[Federal Register Volume 76, Number 56 (Wednesday, March 23, 2011)]
[Rules and Regulations]
[Pages 16263-16277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-6779]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket No. RM09-18-001; Order No. 743-A]


Revision to Electric Reliability Organization Definition of Bulk 
Electric System

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Order on rehearing.

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SUMMARY: The Commission denies rehearing and otherwise reaffirms its 
determinations in Order No. 743. In addition, the Commission clarifies 
certain provisions of the Final Rule. Order No. 743 directed the 
Electric Reliability Organization (ERO) to revise the definition of the 
term ``bulk electric system'' through the ERO's Reliability Standards 
Development Process to address the Commission's policy and technical 
concerns and ensure that the definition encompasses all facilities 
necessary for operating an interconnected electric transmission network 
pursuant to section 215 of the Federal Power Act.

DATES: Effective Date: This order on rehearing and clarification will 
become effective March 23, 2011.

FOR FURTHER INFORMATION CONTACT:
Robert V. Snow (Technical Information), Office of Electric Reliability, 
Division of Reliability Standards, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426. Telephone: 
(202) 502-6716.
Patrick A. Boughan (Technical Information), Office of Electric 
Reliability, Division of Engineering, Planning and Operations, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426. Telephone: (202) 502-8071.
Jonathan E. First (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. Telephone: (202) 502-8529.
Mindi Sauter (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426. Telephone: (202) 502-6830.

SUPPLEMENTARY INFORMATION: 
Before Commissioners: Jon Wellinghoff, Chairman; Marc Spitzer, 
Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur.

I. Order on Rehearing

Issued March 17, 2011.

I. Introduction

    1. On November 18, 2010, the Commission issued a Final Rule (Order

[[Page 16264]]

No. 743) \1\ directing the Electric Reliability Organization (ERO), 
through the ERO's Reliability Standards Development Process, to revise 
its definition of the term ``bulk electric system'' to address the 
Commission's technical and policy concerns, including inconsistency in 
application, lack of oversight and exclusion of facilities that are 
required for the Reliable Operation of the interconnected transmission 
network, and ensure that the definition encompasses all facilities 
necessary for operating an interconnected electric transmission 
network, pursuant to section 215 of the Federal Power Act (FPA).\2\ The 
Commission stated that it believes the best way to accomplish these 
goals is to eliminate the regional discretion in the current 
definition, maintain a bright-line threshold that includes all 
facilities operated at or above 100 kV except defined radial 
facilities, and establish an exemption process and criteria for 
excluding facilities that are not necessary for operating the 
interconnected transmission network. However, the Final Rule allowed 
the ERO to develop an alternative proposal for addressing the 
Commission's concerns with the present definition with the 
understanding that any such alternative must be equally efficient and 
effective \3\ as the Commission's suggested approach in addressing the 
identified technical and other concerns, and may not result in a 
reduction in reliability.
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    \1\ Revision to Electric Reliability Organization Definition of 
Bulk Electric System, Order No. 743, 75 FR 72910 (Nov. 26, 2010), 
133 FERC ] 61,150 (2010).
    \2\ 16 U.S.C. 824o (2006).
    \3\ Mandatory Reliability Standards for the Bulk-Power System, 
Order No. 693, FERC Stats. & Regs. ] 31,242, at P 31 (2007), order 
on reh'g, Order No. 693-A, 120 FERC ] 61,053 (2007).
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    2. In this order, we deny requests for rehearing of the Final Rule. 
Further, we grant in part, and deny in part, requests for clarification 
of the Final Rule, as discussed below.

A. Summary of Order No. 743

    3. In Order No. 693, the Commission approved, with reservations, 
the current North American Electric Reliability Corporation (NERC) 
definition of the term ``bulk electric system.'' \4\ That definition 
provides:

    \4\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 75.

    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 
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source are generally not included in this definition.\5\

    \5\ Id. n.47 (quoting NERC's definition of ``bulk electric 
system'').

    4. However, the Commission noted its concern that the current 
``bulk electric system'' definition has the potential for gaps in 
coverage of facilities, and indicated that it would revisit the 
issue.\6\ In Order No. 743, the Commission returned to the issue. The 
Commission identified several concerns with the current definition that 
may compromise reliability. The Commission indicated that Order No. 
743's aim is to eliminate inconsistencies across regions, eliminate the 
ambiguity created by the current discretion in NERC's definition of 
bulk electric system, provide a backstop review to ensure that any 
variations do not compromise reliability, and ensure that facilities 
that could significantly affect reliability are subject to mandatory 
rules.\7\ Thus, Order No. 743 directed the ERO to revise the definition 
of ``bulk electric system'' through the NERC Standards Development 
Process to address the Commission's concerns.\8\ Order No. 743 also 
directed the ERO to develop an exemption process that includes clear, 
objective, transparent and uniformly applicable criteria for exempting 
facilities that are not necessary for operating the interconnected 
transmission grid.\9\
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    \6\ Id. P 77.
    \7\ Order No. 743, 133 FERC ] 61,150 at P 2.
    \8\ Id. P 16.
    \9\ Id. P 112-115.
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    5. The Commission stated that it believes the best way to address 
the identified concerns is to eliminate the Regional Entities' 
discretion to define ``bulk electric system'' without ERO 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 excluding facilities that are not 
necessary to operate an interconnected electric transmission network. 
However, the Commission specified that NERC may propose a different 
solution that is equally efficient and effective as the Commission's 
suggested 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.\10\
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    \10\ Id.
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B. Requests for Rehearing

    6. The following entities have filed timely requests for rehearing 
or for clarification of Order No. 743: American Public Power 
Association (APPA); Consumers Energy Company (Consumers); Edison 
Electric Institute (EEI); Exelon Corporation (Exelon); National Rural 
Electric Cooperative Association (NRECA); New York State Public Service 
Commission (NYPSC); Portland General Electric Company (Portland 
General); Public Power Council; City of Redding, California (Redding); 
Public Utility District No. 1 of Snohomish County, Washington 
(Snohomish); Transmission Access Policy study Group (TAPS); Western 
Petitioners;\11\ Wisconsin Electric Power Company (Wisconsin Electric); 
and Transmission Agency of Northern California (TANC).\12\
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    \11\ Blachly-Lane Electric Cooperative, Central Electric 
Cooperative, Inc., Central Lincoln People's Utility District, 
Clearwater Power Company, Consumers Power Inc., Coos-Curry Electric 
Cooperative, Inc., Douglas Electric Cooperative, Fall River Rural 
Electric Cooperative, Inc., Lane Electric Cooperative, Inc., Lincoln 
Electric Cooperative, Inc., Lost River Electric Cooperative, 
Northern Lights, Inc., Mason Public Utility District No. 3, 
Northwest Public Power Association, Northwest Requirements 
Utilities, Okanogan County Electric Cooperative, Inc., Pacific 
Northwest Generating Cooperative, Public Utility District No. 1 of 
Clallam County, Public Utility District No. 1 of Snohomish County, 
Raft River Rural Electric Cooperative, Inc., Salem Electric 
Cooperative, Salmon River Electric Cooperative, Inc., Umatilla 
Electric Cooperative, Utah Associated Municipal Power Systems, 
Washington Rural Electric Cooperative Association, and West Oregon 
Electric Cooperative, Inc.
    \12\ The California Public Utilities Commission (CPUC) filed 
comments on January 25, 2011. The Commission rejects the CPUC's 
comments as an untimely request for rehearing under Rule 713(b) of 
the Commission's Rules of Practice and Procedure.
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II. Discussion

A. Scope of Order No. 743 and Commission Directive

    7. Section 215(d)(5) of the FPA authorizes the Commission to direct 
the ERO to submit to the Commission a new or revised Reliability 
Standard that addresses a specific matter identified by the 
Commission.\13\ In Order No. 743, the Commission explained that this 
authority also includes the authority to direct the ERO to revise the 
definition of a term used in a Reliability Standard.
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    \13\ Order No. 743, 133 FERC ] 61,150 at P 29.
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    8. Pursuant to this authority, the Commission directed the ERO to 
modify the definition of ``bulk electric system'' in order to address 
certain technical and policy concerns identified by the Commission.\14\ 
Specifically, the Commission observed that Regional Entities currently 
have broad discretion to define the parameters of the bulk electric 
system in their regions, and that the exercise of this discretion has 
led to inconsistencies in how facilities are classified within and 
among regions, to

[[Page 16265]]

the effect that some facilities necessary to reliably operate the 
interconnected transmission network have been excluded from the 
obligation to comply with mandatory Reliability Standards. The 
Commission stated that one means to address its concerns is to 
eliminate the regional discretion in the ERO's current definition, 
maintain the bright-line threshold that includes all facilities 
operated at or above 100 kV except defined radial facilities, and 
establish an exemption process and criteria for excluding facilities 
the ERO determines are not necessary for operating the interconnected 
transmission network.\15\ However, the Final Rule made clear, the ERO 
may develop an alternative proposal for addressing the Commission's 
concerns with the current definition and any such alternate proposal 
must be equally efficient and effective as the Commission's suggested 
approach for addressing the identified concerns, may not result in a 
reduction in reliability, and must be supported with a technical 
analysis that demonstrates and explains, with a technical record 
sufficient for the Commission to make an informed decision, how it 
provides the same level of reliability as the Commission's suggested 
solution.\16\
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    \14\ Id. P 30.
    \15\ Id.
    \16\ Id. P 31, 74.
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1. Identifying the Specific Matter To Be Addressed
    9. NRECA requests clarification, or in the alternative rehearing, 
that the Commission seeks to resolve a narrow concern that ambiguity in 
the bulk electric system definition and lack of backstop review at NERC 
has permitted inconsistencies across regions, and that the Northeast 
Power Coordinating Council (NPCC) in particular has not made all 
facilities that could significantly affect reliability subject to the 
Reliability Standards. NRECA expresses concern that the Final Rule 
states in several places that NERC must address the Commission's 
``technical and other concerns'' without specifying those concerns.\17\ 
NRECA asks that the Commission clarify the specific matter and present 
a clear list of technical and other concerns to assist NERC in 
developing appropriate and responsive solutions.
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    \17\ NRECA at 11; citing Order No. 743, 133 FERC ] 61,150 at P 
16, 31 and 96.
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    10. NRECA further seeks clarification whether NERC, in exercising 
its technical expertise, may choose to address the specific concerns 
identified by the Commission through an alternative other than an 
amendment to the definition of bulk electric system. NRECA points out 
that, while Order No. 743 sets out a ``preferred solution,'' it also 
allows the ERO to develop an alternative proposal for addressing the 
Commission's concerns. NRECA states that it is not clear from the Final 
Rule if the ERO has discretion whether and how it amends the definition 
of bulk electric system, or only how to amend the definition. NRECA 
seeks clarification, or in the alternative rehearing, that the ERO can 
comply with the Final Rule by filing an alternative approach that does 
not amend the definition, provided that the alternative addresses the 
Commission's concerns with inconsistency, lack of oversight and 
exclusion of facilities that are required for the reliable operation of 
the interconnected transmission network. According to NRECA, denying 
the ERO the ability to develop an alternative to amending the bulk 
electric system definition is tantamount to the Commission prescribing 
the text of a Reliability Standard and denies the ERO a full range of 
options in addressing the specific matter identified by the Commission.
Commission Determination
    11. We clarify that the specific issue the Commission directed the 
ERO to rectify is the discretion the Regional Entities have under the 
current bulk electric system definition to define the parameters of the 
bulk electric system in their regions without any oversight from the 
Commission or NERC.\18\ As we explained in the Final Rule, NPCC's use 
of this discretion has resulted in an impact-based approach to defining 
the bulk electric system that allows significant subjectivity in 
application and thus creates anomalous results.\19\ While NPCC's use of 
its discretion brought the problems with the current definition to our 
immediate attention, the Commission's concern is potentially broader 
because any region could use its discretion to define the bulk electric 
system in a way that leads to similar inconsistent and anomalous 
results.
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    \18\ Order No. 743, 133 FERC ] 61,150, at P 72.
    \19\ Id. P 77-78.
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    12. We decline to provide the clarification NRECA requests 
regarding NERC's ability to address the specific matter through means 
other than revising the definition, and also deny rehearing on the 
issue. As noted above, our concern with the current bulk electric 
system definition is rooted in the unfettered discretion granted 
therein to Regional Entities to define the term. Contrary to NRECA's 
claim, it is well within our section 215(d)(5) authority to direct NERC 
to address the specific issue we have identified--the overly broad 
definition. We have not directed the ERO to revise the definition to 
incorporate a specified result; rather, we require that the change 
address our concerns.
2. Standard of Review
    13. NRECA requests clarification that the Commission is not 
imposing a higher standard of review in the Final Rule than permitted 
by section 215 of the FPA. NRECA explains that the Final Rule allows 
the ERO to develop an alternative to the Commission's suggested 
approach provided that it is ``as effective as, or more effective than, 
the Commission's proposed approach'' and must not ``result in a 
reduction in reliability.'' \20\ NRECA contends that this standard of 
review is not in the statute and, rather, that the Commission should 
clarify that it will judge by the statutory provision that the proposal 
provides for an ``adequate level of reliability.'' NRECA contends that 
this phrase connotes a range of possible solutions. NRECA claims that 
the Commission's approach, which allows the Commission's suggested 
solution to serve as a benchmark for all subsequent proposals, suggests 
a different, higher standard than ``adequate level of reliability.''
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    \20\ NRECA at 38, quoting Order No. 743, 133 FERC ] 61,158 at P 
141.
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Commission Determination
    14. FPA section 215(d)(2) establishes the standard of review the 
Commission must apply to ERO submissions with respect to the content of 
Reliability Standards:

