[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Proposed Rules]
[Pages 39858-39881]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-15944]



[[Page 39857]]

Vol. 77

Thursday,

No. 129

July 5, 2012

Part III





Department of Energy





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Federal Energy Regulatory Commission





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18 CFR Part 40





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

  Federal Register / Vol. 77 , No. 129 / Thursday, July 5, 2012 / 
Proposed Rules  

[[Page 39858]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40
[Docket Nos. RM12-6-000 and RM12-7-000]


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

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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SUMMARY: Under section 215 of the Federal Power Act, the Federal Energy 
Regulatory Commission (Commission) proposes to approve a modification 
to the currently-effective definition of ``bulk electric system'' 
developed by the North American Electric Reliability Corporation 
(NERC), the Commission-certified Electric Reliability Organization. The 
revised definition of ``bulk electric system'' removes language 
allowing for regional discretion in the currently-effective bulk 
electric system definition. The revised definition establishes a 
bright-line threshold that includes all facilities operated at or above 
100 kV. The modified definition also identifies specific categories of 
facilities and configurations as inclusions and exclusions to provide 
clarity in the definition of ``bulk electric system.''
    The Commission also proposes to approve: (1) NERC's 
contemporaneously filed revisions to its Rules of Procedure, which 
creates an exception procedure to add elements to, or remove elements 
from, the definition of ``bulk electric system'' on a case-by-case 
basis; (2) NERC's proposed form entitled ``Detailed Information To 
Support an Exception Request'' that entities will use to support 
requests for exception from the ``bulk electric system'' definition; 
and (3) NERC's proposed implementation plan for the revised ``bulk 
electric system'' definition.

DATES: Comments are due September 4, 2012.

ADDRESSES: Comments, identified by docket number, may be filed in the 
following ways:
     Electronic Filing: Through http://www.ferc.gov. Documents 
created electronically using word processing software should be filed 
in native applications or print-to-PDF format and not in a scanned 
format.
     Mail/Hand Delivery: Those unable to file electronically 
may mail or hand-deliver comments to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE., 
Washington, DC 20426.
    Instructions: For detailed instructions on submitting comments and 
additional information on the rulemaking process, see the Comment 
Procedures Section of this document.

FOR FURTHER INFORMATION CONTACT:
Susan Morris (Technical Information), Office of Electric Reliability, 
Division of Reliability Standards, Federal Energy Regulatory 
Commission, 888 First Street NE., Washington, DC 20426, Telephone: 
(202) 502-6803;
Nicholas Snyder (Technical Information), Office of Electric 
Reliability, Division of Logistics & Security, Federal Energy 
Regulatory Commission, 888 First Street NE., Washington, DC 20426, 
Telephone: (202) 502-6408;
Robert Stroh (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street NE., Washington, 
DC 20426, Telephone: (202) 502-8473;
William Edwards (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street NE., Washington, 
DC 20426, Telephone: (202) 502-6669.

SUPPLEMENTARY INFORMATION:

139 FERC ] 61,247

Issued June 22, 2012.
    1. Under section 215 of the Federal Power Act (FPA),\1\ the Federal 
Energy Regulatory Commission (Commission) proposes to approve a 
modification to the currently-effective definition of ``bulk electric 
system'' contained in NERC's Glossary of Terms Used in Reliability 
Standards (NERC Glossary) developed by the North American Electric 
Reliability Corporation (NERC), the Commission-certified Electric 
Reliability Organization. NERC submitted its petition in response to 
the Commission's directive in Order No. 743 that NERC develop a revised 
definition of ``bulk electric system'' using NERC's Reliability 
Standards development process.\2\ The revised definition of bulk 
electric system:
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    \1\ 16 U.S.C. 824o (2006).
    \2\ Revision to Electric Reliability Organization Definition of 
Bulk Electric System, Order No. 743, 133 FERC ] 61,150, order on 
reh'g, Order No. 743-A, 134 FERC ] 61,210 (2011).
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    (a) Removes the basis for regional discretion in the current bulk 
electric system definition;
    (b) Establishes a bright-line threshold so that the ``bulk electric 
system'' will be facilities operated at 100 kV or higher, if they are 
Transmission Elements, or connected at 100 kV or higher, if they are 
Real Power or Reactive Power resources; and
    (c) Contains specific inclusions (I1-I5) and exclusions (E1-E4) to 
provide clarity in the definition that the facilities described in 
these configurations are included in or excluded from the ``bulk 
electric system.''
    2. The Commission also proposes to approve:
    (a) NERC's contemporaneously filed revisions to its Rules of 
Procedure, which creates an exception procedure to add elements to, and 
remove elements from the definition of ``bulk electric system'' on a 
case-by-case basis;
    (b) NERC's proposed form entitled ``Detailed Information to Support 
an Exception Request'' that entities will use to support requests for 
exceptions from the ``bulk electric system'' definition; and
    (c) NERC's proposed implementation plan for the revised ``bulk 
electric system'' definition.
    3. NERC's proposed revision to the definition of ``bulk electric 
system'' removes regional discretion and establishes a 100 kV bright-
line threshold. Further, we believe that NERC's proposal offers 
additional clarity to the definition of bulk electric system by 
creating specific inclusions and exclusions within the definition, 
which provide granularity with regard to common types of facilities and 
facility configurations and whether they are part of the bulk electric 
system.
    4. We believe that the proposed ``core'' definition, including the 
inclusions and the exclusions, as well as the exception process should 
produce consistency in identifying bulk electric system elements across 
the reliability regions. In addition, it appears that NERC's proposed 
exception process to add elements to, and remove elements from, the 
definition of the bulk electric system adds transparency and uniformity 
to the process.
    5. Although it is rare that the Commission would address Rules of 
Procedure changes in a rulemaking docket, we will do so in this 
instance because of the interplay between NERC's modified bulk electric 
system definition and the newly developed case-specific exception 
process set forth in NERC's proposed Rules of Procedure change. While 
we propose to approve NERC's petitions, we also seek comment from NERC 
and interested parties on certain aspects of NERC's petitions to 
understand the application of the proposed ``core'' definition, 
including the application of the inclusions and exclusions, and the 
proposed exception process to ensure consistent implementation.

[[Page 39859]]

I. Background

A. Section 215 of the FPA

    6. Section 215 of the FPA requires a Commission-certified ERO to 
develop mandatory and enforceable Reliability Standards, subject to 
Commission review and approval. Once approved, the Reliability 
Standards may be enforced by the ERO, subject to Commission oversight, 
or by the Commission independently.\3\ The Commission established a 
process to select and certify an ERO \4\ and, subsequently, certified 
NERC as the ERO.\5\
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    \3\ See 16 U.S.C. 824o(e)(3) (2006).
    \4\ Rules Concerning Certification of the Electric Reliability 
Organization; and Procedures for the Establishment, Approval and 
Enforcement of Electric Reliability Standards, Order No. 672, FERC 
Stats. & Regs. ] 31,204, order on reh'g, Order No. 672-A, FERC 
Stats. & Regs. ] 31,212 (2006).
    \5\ North American Electric Reliability Corp., 116 FERC ] 
61,062, order on reh'g and compliance, 117 FERC ] 61,126 (2006) 
(certifying NERC as the ERO responsible for the development and 
enforcement of mandatory Reliability Standards), aff'd sub nom. 
Alcoa Inc. v. FERC, 564 F.3d 1342 (DC Cir. 2009).
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B. Order No. 693

    7. On March 16, 2007, in Order No. 693, pursuant to section 215(d) 
of the FPA, the Commission approved 83 of 107 proposed Reliability 
Standards, six of the eight proposed regional differences, and the NERC 
Glossary, which includes NERC's definition of bulk electric system.\6\ 
That definition provides:
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    \6\ See Mandatory Reliability Standards for the Bulk-Power 
System, Order No. 693, FERC Stats. & Regs. ] 31,242, order on reh'g, 
Order No. 693-A, 120 FERC ] 61,053 (2007).

    As defined by the Regional Reliability Organization, the 
electrical generation resources, transmission lines, 
interconnections with neighboring systems, and associated equipment, 
generally operated at voltages of 100 kV or higher. Radial 
transmission facilities serving only load with one transmission 
source are generally not included in this definition.\7\
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    \7\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 75 n. 47 
(quoting NERC's definition of ``bulk electric system'').

    8. In approving NERC's definition of bulk electric system, the 
Commission stated that ``at least for an initial period, the Commission 
will rely on the NERC definition of bulk electric system and NERC's 
registration process to provide as much certainty as possible regarding 
the applicability to and the responsibility of specific entities to 
comply with the Reliability Standards.'' \8\ The Commission also stated 
that ``[it] remains concerned about the need to address the potential 
for gaps in coverage of facilities.'' \9\
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    \8\ Id. P 75; see also Order No. 693-A, 120 FERC ] 61,053 at P 
19 (``the Commission will continue to rely on NERC's definition of 
bulk electric system, with the appropriate regional differences, and 
the registration process until the Commission determines in future 
proceedings the extent of the Bulk-Power System'').
    \9\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 77 
(footnotes omitted).
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C. Order Nos. 743 and 743-A

    9. On November 18, 2010, the Commission revisited the definition of 
``bulk electric system'' in Order No. 743, which directed NERC, through 
NERC's Reliability Standards Development Process, to revise its 
definition of the term ``bulk electric system'' to ensure that the 
definition encompasses all facilities necessary for operating an 
interconnected transmission network. The Commission also directed NERC 
to address the Commission's technical and policy concerns. Among the 
concerns were inconsistency in application of the definition and a lack 
of oversight and exclusion of facilities from the bulk electric system 
that are required for the operation of the interconnected transmission 
network. In Order No. 743, the Commission stated that the best way to 
address these concerns is to eliminate the Regional Entity discretion 
to define bulk electric system without NERC or Commission review, 
maintain a bright-line threshold that includes all facilities operated 
at or above 100 kV except defined radial facilities, and adopt an 
exemption process and criteria for removing from the bulk electric 
system facilities that are not necessary for operating the 
interconnected transmission network.\10\ However, Order No. 743 did not 
require NERC to adopt these recommendations as the sole means to 
address the Commission's concerns. Instead, the Commission allowed NERC 
to ``propose a different solution that is as effective as, or superior 
to, the Commission's proposed approach in addressing the Commission's 
technical and other concerns so as to ensure that all necessary 
facilities are included within the scope of the definition.'' \11\ The 
Commission directed NERC to file the revised definition of bulk 
electric system and its process to exempt facilities from inclusion in 
the bulk electric system within one year following the effective date 
of the final rule.\12\
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    \10\ Order No. 743, 133 FERC ] 61,150 at P 16.
    \11\ Id.
    \12\ Id. P 113.
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    10. In Order No. 743-A the Commission reaffirmed its determinations 
in Order No. 743. In addition, the Commission clarified that the issue 
the Commission directed NERC to rectify was the discretion the Regional 
Entities have under the current definition to define the bulk electric 
system in their regions without any oversight from the Commission or 
NERC.\13\ The Commission also clarified that it was not the 
Commission's intent through its determination regarding ``impact-based 
methodologies'' to disrupt the NERC Rules of Procedure or the Statement 
of Compliance Registry Criteria (Registry Criteria).\14\ Nor did the 
Commission intend to rule out using any form of a material impact test 
that can be shown to identify facilities needed for reliable 
operation.\15\ The Commission also clarified that the 100 kV threshold 
was a ``first step or proxy'' for determining which facilities should 
be included in the bulk electric system.\16\
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    \13\ Order No. 743-A, 134 FERC ] 61,210 at P 11.
    \14\ Id. P 47.
    \15\ Id.
    \16\ See Order No. 743-A, 134 FERC ] 61,210 at PP 40, 67, 102-
103.
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    11. The Commission further clarified that the statement in Order 
No. 743, ``determining where the line between `transmission' and `local 
distribution' lies * * * should be part of the exemption process the 
ERO develops'' was intended to grant discretion to NERC, as the entity 
with technical expertise, to develop criteria to determine how to 
differentiate between local distribution and transmission facilities in 
an objective, consistent, and transparent manner.\17\ The Commission 
stated that the ``seven factor test'' adopted in Order No. 888 could be 
relevant and possibly is a logical starting point for determining which 
facilities are local distribution for reliability purposes.\18\ 
However, the Commission left it to NERC in the first instance to 
determine if and how the seven factor test should be considered in 
differentiating between local distribution and transmission facilities 
for purposes of determining whether a facility should be classified as 
part of the bulk electric system.\19\ Order No. 743-A re-emphasized 
that local distribution facilities are excluded from the definition of 
Bulk-Power System and, therefore, must be excluded from the definition 
of bulk electric system.\20\
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    \17\ Id. P 68.
    \18\ Id. P 69.
    \19\ Id. P 70.
    \20\ Id. PP 25, 58.
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D. NERC's Petitions

    12. On January 25, 2012, NERC submitted two petitions pursuant to 
the directives in Order No. 743: (1) NERC's proposed revision to the 
definition of ``bulk electric system'' which includes provisions to 
include and exclude

[[Page 39860]]

facilities from the ``core'' definition and (2) revisions to NERC's 
Rules of Procedure to add a procedure creating an exception process to 
classify or de-classify a facility as part of the ``bulk electric 
system.'' In this NOPR, we address both petitions.\21\
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    \21\ ``Exclusion'' refers to configurations of elements NERC has 
identified within the revised definition of bulk electric system 
that should not be included in the bulk electric system. In 
contrast, an ``exception'' refers to an element that falls within 
the bulk electric system definition but is found not to be necessary 
for the operation of the grid through the proposed exception 
process, or an element that an element that falls outside of the 
bulk electric system definition but is found through the exception 
process should be part of the bulk electric system. Thus, an 
``exception'' may result in adding elements to, or removing elements 
from, the definition of bulk electric system. Also, NERC uses the 
term ``exception'' rather than the term ``exemption'' used in Order 
No. 743. See Order No. 743, 133 FERC ] 61,150 at P 115.
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1. Revised Definition of Bulk Electric System
    13. In Docket No. RM12-06-000, NERC filed a petition requesting 
Commission approval of a revised definition of ``bulk electric system'' 
in the NERC Glossary (NERC BES Petition). As explained below, the 
definition consists of a ``core'' definition and a list of facilities 
configurations that will be included or excluded from the ``core'' 
definition. NERC also requests approval of the proposed ``Detailed 
Information to Support an Exception Request'' form as satisfying the 
requirement in Order No. 743 that NERC develop ``technical criteria'' 
to address exception requests.\22\ Finally, NERC requests Commission 
approval of its plan for implementation of the revised definition of 
``bulk electric system.''
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    \22\ The Detailed Information to Support an Exception Request is 
part of the exception process even though NERC filed it as part of 
the BES Petition. See NERC BES Petition at 25-26. Thus, the 
Commission will address the Detailed Information in the context of 
the NERC BES Petition rather than in the section of this NOPR 
addressing the exception procedure petition.
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a. ``Core'' Definition of Bulk Electric System
    14. NERC proposes the following ``core'' definition of bulk 
electric system:

    Unless modified by the [inclusion and exclusion] lists shown 
below, all Transmission Elements operated at 100 kV or higher and 
Real Power and Reactive Power resources connected at 100 kV or 
higher. This does not include facilities used in the local 
distribution of electric energy.\23\
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    \23\ Id. at 13.

