fault is cleared. This implicit assumption should be made 
explicit.''); Facilities Design, Connections and Maintenance 
Reliability Standards, Order No. 705, 73 FR 1770 (Jan. 9, 2008), 121 
FERC ] 61,296, at P 54 (2007) (``although the TPL Reliability 
Standards implicitly require the loss of a shunt device to be 
addressed, they do not do so explicitly'').
    \32\ Order No. 693 at P 275.
    \33\ As noted above, Reliability Standards should reflect sound 
engineering. See id. at P 5; Order No. 672 at P 324; accord NERC 
Rules of Procedure, section 302.5.
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    32. Based on this analysis, the Commission proposes to remand 
NERC's proposed VAR-001-1, Requirement R4 interpretation, in order that 
NERC may reconsider its interpretation consistent with this order. With 
regard to Dynegy's assertion that NERC needs to develop evaluation 
measures to review the technical basis for voltage schedules, in the 
Commission's view, this proposal is beyond the scope of the 
interpretation process and would be better discussed pursuant to a 
standards authorization request under the NERC Reliability Standards 
Development Procedures.
    33. The Commission invites comment on its proposal.

III. Information Collection Statement

    34. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting and recordkeeping (collections of 
information) imposed by an agency.\34\ The information contained here 
is also subject to review under section 3507(d) of the Paperwork 
Reduction Act of 1995.\35\
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    \34\ 5 CFR 1320.11.
    \35\ 44 U.S.C. 3507(d).
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    35. As stated above, the Commission previously approved, in Order 
No. 693, each of the Reliability Standards that are the subject of the 
current rulemaking. This NOPR proposes to approve one interpretation to 
a previously approved Reliability Standard developed by NERC as the 
ERO, and to remand another interpretation. The proffered 
interpretations relate to existing Reliability Standards and do not 
change these standards; therefore, they do not add to or otherwise 
increase entities' current reporting burden. Thus, the current proposal 
would not materially and adversely affect the burden estimates relating 
to the currently effective version of the Reliability Standards 
presented in Order No. 693. The BAL-003-0 Reliability Standard that is 
the subject of the approved interpretation was approved in Order No. 
693, and the related information collection requirements were reviewed 
and approved, accordingly.\36\
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    \36\ See Order No. 693 at P 1901-07.
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    36. For example, the proposed interpretation of BAL-003-0 does not 
modify or otherwise affect the collection of information already in 
place. With respect to BAL-003-0, the interpretation clarifies that the 
minimum frequency bias setting applies to systems that employ a 
variable bias methodology. Incorporating a minimum frequency bias 
setting into the determination of frequency response under automatic 
generation control does not change the information that a balancing 
authority reports because the same logs, data, or measurements would be 
maintained. The Commission is proposing to remand the interpretation of 
VAR-001-1. As a result, information collection requirements for that 
Reliability Standard will not change at this time. Thus, the proposed 
interpretations of the current Reliability Standards at issue in this 
proposed rule will not increase the reporting burden nor impose any 
additional information collection requirements.
    37. However, we will submit this proposed rule to OMB for 
informational purposes.
    Title: Electric Reliability Organization Interpretations of 
Frequency Response and Bias and Voltage and Reactive Control 
Reliability Standards.
    Action: Proposed Collection.
    OMB Control No.: 1902-0244.
    Respondents: Businesses or other for-profit institutions; not-for-
profit institutions.
    Frequency of Responses: On Occasion.
    Necessity of the Information: This proposed rule would approve an 
interpretation of the specific requirements of one Commission-approved 
Reliability Standard. The proposed rule would find the interpretation 
just, reasonable, not unduly discriminatory or preferential, and in the 
public interest. In addition,

[[Page 71976]]

this proposed rule would remand an additional proposed interpretation 
for further consideration.
    Internal Review: The Commission has reviewed the proposed 
Reliability Standard interpretations and made a determination that the 
proposed BAL-003-1 interpretation is necessary to implement section 215 
of the FPA. The interpretation conforms to the Commission's policy for 
frequency response and bias within the energy industry as reflected in 
BAL-003-1.
    38. Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426 [Attention: 
Michael Miller, Office of the Executive Director, Phone: (202) 502-
8415, fax: (202) 273-0873, e-mail: [email protected]].
    39. For submitting comments concerning the collection(s) of 
information and the associated burden estimate(s), please send your 
comments to the contact listed above and to the Office of Information 
and Regulatory Affairs, Office of Information and Regulatory Affairs, 
Washington, DC 20503 [Attention: Desk Officer for the Federal Energy 
Regulatory Commission, phone (202) 395-7345, fax: (202) 395-7285, e-
mail: [email protected]].