    The Commission may approve, by rule or order, a proposed 
reliability standard or modification to a reliability standard if it 
determines that the standard is just, reasonable, not unduly 
discriminatory or preferential, and in the public interest. The 
Commission shall give due weight to the technical expertise of the 
Electric Reliability Organization with respect to the content of a 
proposed standard or modification to a reliability standard and to 
the technical expertise of a regional entity organized on an 
Interconnection-wide basis with respect to a reliability standard to 
be applicable within that Interconnection, but shall not defer with 
respect to the effect of a standard on competition. A proposed 
standard or modification shall take effect upon approval by the 
Commission.\21\

    \21\ 16 U.S.C. 824o(d)(2).

    As the statute specifies, the standard of review the Commission 
must utilize is whether the proposed Reliability Standard or 
modification to a Reliability Standard is ``just, reasonable, not 
unduly

[[Page 16266]]

discriminatory or preferential, and in the public interest.''
    15. We disagree with NRECA's assertion that section 215(c)(1) 
establishes a standard of review the Commission must apply to ERO 
submissions. Section 215(c) sets forth the criteria the Commission must 
consider in certifying an ERO, and section 215(c)(1) specifies that one 
of the considerations for certification is whether the ERO applicant 
``has the ability to develop and enforce * * * reliability standards 
that provide for an adequate level of reliability of the bulk-power 
system.'' \22\
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    \22\ 16 U.S.C. 824o(c).
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    16. Certainly, whether a proposed Reliability Standard provides for 
an adequate level of reliability is included in the factors used in 
determining whether the proposal is just and reasonable, but it is not 
the standard of review.\23\ The Commission's statement that any 
alternative proposal must be ``as effective as, or more effective than, 
the Commission's proposed approach'' and must not ``result in a 
reduction in reliability'' provides guidance regarding the Commission's 
view of what is necessary to produce not only an adequate level of 
reliability but also a result that accords with the section 215(d)(2) 
review criterion.\24\
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    \23\ 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, at P 320-338, order on reh'g, Order No. 
672-A, FERC Stats. & Regs. ] 31,212 (2006).
    \24\ See Transmission Relay Loadability Reliability Standard, 
Order No. 733-A, 134 FERC ] 61,127, at P 24-27 (2011) (stating that 
the Commission's detailed guidance on a possible approach to address 
its underlying concern, including a statement that any alternative 
approach must be ``equally efficient and effective'' does not 
establish a ``rebuttable presumption'' in favor of the Commission's 
suggested approach).
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B. Jurisdictional Issues

    17. Entities claim that the Commission over-stepped its 
jurisdiction in three ways. First, they contend that the Commission 
exceeded its authority by requiring a bright-line 100 kV threshold for 
determining which facilities are included in the bulk electric system. 
Second, entities argue that Order No. 743 fails to recognize the 
statutory exclusion of facilities used in local distribution of 
electric energy. Third, entities claim that the Commission fails to 
give due weight to the ERO's technical expertise. Several requests for 
rehearing, such as the NYPSC, Public Power Council and Snohomish, merge 
these arguments together in more global claims that the Final Rule is 
in error and should be withdrawn.
1. 100 kV Bright-Line Threshold
    18. The NYPSC and Public Power Council argue that the Commission's 
decision to ``direct the ERO to define the bulk electric system as all 
facilities operated at 100 kV and above'' is arbitrary and 
capricious.\25\ They state that section 215(a) of the FPA explicitly 
excludes facilities used in local distribution of electric energy. 
Thus, the NYPSC reasons, ``by defining the bulk-power system as all 
facilities operating at above 100 kV, the Commission exceeded its 
jurisdiction by encompassing facilities that are clearly part of the 
non-bulk power system * * *'' \26\ The NYPSC contends that the 
Commission incorrectly assumes that a facility is considered part of 
the bulk electric system simply because it is operated at or above 100 
kV. The NYPSC recites evidence, presented in its Notice of Proposed 
Rulemaking (NOPR) comments, that facilities in New York City do not 
serve a bulk system function due to the high concentration of load 
served by those lines. While noting that the Final Rule dismissed this 
evidence, the NYPSC contends that ``it is invalid to conclude that all 
facilities rated at 100 kV and above support the bulk-power system 
based on a belief that `most' of those facilities are not involved in 
local distribution.'' \27\ Similarly, Public Power Council and 
Snohomish contend that the Final Rule, by mandating a 100 kV bright-
line test, will improperly classify many 115 kV distribution facilities 
in the Western Interconnection as bulk electric system facilities.
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    \25\ NYPSC at 12; see also Public Power Council at 8-9.
    \26\ NYPSC at 13.
    \27\ NYPSC at 15.
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    19. The NYPSC notes that the Final Rule explained that entities 
would have an opportunity to seek an exemption if they believe certain 
facilities should not be included in the bulk electric system. Based on 
this, the NYPSC claims that the Final Rule implicitly acknowledged that 
various non-jurisdictional facilities are included within the 
Commission's ``redefinition'' of bulk electric system. It also claims 
that this approach is inappropriate, i.e., the Commission cannot assume 
it has jurisdiction over facilities operated above 100 kV unless and 
until an entity demonstrates otherwise. The NYPSC claims that the 
Commission also conceded that the 100 kV threshold is overly broad 
because ``several 115 and 138 kV facilities that some entities term as 
`distribution' may be needed to reliably operate the interconnected 
transmission system.'' \28\ According to the NYPSC, by stating that 
these facilities ``may'' be needed for reliability of the 
interconnected system, the Commission acknowledges that they may not be 
needed. Similarly, Portland General argues that the Commission cannot 
claim jurisdiction over any local distribution facilities and expresses 
concern that the above language from the Final Rule wrongly suggests 
that some local distribution facilities are jurisdictional under 
section 215.
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    \28\ NYPSC at 17, quoting Order No. 743, 133 FERC ] 61,150 at P 
37.
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Commission Determination
    20. At the outset, the Commission emphasizes that Order No. 743 did 
not mandate or direct NERC to adopt a 100 kV bright-line threshold. 
Order No. 743 directed NERC to undertake the process of revising the 
bulk electric system definition to address the Commission's concerns 
about the broad discretion the current definition grants to Regional 
Entities to modify the definition without Commission or ERO oversight, 
and provided a suggested solution. Specifically, the Order directed the 
ERO to revise the definition of bulk electric system ``through the NERC 
Standards Development Process to address the Commission's concerns.'' 
\29\ The Commission stated its belief that one effective way to address 
those concerns would be to eliminate the regional discretion contained 
in the current definition, which allows Regional Entities to define the 
term without Commission or ERO oversight; maintain the threshold 
contained in the current definition, which includes all facilities 
operated at or above 100 kV except defined radial facilities; and adopt 
an exemption process and criteria for excluding facilities that the ERO 
determines are not necessary to operate an interconnected electric 
transmission network. The Final Rule, however, did not mandate this 
approach as it further provided that NERC ``may propose a different 
solution that is as effective as, or superior to, the Commission's 
proposed approach.'' \30\
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    \29\ Order No. 743, 133 FERC ] 61,150 at P 16.
    \30\ Id.
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    21. Order No. 743's approach is entirely within the Commission's 
statutory authority and properly allows the ERO to develop the revised 
bulk electric system definition using its technical expertise. We, 
therefore, reject the requests for rehearing arising from the 
inaccurate premise that the Commission mandated a 100 kV bright-line 
threshold. Beyond the concerns