    15. NERC states that the core definition eliminates regional 
discretion and establishes a clear, bright-line based on a 100 kV 
threshold. NERC states that the core definition places within the bulk 
electric system ``all Transmission Elements operated at 100 kV or 
above, and all Real Power and Reactive Power resources connected at 100 
kV or above,'' while establishing an express exclusion for facilities 
used in the local distribution of electrical energy.\24\ NERC states 
that the revised definition deletes the phrase ``[a]s defined by the 
Regional Reliability Organization'' that is included in the current 
definition, eliminating the express basis for regional discretion.\25\ 
NERC explains that the core definition includes the 100 kV criterion as 
a bright-line threshold, rather than as a general guideline, by 
eliminating the phrase ``generally operated at'' found in the current 
definition.\26\
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    \24\ Id. at 16. The current definition and Order No. 743 use the 
term ``facility.'' NERC proposes to use the term ``Element'' as used 
in the NERC Glossary.
    \25\ Id. at 15.
    \26\ Id. at 16.
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    16. NERC also explains that, while the current definition includes 
the phrase ``associated equipment,'' and the revised definition does 
not, ``associated equipment'' is included in the revised definition by 
the use of the term ``Transmission Elements'' included in the revised 
core definition. NERC states that the NERC Glossary defines 
``Transmission'' as ``[a]n interconnected group of lines and associated 
equipment for the movement or transfer of electric energy between 
points of supply and points at which it is transformed for delivery to 
customers or is delivered to other electric systems;'' \27\ and defines 
``Elements'' as, ``[a]ny electrical device with terminals that may be 
connected to other electrical devices such as a generator, transformer, 
circuit breaker, bus section, or transmission line. An element may be 
comprised of one or more components.'' \28\
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    \27\ Id. at 15 n. 13.
    \28\ Id.
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    17. NERC states that the revised definition satisfies the 
Commission's directives and addresses the technical and policy concerns 
expressed in Order Nos. 743 and 743-A. According to NERC, the explicit 
basis of authority for Regional Entity discretion in the current 
definition is eliminated. In addition, NERC states that the core 
definition establishes specific threshold criteria rather than general 
guidelines of facilities operated or connected at or above 100 kV. 
Further, NERC states that the core definition in combination with the 
specific inclusions and exclusions provides a detailed set of criteria 
that can be applied on a uniform, consistent basis across all regions, 
eliminates ambiguity, and eliminates the potential for discretion and 
subjectivity in determining what facilities are part of or not part of 
the bulk electric system.
b. Inclusions and Exclusions to the Definition of Bulk Electric System
    18. NERC states that, as part of the revised definition, NERC 
developed inclusions and exclusions to eliminate discretion in 
application of the revised ``bulk electric system'' definition. NERC 
states that the inclusions address five specific facilities 
configurations to provide clarity that the facilities described in 
these configurations are included in the bulk electric system (unless 
the facilities are excluded based on one of the specific 
exclusions).\29\ The five inclusions are:
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    \29\ Id. at 16.

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

    19. NERC explains that the facilities described in inclusions I1, 
I2, I4, and I5 are each operated or connected at or above 100 kV. NERC 
states that inclusion I3 encompasses blackstart resources identified in 
a transmission operator's restoration plan, which are necessary for the 
operation of the interconnection transmission system and should be 
included in the bulk electric system regardless of their size (MVA) or 
the voltage at which they are connected. NERC states that the 
inclusions will further reduce the potential for the exercise of 
discretion and subjectivity to exclude such configurations from the 
bulk electric system.
    20. According to NERC, inclusion I1 includes transformers with the 
primary terminal and at least one secondary terminal operated at 100 kV 
or higher unless excluded under exclusion E1 or E3 (discussed later). 
NERC states that

[[Page 39861]]

transformers operating at 100 kV or higher are part of the existing 
definition, but since transformers have windings operating at different 
voltages, and multiple windings in some circumstances, clarification 
was required to explicitly identify which transformers are included in 
the bulk electric system.
    21. Inclusion I2 addresses generating resources with a gross 
individual nameplate rating greater than 20 MVA or a gross plant/
facility aggregate nameplate rating greater than 75 MVA. According to 
NERC, inclusion I2 includes in the bulk electric system the generator 
terminals through the high-side of the step-up transformers connected 
at a voltage of 100 kV or above. NERC states that this inclusion 
mirrors the text of the NERC Registry Criteria (Appendix 5B of the NERC 
Rules of Procedure) for generating units.\30\ NERC states that a 
``basic tenet that was followed in developing the [revised definition] 
was to avoid changes to Registrations * * * if such changes are not 
technically required for the [revised definition] to be complete.'' 
\31\
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    \30\ Id. at 17 (citing section III.c.1 and III.c.2 of Appendix 
5B of the Rules of Procedure).
    \31\ Id. at 17.
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    22. As noted above, inclusion I3 includes blackstart resources 
identified in the transmission operator's restoration plan in the bulk 
electric system.
    23. Inclusion I4 includes dispersed power producing resources with 
gross aggregate capacity nameplate rating greater than 75 MVA which 
utilize a system designed primarily for aggregating capacity, connected 
at a common point at a voltage of 100 kV or above. NERC states that 
this inclusion was added to accommodate the effects of variable 
generation on the bulk electric system.
    24. Inclusion I5 addresses static or dynamic devices (excluding 
generators) dedicated to supplying or absorbing reactive power that are 
connected at 100 kV or higher, or through a dedicated transformer with 
a high-side voltage of 100 kV or higher, or through a transformer that 
is designated in inclusion I1. NERC states that this inclusion is the 
technical equivalent of inclusion I2 for reactive power devices.
    25. NERC states that the four exclusions identify facilities 
configurations that should not be included in the bulk electric 
system.\32\ Generally, the exclusions address radial systems, behind-
the-meter generation and local networks that distribute power to load. 
The four exclusions are:
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    \32\ Id. at 18.

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

    26. Exclusion E1 provides detailed criteria for determining which 
facilities are properly excluded from the bulk electric system as 
radial facilities, which NERC states is intended to enhance the clarity 
of the radial facilities exclusion. NERC explains that criteria ``b'' 
and ``c'' of exclusion E1 identify the maximum amount of generation 
allowed on the radial facility while still qualifying for the radial 
facilities exclusion (aggregate capacity less than or equal to 75 MVA). 
NERC indicates that this exclusion addresses the circumstances of small 
utilities (including municipal utilities and cooperatives). According 
to NERC, ``the maximum amount of generation allowed on the radial 
facility is sufficient to allow small utilities to continue to provide 
service options that support reliability of the interconnected 
transmission network, while not operating to exclude larger generators 
from the [bulk electric system].''\33\ Further, NERC states, that the 
maximum amount of generation allowed on the radial facility per 
criteria ``b'' and ``c'' is consistent with the aggregate capacity 
threshold presently provided in the Registry Criteria for registration 
as a generator owner or generator operator (75 MVA gross nameplate 
rating).
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    \33\ Id. at 19.
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    27. With respect to the ``normally open switch'' note at the end of 
exclusion E1, NERC explains that this note is intended to address a 
common network configuration ``in which two separate sets of facilities 
that, each standing alone, would be recognized as radial systems and 
not included in the bulk electric system are connected by a `normally 
open switch'--i.e., a switch that is set to the open position--for 
reliability purposes.'' \34\ NERC states that a switch in this 
configuration is installed by entities to provide greater reliability 
to their end-use customers. According to NERC, scheduled maintenance 
activities on a radial line, or an unscheduled outage impacting the 
single point of supply to the radial line, could cause the disruption 
of power supply to the end-use customers served by the line, unless the 
entity has the ability to temporarily switch to another feed.\35\ NERC 
states that the entity's operating procedures dictate how and when to 
operate such a normally open switch. NERC explains that an entity does 
not arbitrarily close the normally open switch placed in this 
configuration. Rather, the entity closes the ``normally open'' switch 
to maintain reliability of service to its end-use customers served from 
the affected radial line. NERC believes that facilities that otherwise 
meet the criteria for the

[[Page 39862]]

radial system exclusion in exclusion E1 should not be included in the 
bulk electric system solely because the entity maintains a switch of 
this type, which is normally open, between sets of radial facilities. 
NERC states that for a set of radial facilities that are connected by a 
switch to qualify for the radial exclusion under exclusion E1, the 
switch must be identified as ``normally open'' on ``source documents 
such as, prints or one-line diagrams and must in fact be normally set 
in the open position.'' \36\
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    \34\ Id.
    \35\ As explained below, the switch, though normally open, could 
be closed in such circumstances to allow the affected radial line to 
serve load by relying on another line through the closed switch.
    \36\ Id. at 20 n. 26. NERC provides other examples of source 
documents such as diagrams displayed within an energy management 
system or a SCADA system.
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    28. NERC states that subjecting two sets of radial facilities that 
are normally unconnected to each other because the switch between them 
is open to the Reliability Standards during the limited time periods 
when the switch is closed for maintenance-related or outage-related 
circumstances would be fundamentally impractical and unworkable (from 
both the entity's perspective and the ERO's perspective).\37\ NERC 
explains that this note will prevent numerous exception requests 
because this configuration is common.
---------------------------------------------------------------------------

    \37\ Id. at 20-21.
---------------------------------------------------------------------------

    29. According to NERC, exclusion E2 excludes a generating unit or 
units on the customer's side of the retail meter that serves all or 
part of the retail load subject to two conditions. First, the net 
capacity provided by the generating unit does not exceed 75 MVA. 
Second, standby, back-up, and maintenance power services are provided 
to the generating unit or the retail load by a balancing authority, or 
pursuant to a binding obligation with a generator owner or generator 
operator, or under terms approved by the applicable regulatory 
authority. NERC states that these generating units are not necessary 
for the operation of the interconnected transmission network and, 
therefore, do not need to be included in the definition because they 
serve a single retail load, provide a limited amount of capacity to the 
bulk electric system, and are fully backed up by other resources.\38\
---------------------------------------------------------------------------

    \38\ Id. at 21.
---------------------------------------------------------------------------

    30. NERC explains that exclusion E3, the ``local network'' 
exclusion, encompasses local networks of transmission elements operated 
at between 100 kV and 300 kV ``that distribute power to load rather 
than transfer bulk power across the interconnected system.'' \39\ NERC 
explains that ``[t]he purpose of local networks is to provide local 
distribution service, not to provide transfer capacity for the 
interconnected transmission network.'' \40\ According to NERC, a 
network that supports distribution and does not accommodate bulk-power 
transfers across the interconnected system should not be included in 
the bulk electric system. NERC also states that the ``detailed 
conditions established in exclusion E3 are sufficient to ensure that 
such qualifying local networks are being used exclusively for local 
distribution purposes.'' \41\ NERC adds that facilities used for the 
local distribution of electric energy are expressly excluded from the 
bulk electric system by the core definition as well as by the local 
network exclusion.
---------------------------------------------------------------------------

    \39\ Id. at 22.
    \40\ Id.
    \41\ Id. at 23. See also id. at Exh. G (Technical Justification 
Paper for ``Local Network Exclusion'') at 2 (LN Technical Paper).
---------------------------------------------------------------------------

    31. Exclusion E4 encompasses reactive power devices owned and 
operated by a retail customer solely for its own use. NERC explains 
that exclusion E4 is the technical equivalent of exclusion E2 for 
reactive power devices.
c. Detailed Information To Support an Exception Request
    32. In Order No. 743, the Commission directed NERC to develop a set 
of technical criteria to use in addressing requests for exceptions to 
the definition of the bulk electric system.\42\ NERC states that it 
would be ``more feasible to develop a common set of data and 
information that could be used by the Regional Entities and NERC to 
evaluate exception requests'' than to develop the detailed 
criteria.\43\ The Detailed Information Form contains the common set of 
data that entities seeking an exception must submit with every 
exception request. NERC indicates that the Detailed Information Form 
represents an equal and effective alternative approach to developing a 
substantive set of technical criteria for granting and rejecting 
exception requests required in Order No. 743.\44\ Thus, NERC asks the 
Commission to approve the Detailed Information Form as satisfying the 
Commission's technical concerns expressed in Order No. 743 with respect 
to the need for criteria to approve or disapprove exception requests.
---------------------------------------------------------------------------

    \42\ Order No. 743, 133 FERC ] 61,150 at P 115 (stating ``NERC 
should develop an exemption process that includes clear, objective, 
transparent and uniformly applicable criteria for the exemption of 
facilities that are not necessary for operating the grid.'').
    \43\ NERC BES Petition at 26.
    \44\ Id. at 26, 32 (citing Order No. 743, 133 FERC ] 61,150 at P 
115).
---------------------------------------------------------------------------

    33. The Detailed Information Form specifies that all exception 
requests include a one-line breaker diagram identifying the element for 
which the exception is requested and data and studies to support the 
submittal. NERC states that the studies should be based on an 
Interconnection-wide base case to reflect the electrical 
characteristics and system topology. The studies should clearly 
document all assumptions used, address key performance measures of bulk 
electric system reliability through steady state power flow, and 
contain a transient stability analysis as necessary to support the 
entity's request. NERC notes that the applicant remains responsible for 
providing sufficient information and argument to justify the exception 
request.\45\
---------------------------------------------------------------------------

    \45\ Id. at 30.
---------------------------------------------------------------------------

    34. According to NERC, the information that an applicant may submit 
in support of an exception request is not limited to the Detailed 
Information Form. Rather, an applicant is expected to submit all 
relevant data, studies and other information that supports the 
exception request. Further, the Regional Entity and NERC may ask an 
applicant to provide other data and studies in addition to the Detailed 
Information Form.\46\
---------------------------------------------------------------------------

    \46\ Id. at 27 n.32.
---------------------------------------------------------------------------

d. Proposed Implementation Plan for Revised Definition of ``Bulk 
Electric System''
    35. NERC requests that the revised definition ``should be effective 
on the first day of the second calendar quarter after receiving 
applicable regulatory approval, or, in those jurisdictions where no 
regulatory approval is required, the revised [bulk electric system 
definition] should go into effect on the first day of the second 
calendar quarter after its adoption by the NERC Board.\47\ The existing 
definition would be retired at midnight of the day immediately prior to 
the effective date of the revised definition in the jurisdiction in 
which the revised definition is becoming effective. NERC states that 
the proposed effective date is appropriate to provide a reasonable time 
between the date of regulatory approval, which is not under the control 
of NERC or the industry, and the effective date of the revised BES 
definition.\48\
---------------------------------------------------------------------------

    \47\ Id. at 34.
    \48\ Id.
---------------------------------------------------------------------------

    36. NERC also requests that compliance obligations for all elements 
newly-identified to be included in the bulk electric system based on 
the revised definition should begin twenty-four months after the 
applicable effective date of the revised definition. NERC notes that 
the Commission stated

[[Page 39863]]

in Order Nos. 743 and 743-A that the transition period should not 
exceed 18 months from the date of Commission approval of the revised 
definition, unless the Commission approved a longer transition period 
based on specific justification. NERC believes that a ``somewhat longer 
transition period'' is necessary in light of the actions that will need 
to be completed in connection with the revised definition. NERC notes 
that in the United States, the proposed transition period will be 
between a minimum of approximately twenty-seven months and a maximum of 
thirty months from the date of Commission approval, depending on the 
date of Commission approval.'' \49\ NERC states that sufficient time is 
needed: (1) To implement transition plans to accommodate any changes 
resulting from the revised definition; (2) for entities to file for 
exceptions, and for the Regional Entities and NERC to process those 
exceptions to a final determination, pursuant to the proposed exception 
process; and (3) for owners of facilities and elements that are newly-
included in the bulk electric system based on the definition to train 
their personnel on compliance with the Reliability Standards applicable 
to the newly-included facilities and elements, so that these entities 
can achieve compliance with applicable Reliability Standards by the end 
of the transition period.
---------------------------------------------------------------------------