IV. Environmental Analysis

    40. 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.\37\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. Included in the exclusion are rules that are clarifying, 
corrective, or procedural or that do not substantially change the 
effect of the regulations being amended.\38\ The actions proposed 
herein fall within this categorical exclusion in the Commission's 
regulations.
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    \37\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, FERC Stats. & Regs. ] 30,783 (1987).
    \38\ 18 CFR 380.4(a)(2)(ii).
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V. Regulatory Flexibility Act Analysis

    41. The Regulatory Flexibility Act of 1980 (RFA) \39\ generally 
requires a description and analysis of final rules that will have 
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 Office of Size Standards 
develops the numerical definition of a small business. (See 13 CFR 
121.201.) For electric utilities, 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 12 months did not exceed 4 million megawatt 
hours. The RFA is not implicated by this proposed rule because the 
interpretations discussed herein will not have a significant economic 
impact on a substantial number of small entities.
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    \39\ 5 U.S.C. 601-12.
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    42. In Order No. 693, the Commission adopted policies to minimize 
the burden on small entities, including approving the ERO compliance 
registry process to identify those entities responsible for complying 
with mandatory and enforceable Reliability Standards. The ERO registers 
only those distribution providers or load serving entities that have a 
peak load of 25 MW or greater and are directly connected to the bulk 
electric system or are designated as a responsible entity as part of a 
required under-frequency load shedding program or a required under-
voltage load shedding program. Similarly, for generators, the ERO 
registers only individual units of 20 MVA or greater that are directly 
connected to the bulk electric system, generating plants with an 
aggregate rating of 75 MVA or greater, any blackstart unit material to 
a restoration plan, or any generator that is material to the 
reliability of the Bulk-Power System. Further, the ERO will not 
register an entity that meets the above criteria if it has transferred 
responsibility for compliance with mandatory Reliability Standards to a 
joint action agency or other organization. The Commission estimated 
that the Reliability Standards approved in Order No. 693 would apply to 
approximately 682 small entities (excluding entities in Alaska and 
Hawaii), but also pointed out that the ERO's Compliance Registry 
Criteria allow for a joint action agency, generation and transmission 
(G&T) cooperative or similar organization to accept compliance 
responsibility on behalf of its members. Once these organizations 
register with the ERO, the number of small entities registered with the 
ERO will diminish and, thus, significantly reduce the impact on small 
entities.\40\
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    \40\ To be included in the compliance registry, the ERO 
determines whether a specific small entity has a material impact on 
the Bulk-Power System. If these small entities should have such an 
impact then their compliance is justifiable as necessary for Bulk-
Power System reliability.
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    43. Finally, as noted above, this proposed rule addresses an 
interpretation of the BAL-003-0 Reliability Standard, which was already 
approved in Order No. 693, and, therefore, does not create an 
additional regulatory impact on small entities.\41\
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    \41\ The Commission proposes to remand the interpretation of the 
VAR-001-1 Reliability Standard.
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VI. Comment Procedures

    44. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice to be adopted, including 
any related matters or alternative proposals that commenters may wish 
to discuss. Comments are due December 26, 2008. Comments must refer to 
Docket No. RM08-16-000, and must include the commenters' name, the 
organization they represent, if applicable, and their address in their 
comments.
    45. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    46. Commenters that are not able to file comments electronically 
must send an original and 14 copies of their comments to: Federal 
Energy Regulatory Commission, Secretary of the Commission; 888 First 
Street, NE.; Washington, DC 20426.
    47. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

VII. Document Availability

    48. 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 the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's

[[Page 71977]]

Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
    49. From the Commission'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.
    50. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or e-mail at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. E-mail the Public Reference Room at 
[email protected].

    By direction of the Commission.
Kimberly D. Bose,
Secretary.
[FR Doc. E8-28087 Filed 11-25-08; 8:45 am]
BILLING CODE 6717-01-P