[[Page 16267]]

related to the Commission's authority, the substance of the arguments 
raised by the NYPSC, Public Power Council, Snohomish and Western 
Petitioners relate to the term ``used in local distribution'' and 
differentiating between local distribution and transmission, which we 
address below.
    22. Further, we disagree with the NYPSC's claim that the Final Rule 
implicitly acknowledges that various non-jurisdictional facilities are 
included within the Commission's ``redefinition'' of bulk electric 
system. As we clarify herein, regardless of the 100 kV threshold, 
facilities that are determined to be local distribution will be 
excluded from the bulk electric system. Further, NERC has yet to 
develop a modified definition, so the NYPSC's claim is unfounded at 
this time.
2. Facilities Used in Local Distribution
    23. Western Petitioners, Portland General, Snohomish, and Redding 
point out that section 215(a) of the FPA expressly exempts facilities 
``used in the local distribution of electric energy'' and, in section 
215(i), provides that the ERO ``shall have authority to develop and 
enforce compliance with reliability standards for only the bulk-power 
system.'' On this basis, Western Petitioners and Redding argue that the 
Final Rule errs by not clearly stating that the revised definition of 
bulk electric system must exclude all facilities that are used in local 
distribution. Western Petitioners suggest that the Final Rule, by 
emphasizing that the revised definition must include ``all facilities 
necessary for operating an interconnected electric transmission 
network,'' including lower voltage facilities operated in parallel and 
in support of higher voltage facilities, ``could sweep in numerous 
local distribution facilities.'' \31\
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    \31\ Western Petitioners at 10; see also Public Power Council at 
16.
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    24. Similarly, Portland General claims that the Commission erred by 
failing to clearly and consistently acknowledge the statutory exclusion 
of facilities used in local distribution of energy. Portland General 
argues that the failure to clearly delineate this exclusion is 
inconsistent with Detroit Edison Co. v. FERC, 334 F.3d 48 (DC Cir. 
2003), where the court rejected the Commission's interpretation of the 
phrase ``used in local distribution'' in section 201 of the FPA as 
rewriting the statute to exclude from the Commission's jurisdiction 
only facilities used exclusively in local distribution.
Commission Determination
    25. We disagree that the Final Rule is at odds with commenters' 
view. In Order No. 743, the Commission acknowledged that ``Congress has 
specifically exempted `facilities used in the local distribution of 
electric energy' '' from the Bulk-Power System definition.\32\ Since 
such facilities are exempted from the Bulk-Power System, they also are 
excluded from the bulk electric system. Therefore, the Commission 
agrees with Western Petitioners and others that facilities used in the 
local distribution of energy should be excluded from the revised bulk 
electric system definition.
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    \32\ Order No. 743, 133 FERC ] 61,150 at P 37.
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3. Due Weight to Expertise of the ERO
    26. As mentioned above, the NYPSC, Snohomish and Public Power 
Council characterize the Final Rule as mandating the ERO to develop a 
revised definition of bulk electric system that incorporates a 
nationally uniform, 100 kV bright-line test. Based on this 
understanding, they argue that the Final Rule's directive exceeds the 
Commission's authority under section 215(d)(5) of the FPA because it 
limits NERC's and the Western Electric Coordinating Council's (WECC) 
``substantial discretion'' to develop Reliability Standards based upon 
their technical expertise. Public Power Council and Snohomish claim 
that the directive also denies the due weight to which the ERO or an 
Interconnection-wide Regional Entity is entitled pursuant to FPA 
sections 215(d)(2) and (3).
    27. Public Power Council and Snohomish argue that the elimination 
of regional discretion directed in the Final Rule based on a desire for 
uniformity is unsupported. They also claim that this is inconsistent 
with the intent of Congress to allow for regional variation as 
evidenced by the provisions of section 215 that require the ERO to 
rebuttably presume that a WECC-developed Reliability Standard satisfies 
the statutory criteria for approval and that the Commission give due 
weight to WECC's expertise. Public Power Council and Snohomish also 
cite to the legislative history to support their claim that Congress 
recognized the need for regional differences and rejected a uniform, 
centralized approach. Further, they argue that ``due weight'' equates 
to ``substantial deference'' based on court precedent and statutory 
analysis.\33\
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    \33\ Snohomish at 18-19, citing, e.g., City of Oconto Falls v. 
FERC, 204 F.3d 1154 (DC Cir. 2000); Public Power Council at 19-20.
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    28. The NYPSC, Snohomish and Public Power Council claim that, while 
the Commission has authority under section 215(d)(5) of the FPA to 
require the ERO to address a specific matter, the Commission went 
beyond its authority pursuant to that provision by prescribing the 
particular content of a Reliability Standard. They contend that the 
ERO, in the first instance, should decide how the Commission's specific 
concerns are best addressed. The NYPSC acknowledges that the Commission 
indicated that the ERO has discretion to develop an alternative that is 
as effective as, or superior to, the Commission's bright-line approach, 
but claims that the ``narrowly tailored guidance'' limits the ERO's 
discretion and, thus, the Commission acted beyond its statutory 
authority. For all these reasons, according to the NYPSC and Public 
Power Council, the Commission abused its discretion in imposing a 100 
kV bright-line rule, thereby denying NERC and WECC the opportunity to 
develop a different threshold or methodology based on their expertise.
Commission Determination
    29. As indicated previously, Order No. 743 did not mandate a 
specific result. Rather, the Commission determined that NERC should use 
its technical expertise to develop a definition that addresses the 
Commission's concerns with regional discretion in the current 
definition. The present definition contains the 100 kV reference, and 
the Commission did not change it in Order No. 743, other than to 
suggest a solution that would remove ``generally'' from the current 
definition's reference to a 100 kV threshold and eliminate unchecked 
regional discretion. The Commission's suggestion of one way to address 
the enumerated concerns does not preclude NERC from proposing an 
alternate solution.
    30. Public Power Council and Snohomish argue that there is no 
evidence supporting the Commission's decision to require NERC to 
develop a uniform national bulk electric system definition. However, 
uniformity, absent a showing that the alternative is more stringent or 
necessitated by a physical difference, has been a hallmark of the 
mandatory Reliability Standards construct since its inception. In 
establishing the framework for developing Reliability Standards, we 
adopted the principle that proposed Reliability Standards should ``be 
designed to apply throughout the interconnected North American Bulk-
Power System, to the maximum extent this is achievable with a single

[[Page 16268]]

Reliability Standard.'' \34\ The same principle holds true for 
definitions contained within the Reliability Standards.
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    \34\ Order No. 672, FERC Stats. & Regs. ] 31,204 at P 331.
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    31. Moreover, we are not prohibiting the Interconnection-wide 
regional entities from arriving at their own regional differences. 
However, as we stated in Order No. 743, ``[c]ommenters have not 
provided compelling evidence that the proposed definition should not 
apply to the United States portion of the Western Interconnection as a 
threshold matter.'' \35\ Conversely, the Commission does have a 
compelling concern that the subjectivity and lack of ERO and Commission 
oversight embodied in the current definition could result in the 
problems we identified in the NPCC region occurring in other regions, 
further supporting adoption of a uniform national definition. As Order 
No. 743 indicated, establishing such a uniform national definition does 
not preclude a region from proposing a regional difference that is more 
stringent than the continent-wide definition, including a regional 
difference that addresses matters that the continent-wide definition 
does not, or a regional definition that is necessitated by a physical 
difference in the Bulk-Power System.\36\
---------------------------------------------------------------------------

    \35\ Order No. 743, 133 FERC ] 61,150 at P 141.
    \36\ Id.
---------------------------------------------------------------------------

    32. The Commission finds that the arguments by Public Power Council 
and Snohomish that the Commission has failed to give due weight to NERC 
or an Interconnection-wide Regional Entity as required under sections 
215(d)(2) and (3) are premature. Once NERC has developed a proposed 
bulk electric system definition, the Commission will evaluate the 
proposal and all supporting evidence and documentation under section 
215(d)(2). Similarly, should one of the two Regional Entities organized 
on an Interconnection-wide basis develop a proposal for a regional bulk 
electric system definition, the ERO must evaluate the proposal 
according to requirements of section 215(d)(3).

C. Challenges to Order No. 743's Technical Rationale

1. 100 kV Bright-Line Threshold
    33. The NYPSC, Public Power Council, and Snohomish request 
rehearing, claiming that the Commission erred in directing NERC to 
revise the bulk electric system definition to include facilities 
operated at 100 kV and above where the record lacks a technical 
justification for a bright-line test. The NYPSC contends that, because 
the bright-line 100 kV threshold adopted by the Commission was not 
based on whether those facilities are necessary for operating the 
interconnected network, the Commission's decision lacked a technical 
justification. The NYPSC claims that the Commission's approach results 
in a ``superficial consistency'' and that Order No. 743 contains no 
factual analysis as to why 100 kV is the appropriate threshold. It 
contends that the examples identified by the Commission ``that are 
purported to support the 100 kV bright-line were all 115 kV or 
higher.'' \37\
---------------------------------------------------------------------------

    \37\ NYPSC at 19.
---------------------------------------------------------------------------

    34. Further, the NYPSC argues that the Commission incorrectly 
assumes that because a facility operates at 100 kV or above in one part 
of the country that all facilities operated at similar voltages across 
the country should be treated as part of the Bulk-Power System. It 
objects to the Commission's reliance on events on facilities in other 
regions as rationale for determining that similar facilities in the 
NPCC region are part of the bulk electric system. According to the 
NYPSC, ``that logic does not hold true, since there are various 
facilities operated at the same voltages across the country that 
perform different functions and interact to different degrees with the 
bulk system, depending on the regional differences.'' \38\ The NYPSC 
reiterates that it presented evidence in its earlier comments that 
certain 138 kV facilities in New York City do not serve a bulk electric 
system function due to the high concentration of load served by those 
lines. The NYPSC contends that the Final Rule wrongfully dismissed this 
evidence by indicating that it does ``not believe that most of these 
facilities are local distribution.'' \39\ The NYPSC argues that it is 
invalid to conclude that all facilities rated 100 kV or above support 
the bulk electric system based on a belief that ``most'' of these 
facilities are not involved in local distribution.
---------------------------------------------------------------------------

    \38\ Id. at 14.
    \39\ Id. at 15, quoting Order No. 743, 133 FERC ] 61,150 at P 39 
(emphasis added).
---------------------------------------------------------------------------

Commission Determination
    35. As noted previously, contrary to the commenters' assertions, 
the Commission did not direct or mandate that the bulk electric system 
definition include a bright-line 100 kV threshold. Instead, the 
Commission directed NERC to address the inconsistency, lack of 
oversight and exclusion of facilities that are required for the 
reliable operation of the interconnected transmission network, outlined 
by the Commission in Order No. 743 using the technical expertise 
available to NERC. The Commission suggested that one means to address 
its concerns would be to, among other things, maintain the 100 kV 
threshold and radial exclusion contained in the current definition, but 
left it to NERC's discretion and technical expertise to develop a 
revised definition. The Commission also supported its suggested 
solution.\40\
---------------------------------------------------------------------------

    \40\ See, e.g., Order No. 743, 133 FERC ] 61,150 at P 72-73, 85.
---------------------------------------------------------------------------

    36. Nonetheless, we will reiterate and expand on that discussion 
here. The Commission's 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.
    37. As discussed in Order No. 743, the NPCC material impact 
assessment has resulted in inconsistent classification of some 
facilities along and within Regional Entity borders.\41\ Further, Order 
No. 743 pointed out the failure of the NPCC test to classify facilities 
associated with nuclear generation as part of the bulk electric system 
and thus subject to NERC Reliability Standards.\42\ The suggested 100 
kV threshold would maintain the current assumption, under NERC's 
current definition, that non-radial 100 kV transmission facilities (not 
local distribution) are part of the bulk electric system unless 
exempted through the process NERC develops.
---------------------------------------------------------------------------

    \41\ Order No. 743, 133 FERC ] 61,150, P 80.
    \42\ Id. P 84.
---------------------------------------------------------------------------

    38. The Commission disagrees with the characterization that its 
suggested approach will only achieve superficial consistency--our 
suggested approach will require that facilities needed for the reliable 
operation of interconnected electrical network comply with the NERC 
Reliability Standards. Regardless of whether NERC adopts our suggested 
solution in whole or in part, or develops another approach, the bulk 
electric system definition and related processes that NERC ultimately 
produces, and the Commission approves, will significantly reduce or 
eliminate reliability problems arising from incomplete Reliability 
Standard coverage resulting from ineffective material impact 
assessments and inconsistent classification of facilities. The Final 
Rule eliminates these problems by directing the ERO to revise the 
definition of bulk electric system in a way that addresses the concerns 
outlined in the Final Rule.
    39. The NYPSC argues that the Commission did not provide any 
evidence supporting a 100 kV threshold since all three examples in 
Order No. 743 involved facilities 115 kV or higher.