    \49\ Id. at 35.
---------------------------------------------------------------------------

2. NERC Petition for Approval of Revisions to Rules of Procedure To 
Adopt a Bulk Electric System Exception Process
a. Changes to NERC's Rules of Procedure
    37. In Docket No. RM12-7-000, NERC filed proposed revisions to its 
Rules of Procedure for the purpose of adopting a procedure for entities 
to obtain an exception from the definition of bulk electric system 
(NERC ROP Petition). NERC states that the proposed exception process, 
which is a mechanism to add elements to, and remove elements from, the 
bulk electric system, addresses the concerns raised in Order No. 743 
with respect to the current processes for determining what facilities 
are part of the bulk electric system and what facilities are not.\50\ 
NERC also states that the exception process ``provides for decisions to 
approve or disapprove exception requests to be made by NERC, rather 
than by the Regional Entities, thereby eliminating the potential for 
inconsistency and subjectivity that the Commission was concerned 
[about, which] was created by having decisions as to what facilities 
are included in or excluded from the BES made at the Regional Entity 
level.'' \51\ NERC proposes to add section 509 (Exceptions to the 
Definition of the Bulk Electric System), section 1703 (Challenges to 
NERC Determinations of BES Exception Requests) and Appendix 5C 
(Procedure for Requesting and Receiving an Exception to the NERC 
Definition of Bulk Electric System) to NERC's Rules of Procedure. The 
NERC ROP Petition also includes proposed conforming revisions to other 
Rules of Procedure, including revisions to sections 302.2, 501.1.4.4, 
804, 1102.2, and 1701 and appendices 2, 3D, 4B, 5B, 6, and 8, which 
NERC states are necessary in light of the revised definition and the 
exception process.
---------------------------------------------------------------------------

    \50\ NERC ROP Petition at 4.
    \51\ Id. (footnote omitted).
---------------------------------------------------------------------------

Section 509 of the Rules of Procedure
    38. NERC states that proposed section 509 establishes a procedure, 
which is contained in a new Appendix 5C to the Rules of Procedure, for 
an entity to request that an element that falls outside of the 
definition of the bulk electric system be treated as part of the bulk 
electric system and for an entity to request that an element that falls 
within the definition of the bulk electric system not be treated as 
part of the bulk electric system:

    An Element is considered to be (or not be) part of the Bulk 
Electric System by applying the BES Definition to the Element 
(including the inclusions and exclusions set forth therein). 
Appendix 5C sets forth the procedures by which (i) an entity may 
request a determination that an Element that falls within the 
definition of Bulk Electric System should be exempted from being 
considered a part of the Bulk Electric System, or (ii) an entity may 
request that an Element that falls outside the definition of the 
Bulk Electric System should be considered a part of the Bulk 
Electric System.\52\
---------------------------------------------------------------------------

    \52\ Id. at 10.

    NERC explains that the exception process is ``not intended to be 
used to resolve ambiguous situations,'' i.e. the exception process is 
only available after an initial determination has been made regarding 
whether an element is part of or not part of the bulk electric system 
through the application of the definition to the element.\53\
---------------------------------------------------------------------------

    \53\ Id. at 10-11.
---------------------------------------------------------------------------

Appendix 5C to the Rules of Procedure
    39. NERC explains that proposed Appendix 5C sets forth the detailed 
procedures for obtaining an exception to include an element in, or 
remove an element from, the bulk electric system.\54\ The exception 
process involves three steps.\55\ First, an entity applies the bulk 
electric system definition to a transmission element to determine its 
status. If the entity believes that the element, contrary to its 
characterization based on the definition, should either be treated, or 
not be treated, as part of the bulk electric system, the entity may 
submit an exception request to the Regional Entity in which the element 
is located. Second, the Regional Entity screens the request to 
determine whether the application meets the filing criteria and, if so, 
reviews the application and makes a recommendation to NERC whether to 
approve or deny the request. Third, the NERC President decides whether 
to approve or deny the exception request after considering the opinion 
provided by a NERC review panel.\56\ If the entity does not agree with 
the NERC President's decision, it may appeal the decision to the NERC 
Board of Trustees Compliance Committee (Compliance Committee) who is 
the final arbiter of the request.
---------------------------------------------------------------------------

    \54\ Id. at 11. See also section D.1.c above.
    \55\ Id. at 13-14.
    \56\ The panel will have at least three members. NERC ROP 
Petition at 14.
---------------------------------------------------------------------------

    40. According to NERC, if the Regional Entity denies the exception 
request based on the initial screening but the applicant believes the 
exception request is proper and complete, the applicant may appeal the 
rejection directly to NERC.
    41. NERC explains that the proposed exception process will allow 
NERC to provide consistent determinations on exception requests 
submitted from different regions involving the same or similar facts 
and circumstances, and will allow NERC to take into account the 
aggregate impact on the bulk electric system of approving or 
disapproving all of the exception requests. Finally, the exception 
process includes provisions for reporting information that may alter 
the status of an approved exception, verifying whether an exception 
continues to be warranted, and revoking an exception that is no longer 
warranted.
    42. The proposed exception process includes provisions for 
obtaining exceptions both for inclusion in and exclusion from the bulk 
electric system. NERC identifies the entities that are eligible to 
submit exception requests. Specifically, the owner of an element may 
submit a request to include the element in, or remove it from, the bulk

[[Page 39864]]

electric system.\57\ A Regional Entity, planning authority, reliability 
coordinator, transmission operator, transmission planner, or balancing 
authority that has (or will have upon inclusion in the bulk electric 
system) the elements covered by an exception request within its scope 
of responsibility may submit an exception request for the inclusion in 
the bulk electric system of an element or elements owned by a 
registered entity. NERC states that only a Regional Entity may submit 
an exception request for the inclusion in the bulk electric system of 
an element owned by an owner that is not a registered entity.
---------------------------------------------------------------------------

    \57\ Section 5C of NERC's Rules of Procedure defines ``owner'' 
as ``the owner(s) of an [e]lement or [e]lements that is or may be 
determined to be part of the [bulk electric system] as a result of 
either the application of the [bulk electric system] [d]efinition or 
an [e]xception, or another entity, such as an operator, authorized 
to act on behalf of the owner of the [e]lement or [e]lements in the 
context of an [e]xception [r]equest.''
---------------------------------------------------------------------------

    43. Finally, NERC states that an exception request will be subject 
to review to verify continuing justification for the exception.\58\ 
According to NERC, the proposed exception process requires an entity to 
notify the Regional Entity and NERC within 90 days after learning of 
any change of condition which would affect the basis for approving the 
exception request. NERC will then review the information and determine 
whether to direct the Regional Entity to perform a substantive review 
to verify continuing justification and issue a recommendation to 
NERC.\59\ NERC also states that an entity must certify every 36 months 
to the appropriate Regional Entity that the basis for the exception 
request remains valid. In addition, the proposed exception process 
states that if the Regional Entity obtains information through means 
other than the submitting entity that indicates an exception may no 
longer be warranted, the Regional Entity must provide NERC with the 
information. NERC will review the information and determine whether to 
direct the Regional Entity to perform a substantive review to verify 
continuing justification and issue a recommendation to NERC.\60\
---------------------------------------------------------------------------

    \58\ Id. at 34 and Att. 1 at 17.
    \59\ Id. at 34-35 and Att. 1 at 17.
    \60\ Id. at 35 and Att. 1 at 17.
---------------------------------------------------------------------------

    44. NERC states that the exception process establishes a process 
that (1) Balances the need for effective and efficient administration 
with due process and clarity of expectations; (2) promotes consistency 
in determinations and eliminates Regional discretion by having all 
decisions on Exception Requests made at NERC; (3) provides for 
involvement of persons with applicable technical expertise in making 
decisions on ception Requests; and (4) should alleviate concerns about 
a ``one-size-fits-all'' approach.\61\
---------------------------------------------------------------------------

    \61\ Id. at 17.
---------------------------------------------------------------------------

Section 1703 of the Rules of Procedure
    45. NERC has also proposed to modify its Rules of Procedure to add 
a procedure for an entity to challenge the NERC decision on an 
exception request. The entity must file the challenge with the 
Compliance Committee within 30 days of the date of the NERC decision. 
The Compliance Committee must issue its decision within 90 days after 
the submission of the challenge, which the Compliance Committee may 
extend. NERC states that the Compliance Committee decision will be the 
final NERC decision on the exception request. In addition, the entity 
may appeal the final NERC decision to the Commission within 30 days 
following the date of the Compliance Committee`s decision, or within 
such time period as the Commission's legal authority permits.
b. NERC's List of Facilities Granted Exceptions
    46. In Order No. 743, the Commission stated that NERC should 
maintain a list of exempted facilities that can be made available to 
the Commission upon request.\62\ NERC states that the proposed 
exception process does not include provisions for NERC to maintain a 
list of facilities that have received exceptions, as requested in Order 
No. 743, as this is an internal administrative matter for NERC to 
implement that does not need to be embedded in the Rules of 
Procedure.\63\ NERC states it will develop a specific internal plan and 
procedures for maintaining a list of facilities for which exceptions 
have been granted.
---------------------------------------------------------------------------

    \62\ Order No. 743, 133 FERC ] 61,150 at P 117.
    \63\ NERC ROP Petition at 49.
---------------------------------------------------------------------------

    47. NERC also notes that Regional Entities will maintain lists of 
elements within their regions for which exceptions have been granted, 
in order to monitor compliance with the requirement to submit periodic 
certifications pursuant to section 11.3 of Appendix 5C.\64\
---------------------------------------------------------------------------

    \64\ Id.
---------------------------------------------------------------------------

II. Discussion

    48. Pursuant to section 215(d) of the FPA we propose to approve 
NERC's revised definition of bulk electric system, including the 
specific inclusions and exclusions set forth in the definition, as 
just, reasonable, not unduly discriminatory or preferential, and in the 
public interest. As discussed below, we believe that NERC's proposal 
satisfies the directives of Order No. 743 to develop modifications to 
the currently-effective definition of bulk electric system to ensure 
that the definition encompasses all facilities necessary for operating 
an interconnected transmission network and remove the Regional Entity 
discretion that currently allows for regional variations without review 
or oversight. We also believe NERC's proposed definition satisfies the 
Commission's technical concerns in Order No. 743 through the use of a 
bright-line 100 kV threshold, with specific inclusions and exclusions 
within the definition, for identifying bulk electric system elements 
and the establishment of an exception process for facilities that are 
not necessary for operating the interconnected transmission network. 
Further, we believe NERC's proposed definition improves clarity and 
transparency. Below, we discuss the proposed ``core'' bulk electric 
system definition as well as each bright-line inclusion and exclusion 
of the proposed definition.
    49. While proposing to approve NERC's modified definition, we also 
seek additional explanation and comments regarding potential 
applications of the ``core'' definition, as well as the inclusions and 
exclusions. We believe that a common understanding of the proposed bulk 
electric system definition (1) promotes consistent application of the 
definition in identifying bulk electric system elements and facilities 
and (2) provides up-front clarity so as to minimize the need for future 
clarifications either formally through NERC's standards clarification 
process or case-specific in a compliance setting. Thus, we seek comment 
from NERC and other interested persons regarding the scenarios and 
applications of the NERC proposal, discussed below. Although we propose 
to approve the definition in this rulemaking, the responses to our 
questions are also intended to guide the Commission as to whether other 
action may be necessary, for example, directing NERC to develop a 
further modification to the core definition, inclusions or exclusions 
pursuant to section 215(d)(5) of the FPA.
    50. Further, pursuant to section 215(f) of the FPA, we propose to 
approve the revisions to the NERC Rules of Procedure that establish an 
exception process to determine case-specific exceptions to the bulk 
electric system definition. NERC's proposal meets the section 215(f) 
standard of review for changes to the Rules of Procedure. The

[[Page 39865]]

Detailed Information Form in the proposed rules identifies ``base-
line'' information and data that any applicant must submit. Further, 
after Regional Entity input, NERC makes the final decision on whether 
to grant an exception request, which better assures consistency of 
decisions across all regions.
    51. In Order No. 743, the Commission stated that NERC should 
maintain a list of facilities included or excluded from the bulk 
electric system pursuant to the exception process.\65\ NERC indicates 
that, while it plans to maintain such a list, maintaining the list is 
an internal NERC function and, thus, not included in NERC's proposed 
Rules of Procedure. To understand how NERC intends to comply with the 
directive from Order No. 743, we propose to require that NERC submit a 
compliance filing detailing its internal process for tracking exception 
requests.
---------------------------------------------------------------------------

    \65\ Order No. 743, 133 FERC ] 61,150 at P 117.
---------------------------------------------------------------------------

    52. Below, the Commission discusses (A) the ``core'' bulk electric 
system definition; (B) proposed inclusions and exclusions in the 
definition; (C) the case-specific exception process; (D) the Detailed 
Information Form; and (E) NERC's implementation plan.

A. The Commission Proposes To Approve the Core Definition of Bulk 
Electric System

    53. The bulk electric system ``core'' definition developed by NERC 
states as follows:

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

    54. In Order No. 743, the Commission found that ``the current 
definition of bulk electric system is insufficient to ensure that all 
facilities necessary for operating an interconnected electric energy 
transmission network are included under the `bulk electric system' 
rubric.'' \66\ The Commission also stated that the ``aim'' of the final 
rule was 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.'' \67\ The Commission stated that the one way to accomplish 
these goals is to eliminate the regional discretion in the current 
definition, and maintain the bright-line threshold that includes all 
facilities operated at or above 100 kV and establish an exception 
process and criteria for excluding facilities that are not necessary 
for the operation of the interconnected transmission network.\68\
---------------------------------------------------------------------------

    \66\ Order No. 743, 133 FERC ] 61,150 at P 30.
    \67\ Id. P 2.
    \68\ Id.
---------------------------------------------------------------------------

    55. It appears that NERC's proposal satisfies the objectives set 
forth in Order No. 743. The ``core'' definition, quoted above, 
establishes the fundamental threshold for inclusion of facilities in 
the bulk electric system as those that are operated at 100 kV or 
higher, if they are transmission elements, or are connected at 100 kV 
or higher, if they are real power or reactive power resources. The core 
definition also establishes a 100 kV criterion as a bright-line 
threshold, rather than as a general guideline as in the current 
definition, i.e., the phrase ``generally operated at'' in the current 
definition is eliminated. As NERC explains, the core definition also 
continues to capture equipment associated with the facilities included 
in the bulk electric system.\69\
---------------------------------------------------------------------------

    \69\ The core definition includes all ``Transmission Elements 
operated at or above 100 kV.'' As NERC explains in its petition, the 
NERC-defined term ``Transmission'' includes the phrase ``associated 
equipment.'' The NERC Glossary defines ``Transmission'' as ``[a]n 
interconnected group of lines and associated equipment for the 
movement or transfer of electric energy between points of supply and 
points at which it is transformed for delivery to customers or is 
delivered to other electric systems.'' Additionally, the Glossary 
defines ``Elements'' as ``[a]ny electrical device with terminals 
that may be connected to other electrical devices such as a 
generator, transformer, circuit breaker, bus section, or 
transmission line. An element may be comprised of one or more 
components.'' We agree with NERC that while the new definition does 
not use the term ``associated equipment,'' the phrase is included in 
the definition through the defined term ``Transmission Elements.''
---------------------------------------------------------------------------

    56. Further, consistent with Order No. 743, NERC's proposed ``bulk 
electric system'' definition eliminates the phrase ``as defined by the 
Regional Reliability Organization * * *.'' As a result, NERC's proposed 
definition will apply nation-wide. Thus, we believe NERC's proposal 
adequately addresses the concerns articulated in Order No. 743 
regarding unfettered regional discretion and the need for a consistent 
approach satisfies the concerns regarding the elimination of 
inconsistencies across regions. The Commission seeks comment on whether 
the revised definition adequately eliminates subjectivity and regional 
variation as required in Order No. 743.\70\
---------------------------------------------------------------------------

    \70\ Id. PP 11-12, 57. The Commission notes that nothing in the 
immediate rulemaking proceeding should impact the application of 
available transmission capability (ATC) calculations as set for in 
Order No. 890. See Preventing Undue Discrimination and Preference in 
Transmission Service, Order No. 890, FERC Stats. & Regs. ] 31,241, 
at P 196, order on reh'g, Order No. 890-A, FERC Stats. & Regs. ] 
31,261 (2007), order on reh'g, Order No. 890-B, 123 FERC ] 61,299 
(2008), order on reh'g, Order No. 890-C, 126 FERC ] 61,228 (2009), 
order on clarification, Order No. 890-D, 129 FERC ] 61,126 (2009). 
Public utility transmission service providers (or their designate) 
have the obligation to comply in all respects with their Commission 
approved tariff. This requires that they must continue to use the 
applicable Reliability Standards to plan and operate both their bulk 
electric system and non-bulk electric system facilities included in 
their tariffs.
---------------------------------------------------------------------------

    57. Below, we seek comment regarding the exclusion of facilities 
used in local distribution.
Local Distribution
    58. 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 and that, 
because such facilities are exempted from the Bulk-Power System, they 
also are excluded from the bulk electric system.\71\ The Commission 
also stated that, although local distribution facilities are excluded 
from the definition, it still is necessary to determine which 
facilities are local distribution, and which are transmission.\72\ As 
the Commission stated in order No. 743-A, ``[w]hether facilities are 
used in local distribution will in certain instances raise a question 
of fact, which the Commission has jurisdiction to determine.'' In Order 
No. 743, the Commission also recognized that NERC would need to 
establish whether a particular facility is local distribution or 
transmission, and directed NERC to develop a means, subject to 
Commission approval, to make such a determination.\73\ In Order No. 
743-A the Commission clarified that
---------------------------------------------------------------------------

    \71\ Order No. 743, 133 FERC ] 61,150 at P 37.
    \72\ Order No. 743-A, 134 FERC ] 61,210 at P 67.
    \73\ Order No. 743, 133 FERC ] 61,150 at P 37.

the statement in Order No. 743, ``determining where the line between 
`transmission' and `local distribution' lies * * * should be part of 
the exemption process the ERO develops'' was intended to grant 
discretion to 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. * * * 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.
    We agree * * * 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 39866]]

applying the test or developing an alternative approach as it deems 
necessary.\74\
---------------------------------------------------------------------------

    \74\ Order No. 743-A, 134 FERC ] 61,210 at PP 68-69 (footnotes 
omitted).

    59. In addressing what constitutes local distribution, NERC 
explains that the second sentence in the core definition, which 
excludes ``facilities used in the local distribution of electric 
energy,'' is consistent with section 215(a)(1)(B) of the FPA and the 
Commission's regulations at 18 CFR 39.1 and as recognized in Order No. 
743-A.'' \75\ NERC states that ``the core definition * * * 
establish[es] an express carve out for facilities used in the local 
distribution of electrical energy.'' \76\ NERC also states that 
facilities for the local distribution of electric energy are expressly 
excluded from the bulk electric system by the core definition as well 
as by the local network exclusion, exclusion E3.\77\ NERC adds that, 
while some stakeholders suggested that the Commission's seven-factor 
test should be employed to determine distribution facilities, the NERC 
drafting team ``rejected this approach as the sole determination of 
distribution facilities, * * * [but] pointed out that such a test could 
be utilized by a Submitting Entity making an Exception Request but that 
other information should be supplied to support the request.'' \78\
---------------------------------------------------------------------------

    \75\ NERC BES Petition at 16.
    \76\ Id. at 22-23.
    \77\ NERC's LN Technical Paper, Exhibit G of NERC's Petition, 
provides:
    In Order 743a, the Commission made it clear that facilities that 
are used in the local distribution of electric energy will be 
excluded from the Bulk Electric System. * * * In response to this 
facet of the Order, in developing the BES definition, the SDT has 
followed this guidance. Exclusion E3 was specifically designed to 
capture for exclusion those high voltage non-radial facilities being 
used for the local distribution of energy.
    The exclusion characteristics in items a, b, and c * * * serve 
to ensure that facilities excluded under the local network exclusion 
(E3) are not necessary for the reliable operation of the 
interconnected electric transmission network and are instead used in 
the local distribution of energy.
    Id., Ex. G, at 2.
    \78\ NERC BES Petition at 49.
---------------------------------------------------------------------------

    60. The Commission seeks comment from NERC and the public regarding 
how the proposed definition is responsive to the Commission's 
directives in Order Nos. 743 and 743-A. Specifically, the Commission 
seeks comment on how NERC's proposal adequately differentiates between 
local distribution and transmission facilities in an objective, 
consistent, and transparent manner.\79\
---------------------------------------------------------------------------

    \79\ We note that an element that falls outside of the 
definition of bulk electric system is not necessarily local 
distribution.
---------------------------------------------------------------------------

B. The Commission Proposes To Approve the List of Inclusions and 
Exclusions in the Definition of Bulk Electric System

    61. Along with the core definition, NERC's proposal provides 
specific inclusions and exclusions. The inclusions and exclusions 
provide added clarity regarding which elements are part of the bulk 
electric system as compared to the existing definition. For example, 
the inclusion of generating resources, blackstart resources and 
dispersed power producing resources provide additional information and 
granularity that assist in the identification of bulk electric system 
facilities or elements. However, we also have questions about how some 
of the inclusions and exclusions will be applied by NERC, Regional 
Entities and users, owners and operators of the Bulk-Power System. 
Through the responses to these questions we seek to better understand 
potential applications of the inclusions and exclusions, their effect 
on identifying the facilities or elements for bulk electric system 
reliability, and whether possible gaps exist.
1. Inclusions
a. Inclusion I1 (Transformers)
    62. Inclusion I1 provides ``[t]ransformers with the primary 
terminal and at least one secondary terminal operated at 100 kV or 
higher unless excluded under [the radial system or local network 
exclusion].'' NERC explains that:

    Transformers operating at 100 kV or higher are part of the 
existing definition, but since transformers have windings operating 
at different voltages, and multiple windings in some circumstances, 
clarification was required to explicitly identify which transformers 
are included in the BES. Inclusion I1 includes in the BES those 
transformers operating at 100 kV or higher on the primary winding 
and at least one secondary winding, so as to be in concert with the 
core definition.\80\
---------------------------------------------------------------------------

    \80\ NERC BES Petition at 17.

    63. We believe that inclusion I1, with NERC's explanation, is a 
reasonable approach to identifying transformers that are appropriately 
included as part of the bulk electric system. However, circumstances 
may warrant inclusion of a particular transformer--through the proposed 
case-specific exception process--where a transformer is operated at 100 
kV or higher on the primary winding but all secondary terminals are 
operated below 100 kV. The joint NERC and Commission staff report on 
the September 8, 2011, Arizona-Southern California blackout discusses 
how a 92 kV networked system experienced parallel flows from bulk 
electric system elements through two 230/92 kV transformers.\81\ The 
report explains that the reliability coordinator, transmission 
operators and balancing authorities did not consider certain sub-100 kV 
facilities, including two 230/92 kV transformers as bulk electric 
system elements. Consequently, when contingencies occurred on the bulk 
electric system on September 8, 2011, the reliability coordinator, 
transmission operators and balancing authorities were unaware that the 
contingencies adversely impacted the 230/92 kV transformers or how the 
loss of the transformers impacted system reliability.\82\ The 
Commission seeks comment on whether these types of transformers, i.e., 
those that have a terminal operated at 100 kV or above on the high side 
and below 100 kV on the low side should be designated as part of the 
bulk electric system. If answered in the affirmative, the Commission 
seeks further comment whether the case-by-case exception process 
suffices, or a generic inclusion is appropriate to address the concerns 
identified in Order No. 743.
---------------------------------------------------------------------------

    \81\ Arizona-Southern California Outages on September 8, 2011--
Causes and Recommendations at 96 (September 2011 Blackout Report), 
available at http://www.ferc.gov/legal/staff-reports/04-27-2012-ferc-nerc-report.pdf.
    \82\ Id. at 96-97.
---------------------------------------------------------------------------

b. Inclusion I2 (Generating Resources)
    64. Inclusion I2 provides:

    Generating resource(s) with gross individual nameplate rating 
greater than 20 MVA or gross plant/facility aggregate nameplate 
rating greater than 75 MVA including the generator terminals through 
the high-side of the step-up transformer(s) connected at a voltage 
of 100 kV or above.

According to NERC, this inclusion ``mirrors'' the text of the NERC 
Registry Criteria for generating units. NERC explains that the drafting 
team ``found no technical rationale for changing at this time from the 
thresholds for generating resources presently specified in the * * * 
Registry Criteria.'' \83\ Further, NERC states that, to provide 
clarity, the revised definition specifies that the bulk electric system 
``includes the generator terminals through the high-side of the step-up 
transformer connected at a voltage of 100 kV or above.'' \84\
---------------------------------------------------------------------------

    \83\ NERC BES Petition at 17. NERC states ``A basic tenet that 
was followed in developing the revised BES Definition was to avoid 
changes to Registrations due to the revised BES Definition if such 
changes are not technically required for the BES Definition to be 
complete.'' Id. (citing Order No. 743-A, 134 FERC ] 61,210 at P 
102).
    \84\ NERC BES Petition at 17.

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[[Page 39867]]

    65. We believe that Inclusion I2 provides useful granularity 
regarding the inclusion of generation resources as part of the bulk 
electric system. However, we seek comment regarding several aspects of 
inclusion I2. NERC's Registry Criteria thresholds for generators 
provides for the registration of ``[i]ndividual generating unit > 20 
MVA (gross nameplate rating) and is directly connected to the Bulk 
Power System'' or ``[g]enerating plant/facility > 75 MVA (gross 
aggregate nameplate rating) or when the entity has responsibility for 
any facility consisting of one or more units that are connected to the 
Bulk Power System at a common bus with total generation above 75 MVA 
gross nameplate rating.'' \85\ We agree that proposed inclusion I2 is 
consistent with the individual and aggregate nameplate rating 
thresholds set forth in the Registry Criteria. We note, however, that 
the Registry Criteria and the proposed definition differ regarding the 
description of the connection point of the generating units and plants. 
While inclusion I2 specifies ``generator terminals through the high-
side of the step-up transformer(s) connected at a voltage of 100 kV or 
above,'' the Registry Criteria specifies a ``direct connection'' to the 
Bulk-Power System. We seek comment whether inclusion I2 will result in 
a material change to registration of existing generating units due to 
the difference in the language regarding the connection point. In 
addition, we seek comment if, pursuant to inclusion I2, the following 
circumstances are included in the bulk electric system: A generating 
unit, with a gross individual nameplate rating greater than 20 MVA 
connected through the high-side of the step-up transformer connected at 
a voltage of 100 kV or above when the low side of the transformer is 
less than 100 kV. How does this result differ for a generation resource 
with two or more step-up transformers where the last transformer in the 
series operates at 100 kV or above, for example, a 50 MVA generator 
first steps up through a 23 kV transformer on the low side and 69 kV on 
the high side and then immediately steps up through a second 
transformer at the same site with less than 100 kV on the low side and 
above 100 kV on the high side?
---------------------------------------------------------------------------

    \85\ Registry Criteria, III.c.1 and c.2 (Generator Owner/
Operator).
---------------------------------------------------------------------------

c. Inclusion I3 (Blackstart Resources Identified in the Transmission 
Operator's Restoration Plan)
    66. Inclusion I3 identifies as part of the bulk electric system 
``Blackstart Resources identified in a Transmission Operator's 
restoration plan.'' NERC explains that blackstart resources are 
``vital'' for the reliable operation of the bulk electric system and 
are included ``regardless of their size (MVA) or the voltage at which 
they are connected.'' \86\ NERC further states that including 
blackstart resources is consistent with the Registry Criteria, which 
provide that ``any generator, regardless of size, that is a blackstart 
unit material to and designated as part of a transmission operator 
entity's restoration plan'' is eligible for registration.\87\
---------------------------------------------------------------------------

    \86\ NERC BES Petition at 18.
    \87\ Id. (emphasis added).
---------------------------------------------------------------------------

    67. We agree with NERC that inclusion of blackstart resources in 
the definition is vital to reliability and is an improvement to the 
definition. We seek clarification whether the term ``restoration plan'' 
refers to the system restoration plans required in the Emergency 
Preparedness and Operations (EOP) Reliability Standards or included in 
a Commission approved tariff.\88\
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    \88\ Reliability Standard EOP-005-1, System Restoration Plans, 
requires a transmission operator to create ``a restoration plan to 
reestablish its electric system in a stable and orderly manner in 
the event of a partial or total shutdown of its system.''
---------------------------------------------------------------------------

    68. NERC states that first posting of the revised definition 
included ``cranking paths'' for blackstart resources due to a concern 
about ``the possibility of having Blackstart Resources without a 
`guaranteed' path'' to the [bulk electric system].'' \89\ NERC explains 
that ``a number of commenters complained that this was improperly 
bringing distribution level Elements into the [bulk electric system], 
as many Cranking Paths are at the distribution level'' and ``also 
pointed out that this was an illusory proposition as intended Cranking 
Paths are not always the ones used in actual restoration.'' \90\ As a 
result of the industry feedback, NERC deleted cranking paths from the 
revised definition with the understanding that the issue would be 
revisited in Phase 2 of the BES project. According to NERC, ``this 
approach would maintain status quo on this topic, consistent with Order 
Nos. 743 and 743-A, while providing for a full discussion and 
consideration of the issue in a less time constrained 
environment''.91 92 Subsequently, however, the topic of 
cranking paths was deleted from the scope of the Phase 2 BES 
project.\93\ In light of the decision not to further pursue a possible 
revision to the bulk electric system definition pertaining to cranking 
paths, the Commission is concerned whether a reliability gap exists 
with regard to cranking paths. Cranking paths constitute a basic 
element of system restoration, and it is unclear whether reliability 
can be adequately maintained when blackstart generators are defined as 
part of the bulk electric system but not the transmission paths that 
are used to deliver the energy from blackstart generators to the 
integrated transmission system. We also recognize that cranking paths 
may implicate facilities used in local distribution. Accordingly, we 
seek comment on whether a reliability gap may exist with regard to 
cranking paths and, if so, what potential approaches are appropriate to 
remove the gap. We also seek comment on the appropriate role, if any, 
of state regulators in ensuring that energy from blackstart generation 
is reliably delivered through cranking paths to restart the system 
after an event.
---------------------------------------------------------------------------

    \89\ NERC BES Petition at 47. The NERC Glossary defines 
``Cranking Path'' as ``[a] portion of the electric system that can 
be isolated and then energized to deliver electric power from a 
generation source to enable the startup of one or more other 
generating units.'' See also the Regional Bulk Electric System 
Definition Coordination Group concept paper that recommends 
including the designated cranking paths for the blackstart resources 
available at http://www.nerc.com/docs/standards/sar/Project_2010-17_Concept_Paper.pdf.
    \90\ Id.
    \91\ Id. NERC's Project 2010-17, the ``Phase 2 BES Project.''
    \92\ Id. NERC's Project 2010-17, the ``Phase 2 BES Project.''
    \93\ The February 21-23, 2012 meeting notes from the Project 
2010-17 Definition of Bulk Electric System Phase 2 Standard Drafting 
Team states that ``the SDT decided to delete the Cranking Path 
reference in the [Phase 2] SAR.'' The reasons for the deletion 
included ``that Cranking Paths reach down into distribution and thus 
shouldn't be included in the definition,'' and ``that this issue was 
debated in Phase 1 and resolution was obtained,'' and ``that 
Cranking Paths were only needed when an entity was in restoration 
mode so it wasn't needed in the definition.'' However, the same 
document states some commenters believe ``that Cranking Paths were 
only needed when an entity was in restoration * * * and * * * that 
this was a reason to have it in the definition.'' See Meeting Notes 
from the Project 2010-17 Definition of Bulk Electric System Phase 2 
Standard Drafting Team, February 21-23, 2012, at Page 5, available 
at http://www.nerc.com/docs/standards/dt/Meeting_Notes-Project_2010-17_DBES-February_21-23,_2012.pdf.
---------------------------------------------------------------------------

d. Inclusion I4 (Dispersed Power Producing Resources)
    69. Inclusion I4 identifies as part of the bulk electric system:

    Dispersed power producing resources with aggregate capacity 
greater than 75 MVA (gross aggregate nameplate rating) utilizing a 
system designed primarily for aggregating capacity, connected at a 
common point at a voltage of 100 kV or above.