[[Page 16269]]

However, as indicated in Order No. 743, the current NERC bulk electric 
system definition contains a general 100 kV threshold. The Commission's 
suggested solution simply would eliminate regional discretion that is 
not subject to review by the ERO or the Commission in the application 
of the current threshold. Additionally, the NYPSC's argument presents a 
distinction without a difference, since nominal voltage levels are 
established in industry for use in power systems but no voltage 
classification exists at 100 kV.\43\ Therefore, a 100 kV threshold will 
effectively capture the same facilities as a 115 kV threshold.
---------------------------------------------------------------------------

    \43\ See, e.g., American National Standards Institute, 
Incorporated (ANSI) Standard C84.1, Electrical Power Systems and 
Equipment-Voltage Ratings (60Hz).
---------------------------------------------------------------------------

    40. The Commission also disagrees with the NYPSC's characterization 
of the suggested 100 kV threshold as treating all facilities operated 
at similar voltages across the country as part of the bulk electric 
system. As we have explained, the Commission views the suggested 
threshold as a first step or proxy in determining which facilities are 
included and which are excluded or exempted from the bulk electric 
system. The Commission provided considerable support in the Final Rule 
for its belief that facilities operated at or above 100 kV are 
sufficiently similar throughout the continental United States to be 
able to use a 100 kV threshold as an initial line of demarcation, which 
the ERO would further refine using exclusions (such as for radial 
facilities serving only load with one transmission source) and 
exemptions.\44\ Similarly, we are not persuaded by the NYPSC's 
contention that Order No. 743's reliance on events in several regions 
as support for taking action on a nationwide basis was misplaced. The 
facilities in the several regions are sufficiently similar to allow the 
Commission to draw technical justification for its actions from these 
events. The same configurations cited in the examples and the areas 
described in Order No. 743 can be found throughout the country.\45\ 
Facilities operated at 100-200 kV, in parallel with extra high voltage 
facilities, connect areas with generation to distant hubs and load 
centers.\46\ As discussed in Order No. 743, failure of 100-200 kV 
facilities has caused cascading outages that would have been minimized 
or prevented if entities were in compliance with the NERC Reliability 
Standards.\47\ For the reasons discussed above, the Commission denies 
the requests for rehearing.
---------------------------------------------------------------------------

    \44\ See, e.g., Order No. 743, 133 FERC ] 61,150 at P 73, 139-
140.
    \45\ The Commission reviewed transmission maps available in 
annual Form 715 submissions (Form 715 submissions). (Form 715 is the 
``Annual Transmission Planning and Evaluation Report,'' in which 
operators of integrated transmission at or above 100 kV submit to 
the Commission base case power flow and transmission system maps and 
diagrams. Submissions are considered Critical Energy Infrastructure 
Information (CEII) and are subject to the Commission's CEII rules.)
    \46\ Id.
    \47\ Order No. 743, 133 FERC ] 61,150, at P 87.
---------------------------------------------------------------------------

2. Impact-Based Methodology
    41. The NYPSC requests rehearing on the Commission's rejection of 
an impact-based test for identifying bulk electric system elements and 
asks that the Commission reconsider an impact-based test as a viable 
approach. The NYPSC asserts that ``NERC and the NPCC have both 
determined that the NPCC's impact-based definition, coupled with its 
regionally tailored reliability criteria, effectively and efficiently 
ensures reliability.'' \48\ It contends that, because an impact-based 
test identifies ``facilities and control system necessary for operating 
an interconnected electric energy transmission network,'' that test is 
consistent with section 215 of the FPA and obviates the Commission's 
concern that a discrepancy in definitions could result in reliability 
gaps.\49\ The NYPSC argues that the Commission dismissed the impact 
approach based on a single event and the stated need for a consistent 
and comprehensive test. In response, the NYPSC argues that Order No. 
743 does not identify how inconsistencies have impacted or may impact 
the reliable operation of the bulk electric system. Finally, the NYPSC 
asserts that the Commission's concerns may be capable of being 
addressed through modifications to the existing impact tests and the 
Commission should consider the validity of such an approach.
---------------------------------------------------------------------------

    \48\ NYPSC at 28.
    \49\ NYPSC at 28, quoting 16 U.S.C. 824o(a)(1)(A).
---------------------------------------------------------------------------

    42. Public Power Council also expresses concern that the 
Commission's discussion about material impact analysis leaves no room 
for a meaningful test to distinguish between facilities that are 
necessary for the operation of the bulk electric system and those that 
are not. Public Power Council criticizes the Commission's rationale, 
contending that if a material impact assessment indicates that the 
Bulk-Power System can function properly even if a fault or operational 
failure occurs on a particular facility, it is not clear why the 
Commission can claim that that facility is nonetheless ``necessary'' 
for bulk electric system operation.
    43. In a related vein, NRECA seeks clarification, or in the 
alternative rehearing, that the Commission's determination regarding 
``material impact'' does not intend for NERC to change the NERC Rules 
of Procedure (other than to establish a process for granting 
exemptions) or the NERC Statement of Compliance Registry Criteria. 
While NRECA acknowledges that the Final Rule does not discuss such 
changes to the NERC rules or Registry Criteria, NRECA explains that it 
raises the concern because it is unclear whether Order No. 743 only 
rejects the NPCC impact-based methodology or every functional impact 
methodology. NRECA points to various provisions of the NERC rules and 
Registry Criteria indicating that NERC's registry approach is based on 
identifying owner, operators and users of the Bulk-Power System that 
have a ``material impact'' on the Bulk-Power System.\50\ Accordingly, 
NRECA seeks assurance that the Final Rule is not intended to 
``undermine the core concepts'' of the NERC Rules and Registry 
Criteria.
---------------------------------------------------------------------------

    \50\ See NRECA at 14-15, quoting NERC Rules of Procedure, 
section 501; Registry Criteria at 1.
---------------------------------------------------------------------------

Commission Determination
    44. Order No. 743 did not reject all material impact assessments 
but, instead, took issue with particular tests and outlined general 
problems with the material impact tests used to determine the extent of 
the bulk electric system that we have seen to date. The NYPSC 
incorrectly states that the Commission rejected NPCC's material impact 
assessment based on one event. Rather, as discussed extensively in the 
Final Rule and elsewhere herein, the Commission rejected NPCC's 
material impact assessment due to its subjective language and failure 
to identify facilities necessary to reliably operate the interconnected 
transmission system.\51\ These flaws include use of the amorphous term 
``local area,'' which was not consistently applied throughout the NPCC 
region. The NYPSC does not clarify application of this term in its 
request for rehearing, and instead merely states that the local area is 
defined by ``the Council members.'' \52\ As Order No. 743 notes, the 
subjectivity of the ``local area'' definition, which ultimately 
determines whether or not a facility is classified as part of the bulk

[[Page 16270]]

electric system, has led to varying results throughout the NPCC 
region.\53\
---------------------------------------------------------------------------

    \51\ Order No. 743, 133 FERC ] 61,150 at P 76-78.
    \52\ NYPSC at 28.
    \53\ Order No. 743, 133 FERC ] 61,150 at P 80.
---------------------------------------------------------------------------

    45. The Commission does not agree that Order No. 743 did not 
address how inconsistencies in defining the facilities that are 
included in the bulk electric system may impact the operation of the 
interconnected transmission network. The Final Rule detailed several 
instances where the NERC Reliability Standards are less effective when 
they are not applied to all necessary facilities.\54\
---------------------------------------------------------------------------

    \54\ See, e.g., Id. P 80, 83, 86, 90.
---------------------------------------------------------------------------

    46. Public Power Council contends that it is not clear why the 
Commission can claim that a particular facility is nonetheless 
``necessary'' for bulk electric system operation if a material impact 
assessment proves that the Bulk-Power System can function properly even 
if a fault or operational failure occurs on that facility. As we noted 
in Order No. 743, by this metric the facilities that caused the 2003 
Blackout would not be viewed as critical since none of the individual 
facilities caused the outage.\55\ In defining jurisdictional 
facilities, section 215(a)(1) focuses on whether facilities are 
necessary to operate the interconnected transmission system, not solely 
on the consequences of unreliable operation of those facilities.\56\
---------------------------------------------------------------------------

    \55\ Id. P 38.
    \56\ 16 U.S.C. 824o(a)(i).
---------------------------------------------------------------------------

    47. The Commission clarifies that it was not our intent to disrupt 
the NERC Rules of Procedure or the Statement of Compliance Registry 
Criteria. Nor did the Commission intend to rule out using any form of a 
material impact test in the reliability context that can be shown to 
identify facilities needed for reliable operation. However, as Order 
No. 743 explained, the Commission has serious concerns about NPCC's 
Document A-10 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.\57\ 
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. Therefore, the Commission 
indicated, should NERC choose to define the bulk electric system using 
a method other than one employing the 100 kV bright line threshold the 
Commission suggested, such an alternative method must be consistent, 
repeatable and verifiable with supporting technical analysis.\58\
---------------------------------------------------------------------------

    \57\ Order No. 743, 133 FERC ] 61,150 at P 76.
    \58\ Id. P 74, 85.
---------------------------------------------------------------------------

3. Western Interconnection/Regional Variation
    48. In Order No. 743, the Commission rejected arguments that 100-
199 kV facilities in the Western Interconnection should be treated 
differently than facilities in the Eastern Interconnection.\59\ The 
Commission stated that commenters had not provided an adequate 
explanation, supported by data and analysis, why there is a physical 
difference that justifies different treatment of these facilities in 
the West.
---------------------------------------------------------------------------

    \59\ Id. P 139-140.
---------------------------------------------------------------------------

    49. Snohomish and Public Power Council contend that, because 115 kV 
facilities commonly are used in the West for distribution, the 
Commission's ``inflexible'' 100 kV threshold is ``unworkable'' in the 
West. Snohomish and Public Power Council claim that the Western 
Interconnection is materially different from the Eastern 
Interconnection because the long distances between load centers, and 
the vast areas commonly covered by distribution systems, result in a 
transmission system that is largely operated at voltages of 230 kV or 
above, and distribution systems that are commonly operated at voltages 
of 115 kV. They contend that this physical difference is documented in 
a study performed by WECC's Bulk Electric System Definition Task 
Force.\60\ Snohomish contends that power flow base cases examined by 
the Bulk Electric System Definition Task Force support their assertion 
that facilities rated between 100 kV and 200 kV have a small impact on 
transmission in the West.
---------------------------------------------------------------------------