    70. NERC explains that this inclusion is intended ``to accommodate 
the effects of variable generation'' on the bulk

[[Page 39868]]

electric system.\94\ NERC further states that even though inclusion I4 
could be considered subsumed in inclusion I2 (generating resources), 
NERC believes it is appropriate ``to expressly cover dispersed power 
producing resources utilizing a system designed primarily for 
aggregating capacity.'' \95\
---------------------------------------------------------------------------

    \94\ NERC BES Petition at 18.
    \95\ Id.
---------------------------------------------------------------------------

    71. We believe that inclusion I4 provides useful granularity in the 
bulk electric system definition. To better understand the application 
of inclusion I4, we seek comment whether this provision includes as 
part of the bulk electric system the individual elements (from each 
energy-producing resource at the site through the collector system to 
the common point at a voltage of 100 kV or above) used to aggregate the 
capacity and any step-up transformers used to connect the system to a 
common point at a voltage of 100 kV or above.
e. Inclusion I5 (Static or Dynamic Reactive Power Devices)
    72. Inclusion I5 identifies as part of the bulk electric system:

    Static or dynamic devices (excluding generators) dedicated to 
supplying or absorbing Reactive Power that are connected at 100 kV 
or higher, or through a dedicated transformer with a high-side 
voltage of 100 kV or higher, or through a transformer that is 
designated in Inclusion I1.

NERC explains that this inclusion is the technical equivalent of 
inclusion I2 (generating resources), for reactive power devices and 
points out that the existing definition is unclear as to how these 
devices are treated.\96\ NERC states inclusion I5 provides clarity by 
``providing specific criteria for Reactive Power devices, thereby 
further limiting subjectivity and the potential for discretion'' in the 
application of the revised definition.\97\
---------------------------------------------------------------------------

    \96\ Id.
    \97\ Id.
---------------------------------------------------------------------------

    73. The Commission agrees with NERC that this inclusion adds 
clarity to the application of the bulk electric system definition by 
providing specific criteria for reactive power devices. For cases where 
the reactive power device is connected through a transformer designated 
in inclusion I1, we seek comment on whether both the reactive power 
device and the transmission elements connecting the reactive power 
device to the transformer are included as part of the bulk electric 
system pursuant to inclusion I5.
2. Exclusions
    74. NERC states that the proposed definition identifies four 
facilities configurations that should not be included in the bulk 
electric system: (1) Radial systems, (2) behind-the-meter generating 
units, (3) local networks, and (4) retail customer reactive power 
devices.
    75. We agree that the proposed definition's exclusions provide 
clarity and granularity. For example, the exclusion of generating units 
on the customer's side of the retail meter that serves all or part of 
the retail load (exclusion E2) and the exclusion for reactive power 
devices owned and operated by a retail customer for its own use 
(exclusion E4) provide reasonable limitations on bulk electric system 
elements. While we believe that the exclusions provide added clarity, 
we also seek comment on certain aspects of exclusions E1 and E3 to 
ensure a more complete understanding of their application.
a. Exclusion E1 (Radial Systems)
    76. Exclusion E1 provides as follows:

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

NERC states that radial facilities are excluded under the currently 
effective bulk electric system definition, and the detailed criteria in 
the revised definition provide enhanced clarity.\98\ We seek comment on 
our understanding and NERC's explanation of exclusion E1 in order for 
the Commission to ensure application of exclusion E1 is consistent. 
Also, we seek comment to determine if the configurations covered by 
Conditions (a), (b), or (c) of exclusion E1 remove from the bulk 
electric system generation connected to a radial system that otherwise 
satisfies inclusion I2. The Commission would like to ensure that the 
conditions in exclusion E1 will not lead to conflicting results when 
applying inclusion I2 and exclusion E1.
---------------------------------------------------------------------------

    \98\ Id.
---------------------------------------------------------------------------

    77. As stated above, the radial exclusion applies to ``a group of 
contiguous transmission Elements that emanates from a single point of 
connection of 100 kV or higher. * * *'' While the term ``Elements'' 
includes the term generator,\99\ the use of the term ``transmission'' 
before ``Elements'' indicates that exclusion E1 applies only to 
transmission elements. The phrase ``transmission Elements'' in this 
provision does not apply to generating resources that are bulk electric 
system resources pursuant to inclusion I2 (generating resources), 
connected to a radial line operated at 100 kV above.\100\
---------------------------------------------------------------------------

    \99\ ``Element'' is defined in the NERC Glossary as ``[a]ny 
electrical device with terminals that may be connected to other 
electrical devices such as a generator, transformer, circuit 
breaker, bus section, or transmission line. An element may be 
comprised of one or more components.'' (emphasis added).
    \100\ Our understanding comports with the NERC standard drafting 
team's explanation in response to industry comments that generation 
resources connected within the radial system are not excluded 
pursuant to exclusion E1. See NERC BES Petition, Exh. D, 
Consideration of Comments Report, at 223 (stating that ``Exclusion 
E1 is an exclusion for the contiguous transmission Elements 
connected at or above 100 kV. Generation resources connected within 
the radial system are qualifiers for this exclusion.'').
---------------------------------------------------------------------------

i. Definition of `Radial Systems' and Condition (a)--Radials Only 
Serving Load
    78. NERC stated that it developed exclusion E1 to provide enhanced 
clarity as compared to the existing definition.\101\ Exclusion E1 
defines the term `radial systems' as ``a group of contiguous 
transmission Elements that emanates from a single point of connection 
of 100 kV or higher.'' The Commission seeks comment on how NERC's 
proposal would be applied in the three scenarios described below.
---------------------------------------------------------------------------

    \101\ NERC BES Petition at 18.
---------------------------------------------------------------------------

    79. Figure 1 below depicts facilities configurations in which all 
of the 230 kV and 69 kV transmission elements emanate from a single 
point of connection of 100 kV or higher. The Commission seeks comment 
on whether each of the radial systems shown in figure 1, the 230 kV 
elements above each transformer to the point of connection to each 230 
kV line, respectively, are excluded from the bulk electric system 
pursuant to exclusion E1.

[[Page 39869]]

[GRAPHIC] [TIFF OMITTED] TP05JY12.001

    80. Another scenario shown in figure 2 below depicts a 
configuration containing a 115 kV loop, with the configuration 
emanating from two points of connection of 100 kV or higher. We seek 
comment whether, in this configuration, the 115 kV and 230 kV elements 
above Transformers 1 and 2 to the points of connection to the two 230 
kV lines would be excluded from the bulk electric system pursuant to 
exclusion E1. Is the configuration shown in figure 2 more appropriately 
analyzed pursuant to the ``local network'' exclusion E3 and, if so, 
what if any elements operated at or above 100 kV would be excluded 
pursuant to exclusion E3?

[[Page 39870]]

[GRAPHIC] [TIFF OMITTED] TP05JY12.002

    81. The Commission agrees with NERC that `radial systems' only 
serving load and emanating from a single point of connection of 100 kV 
or higher should be excluded from the bulk electric system. The 
Commission is concerned that the exclusion could allow elements 
operating at 100 kV or higher in a configuration that emanates from two 
or more points of connection to be deemed ``radial'' even though the 
configuration remains contiguous through elements that are operated 
below 100 kV. For example, figure 3 below depicts a configuration with 
two points of connection of 100 kV or higher that are contiguous 
through a 69 kV loop. We seek comment on how to evaluate the 
configuration in figure 3 vis-[agrave]-vis the radial system definition 
and whether it is appropriate to examine the elements below 100 kV to 
determine if the configuration meets the exclusion E1 definition for 
radial systems. In other words, does figure 3 depict a system emanating 
from two points of connection at 230 kV and, therefore, the 230 kV 
elements above the transformers to the points of connection to the two 
230 kV lines would not be eligible for the exclusion E1 notwithstanding 
the connection below 100 kV?

[[Page 39871]]

[GRAPHIC] [TIFF OMITTED] TP05JY12.003

ii. Condition (b)--Radials With Limited Generation and Condition (c)--
Radials With Limited Generation and Load
    Condition (b) of exclusion E1 provides that a radial system is 
excluded if it ``[o]nly includes generation resources, not identified 
in Inclusion I3, with an aggregate capacity less than or equal to 75 
MVA (gross nameplate rating).'' Proposed Condition (c) of exclusion E1, 
excludes radial systems ``[w]here the radial system serves Load and 
includes generation resources, not identified in Inclusion I3, with an 
aggregate capacity of non-retail generation less than or equal to 75 
MVA (gross nameplate rating).''
    82. NERC states that Conditions (b) and (c) are ``intended to 
address the circumstances of small utilities (including municipal 
utilities and cooperatives).'' \102\ The NERC BES Petition, including 
the Exhibit E record of development, does not further explain the need 
for, or the impact of, these proposed provisions. Accordingly, we seek 
comment regarding the specific circumstances that Conditions (b) and 
(c) are intended to address.
---------------------------------------------------------------------------

    \102\ NERC BES Petition at 19.
---------------------------------------------------------------------------

    83. Because Condition (b) describes generation connected to a 
radial system with no load and Condition (c) describes generation 
connected to a radial system with generation and load, it appears that 
the power generated on these radial systems would, by design, be 
delivered or injected to the bulk electric system and transported to 
other markets. In this circumstance, it appears that a line 100 kV or 
above connected to a generator with a capacity 75 MVA or below would 
not be included in the bulk electric system. The Commission seeks 
comment on the appropriateness of excluding such radials.
iii. Normally Open Switches
    84. Proposed exclusion E1 includes a ``note'' stating that a 
``normally open switching device between radial systems, as depicted on 
prints or one-line diagrams for example, does not affect this 
exclusion.'' NERC states that this note is intended to address a common 
network configuration in which two separate sets of facilities that, 
each standing alone, would be recognized as radial systems but are 
connected by a switch that is set to the open position for reliability 
purposes.\103\
---------------------------------------------------------------------------

    \103\ NERC BES Petition at 19-20.
---------------------------------------------------------------------------

    85. NERC explains that these switches are installed by entities to 
provide greater reliability to their end-use customers. For example, 
when the entity schedules maintenance activities on a radial line or an 
unscheduled outage occurs that impacts a single point of supply to the 
radial line which could cause the disruption of power supply to the 
end-use customers served by the line, the switch allows the entity to 
use another feed on the connected radial line.
    86. Figure 4 below illustrates a configuration with a normally open 
switch.

[[Page 39872]]

[GRAPHIC] [TIFF OMITTED] TP05JY12.004

    NERC states that ``[t]he concept that two sets of radial facilities 
that are normally unconnected to each other should be subject to * * * 
applicable Reliability Standards during the limited time periods when 
they are connected by the closing of the normally open switch in the 
maintenance-related or outage-related circumstances described above 
would be fundamentally impractical and unworkable (from both the 
entity's perspective and the ERO's perspective), and would misapprehend 
this very common, reliability-driven facilities configuration.'' \104\
---------------------------------------------------------------------------

    \104\ Id. at 20-21.
---------------------------------------------------------------------------

    87. NERC states that ``a normally open switch'' will be identified 
in documents such as prints or one-line diagrams and that ``[t]he 
concept and usage of the `normally open switch' in such configuration 
is well understood in the electric utility industry.'' \105\ We seek 
comment on NERC's characterization and whether the phrase ``normally 
open'' is subject to interpretation or misunderstanding, or whether a 
``normally open'' configuration is potentially difficult to oversee. 
Further, we seek comment on the need of transmission operators or other 
functional entities to study the system impacts of the closing of a 
``normally open'' switch, or to take other steps to ensure awareness of 
the impacts of the loop that is created by the closing of the switch if 
the closed loop is not included as part of the bulk electric system.
---------------------------------------------------------------------------

    \105\ Id. at 19.
---------------------------------------------------------------------------

b. Exclusion E2 (Behind the Meter Generation)
    88. Exclusion E2 excludes ``[a] generating unit or multiple 
generating units on the customer's side of the retail meter * * *.'' 
The Commission believes that this is an appropriate exclusion that 
provides additional clarity and granularity to the definition of bulk 
electric system.
c. Exclusion E3 (Local Networks)
    89. As noted above, we believe that a common understanding of the 
exclusions promotes consistent application of the definition in 
identifying bulk electric system elements. In particular, as discussed 
in greater detail below, we seek comment on the following issues with 
respect to the application of exclusion E3: (1) Whether generation 
resources are excluded by this exclusion; (2) how the exclusion applies 
to a looped lower voltage system; (3) whether the 300 kV ceiling is 
appropriate for the application of the exclusion; (4) whether the 
prohibition for generation produced inside a local network is not 
transporting power to other markets outside the local network applies 
in both normal and emergency operating conditions.
    90. Exclusion E3 defines the term local networks as:

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

Exclusion E3 also identifies three conditions that must be satisfied 
for the exclusion to apply: (a) Limit on connected generation to 75 MVA 
aggregate capacity of non-retail generation (gross nameplate rating); 
(b) power flows only into the local network and does not transfer 
through the `local network'; and (c) the local network is not part of a 
flowgate or transfer path.
    91. NERC states the design and operation of local networks is such 
that at the point of connection with the interconnected transmission 
network is similar to that of a radial facility, in particular that 
power always flows in a direction from the interconnected transmission 
network into the local network.\106\ Further, according to NERC, 
``[l]ocal networks provide local electrical distribution service and 
are not planned, designed or operated to benefit or support the balance 
of the interconnected transmission network.'' \107\
---------------------------------------------------------------------------

    \106\ NERC BES Petition at 22.
    \107\ Id.
---------------------------------------------------------------------------

    92. Similar to our discussion of the definition of `radial systems' 
in

[[Page 39873]]

exclusion E1, the exclusion E3 local network exclusion applies to 
transmission Elements, but does not apply to generation resources 
connected to a local network that otherwise satisfy inclusion I2.
    93. NERC states in the LN Technical Paper, that ``Exclusion E3 was 
specifically designed to capture for exclusion those high voltage non-
radial facilities being used for the local distribution of energy.'' 
\108\ The paper further provides:
---------------------------------------------------------------------------

    \108\ NERC BES Petition, Exhibit G at 2.

    Their [local network] design and operation is such that at the 
point of connection with the interconnected electric transmission 
network, their effect on that network is similar to that of a radial 
facility, particularly in that flow always moves in a direction that 
is from the BES into the facility. Any distribution of parallel 
flows into the local network from the BES, as governed by the 
fundamentals of parallel electric circuits, is negligible, and, more 
importantly, is overcome by the Load served by the local network, 
thereby ensuring that the net actual power flow direction will 
always be into the local network at all interface points. The 
presence of a local network is not for the operability of the 
interconnected electric transmission network; neither will the local 
network's separation or retirement diminish the reliability of the 
interconnected electric transmission network.'' \109\
---------------------------------------------------------------------------

    \109\ Id.

    94. We seek further explanation and comment on the statement above 
that ``neither will the local network's separation or retirement 
diminish the reliability of the interconnected electric transmission 
network.'' While a radial facility emanates from one point of 
connection to the interconnected transmission network, a local network 
by definition has multiple points of connection to the interconnected 
transmission network. Thus, regarding a local network, a contingency 
situation may arise where one of the multiple connections to the 
interconnected transmission network separates, while other local 
network connections maintain connectivity with the bulk electric 
system. We seek comments to better understand how an entity with a 
candidate local network would analyze such contingencies to determine 
potential impacts to the reliable operation of the interconnected 
transmission network.
i. Contiguous Transmission Elements and the 100 kV Lower Limit/300 kV 
Cap
    95. As stated above, exclusion E3 defines local networks as ``[a] 
group of contiguous transmission Elements operated at or above 100 kV 
but less than 300 kV that distribute power to Load rather than transfer 
bulk-power across the interconnected system.'' While the local network 
exclusion applies to contiguous transmission elements operating at a 
minimum of 100 kV, it is unclear how the exclusion applies to a looped 
lower voltage system. For example, figure 5 depicts a 69 kV looped 
system emanating from two points of connection at 100 kV or higher.
[GRAPHIC] [TIFF OMITTED] TP05JY12.005

    The configuration in figure 5 depicts a group of elements that are 
contiguous through a 69 kV loop. We seek comment whether the 
configuration in figure 5 qualifies as a local network and, in 
particular, whether the configuration satisfies the condition that a 
local network consists of ``a group of contiguous transmission Elements 
operated at or above 100 kV * * *.''
    96. NERC states the selection of a 300 kV cap for the applicability 
of an

[[Page 39874]]

exclusion for a local network was based upon recent NERC standards 
development work in Project 2006-02 ``Assess Transmission Future Needs 
and Develop Transmission Plans'' which sets a voltage level of 300 kV 
to differentiate extra high voltage (EHV) facilities from high voltage 
facilities acting as a threshold to distinguish between expected system 
performance criteria.\110\ NERC states that it seeks to establish 
consistency in the limitations placed on the exclusion applicability 
for local network facilities, and has therefore adopted this 300 kV 
level to ensure that EHV facilities are not subject to this 
exclusion.\111\ NERC provides a ``realistic example of the electrical 
interaction between a typical local network and the [bulk electric 
system]'' in the LN Technical Paper.\112\ The example depicted in 
Appendix 1 of the Technical Paper shows a local network operating at 
115 kV. The NERC Technical Paper does not provide examples of a local 
network operating within the 200 to 300 kV range, for example showing 
230 kV facilities operating in a local network. We are concerned 
whether the 300 kV ceiling is appropriate and reflects actual system 
configurations that serve local distribution, the stated purpose of the 
local network exclusion.\113\ Accordingly, we seek comment whether (and 
why or why not) the 300 kV ceiling is appropriate for the application 
of exclusion E3 and requests examples of systems between 200 and 300 kV 
that would qualify for this exclusion.\114\
---------------------------------------------------------------------------

    \110\ NERC BES Petition at 23.
    \111\ Id. at 23 and Exh. G at 4.
    \112\ Id., Exh. G at 5.
    \113\ The Commission notes additional differentiations may 
directly address this concern, such as applying a load limit, which 
was raised by the NERC System Analysis and Modeling Subcommittee 
(SAMS) in its effort to support Phase 2 of the bulk electric system 
definition project as a criterion to limit the exclusion of large 
cities and regions.
    \114\ To the extent the information requested is confidential, 
commenters may provide the information pursuant to 18 CFR 388.112 of 
the Commission's regulations.
---------------------------------------------------------------------------

ii. Criterion (a)--Limits on Connected Generation
    97. Exclusion E3 criterion (a) provides that the local network and 
its underlying elements do not include the blackstart resources 
identified in inclusion I3 and do not have an aggregate capacity of 
non-retail generation greater than 75 MVA gross nameplate rating. In 
addition, criterion (a) does not limit the amount of generation besides 
``non-retail generation'' connected to the local network. The 
Commission agrees with NERC that ``local networks'' do not include 
blackstart resources and agrees with the limits on the connected 
generation imposed by this exclusion.
iii. Criterion (b)--Power Flows Only Into the Local Network
    98. Exclusion E3 criterion (b) specifies that to be eligible for 
the exclusion, power can only flow into the local network and the local 
network does not transfer energy originating outside the local network 
for delivery through the local network. Thus, it appears that, pursuant 
to criterion (b), generation produced inside a local network is not 
transporting power to other markets outside the local network. The 
Commission understands that criterion (b) applies in both normal and 
emergency operating conditions.\115\
---------------------------------------------------------------------------

    \115\ See NERC BES Petition, Exh. E at 59 (``The Commission 
directed NERC to revise its BES definition to ensure that the 
definition encompasses all Facilities necessary for operating an 
interconnected electric Transmission network. The SDT interprets 
this to include operation under both normal and Emergency conditions 
* * *.'').
---------------------------------------------------------------------------

iv. Criterion (c)--Not Part of a Flowgate or Transfer Path
    99. Exclusion E3 criterion (c) specifies a ``local network'' does 
not contain a monitored facility of a permanent flowgate in the Eastern 
Interconnection, a major transfer path within the Western 
Interconnection, or a comparable monitored facility in the ERCOT or 
Quebec Interconnections, and is not a monitored facility included in an 
interconnection reliability operating limit. The Commission believes 
that this is an appropriate criterion.
d. Exclusion E4 (Reactive Power Devices)
    100. Exclusion E4 excludes from the bulk electric system ``Reactive 
Power devices owned and operated by the retail customer solely for its 
own use.'' NERC explains that exclusion E4 is the technical equivalent 
of Exclusion E2 for reactive power devices and that the currently 
effective bulk electric system definition is unclear as to how these 
devices are to be treated. We believe that this is an appropriate 
exclusion that provides additional clarity and granularity to the 
definition of bulk electric system.
Summary
    101. In sum, we propose to approve NERC's revised definition of the 
term bulk electric system, including the specific inclusions and 
exclusions. We believe that NERC's proposal provides a reasonable basis 
for the identification of bulk electric system elements and appears to 
improve upon the currently effective definition by: (1) Removing the 
language that provides for regional discretion, (2) removing the 
language ``generally operated at * * *'' so as to create a clear 100 kV 
threshold; and (3) providing additional clarity and granularity. Above, 
we have asked for comment on a series of questions regarding the 
applicability of the ``core'' definition and specific inclusions and 
exclusions. We believe that comments on these questions will assist in 
providing further clarity and understanding of the NERC proposal. We 
further note that although we propose to approve the definition in this 
rulemaking, the responses to our questions are intended to guide the 
Commission as to whether other action is necessary, for example, by 
directing NERC to develop a further modification to the definition or 
inclusions/exclusions pursuant to section 215(d)(5) of the FPA.

C. The Commission Proposes To Approve the NERC Rules of Procedure That 
Provide a Case-Specific Exception Process

    102. As described above, in Docket No. RM12-7-000, NERC submitted 
proposed revisions to its Rules of Procedure that provide procedures 
for requesting and receiving case-specific exception from the 
definition of bulk electric system.\116\
---------------------------------------------------------------------------

    \116\ See Section I.D.2 above for further description of NERC's 
proposed revisions to the NERC Rules of Procedure.
---------------------------------------------------------------------------

    103. Pursuant to FPA section 215(f), we propose to find that the 
exception process is just, reasonable, not unduly discriminatory or 
preferential, and in the public interest and satisfies the requirements 
of section 215(c). Further, we believe that the proposal satisfies the 
statement in Order No. 743 that NERC establish an exception process for 
excluding facilities that are not necessary for the reliable operation 
of the interconnected transmission network from the definition of the 
bulk electric system.\117\
---------------------------------------------------------------------------

    \117\ See Order No. 743, 133 FERC ] 61,150 at P 16.
---------------------------------------------------------------------------

    104. NERC explains that it was not feasible to develop a single set 
of technical criteria that would be applicable to all exception 
requests so it developed the Detailed Information Form to ensure that a 
consistent baseline of technical information is provided for NERC to 
make a decision on all exception requests. This information and the 
proposed exception process allows NERC to provide consistent 
determinations on exception requests submitted from different

[[Page 39875]]

regions involving the same or similar facts and circumstances, and 
allows NERC to take into account the aggregate impact on the bulk 
electric system of approving or denying all the exception requests. 
Finally, the exception process includes provisions for reporting 
information that may alter the status of an approved exception, 
verifying whether an exception continues to be warranted, and revoking 
an exception that is no longer warranted.\118\ Thus, we believe that 
this process is equally efficient and effective as the Order No. 743 
directive to establish an exception process for excluding facilities 
that are not necessary for the reliable operation of the interconnected 
transmission network. In addition, we believe that NERC's proposal 
appears to be clear, transparent, and uniformly applicable.
---------------------------------------------------------------------------

    \118\ NERC ROP Petition at 16.
---------------------------------------------------------------------------

    105. NERC and the industry should be commended for the development 
of the 100 kV threshold, the identified inclusions and exclusions, and 
the exception process. Together, this package of important reforms will 
bring valuable improvements to the process of identifying those 
facilities that are necessary for the operation of the interconnected 
transmission network, and thus should be included in the definition of 
bulk electric system. For these reasons, we propose to approve NERC's 
proposals, as discussed above.
    106. The Commission seeks input from NERC and the industry, 
however, as to additional reforms that may be needed to the definition 
or to the Rules of Procedure to ensure that, over the long term, the 
facilities necessary to the reliability of the interconnected 
transmission network are captured in its definition. In particular, we 
note that while establishing a ``bright-line'' threshold of 100 kV has 
significant advantages, it may not capture all facilities that are 
necessary for the operation of the interconnected transmission network 
that fall below that threshold. As the Commission indicated in Order 
No. 743 and Order No. 743-A, its goal is that the definition of bulk 
electric system should include all facilities necessary for the 
operation of the interconnected transmission network, except for local 
distribution. Although the Commission indicated that one way to meet 
this goal was to establish a 100 kV ``bright-line'' threshold, the 
Commission also made clear that the ``bright-line'' threshold would be 
a ``first step or proxy'' in determining which facilities should be 
included in the bulk electric system.\119\ Indeed, the Commission, 
agreeing with commenters, held that NERC should not necessarily stop at 
100 kV and should, through the development of the exception process, 
ensure that ``critical'' facilities operated at less than 100 kV, and 
that the Regional Entities determine are necessary for operating the 
interconnection network.\120\ The Commission clarified that including 
sub-100 kV facilities should be done in an ``appropriate and 
consistent'' manner.\121\
---------------------------------------------------------------------------

    \119\ Order No. 743-A, 134 FERC ] 61,210 at P 40.
    \120\ Order No. 743, 133 FERC ] 61,150 at P 121.
    \121\ Order No. 743-A, 134 FERC ] 61,210 at P 103.
---------------------------------------------------------------------------

    107. Recent events reinforce the Commission's statements in Order 
Nos. 743 and 743-A with respect to ensuring that sub-100 kV facilities, 
as appropriate, are included in the bulk electric system. The September 
2011 Blackout Report concluded that certain sub-100 kV facilities, 
which were not designated as bulk electric system facilities, 
contributed to the cascading blackout affecting San Diego, 
California.\122\ The September 2011 Blackout Report makes clear that, 
while certain sub-100 kV facilities can affect bulk electric system 
reliability, entities may not study or communicate their impacts and 
take appropriate action unless they are properly designated as part of 
the bulk electric system.\123\ Thus, the September 2011 Blackout Report 
recommended that ``WECC, as the [Regional Entity], should lead other 
entities, including [transmission operators] and [balancing 
authorities], to ensure that all facilities that can adversely impact 
[Bulk-Power System] reliability are either designated as part of the 
[bulk electric system] or otherwise incorporated into planning and 
operations studies and actively monitored and alarmed in [real-time 
contingency analysis] systems.'' \124\ Although the Blackout Report 
addressed an event in WECC, the recommendations in the Blackout Report 
should not be limited only to the Western interconnection. Indeed, as 
explained above, the recommendation in the September 2011 Blackout 
Report that sub-100 kV facilities be reviewed for inclusion in the bulk 
electric system is consistent with the Commission's findings in Order 
Nos. 743 and 743-A.
---------------------------------------------------------------------------

    \122\ See September 2011 Blackout Report at 96-97.
    \123\ Id. at 7-8.
    \124\ Id. at 96, Recommendation 17.
---------------------------------------------------------------------------

    108. The NERC proposals at issue in this NOPR take steps to address 
the treatment of sub-100 kV facilities, as well as other facilities, 
necessary for the operation of the interconnected transmission network, 
through the exception process, which provides an avenue for Regional 
Entities, planning authorities, reliability coordinators, transmission 
operators, transmission planners, balancing authorities, and owners of 
system elements to submit a request to include a facility in the bulk 
electric system. We believe that regional entities, reliability 
coordinators, transmission owners, transmission operators, balancing 
authorities and other registered entities need to evaluate their sub-
100 kV facilities, as well as other facilities, that are necessary to 
operate the interconnected transmission network in an ``appropriate and 
consistent'' manner to determine their potential impacts on bulk 
electric system reliability and, based on that review, seek to include 
those facilities in the bulk electric system through this proposed 
exception process.\125\ These entities have the in-depth, ``on the 
ground'' knowledge and expertise of what facilities are critical to 
reliable operations in their local or regional area. As a result, we 
believe they bear primary responsibility to analyze the elements within 
their purview to ensure that the right facilities are included in the 
bulk electric system. We seek comment on how the relevant entities will 
conduct the review and seek inclusion of facilities.
---------------------------------------------------------------------------

    \125\ NERC's performance of a final review of exception requests 
under the Rules of Procedure should ensure national consistency 
under that procedure.
---------------------------------------------------------------------------

    109. The Commission expects that these entities will use the 
exception process as contemplated to include sub-100 kV facilities, and 
other facilities, necessary for the operation of the interconnected 
transmission network in the bulk electric system. Nonetheless, we note 
that relying on these entities alone may, in certain limited 
circumstances, have the potential to leave out sub-100 kV facilities 
necessary for the operation of the interconnected transmission network. 
For example, NERC or the Commission may, in the performance of their 
statutory functions and general oversight of reliability matters, 
discover additional sub-100 kV facilities that should be included. The 
joint NERC-FERC September 2011 Blackout Report, as noted above, is a 
prime example of this possibility. In addition, while we recognize that 
the owners and operators of the power grid take their reliability 
obligations seriously, there may be instances when not all of the 
facilities necessary for the operation of the interconnected 
transmission network are included in the bulk electric system.
    110. Thus, while we propose to approve the package of reforms 
submitted by NERC, we seek comment