    \60\ See Public Power Council at 6, Snohomish at 9 quoting WECC 
Bulk Electric System Definition Task Force, Initial Proposal, 
attached as Exh. A to Snohomish's NOPR comments.
---------------------------------------------------------------------------

    50. Further, Snohomish contends that Order No. 743, at most, 
demonstrates a problem in the NPCC region and does not provide 
justification for action in the West. Snohomish asserts that the Final 
Rule fails to identify a single reliability event in the Western 
Interconnection arising from the bulk electric system definition as 
currently applied. Snohomish argues that the Commission cannot use 
isolated and localized problems to justify nationwide action.\61\ 
According to Snohomish, the three disturbances discussed in the Final 
Rule cannot justify nationwide action or demonstrate that all 
facilities operated in the 100-200 kV range are part of the 
interconnected transmission grid.
---------------------------------------------------------------------------

    \61\ Snohomish at 31-32, citing Associated Gas Distributors v. 
FERC, 824 F.2d 981, 1019 (DC Cir. 1985).
---------------------------------------------------------------------------

    51. Snohomish also contends that the Commission implicitly accepted 
the evidence that most 115 kV facilities in the West operate as 
distribution by failing to assert that the evidence is flawed, but, 
instead, responding in the Final Rule that some facilities operating in 
the 100-200 kV range in the West are ``operationally significant and 
needed for reliable operation as identified by certain WECC 
documents.'' \62\ According to Snohomish, this demonstrates the 
irrationality of Order No. 743's approach because it focuses on the 
operating voltage of electric facilities to the exclusion of more 
germane factors such as how those facilities are connected and interact 
with the grid. Snohomish claims that the threshold approach is 
inconsistent with previous statements from the Commission that 
acknowledge that the function of facilities and how they are 
interconnected determines their significance. Public Power Council 
explains that, currently, most Public Power Council members that 
operate 115 kV distribution facilities are not classified as 
transmission owners or operators. Thus, according to Snohomish and 
Public Power Council, by taking a superficial view of the matter, Order 
No. 743's 100 kV threshold would sweep in a large number of facilities, 
including hundreds or perhaps thousands of miles of local distribution 
facilities, in the West.
---------------------------------------------------------------------------

    \62\ Snohomish at 11-12, quoting Order No. 743, 133 FERC ] 
61,150 at P 139.
---------------------------------------------------------------------------

    52. Snohomish additionally raises a concern that the Final Rule 
could be read in a manner that would require an end to the work of the 
WECC Bulk Electric System Definition Task Force. Snohomish states that 
the Bulk Electric System Definition Task Force, which was created in 
2008 partly in response to Order No. 693, has been working on 
developing a bulk electric system definition that is appropriate to the 
unique facts of the Western Interconnection.\63\ Snohomish argues that 
a Commission directive ``to `eliminate the regional discretion in the 
ERO's current definition' of BES'' would mean ``that the work of the 
[Bulk Electric System Definition Task Force] must be terminated because 
it would result in a regional variation to the BES definition that FERC 
has forbidden.'' \64\

[[Page 16271]]

This result, according to Snohomish, would violate the FPA because 
``Section 215(d)(2) requires FERC to accord `due weight' to the 
`technical expertise' of both NERC and WECC, and Section 215(d)(3) 
requires NERC to `rebuttably presume' that reliability standards 
developed and approved by WECC are consistent with the FPA.'' \65\ 
Therefore, Snohomish requests clarification, or in the alternative 
rehearing, that the Commission's ``findings concerning the material 
impact assessment methodology used in NPCC apply only to the NPCC'' and 
do not apply to the Bulk Electric System Definition Task Force efforts 
currently under way.\66\ Snohomish further seeks clarification, or in 
the alternative rehearing, that the bulk electric system definition 
currently being developed for application in WECC ``may incorporate any 
voltage threshold or other method of assessing the impact of lower-
voltage facilities,'' that the WECC bulk electric system definition 
``must exclude facilities used in the local distribution of electric 
energy,'' and that the definition should distinguish between facilities 
that are or are not necessary for operating an interconnected energy 
transmission network.\67\ Finally, Snohomish argues that the Commission 
should clarify that the Final Rule is not intended to stop NERC's 
review of the findings of the Ad Hoc Committee for Generator 
Requirements and the Transmission Interface (GOTO Task Force) because 
such an action would be arbitrary and capricious.\68\
---------------------------------------------------------------------------

    \63\ See Snohomish at 35.
    \64\ Snohomish at 40-41, quoting Order No. 743, 133 FERC ] 
61,150 at P 30.
    \65\ Id. at 41, citing 16 U.S.C. 824o(d)(2)-(3).
    \66\ Id. at 42.
    \67\ Id. at 43 (emphasis in original).
    \68\ As described in Order No. 743, NERC has undertaken an 
initiative (the GOTO task force) to address the special 
circumstances associated with generators and to determine which 
Reliability Standards might be inappropriate for such limited 
facilities. See Order No. 743, 133 FERC ] 61,150, at n.158.
---------------------------------------------------------------------------

Commission Determination
    53. The Commission denies rehearing on these issues. As stated 
elsewhere, Order No. 743 did not mandate a 100 kV threshold. Rather, 
the Commission directed NERC to develop a revised definition that 
addresses our concerns with the current definition, including 
inconsistency, lack of oversight and exclusion of facilities that are 
required for the reliable operation of the interconnected transmission 
network. We suggested that one means to address our concerns would be 
to maintain the 100 kV threshold contained in the current definition, 
while eliminating the discretion that allows Regional Entities to 
interpret and apply the definition without ERO or Commission oversight.
    54. Commenters contend that the majority of 115 kV facilities in 
the West are distribution facilities and therefore not significant to 
the transmission of power. First, as we have stated herein, to the 
extent any facility is a local distribution facility, it is exempted 
from the requirements of section 215.\69\ However, the Commission 
observes that numerous 115 kV and 138 kV transmission lines in the 
Western Interconnection often are the only pathway available between 
various load centers and networked points.\70\ Other network points are 
electrically and physically remote from each other and have the 
potential for parallel flows between two transmission paths, some at 
different voltage levels and others at the same voltage. Analyzing how 
the flows split during normal, outage and emergency conditions, as well 
as implications to system constraint, could lead to a conclusion that 
such facilities are improperly labeled as local distribution.
---------------------------------------------------------------------------

    \69\ 16 U.S.C. 824o(a)(1).
    \70\ Form 715 submissions.
---------------------------------------------------------------------------

    55. Snohomish argues that the Commission errs in focusing on 
voltage rather than the characteristics of the facilities. However, in 
the first instance, the Commission's suggested approach uses NERC's 
current definition, which includes a 100 kV threshold, as a baseline 
for determining which facilities are included in the bulk electric 
system. As discussed below, we view a voltage threshold as an initial 
proxy for determining where the line between local distribution and 
transmission lies. We agree with Snohomish that it is important to 
consider additional facility characteristics in order to make a final 
determination regarding which facilities are included in the bulk 
electric system.
    56. The Commission notes that while the events cited in Order No. 
743 occurred in the Eastern Interconnection, the underlying concerns 
are applicable to the nation as a whole. Currently, NERC and the 
Commission do not have oversight of regional bulk electric system 
classification decisions. If all facilities necessary for reliable 
operation are not subject to the Reliability Standards, the 
effectiveness of the Reliability Standards is undermined.
    57. Snohomish's concern that Order No. 743 would put an end to the 
WECC Bulk Electric System Definition Task Force is unfounded. The 
Commission clarifies that our intent in requiring the ERO to 
``eliminate the regional discretion'' from the current definition was 
to prevent the regions from modifying the regional bulk electric system 
definition without Commission or ERO oversight. As noted elsewhere, 
WECC may petition for a regional variation, if justified, through the 
process outlined in Order No. 672.\71\
---------------------------------------------------------------------------

    \71\ See Order No. 672, FERC Stats. & Regs. ] 31,204 at P 291.
---------------------------------------------------------------------------

    58. In response to Snohomish's question concerning local 
distribution, we reiterate that facilities used for local distribution 
are excluded from the Bulk-Power System definition under section 215, 
and thus are excluded from the bulk electric system. With respect to 
changing the 100 kV threshold in the approved definition, the 
Commission did not direct such a change.
    59. Similarly, we reiterate that Order No. 743 does not affect the 
GOTO Task Force's activities; however, the task force members may 
submit their comments and report to NERC for its consideration as NERC 
develops an exemption process.
    60. We understand from the Public Power Council's comments that 
most Public Power Council members owning or operating 115 kV facilities 
are not classified as transmission owners or operators due to the fact 
that their facilities are radial from one transmission supply and 
serving only load. Such facilities currently are excluded from 
registration and we believe would appropriately be excluded in an 
acceptable revised bulk electric system definition.

D. Bulk-Power System v. Bulk Electric System

    61. APPA and TANC request clarification that the Commission is not 
now making a determination as to whether the Bulk-Power System is 
broader than the bulk electric system and is preserving for future 
proceedings the rights of parties to challenge such a determination. 
According to APPA, the Final Rule appears to track the statutory 
definition of Bulk-Power System, i.e., ``all facilities necessary to 
operate the interconnected transmission network,'' in framing its 
directive to NERC to revise the definition of bulk electric system. 
APPA also points to language in Order No. 743 that it believes suggests 
that the Commission considers that the statutory definition of Bulk-
Power System may be broader than the bulk electric system.\72\ APPA 
states that, to preserve its legal rights on the matter, it seeks 
``limited clarification'' that the Commission is not determining that 
the statutory Bulk-Power System definition extends beyond the bulk 
electric system

[[Page 16272]]

definition as NERC is directed to revise it in this proceeding. In the 
alternative, if the Commission denies clarification, APPA seeks 
rehearing that ``given the Final Rule's directions to NERC to define 
[bulk electric system] in a manner that tracks, virtually word-for-
word, the statutory [Bulk-Power System] definition, the Commission's 
continued suggestion that the [Bulk-Power System] definition may reach 
further than the [bulk electric system] would be arbitrary and contrary 
to the express terms of the statute.''\73\
---------------------------------------------------------------------------

    \72\ APPA at 5, quoting Order No. 743133 FERC ] 61,150 at P 36, 
41, and 100.
    \73\ APPA at 7-8.
---------------------------------------------------------------------------

    62. Based on similar concerns, NRECA requests clarification, or in 
the alternative rehearing, that the statutory definition of Bulk-Power 
System and the definition of bulk electric system are synonymous. NRECA 
points to provisions of the NERC Rules of Procedure that reference the 
Bulk-Power System to demonstrate such convergence. NRECA also contends 
that the language of section 215 and the statute's legislative history, 
and prior usage of the two terms, supports its position.
Commission Determination
    63. The Commission grants APPA and TANC's requests for 
clarification. We do not see any useful purpose that would be served by 
defining the term Bulk-Power System in this proceeding, and decline to 
do so. Accordingly, we dismiss as premature NRECA's request for 
clarification, or in the alternative, rehearing.

E. Identification of Facilities Used in Local Distribution

    64. In Order No. 743, the Commission recognized that the ERO would 
need to establish whether a particular facility is local distribution 
or transmission, and directed the ERO to develop a means to make such a 
determination.\74\
---------------------------------------------------------------------------

    \74\ Id. P 37.
---------------------------------------------------------------------------

Comments
    65. Consumers Energy, Exelon and Portland General request 
clarification that NERC's evaluation of how to classify facilities 
should consider prior distribution classifications. Consumers Energy 
and Portland General seek clarification on the role of the Order No. 
888 Seven Factor Test in determining whether facilities are classified 
as ``local distribution facilities'' and the impact of a prior Seven 
Factor Test determination.\75\ Consumers seeks clarification whether 
facilities in excess of 100 kV that have explicitly been found by the 
Commission to be local distribution under the Seven Factor Test will 
automatically be excluded from the bulk electric system or will they 
need to go through the exemption process. Consumers Energy further asks 
whether, if the owner of such facilities must apply for an exemption, 
the earlier Seven Factor finding provides a presumption that the 
facility should be excluded. Exelon insists that a facility can be 
classified as either local distribution or bulk transmission--but not 
both.
---------------------------------------------------------------------------

    \75\ 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 (1996), order 
on reh'g, Order No. 888-A, FERC Stats. & Regs. ] 31,048 (1997), 
order on reh'g, Order No. 888-B, 81 FERC ] 61,248, 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).
---------------------------------------------------------------------------

    66. EEI and Portland General request clarification that the term 
``used in local distribution'' does not have different meanings under 
sections 201(b)\76\ and 215 of the FPA and that the Final Rule does not 
affect other determinations of what facilities are considered ``used in 
local distribution'' and thus outside of the Commission's jurisdiction. 
EEI argues that since Congress used the same terminology in defining 
the Commission's jurisdiction in both sections 201 and 215, it must 
have intended the words to have the same meaning. EEI seeks 
clarification that previous or future regulatory decisions regarding 
local distribution facilities can serve as an exemption criterion, and 
states that such clarification will better align jurisdictional 
determinations under the FPA. Portland General argues that the 
Commission does not have the flexibility to interpret ``facilities used 
in local distribution'' to mean two different things in two different 
parts of the FPA. Specifically, Portland General argues that the 
Commission ``must acknowledge and give effect to established FPA 
Section 201(b) precedent regarding the identification of `local 
distribution' facilities, and must recognize that Congress intended the 
same `local distribution' facilities to be exempt from Commission 
jurisdiction under Sections 201(b) and 215(a) of the FPA.''\77\
---------------------------------------------------------------------------

    \76\ 16 U.S.C. 824.
    \77\ Portland General at 10.
---------------------------------------------------------------------------

Commission Determination
    67. Although local distribution facilities are excluded from the 
definition, it still is 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.\78\ The 
Commission envisioned that the process of identifying which facilities 
are local distribution and which are transmission likely would require 
more than one step. Under the methodology the Commission proffered, the 
100 kV bright-line threshold would serve as the initial proxy for 
determining which facilities are local distribution, and which are 
transmission. The Final Rule provides ample support for the 
reasonableness of a 100 kV threshold, not the least of which is that 
the ERO's definition of bulk electric system currently utilizes a 
general 100 kV threshold.\79\ The Commission recognized, however, that 
it would be necessary to identify any local distribution that is 
improperly included, and conversely to identify any transmission that 
is improperly excluded, by the proxy.
---------------------------------------------------------------------------

    \78\ See, e.g., California Pacific Electric Company, LLC, 133 
FERC ] 61,018 at n.59 (2010) (``The Supreme Court has determined 
that whether facilities are used in local distribution is a question 
of fact to be decided by the Commission.''), citing FPC v. Southern 
California Edison Co., 376 U.S. 205, 210 n.6 (1964).
    \79\ See, e.g., Order No. 743, 133 FERC ] 61,150 at P 73, 85.
---------------------------------------------------------------------------

    68. The Commission clarifies 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''\80\ was intended to grant discretion to the ERO, 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. This mechanism 
will allow the ERO to maintain an inventory of the transmission 
facilities subject to the mandatory Reliability Standards, and to 
exclude local distribution facilities from the bulk electric system 
definition by applying the criteria. Once NERC develops and submits its 
proposal to the Commission, the Commission will, as part of its 
evaluation of the proposal, determine whether the process developed 
adequately differentiates between local distribution and transmission.
---------------------------------------------------------------------------

    \80\ Order No. 743, 133 FERC ] 61,150 at P 37.
---------------------------------------------------------------------------

    69. We agree with Consumers Energy, Portland General and others 
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

[[Page 16273]]

applying the test or developing an alternative approach as it deems 
necessary.
    70. With respect to Consumers Energy's request for clarification 
regarding prior Seven Factor Test determinations qualifying for 
automatic exclusion, the Commission reiterates that we have granted 
NERC discretion to develop a means to differentiate between local 
distribution and transmission facilities, which NERC will submit to the 
Commission for review and approval. Consequently, we leave to NERC in 
the first instance questions about if and how the Seven Factor Test 
should be considered in differentiating between local distribution and 
transmission facilities.
    71. Our purpose in moving away from the proposal in the NOPR was to 
provide NERC with the greatest amount of flexibility to utilize its 
technical expertise and processes in developing an appropriate 
exemption process to complement a revised definition of ``bulk electric 
system.'' Considerations regarding the Seven Factor Test and its 
usefulness in a NERC-designed exemption process are initially for NERC 
to decide in response to our directive in Order No. 743. As we said in 
Order No. 743, ``allowing the ERO to develop an appropriate exemption 
process should provide interested stakeholders an opportunity to 
participate in the development of the process.''\81\ Consumers Energy, 
Portland General and others can raise any concerns with respect to use 
of the Seven Factor Test or any other concern during the development of 
the exemption process. Under the exemption process the Commission 
ultimately approves, once a facility is classified as local 
distribution, the facility will be excluded from the bulk electric 
system unless changes to the system warrant a review of the 
determination.
---------------------------------------------------------------------------

    \81\ Order No. 743, 133 FERC ] 61,150 at P 112.
---------------------------------------------------------------------------

    72. We decline to provide the clarification EEI and Portland 
General request regarding the use of the term ``used in local 
distribution'' in FPA sections 201(b) and 215, as we find the request 
premature. Order No. 743 tasked NERC, as the entity with technical 
expertise, with developing a process for differentiating between local 
distribution and transmission facilities to apply in the reliability 
context. Once NERC develops and submits a proposed methodology, we will 
evaluate whether the proposal results in any conflicts with the 
statutory language.

F. Exemption Process

    73. Order No. 743 directed NERC to develop a process for exempting 
facilities operated at or above 100 kV that are not necessary for 
operating the transmission grid. The Final Rule declined to dictate the 
substance of the exemption process, leaving this task to the ERO. This 
would provide interested stakeholders an opportunity to participate in 
developing the process. The Final Rule did identify several matters or 
concerns to be addressed in an acceptable exemption process. The 
Commission asked the ERO to develop an exemption process that includes 
clear, objective, transparent, and uniformly applicable criteria for 
exemption of facilities that are not necessary for operating the grid 
and any related changes to its Rules of Procedures that may be required 
to implement the exemption process. Numerous petitioners seek rehearing 
and clarification regarding the exemption process discussed in the 
Final Rule.\82\
---------------------------------------------------------------------------

    \82\ As discussed further below, the Commission uses the term 
``exclusion'' herein when discussing facilities expressly excluded 
by the statute (i.e., local distribution) and the term ``exemption'' 
when referring to the exemption process NERC will develop for use 
with facilities other than local distribution that may be exempted 
from compliance with the mandatory Reliability Standards for other 
reasons.
---------------------------------------------------------------------------

1. Exclusion of Facilities Used in Local Distribution
    74. Western Petitioners and Portland General seek rehearing that 
the exemption process developed by the ERO should not apply to 
facilities used in local distribution. Western Petitioners and Portland 
General state that facilities used in local distribution are not 
subject to section 215. Thus, they argue that the ERO lacks authority 
to subject local distribution facilities to an exemption process. 
According to Western Petitioners, subjecting such facilities to an 
exemption process developed by the ERO, and allowing the ERO to 
determine ``jurisdictional exemptions'' for facilities not subject to 
section 215 would ``eviscerate state jurisdiction over numerous local 
facilities, in direct contravention of Congress' intent.''\83\ For its 
part, Portland General argues that, by directing NERC to review 
facilities over 100 kV currently designated as local distribution under 
the Seven Factor Test and ``by pushing the ERO to recognize a bright-
line presumption threshold that was expressly rejected in Order No. 
888, the Commission is clearly departing from its existing precedent, 
under which these same facilities have been determined to be `local 
distribution' facilities exempt from regulation under Section 
215.''\84\
---------------------------------------------------------------------------

    \83\ Western Petitioners at 12, quoting Detroit Edison Co. v. 
FERC, 334 F.3d at 54.
    \84\ Portland General at 14.
---------------------------------------------------------------------------

Commission Determination
    75. As the Commission explained above, we agree that local 
distribution facilities are not subject to FPA section 215. However, we 
disagree with Western Petitioners and Portland General that it is 
outside our jurisdiction to determine which facilities are local 
distribution and therefore excluded from the bulk electric system. We 
have in the first instance the authority to determine the scope of our 
jurisdiction.\85\
---------------------------------------------------------------------------

    \85\ See, e.g., Nine Mile Point Nuclear Station LLC v. Niagara 
Mohawk Power Corp., 110 FERC ] 61,033, at P 30 & n.31 (2005), aff'd, 
452 F.3d 822 (D.C. Cir. 2006); accord New York v. FERC, 535 U.S. 1, 
22-23 (2002) (holding that the Commission was within its authority 
to establish a seven-factor test to determine which facilities are 
local distribution facilities that fall outside of the Commission's 
jurisdiction pursuant to FPA section 201). Cf. Western Massachusetts 
Electric Co., 61 FERC ] 61,182, at 61,661 (1992), aff'd, 165 F.3d 
922, 926 (D.C. Cir. 1999) (concluding the Commission may examine 
contracts relating to transactions which may be subject to its 
jurisdiction prior to making its determination as to jurisdiction).
---------------------------------------------------------------------------

    76. The Commission notes some confusion regarding ``exclusions'' 
versus ``exemptions.'' We understand that a facility that is excluded 
would not have to go through any process at NERC to determine 
applicability. On the other hand, where an entity applies to NERC to 
seek to exempt its facility from the bulk electric system, NERC would 
follow an exemption process. With that understanding, we clarify that, 
as discussed herein, we envision that the process for determining which 
facilities will be included under the bulk electric system will involve 
several steps. NERC will develop criteria for determining whether a 
facility that falls under the definition of bulk electric system may 
qualify for exclusion. If, for example, the application of the criteria 
clearly indicates that a facility is local distribution, the facility 
is excluded, and no process before the ERO is required. If application 
of the NERC criteria does not lead to a definitive result, the entity 
could apply for an exemption, invoking a factual inquiry before the ERO 
to determine the proper categorization of facilities.
2. Maintaining a List of Excluded Facilities
    77. Similarly, Western Petitioners challenge the suggestion in the 
Final Rule that the ERO maintain a list of excluded facilities, 
including local