[[Page 39876]]

on how the relevant entities will seek inclusion of sub-100 kV elements 
to ensure that all facilities that are necessary for the operation of 
the bulk power system are designated as bulk electric system elements 
consistent with the discussion above. These comments also should aid 
NERC, industry, and the Commission in further efforts, already underway 
in Phase 2, to refine the bulk electric system definition, the 
inclusions and exclusions, and the exception process.
    111. In addition to general comments on the discussion above, we 
seek comments on the role NERC should have in initiating the 
designation of (or directing others to initiate the designation of) 
sub-100 kV facilities, or any other facilities, necessary for the 
operation of the interconnected transmission network for inclusion in 
the bulk electric system. The exception process as proposed does not 
provide that NERC may initiate an exception request. Given its 
statutory functions to develop and enforce Reliability Standards and 
its continent-wide perspective, NERC has technical understanding that 
may provide valuable assistance in the identification of bulk electric 
system facilities and elements. For example, NERC conducts disturbance 
assessments, oversees compliance monitoring and conducts seasonal 
assessments, all of which provide information and understanding 
regarding the operations of the bulk electric system. The Commission 
seeks comment on the role NERC should have in designating sub-100 kV 
facilities, and other facilities, for inclusion in the bulk electric 
system, directing Regional Entities or others to conduct such reviews, 
or itself nominating an element to be included in the bulk electric 
system.\126\
---------------------------------------------------------------------------

    \126\ Since NERC makes the final determination pursuant to the 
proposed process, a modified process may need to be created if NERC 
has a role in submitting requests. For example, a different entity 
would likely need to make the final determination.
---------------------------------------------------------------------------

    112. We also seek comment on the role the Commission should have 
with respect to the designation of sub-100 kV facilities, or other 
facilities, necessary for the operation of the interconnected 
transmission network for inclusion in the bulk electric system. As 
noted above, there may be circumstances (like the September 2011 
Blackout Report) where the Commission, through the performance of its 
statutory functions, may conclude that certain sub-100 kV facilities 
not already included in the bulk electric system are necessary for the 
operation of the interconnected transmission network and thus should be 
included in the bulk electric system. While, as noted above, we expect 
that regional entities and others will take affirmative steps to review 
and include sub-100 kV elements and facilities, and other facilities, 
necessary for the operation of the interconnected transmission system 
in the bulk electric system, we seek comment as to how the Commission, 
if necessary, could ensure that such facilities are considered for 
inclusion in the bulk electric system. We also seek comment on 
instances when the Commission itself should designate (or direct others 
to designate) sub-100 kV facilities, or other facilities, necessary for 
the operation of the interconnected transmission grid for inclusion in 
the bulk electric system.\127\
---------------------------------------------------------------------------

    \127\ The Commission contemplates that, if it were to take such 
a step, it would provide an opportunity for notice and comment.
---------------------------------------------------------------------------

1. Technical Review Panel
    113. NERC's proposed exception process provides that ``[t]he 
Regional Entity shall not recommend Disapproval of the Exception 
Request in whole or in part without first submitting the Exception 
Request for review to a Technical Review Panel and receiving its 
opinion * * *'' \128\ The technical review panel member must have the 
required technical background, must not have participated in the review 
of the exception request, and not have a conflict of interest in the 
matter.\129\ The Regional Entity is not bound by the opinion of the 
panel, but the panel's evaluation becomes part of the record associated 
with the exception request and provided to NERC.
---------------------------------------------------------------------------

    \128\ NERC ROP Petition, Att. 1, Proposed App. 5C to the Rules 
of Procedure, section 5.2.4.
    \129\ Id. at App. 5C, section 5.3.
---------------------------------------------------------------------------

    114. We see value in the Regional Entity receiving the independent 
opinion of a qualified technical review panel. NERC, however, does not 
explain why the proposed rules only require a technical review panel to 
provide an opinion where the Regional Entity recommends disapproval of 
an exception request. We seek comment from NERC explaining whether it 
considered obtaining the opinion of a technical panel for all Regional 
Entity recommendations and, if so, why the review is only required when 
a Regional Entity disapproves a request. Further, we seek comment on 
whether NERC should modify the exception process to require Regional 
Entities to submit all proposed determinations to a technical review 
panel regardless of the recommendation and receive the panel's opinion 
on each request.
2. Use of Industry Subject Matter Experts
    115. Section 8 of the proposed exception process sets forth the 
procedures for NERC's review of a Regional Entity's recommendation. The 
NERC President will appoint a team of at least three persons with the 
technical background to evaluate an exception request. The members of 
the review team must have no financial, contractual, employment or 
other interest in the submitting entity or owner that would present a 
conflict of interest and must be free of any conflicts of interest in 
accordance with NERC policies.\130\ NERC states that ``at the present 
time NERC anticipates that its review teams would be drawn from NERC 
staff resources, supplemented by contractors as necessary particularly 
where needed to provide specific relevant subject matter expertise. 
However, situations may arise in which NERC may need to call on 
industry subject matter experts to participate as members of review 
teams.'' \131\
---------------------------------------------------------------------------

    \130\ NERC ROP Petition at 31.
    \131\ Id. at n. 29.
---------------------------------------------------------------------------

    116. We support NERC's proposal to use staff resources, 
supplemented by contractors as necessary, to make up the exception 
request review teams. We believe that consistent appointment of the 
same NERC staff and contractor resources, based on subject matter 
expertise, will promote a more uniform and consistent review of the 
Regional Entities' exception request recommendations.

D. The Commission Proposes To Approve NERC's Detailed Information Form

    117. As described above, NERC developed the Detailed Information 
Form that the Regional Entity and NERC can use in evaluating whether or 
not the elements that are the subject of an exception request are 
necessary for operating the interconnected transmission network. The 
Detailed Information Form encompasses a wide range of potential 
configurations and appears to ensure that a consistent baseline of 
technical information is provided with all exception requests, in 
addition to the specific information and arguments provided by the 
submitting entity in support of its exception request. The information 
that the applicant may submit in support of an exception request will 
not be limited to the Detailed Information Form. The applicant will be 
expected to submit all relevant data, studies and other information 
that supports its exception request. Further, NERC may ask the

[[Page 39877]]

submitting entity to provide other data, studies and information in 
addition to the Detailed Information Form and the other information 
included by the applicant in the exception request.
    118. We believe that this information will provide consistency with 
respect to the technical information provided with all exception 
requests and is an equally efficient and effective approach to 
developing a substantive set of technical criteria for granting and 
rejecting exception requests. Accordingly, we propose to approve the 
Detailed Information Form included in NERC's filing.

E. The Commission Proposes To Approve NERC's Implementation Plan for 
the Revised Definition of Bulk Electric System

    119. As noted above, NERC requests that the revised definition 
``should be effective on the first day of the second calendar quarter 
after receiving applicable regulatory approval, or, in those 
jurisdictions where no regulatory approval is required, the revised 
[bulk electric system definition] should go into effect on the first 
day of the second calendar quarter after its adoption by the NERC 
Board.\132\
---------------------------------------------------------------------------

    \132\ NERC BES Petition at 34.
---------------------------------------------------------------------------

    120. NERC also requests that compliance obligations for all 
elements newly-identified to be included in the bulk electric system 
based on the revised definition should begin twenty-four months after 
the applicable effective date of the revised definition. While the 
Commission stated in Order Nos. 743 and 743-A that the transition 
period should not exceed 18 months from the date of Commission approval 
of the revised definition, the Commission also stated that it could 
approve a longer transition period based on specific 
justification.\133\ NERC states that sufficient time is needed: (1) To 
implement transition plans in order to accommodate any changes 
resulting from the revised definition; (2) for entities to file for 
exceptions, and for the Regional Entities and NERC to process those 
exceptions to a final determination, pursuant to the proposed exception 
process; and (3) for owners of facilities and elements that are newly-
included in the bulk electric system based on the definition to train 
their personnel on compliance with the Reliability Standards applicable 
to the newly-included facilities and elements, so that these entities 
can achieve compliance with applicable Reliability Standards by the end 
of the transition period. We believe that NERC has provided adequate 
justification for its implementation plan, as discussed above. Thus, 
although NERC's plan exceeds the 18 month implementation period set 
forth in Order No. 743, we propose to approve NERC's implementation 
plan.
---------------------------------------------------------------------------

    \133\ Order No. 743, 133 FERC ] 61,150 at P 131.
---------------------------------------------------------------------------

F. NERC List of Facilities Granted Exceptions

    121. In Order No. 743, the Commission stated that ``a Commission 
staff audit would review the application of the exemption criteria 
developed by NERC in NERC's or a Regional Entity's determination to 
approve an exemption for a particular facility.'' The Commission also 
stated that ``to facilitate such audits, the ERO should maintain a list 
of exempted facilities that can be made available to the Commission on 
request. NERC can decide how best to maintain the list, including 
determining whether or not to post it on the NERC Web site.'' \134\
---------------------------------------------------------------------------

    \134\ Id. PP 117, 119.
---------------------------------------------------------------------------

    122. NERC states that the proposed exception process does not 
include provisions for NERC to maintain a list of facilities that have 
received exceptions, as this is an internal administrative matter for 
NERC to implement that does not need to be embedded in NERC Rules of 
Procedure.\135\ NERC states it will develop a specific internal plan 
and procedures for maintaining a list of facilities for which 
exceptions have been granted. Further, NERC explains that it has not 
yet determined how the list will be organized and structured and under 
what conditions the list will be made available on the NERC Web site or 
otherwise made available to any entities other than the Commission, 
citing concerns about confidential information and critical energy 
infrastructure information.\136\
---------------------------------------------------------------------------

    \135\ NERC ROP Petition at 49.
    \136\ Id.
---------------------------------------------------------------------------

    123. We understand that NERC is continuing to develop the details 
on how it will maintain the list of facilities that have received 
exceptions. However, we also consider the maintenance of this list of 
facilities an important feature for tracking exceptions.\137\ Thus, we 
propose that NERC file an informational filing within 90 days of the 
effective date of a final rule, detailing its plans to maintain a list 
and how it will make this information available to the Commission, 
Regional Entities, and potentially to other interested persons. We seek 
comment from NERC whether this deadline provides adequate time for NERC 
to finalize its plans and submit an informational filing.
---------------------------------------------------------------------------

    \137\ Order No. 743, 133 FERC ] 61,150 at PP 117, 119.
---------------------------------------------------------------------------

    124. While NERC states that it will maintain a list of facilities 
that have received an exception pursuant to the case-specific exception 
process, the petition does not indicate whether NERC will track an 
entity's ``declassification'' of current bulk electric system 
facilities based on the entity's self-application of the bulk electric 
system definition. It appears that, in some circumstances, the 
appropriate Regional Entity would receive a request that an entity be 
removed from the NERC Compliance Registry. For example, if an entity 
determines that its entire system satisfies the exclusion E1 for radial 
systems, the entity could apply to the appropriate Regional Entity to 
be removed from the NERC Compliance Registry. However, in other 
circumstances, it is not clear what, if any, notification an entity 
would provide to NERC or a Regional Entity when the entity self-
determines that an element is no longer part of the bulk electric 
system. For example, a large utility with hundreds or thousands of 
transmission lines may initially determine that a configuration on its 
system does not qualify for the exclusion E3 local network exclusion, 
but subsequently determines that the configuration can be excluded. 
NERC's petition does not indicate whether an entity in such 
circumstance is obligated to inform NERC or the appropriate Regional 
Entity of that self-determination. It appears that NERC and the 
Regional Entities would need this information for their compliance 
programs, for audit purposes, and to understand the contours of the 
bulk electric system within a particular region. Accordingly, we seek 
comment on whether NERC's proposal should be modified to include an 
obligation for the registered entity to inform NERC or the Regional 
Entity of the entity's self-determination through application of the 
definition and specific exclusions E1 through E4 that an element is no 
longer part of the bulk electric system.

III. Information Collection Statement

    125. The following collection of information contained in this 
Proposed Rule is subject to review by the Office of Management and 
Budget (OMB) under section 3507(d) of the Paperwork Reduction Act of 
1995.\138\ OMB's regulations require approval of certain information 
collection requirements

[[Page 39878]]

imposed by agency rules.\139\ The Commission solicits comment on the 
Commission's need for this information, whether the information will 
have practical utility, the accuracy of the burden estimates, ways to 
enhance the quality, utility, and clarity of the information to be 
collected or retained, and any suggested methods for minimizing 
respondents' burden, including the use of automated information 
techniques. Specifically the Commission asks that any revised burden 
estimates submitted by commenters be supported by sufficient detail to 
understand how the estimates are generated.
---------------------------------------------------------------------------

    \138\ 44 U.S.C. 3507(d) (2006).
    \139\ 5 CFR 1320.11 (2011).
---------------------------------------------------------------------------

    126. In Order No. 693, the Commission approved NERC's definition of 
the term bulk electric system and the associated information 
requirements.
    127. In Order No. 743, the Commission directed NERC to develop a 
revised ``bulk electric system'' definition. The Commission explained 
that, by directing NERC to develop a revised definition, ``the 
Commission is maintaining the status quo (i.e., the current bulk 
electric system definition) until the Commission approves a revised 
definition. Thus, the Commission's action does not add to or increase 
entities' reporting burden.'' \140\
---------------------------------------------------------------------------

    \140\ Order No. 743, 133 FERC ] 61,150 at P 157.
---------------------------------------------------------------------------

    128. The immediate NOPR proposes to approve the revision to the 
definition of ``bulk electric system'' developed by NERC and an 
exception process to include or exclude specific elements in the 
definition of ``bulk electric system'' on a case-by-case basis. The 
Commission is basing its burden estimate below on the revised 
definition of ``bulk electric system'' developed by NERC.
    129. The proposal in this NOPR would result in entities reviewing 
systems and creating qualified asset lists, submitting exception 
requests where appropriate, and certain responsible entities having to 
comply with requirements to collect and maintain information in 
mandatory Reliability Standards with respect to certain facilities for 
the first time.
    130. Public Reporting Burden: While the Commission requests comment 
concerning the information collections proposed in this NOPR and the 
associated burden estimates, in particular, the Commission requests 
comment on the following issues.
    131. First, we request comment on the estimated number of entities 
that will have an increased reporting burden associated with the 
identification of new bulk electric system elements as a result of the 
modified definition. NERC states in its filing that ``[i]t was not the 
intent nor the expectation of either the [standard drafting team] or 
NERC to either expand or reduce the scope of the [bulk electric 
system], or (with the likely exception of the NPCC Region) to increase 
or decrease the number of Elements included in the [bulk electric 
system], through the revised [bulk electric system] definition as 
compared to the current [bulk electric system] definition.'' \141\ NERC 
adds that it has no specific basis to determine to ``the extent 
Elements currently included in the [bulk electric system] will become 
not included, nor to what extent Elements currently not included will 
become included.'' \142\ In developing an estimate of the reporting 
burden associated with the inclusion of additional elements, like NERC, 
we assume that entities in the NPCC Region will be most affected, with 
a lesser affect in other regions.\143\
---------------------------------------------------------------------------

    \141\ NERC BES Petition at 37.
    \142\ Id.
    \143\ While Reliability Standards do not require the reporting 
of information directly to the Commission, the application of 
Reliability Standards to additional facilities will have associated 
information collection and retention obligations.
---------------------------------------------------------------------------

    132. We reviewed Compliance registry information for the NPCC 
Region to determine the number and types of registered entities in the 
U.S. portion of the NPCC Region.\144\
---------------------------------------------------------------------------

    \144\ NPCC Compliance Registry information is available on the 
NPCC Web site at: https://www.npcc.org/Compliance/Default.aspx.
---------------------------------------------------------------------------