[[Page 16274]]

distribution facilities, arguing that the establishment of a rule to 
maintain such a list is beyond NERC's statutory authority. They argue 
that nothing in FPA section 215 vests the ERO with oversight of 
facilities used in distribution, even for the purpose of maintaining a 
list of exempt facilities.
Commission Determination
    78. The Commission agrees with Western Petitioners that section 215 
does not grant the ERO oversight of facilities used in local 
distribution. However, as the Commission has explained, we have 
jurisdiction to determine which facilities are local distribution, and 
which are transmission. In order to exercise such oversight, including 
the appropriate application of the ERO's exemption determinations, it 
is important to have an inventory of facilities.\86\
---------------------------------------------------------------------------

    \86\ Order No. 743, 133 FERC ] 61,150 at P 117.
---------------------------------------------------------------------------

    79. Once the ERO develops the inventory of facilities by applying 
the process the Commission ultimately approves, the Commission has 
authority, in its ERO oversight role, to review the determinations to 
ensure consistent application of the process and the accuracy of the 
resulting inventory. Such a review necessarily includes reviewing not 
only the inventory of facilities ultimately classified as transmission, 
but also those excluded as local distribution, particularly in 
instances where the decision was a close call. In performing such a 
review, the Commission is not inappropriately overseeing local 
distribution facilities but, rather, is reviewing the ERO's application 
of the process for drawing the line between local distribution and 
transmission, which is within our authority under section 215 of the 
FPA.
3. Exemption v. Exclusion of ``Radials To Load'' Facilities
    80. In Order No. 743, the Commission reiterated that we do not seek 
to modify the second part of the current NERC bulk electric system 
definition, which states that ``[r]adial transmission facilities 
serving only load with one transmission source are generally not 
included in this definition.'' \87\ The Commission also suggested that 
the ERO could also track exemptions for radial facilities.\88\
---------------------------------------------------------------------------

    \87\ Order No. 743, 133 FERC ] 61,150, at P 55.
    \88\ Id. P 119.
---------------------------------------------------------------------------

Comments
    81. APPA, TANC, NRECA and TAPS request clarification that radial 
transmission facilities serving only load, i.e., radials to load, with 
one transmission source may be excluded from the bulk electric system 
definition and entities with such facilities need not go through an 
exemption process. TAPS and APPA state that exclusion of radials to 
load, rather than inclusion subject to exemption, is consistent with 
section 215 of the FPA. TAPS argues that the Final Rule makes no 
attempt to demonstrate that radials to load are among the ``facilities 
necessary to operate an interconnected network'' that the Commission 
directed NERC to include in the bulk electric system definition. APPA 
explains that a 20 MW distribution utility that owns a 115 kV radial to 
load is likely not to have any contact with NERC since the utility's 
load is radial and below the threshold for NERC registration. APPA 
expresses concern that, pursuant to the Final Rule, such a utility 
could now have to incur the time and resources necessary to demonstrate 
that it falls within an exemption. TAPS and APPA contend that 
subjecting currently-excluded ``radial to load'' to an exemption 
process would create an unnecessary burden on industry, particularly 
small entities, as well as NERC and the Regional Entities. Likewise, 
NRECA seeks clarification that the Commission did not intend that the 
owner of every currently-excluded facility operated at above 100 kV re-
apply for an exclusion or exemption and that the ERO conduct a de novo 
review of such facilities. NRECA contends that such an approach would 
unreasonably burden the resources of utilities, create a huge backlog 
that slows the exemption process, and denies the ERO the ability to 
exercise its judgment in the matter.
    82. For the same reasons, TAPS also seeks clarification that the 
Commission, in suggesting that the ERO establish a mechanism for 
reporting and tracking exempted radial facilities, did not intend to 
include excluded radial to load. TAPS contends that the Final Rule does 
not support the need for such reporting and tracking, and that the 
burden to industry and the ERO is not justified. TAPS states that it 
agrees that radial facilities outside the current bulk electric system 
definition, i.e., those that are not ``radial transmission facilities 
serving only load with one transmission source,'' that still warrant 
exclusion, would be appropriate for an exemption process and the 
suggested tracking.
    83. Consumers Energy, noting that the current definition of bulk 
electric system excludes ``radial transmission facilities serving only 
load with one transmission source,'' requests clarification whether the 
exclusion applies to a radial line with only one transmission source 
that is designed to serve load, but also serves ``incidental small 
generation.'' According to Consumers, such situations are becoming more 
common with the interconnection of small distributed renewable 
generation. Consumers Energy asks how much incidental generation a line 
could serve and continue to meet the bulk electric system radial line 
exclusion.
Commission Determination
    84. In Order No. 743, the Commission directed the ERO to develop an 
exemption process and made clear that ``we will not dictate the 
substance or content of the exemption process * * *.'' \89\ Thus, while 
the Commission stated that the ERO should develop an exemption process 
that includes ``clear, objective, transparent, and uniformly applicable 
criteria'' for determining exemptions, the Commission otherwise left it 
to the ERO's discretion to develop an appropriate exemption process, 
which the Commission will review. Any exemption of radial facilities is 
not based on a statutory requirement, unlike exclusion of local 
distribution. However, the Commission believes that certain categories 
of radial facilities may lend themselves to an ``exclusion'' process as 
described above (i.e., once identified as belonging in a certain radial 
category, the facilities could be excluded without further review). For 
example, should the revised bulk electric system definition maintain 
the exclusion of radial facilities serving only load from one 
transmission source, these types of facilities easily could be excluded 
without further analysis.
---------------------------------------------------------------------------

    \89\ Id. P 114.
---------------------------------------------------------------------------

    85. We believe that, in general, the decision whether, and in what 
circumstances, to apply an exemption versus exclusion process for 
radial to load facilities is largely a matter of balancing between, on 
the one hand, administrative ease, e.g., NERC having to review 
thousands of exemptions for facilities outside the NPCC region that 
previously were excluded as radial and, on the other hand, assuring 
that facilities necessary for operation of an interconnected grid are 
not inadvertently excluded. That being said, we believe that the ERO 
should balance these matters when developing an appropriate process. 
Likewise, with regard to NRECA's request to clarify that the Commission 
does not seek to require NERC or the regions to conduct a de novo 
review of all exemptions granted to date, we did not require a de novo 
review and leave an appropriate review process to the ERO.

[[Page 16275]]

    86. The Commission clarifies that Order No. 743 granted NERC 
discretion to make a determination regarding whether to exclude or 
exempt radial facilities. One consideration in this regard is whether 
an exclusion process will avoid NERC having to review thousands of 
exemptions for facilities outside the NPCC region that previously were 
excluded as radial.
    87. Additionally, as the Commission noted, commenters have many 
ideas about what types of facilities should be considered ``radial.'' 
\90\ NERC can consider whether these facilities should be candidates 
for exemption.\91\ Any expansion of the definition of radial facilities 
beyond the approved definition must be supported with a technical 
analysis.
---------------------------------------------------------------------------

    \90\ Order No. 743, 133 FERC ] 61,150 at P 55.
    \91\ Id.
---------------------------------------------------------------------------

    88. With respect to Consumers' request for clarification regarding 
how much incidental generation a line could serve and continue to meet 
the bulk electric system radial line exclusion, this is an issue that 
should be raised with NERC as it develops criteria for determining what 
is considered radial.
4. Development of Exemption Process Through NERC Reliability Standards 
Development Process
    89. While agreeing with the Commission's directive that NERC 
develop revisions to the bulk electric system definition through NERC's 
Reliability Standards Development Process, NRECA requests 
clarification, or in the alternative rehearing, that NERC also must 
develop criteria for exemptions through the Standards Development 
Process. NRECA maintains that exemptions from the bulk electric system 
are as much a part of the Reliability Standards as the definition 
itself, as both determine the Standards' scope and applicability. 
According to NRECA, the purely procedural aspects of an exemption 
process can be developed by NERC and included in the Rules of 
Procedure. However, NRECA contends that the development of exemption 
criteria is a ``core'' technical task that requires use of the 
Reliability Standards Development Process.
Commission Determination
    90. Given that the decision as to how to proceed in response to 
Order No. 743 rests first with NERC, we decline to provide the 
clarification requested by NRECA at this time. We explained in Order 
No. 743 that the NERC Glossary (which includes the definition of bulk 
electric system) is part of the Reliability Standards, and thus changes 
to the Glossary should be developed through the Reliability Standards 
Development Process.\92\ However, although the exemption process 
certainly will play a role in determining which facilities are included 
in the bulk electric system, the process is not part of the definition, 
nor part of any Reliability Standard. Accordingly, the Commission 
leaves the decision as to how to proceed in response to its directive 
to NERC in the first instance. The Commission expects, as indicated in 
Order No. 743, that NERC will provide ample opportunity for stakeholder 
input into the exemption process regardless of whether NERC determines 
to proceed using the Reliability Standard Development Process or by 
amending the Rules of Procedure. Accordingly, the Commission denies 
NRECA's rehearing request on this matter.
---------------------------------------------------------------------------

    \92\ Id. P 29-30.
---------------------------------------------------------------------------

5. Compliance While an Exemption Application Is Pending
    91. NRECA seeks clarification that currently unregistered entities 
that may be required to seek an exemption for facilities under the 
revised bulk electric system definition will not be required to 
register and thereafter comply with Reliability Standards until a final 
decision is made to deny the application for exemption. NRECA, noting 
that the Commission indicated that it did not expect the Final Rule to 
result in many additional facilities outside of the NPCC region 
becoming subject to Reliability Standards,\93\ states that this 
observation is particularly true for currently-exempt facilities in the 
other seven regions. NRECA contends that it is unreasonable to require 
an entity to expend the financial and staff resources needed to develop 
a compliance program when the ERO may ultimately determine that the 
facilities are exempt.
---------------------------------------------------------------------------

    \93\ NRECA at 20-21, citing Order No. 743, 133 FERC ] 61,150 at 
P 131, 169.
---------------------------------------------------------------------------

    92. In a related vein, NRECA requests clarification that the ERO 
should have the flexibility to propose a transition process that it 
deems feasible and appropriate, not necessarily a hard deadline of 18 
months after Commission approval.
Commission Determination
    93. As the Commission indicated in the Final Rule, the transition 
period is intended to allow a reasonable period of time for the 
affected entities to achieve compliance with respect to facilities that 
are subject to the mandatory Reliability Standards for the first 
time.\94\ We agree with NRECA that affected entities should not be 
required to take costly steps to comply with the Reliability Standards 
prior to the ERO's initial determination on an exemption request. 
However, as indicated in Order No. 743, ``we expect that the transition 
periods will be long enough for exemption requests to be processed and 
to allow entities to bring newly-included facilities into compliance 
prior to the mandatory enforcement date.'' \95\ We reiterate that we do 
not anticipate a large number of exemption requests arising outside 
NPCC.\96\ Thus, our expectation remains that NERC should be able to 
process any exemption requests in a timely manner, allowing any entity 
denied an exemption to come into compliance with the relevant 
Reliability Standards within the transition period.
---------------------------------------------------------------------------

    \94\ Order No. 743, 133 FERC ] 61,150 at P 131.
    \95\ Id. P 132.
    \96\ Id. P 131.
---------------------------------------------------------------------------

    94. With respect to the length of the transition period, as 
discussed in the Final Rule, we based our determination to establish an 
18-month transition period on ReliabilityFirst's prior experience in 
adopting a revised bulk electric system definition in that region, and 
continue to believe it is a reasonable transition period.\97\ 
Additionally, we noted that the ERO may request a longer transition 
period based on a specific justification. This provides sufficient 
flexibility should the ERO determine that the 18-month transition 
period is insufficient.
---------------------------------------------------------------------------

    \97\ Id.
---------------------------------------------------------------------------

6. Step-Down Transformers
    95. The Final Rule, in response to a ReliabilityFirst request for 
clarification that facilities that operate at 100 kV or above should be 
considered bulk electric system facilities, even if, for example, one 
transformer winding operates below 100 kV, stated that ``we agree with 
[ReliabilityFirst's] developed delineation point with regard to `step-
down' transformers, but note that these kinds of refinements can and 
should be addressed as part of the NERC exemption process.'' \98\
---------------------------------------------------------------------------

    \98\ Id. P 148-149.
---------------------------------------------------------------------------

    96. EEI, Consumers and Wisconsin Electric request clarification 
that this statement concerning the treatment of step-down transformers 
was offered to provide guidance and not intended to prejudge the 
exemption criteria to be developed by the ERO. EEI claims that many 
state commissions treat step-down transformers with a low-side winding 
below 100 kV as under state rate jurisdiction. Wisconsin Electric 
contends that, while the suggested

[[Page 16276]]

approach would simplify auditing, it would impose burdens on registered 
entities without a commensurate enhancement to reliability.
    97. Consumers Energy suggests that the characteristics of the ``low 
side'' of a facility be considered when determining whether an entire 
facility is considered part of the bulk electric system. Consumers 
states that it has facilities with a 138 kV high side voltage and a low 
side ranging from 46 kV to 2.5 kV, and contends that the low side 
provides service only for local distribution.
Commission Determination
    98. Order No. 743 directed the ERO to develop an exemption process, 
and specifically declined to ``dictate the substance or content of the 
exemption process.'' \99\ However, we provided guidance, stating that 
the process should include clear, objective, transparent and uniformly 
applicable criteria for exemption of facilities that are not necessary 
for operating the interconnected transmission system. Accordingly, the 
Commission grants EEI's, Consumers Energy's and Wisconsin Electric's 
requests for clarification that the discussion regarding which 
facilities should or should not be included in the bulk electric system 
definition was intended to provide guidance, not to prejudge what 
should be included in the exemption criteria. Therefore, the Commission 
declines to provide the specific clarifications requested regarding 
treatment of various types of step down transformers.
---------------------------------------------------------------------------

    \99\ Id. P 114.
---------------------------------------------------------------------------

7. Process for Including Sub-100 kV Facilities
    99. In the rulemaking, ERCOT commented that facilities operated 
below 100 kV generally are not considered part of the bulk electric 
system, but can be included if identified as a critical facility by a 
Regional Entity. ERCOT suggested that, similar to the development of an 
exemption process to consider applications for exemption of facilities 
above 100 kV, the Commission should consider imposing a process for 
inclusion of critical facilities below 100 kV. In Order No. 743, the 
Commission responded that it agrees with ERCOT's suggestion and ``it 
would be worthwhile for NERC to consider formalizing the criteria for 
inclusion of critical facilities operated below 100 kV in developing 
the exemption process.'' \100\
---------------------------------------------------------------------------

    \100\ Id. P 121.
---------------------------------------------------------------------------

    100. Western Petitioners state that the Commission should clarify 
that all local distribution facilities, including those operated at 
below 100 kV which may be deemed ``critical'' by a Regional Entity, are 
expressly excluded under section 215 of the FPA.
    101. APPA and TANC request clarification that, in suggesting that 
NERC formalize the criteria for including critical facilities operated 
below 100 kV in developing the exemption process, the Commission was 
not seeking to alter NERC's Statement of Registry Criteria (Registry 
Criteria) or shift the evidentiary burdens. APPA notes that the current 
Registry Criteria include a provision that allows the registry of 
entities that own critical facilities below the 100 kV threshold.\101\ 
APPA expresses concern that a parallel process developed in conjunction 
with the exemption process might be construed as a departure from the 
Registry Criteria, which places the burden on NERC and the Regional 
Entities to demonstrate the need to include facilities operated at 
below 100 kV as part of the bulk electric system. APPA supports a 
process that enhances consistency among Regional Entity determinations 
and ensures better due process to would-be registered entities with 
potentially critical facilities operated at below 100 kV facilities, 
and seeks clarification that this understanding of the Commission's 
statement is correct.
---------------------------------------------------------------------------

    \101\ APPA at 11, citing Registry Criteria, section II.D.2 
(providing for registration of ``[a]n entity that owns/operates a 
transmission element below 100 kV associated with a facility that is 
included on a critical facilities list that is defined by the 
Regional Entity'').
---------------------------------------------------------------------------

Commission Determination
    102. The Commission clarifies that Order No. 743 did not intend to 
alter the Registry Criteria, shift the evidentiary burden for 
registration, or otherwise address matters involving the Registry 
Criteria. Indeed, the Statement of Compliance Registry Criteria 
currently provides that the Regional Entities may propose registration 
of entities that do not meet the registry criteria if the Regional 
Entity believes and can reasonably demonstrate that the organization is 
a bulk power system owner, or operates, or uses bulk power system 
assets, and is material to the reliability of the bulk power 
system.\102\ However, we note that while the Registry Criteria will not 
change, it is possible that additional facilities may come under the 
revised definition and some entities may be required to register for 
the first time.
---------------------------------------------------------------------------

    \102\ Statement of Registry Criteria at 10 (Note 1 to Registry 
Criteria).
---------------------------------------------------------------------------

    103. The Commission agrees with APPA that underlying our suggestion 
that NERC consider an inclusion process for critical facilities 
operated below 100 kV was a concern that Regional Entities make such 
determinations in an appropriate and consistent manner, according to 
developed criteria, which should better ensure due process.
    104. We agree with Western Petitioners that, as stated elsewhere 
herein, the Commission does not have jurisdiction over facilities that 
are determined to be local distribution through the process NERC 
develops and we approve.

G. Requests for Revised Regulatory Flexibility Act Analysis

    105. In Order No. 743, the Commission stated that the Final Rule 
will not have a significant economic impact on a substantial number of 
small entities since most transmission owners, transmission operators 
and transmission service providers do not fall within the definition of 
small entities. Further, the Commission suggested that the ERO create 
an appropriate exemption process and that this process will further 
ensure that the Final Rule minimally affects small entities. As we 
noted in the NOPR, the Commission estimated that approximately four of 
the 33 transmission owners, transmission operators and transmission 
services providers identified in the U.S. portion of the NPCC region 
may fall within the definition of small entities.
Comments
    106. APPA and NRECA request that the Commission clarify that it 
will perform a revised Regulatory Flexibility Act analysis once the 
exemption process has been developed by NERC and approved by the 
Commission in order to determine whether the Commission's finding that 
the Final Rule will not have a significant economic impact on a 
substantial number of small entities is arbitrary. In particular, APPA 
and NRECA assert that the Commission erred by certifying that the Final 
Rule will not have a significant economic impact on a substantial 
number of small entities, particularly in light of the uncertainties of 
an as-yet-to-be-developed exemption process to mitigate the impact of 
the Final Rule on small entities. APPA and NRECA argue that the 
Commission's reliance on the exemption process to be established by 
NERC to support its Regulatory Flexibility Act certification is not 
justified. They assert that the ability of the exemption process to 
minimize the impact on small entities cannot be assessed until the 
exemption process is

[[Page 16277]]

developed by NERC and approved by the Commission.
    107. TANC requests clarification that the Commission has not yet 
finalized its Regulatory Flexibility Act analysis and will not do so 
until NERC has submitted a proposed exemption process.
    108. Public Power Council, NYPSC and Snohomish argue that 
implementing the 100-kV threshold will be enormously costly. Public 
Power Council, for its part, argues that the Commission's rejection of 
evidence of such increased compliance costs was arbitrary and 
capricious since, inter alia, Public Power Council did provide specific 
assertions as to how the Final Rule will have a significant economic 
impact on small entities. The NYPSC requests rehearing on whether the 
Commission's decision to direct NERC to revise the bulk electric system 
definition to include facilities operated at 100 kV and above where the 
Commission failed to determine sufficient benefits in relation to the 
costs, resulting in the imposition of unnecessary costs without 
reliability benefits, was arbitrary, capricious, and an abuse of 
discretion. Snohomish states that it and many other entities operating 
in the Western Interconnection provided evidence demonstrating that 
imposition of the 100-kV threshold in the Western Interconnection will 
result of enormous compliance costs with no benefit to reliability 
since the 115-kV systems operated by these entities generally are used 
only for local distribution and their operation therefore has little or 
no effect on the interconnected bulk system.
Commission Determination
    109. The Commission does not agree with commenters that its 
Regulatory Flexibility Act analysis was deficient, and we continue to 
believe that our suggested approach in Order No. 743 will not have a 
significant economic impact on a substantial number of small 
entities.\103\ With respect to comments that we did not adequately 
consider the costs of implementing a 100 kV threshold, we note that the 
current bulk electric system definition contains a general 100 kV 
threshold. Thus, the burden of our suggested proposal to eliminate the 
regional discretion in the current definition and maintain a bright-
line 100 kV threshold should be minimal in all regions except NPCC. 
Even within the U.S. portion of the NPCC region, the Commission 
estimated in the Final Rule that only four of the 33 transmission 
owners, transmission operators and transmission service providers may 
fall within the definition of small entities. We also believe that the 
exemption process will further ensure that the Final Rule minimally 
affects small entities. Finally, we have clarified on rehearing that 
NERC may develop criteria to identify local distribution facilities and 
certain categories of radial facilities that qualify for exclusion from 
the definition of the bulk electric system and therefore do not need to 
apply for exemption. For these reasons the Commission rejects the 
comments objecting to the Commission's determinations regarding the 
cost of implementing a 100 kV threshold.
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    \103\ Order No. 743, 133 FERC ] 61,150 at P 169.
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    110. However, the Commission will grant APPA's and NRECA's request 
for clarification in part. The Commission clarifies that it will 
perform a new Regulatory Flexibility Act analysis to determine whether 
the revised bulk electric system definition will have a significant 
economic impact on small entities when NERC submits its proposed 
definition, criteria for exclusion and the exemption process.\104\ We 
believe that the revisions NERC will propose will be sufficiently 
different from the initial NOPR proposal to warrant additional review 
to ensure that small entities are not unduly burdened.
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    \104\ This analysis will determine if an Initial Regulatory 
Flexibility Analysis is required or if the Commission can certify 
that the revised definition will not have a significant economic 
impact on a substantial number of small companies.
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III. Document Availability

    111. 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 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
    112. 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.
    113. 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 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 the Commission.

Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2011-6779 Filed 3-22-11; 8:45 am]
BILLING CODE 6717-01-P