    We expect that transmission owners and distribution providers, and 
some generator owners, are most likely to identify new elements. Based 
on this, we estimate a range from 66 to 155 affected entities in the 
NPCC region, and for OMB reporting purposes identify below a median 
number of 111 affected entities in the NPCC region. Further, consistent 
with NERC's explanation, we do not expect a significant number of 
registered entities outside of the NPCC region to identify new elements 
under the revised bulk electric system definition. Accordingly, we 
estimate a total of 75 entities outside of the NPCC Region having new 
``implementation plan and compliance'' related reporting burdens. We 
seek comment on these estimates to assist the Commission in arriving at 
final estimates.
    133. Second, we seek comment on the reporting burden associated 
with exception requests. NERC indicates that ``there is currently not a 
basis for estimating the numbers of Exceptions Requests that will be 
submitted * * *.'' \145\ We agree with NERC that there is difficulty in 
estimating a specific number of exception requests as this is a new 
process with no ``track record.'' Thus, rather than estimating a 
specific number of exception requests, we estimate a range of exception 
requests that may be submitted. As indicated in the table below, from 
the 1,730 total transmission owners, generator owners and distribution 
providers in the Compliance Registry, we estimate a range of 87 to 433 
exception requests per year for each of the first two years after the 
effective date of a final rule. We request comment on this estimated 
range to assist the Commission in arriving at a final estimate of the 
number of possible exception requests.
---------------------------------------------------------------------------

    \145\ NERC BES Petition at 38.
---------------------------------------------------------------------------

    134. Third, as indicated above, our estimates are based in part on 
an expectation that transmission owners, generator owners and 
distribution providers will experience more significant reporting 
burdens than other categories of registered entities. We seek comment 
on this expectation, and whether and to what extent other categories of 
registered entities (in addition to transmission owners, generator 
owners and distribution providers) may have a public reporting burden.
    135. We estimate that the increased Public Reporting Burden for 
this Proposed Rule is as follows:

[[Page 39879]]



----------------------------------------------------------------------------------------------------------------
                                                           Number of       Average number of
           Requirement            Number and type of     responses per         hours per      Total burden hours
                                      entity \146\          entity             response
                                  (1)...............  (2)...............  (3)...............  (1)*(2)*(3)
----------------------------------------------------------------------------------------------------------------
System Review and List Creation   333 Transmission    1 response........  80 (engineer        26,640 Yr 1.
 \147\.                            Owners.                                 hours).
                                 --------------------                    ---------------------------------------
                                  843 Generator                           16 (engineer        13,488 Yr 1.
                                   Owners.                                 hours).
                                 --------------------                    ---------------------------------------
                                  554 Distribution                        24 (engineer        13,296 Yr 1.
                                   Providers.                              hours).
----------------------------------------------------------------------------------------------------------------
Exception Requests \148\........  1,730 total         .15 responses in    94 (60 engineer     24,393 hrs in Yrs
                                   Transmission        Yrs 1 and 2.        hrs, 32 record      1 and 2.
                                   Owners, Generator                       keeping hrs, 2
                                   Owners and                              legal hrs).
                                   Distribution
                                   Providers.
                                                     --------------------                    -------------------
                                                      0.01156 responses                       1,880 hrs in Yr 3
                                                       in Yr 3 and                             and ongoing.
                                                       ongoing.
----------------------------------------------------------------------------------------------------------------
Regional and ERO Handling of      NERC and 8          1 response........  1,386.67 hrs......  12,480 hrs in Yrs
 Exception Requests \149\.         Regional Entities.                                          1 and 2.
----------------------------------------------------------------------------------------------------------------
Implementation Plans and          111 NPCC Region     1 response........  700 hrs in Yrs 1    77,700 hrs in Yrs
 Compliance \150\.                 Registered                              and 2.              1 and 2.
                                   Entities \151\.
                                                                         ---------------------------------------
                                                                          350 hrs in Yr 3     38,850 hrs in Yr 3
                                                                           and ongoing.        and ongoing.
                                 -------------------------------------------------------------------------------
                                  75 Registered       1 response........  700 hrs in Yrs 1    52,500 hrs in Yrs
                                   Entities from 7                         and 2.              1 and 2.
                                   other Regions.
                                                                         ---------------------------------------
                                                                          350 hrs in Yr 3     26,250 hrs in Yr 3
                                                                           and ongoing.        and ongoing.
----------------------------------------------------------------------------------------------------------------
    Totals......................  ..................  ..................  ..................  220,497 hrs in Yr
                                                                                               1.
                                                                                             -------------------
                                                                                              167,073 hrs in Yr
                                                                                               2.
                                                                                             -------------------
                                                                                              66,980 hrs in Yr 3
                                                                                               and ongoing.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------

     
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    \146\ The ``entities'' listed in this table are describing a 
role a company is registered for in the NERC registry. For example, 
a single company may be registered as a transmission owner and 
generator owner. The total number of companies applicable to this 
rule is 1,522, based on the NERC registry. The total number of 
estimated roles is 1,730.
    \147\ This requirement corresponds to Step 1 of NERC's proposed 
transition plan, which requires each U.S. asset owner to apply the 
revised bulk electric system definition to all elements to determine 
if those elements are included in the bulk electric system pursuant 
to the revised definition. See NERC BES Petition at 38.
    \148\ We recognize that not all 1,730 transmission owners, 
generator owners and distribution providers will submit an exception 
request. Rather, from the total 1,730 entities, we estimate an 
average of 260 requests per year in the first two years, based on a 
low to high range of 87 to 433 requests per year. Therefore, the 
estimated total number of hours per year for years 1 and 2, using an 
average of 260 requests per year, is 24,393 hours. We estimate 20 
requests per year in year 3 and ongoing.
    \149\ Based on the assumption of two full-time equivalent 
employees added to NERC staff and 0.5 full-time equivalent employees 
added to each region's staff, each full-time equivalent at $120,000/
year (salary + benefits).
    \150\ The Commission does not expect a significant number of 
registered entities outside of the NPCC region to identify new 
elements under the revised bulk electric system definition. NERC 
also states that the other Regional Entities do not expect an 
extensive amount of newly-included facilities. See NERC BES Petition 
at 38. ``Compliance'' refers to entities with new elements under the 
new bulk electric system definition required to comply with the data 
collection and retention requirements in certain Reliability 
Standards that they did not previously have to comply with.
    \151\ The estimated range of affected NPCC Region Registered 
Entities is from 66 to 155 entities.
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    Information Collection Costs: The Commission seeks comment on the 
costs to comply with these requirements. These cost estimates are 
calculated using the average of the ranges suggested in the burden hour 
estimates. It has projected the annual cost to be:
     Year 1: $13,641,200.
     Year 2: $10,435,760.
     Year 3 and ongoing: $4,343,520.
For the first two burden categories above, the loaded (salary plus 
benefits) costs are: $60/hour for an engineer; $27/hour for 
recordkeeping; and $106/hour for legal. The breakdown of cost by item 
and year follows:
     System Review and List Creation (year 1 only): (26,640 hrs 
+ 13,488 hrs + 13,296 hrs) = 53,424 hrs * 60/hr = $3,205,440.
     Exception Requests (years 1 and 2): (sum of hourly expense 
per request * number of exception requests) = ((60 hrs * $60/hr) + (32 
hrs * $27/hr) + (2 hrs * $106/hr)) * 260 requests) = $1,215,760.
     Exception Requests (year 3): (sum of hourly expense per 
request * number of exception requests) = ((60 hrs * $60/hr) + (32 hrs 
* $27/hr) + (2 hrs * $106/hr)) * 20 requests) = $93,520.
     Regional and ERO handling of Exception Requests: Between 
NERC and regional entities we estimate 6 full time equivalent (FTE) 
engineers will be added at an annual cost of $120,000/FTE ($120,000/FTE 
* 6 FTE = $720,000). This cost is only expected in years 1 and 2.

[[Page 39880]]

     Implementation Plans and Compliance \152\ (years 1 and 2): 
(hourly expense per entity * hours per response * sum of NPCC and non-
NPCC entities) = ($64/hour * 700 hours per response * 186 responses) = 
$8,332,800.
---------------------------------------------------------------------------

    \152\ The cost and hourly burden calculations for this category 
are based on a past assessment (NPCC Assessment of Bulk Electric 
System Definition, September 14, 2009.). In that assessment NPCC 
indicated $8.9 million annually for operations, maintenance and 
additional costs. We estimated that roughly half of that cost 
actually relates to information collection burden. Using the 
resulting figure, we used a composite wage and benefit figure of 
$64/hour to estimate the hourly burden figures presented in the 
burden table.
---------------------------------------------------------------------------

     Implementation Plans and Compliance (year 3 and beyond): 
We estimate the ongoing cost for year 3 and beyond, at 50% of the year 
1 and 2 costs, to be $4,166,400.
    Title: FERC-725-J ``Definition of the Bulk Electric System.'' \153\
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    \153\ All of the information collection requirements for years 
1-3 in the proposed rule are being accounted for under the new 
collection FERC-725J.
---------------------------------------------------------------------------

    Action: Proposed Collection of Information.
    OMB Control No.: To be determined.
    Respondents: Business or other for profit, and not for profit 
institutions.
    Frequency of Responses: On Occasion.
    Necessity of the Information: The proposed revision to NERC's 
definition of the term bulk electric system, if adopted, would 
implement the Congressional mandate of the Energy Policy Act of 2005 to 
develop mandatory and enforceable Reliability Standards to better 
ensure the reliability of the nation's Bulk-Power System. Specifically, 
the proposal would ensure that certain facilities needed for the 
operation of the nation's bulk electric system are subject to mandatory 
and enforceable Reliability Standards.
    Internal Review: The Commission has reviewed the proposed 
definition and made a determination that its action is necessary to 
implement section 215 of the FPA. The Commission has assured itself, by 
means of its internal review, that there is specific, objective support 
for the burden estimate associated with the information requirements.
    136. Interested persons may obtain information on the reporting 
requirements by contacting the Federal Energy Regulatory Commission, 
Office of the Executive Director, 888 First Street NE., Washington, DC 
20426 [Attention: Ellen Brown, email: [email protected], phone: 
(202) 502-8663, fax: (202) 273-0873].
    137. Comments concerning the information collections proposed in 
this NOPR and the associated burden estimates, should be sent to the 
Commission in this docket and may also be sent to the Office of 
Management and Budget, Office of Information and Regulatory Affairs 
[Attention: Desk Officer for the Federal Energy Regulatory Commission]. 
For security reasons, comments should be sent by email to OMB at the 
following email address: [email protected]. Please reference 
FERC-725J and the docket numbers of this Proposed Rulemaking (Docket 
Nos. RM12-6-000 and RM12-7-000) in your submission.

IV. Regulatory Flexibility Act Analysis

    138. The Regulatory Flexibility Act of 1980 (RFA) \154\ generally 
requires a description and analysis of Proposed Rules that will have a 
significant economic impact on a substantial number of small entities. 
As discussed above, the Commission believes that the immediate effect 
of the proposal to approve the modification to the definition of bulk 
electric system and the exception process would likely be limited to 
certain transmission owners, generator owners and distribution service 
providers, as well as NERC and Regional Entities. Many transmission 
owners, generator owners and distribution service providers do not fall 
within the definition of small entities.\155\ The Commission estimates 
that approximately 418 \156\ of the 1,730 registered transmission 
owners, generator owners and distribution service providers may fall 
within the definition of small entities.\157\
---------------------------------------------------------------------------

    \154\ 5 U.S.C. 601-612 (2006).
    \155\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act (SBA), which defines a 
``small business concern'' as a business that is independently owned 
and operated and that is not dominant in its field of operation. See 
15 U.S.C. 632 (2006). According to the SBA, an electric utility is 
defined as ``small'' if, including its affiliates, it is primarily 
engaged in the generation, transmission, and/or distribution of 
electric energy for sale and its total electric output for the 
preceding fiscal year did not exceed 4 million megawatt hours.
    \156\ We note that in Order No. 693, the Commission estimated 
that the Reliability Standards in that the Final Rule would apply to 
approximately 682 small entities. See Order No. 693, FERC Stats. & 
Regs. ] 31,242 at P 1940. Because the current Proposed Rule would 
affect a smaller subset of the categories of registered entities, 
our estimate is lower than that cited in Order No. 693.
    \157\ The number of small entities is generated by comparing the 
NERC compliance registry with data submitted to the Energy 
Information Administration on Form EIA-861. Note, these numbers do 
not account for companies that may be registered in more than one 
role. For companies registered in more than one role, the burden 
will likely be higher than for those companies registered in only 
one role. We estimate that there are 381 companies and 418 
registered roles, meaning that several companies are registered in 
more than one role. We do not believe this affects the certification 
below.
---------------------------------------------------------------------------

    139. The Commission estimates that of the 418 small entities 
affected there are 50 within the NPCC region that would have to comply 
with the Proposed Rule. The Commission assumes that the Proposed Rule 
would affect more small entities in the NPCC Region than those outside 
NPCC as it is assumed that there are more elements in NPCC that would 
be added to the bulk electric system based on the new definition than 
elsewhere. The Commission estimates the first year affect on small 
entities within the NPCC region to be $39,414.\158\ This figure is 
based on information collection costs plus additional costs for 
compliance.\159\ The Commission estimates the average annual affect per 
small entity outside of NPCC will be less than for the entities within 
NPCC. The Commission does not consider this to be a significant 
economic impact for either class of entities because it should not 
represent a significant percentage of the operating budget. 
Accordingly, the Commission certifies that this Proposed Rule will not 
have a significant economic impact on a substantial number of small 
entities. The Commission seeks comment on this certification.
---------------------------------------------------------------------------

    \158\ For companies registered as more than one entity in the 
NERC compliance registry this figure will increase accordingly. That 
is, if a company is registered as a transmission owner and generator 
owner then the cost burden would be $78,828 ($39,414 * 2 = $78,828).
    \159\ We use fifty percent of the first year ``number of hours 
per response'' figure in the information collection statement for 
calculation under the assumption that smaller entities do not have 
complicated systems or will not have as many new elements on average 
as larger entities do.
---------------------------------------------------------------------------

V. Environmental Analysis

    140. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\160\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. The actions proposed here fall within the categorical 
exclusion in the Commission's regulations for rules that are 
clarifying, corrective or procedural, for information gathering, 
analysis, and dissemination.\161\ Accordingly, neither an environmental 
impact statement nor environmental assessment is required.
---------------------------------------------------------------------------

    \160\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & 
Regs. Regulations Preambles 1986-1990 ] 30,783 (1987).
    \161\ 18 CFR 380.4(a)(5).

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[[Page 39881]]

VI. Comment Procedures

    141. The Commission invites interested persons to submit comments 
on the matters and issues proposed in this notice to be adopted, 
including any related matters or alternative proposals that commenters 
may wish to discuss. Comments are due September 4, 2012. Comments must 
refer to Docket Nos. RM12-6-000 and RM12-7-000, and must include the 
commenter's name, the organization they represent, if applicable, and 
their address in their comments.
    142. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    143. Commenters that are not able to file comments electronically 
must send an original of their comments to: Federal Energy Regulatory 
Commission, Secretary of the Commission, 888 First Street NE., 
Washington, DC 20426.
    144. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

VII. Document Availability

    145. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's 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.
    146. From the Commission's Home Page on the Internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    147. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours from the Commission's Online 
Support at 202-502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

List of Subjects in 18 CFR Part 40

    Electric power; Electric utilities; Reporting and recordkeeping 
requirements.

    By direction of the Commission. Commissioner Clark voting 
present.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2012-15944 Filed 7-3-12; 8:45 am]
BILLING CODE 6717-01-P