16. The WEQ Version 003.3 Standards include revisions undertaken by NAESB at the request of the DOE to develop standards that address the cybersecurity-related recommendations made by Sandia contained within its surety assessment. 25 In response to the Sandia surety assessment, NAESB proposed changes to improve cybersecurity in the WEQ-000 Abbreviations, Acronyms, and Definition of Terms Business Practice Standards, the WEQ-001 OASIS Business Practice Standards, and the WEQ-002 OASIS Standards and Communication Protocols Business Practice Standards. 26

17. These proposed changes, which are listed in Appendix I, represent NAESB's response to Sandia's surety assessment on cybersecurity. In recognition of the stand-alone nature of these proposed changes, and that DOE requested that NAESB act on an expedited basis to ensure the cybersecurity standards were included in the WEQ Version 003.3 Standards, the Commission is proposing to incorporate these standards by reference with an implementation timeline different from the rest of the proposed modifications included in the WEQ Version 003.3 Standards. As discussed in more detail below, the Commission proposes that industry filers submit compliance filings for these revised cybersecurity standards, set forth in Appendix I, nine months after the publication of a final rule in this proceeding, with implementation required no sooner than three months after compliance filings are submitted to the Commission, for a total implementation period of at least 12 months.

18. For the revised cybersecurity standards, NAESB modified the OASIS suite of standards, including WEQ-001 OASIS Business Practice Standards and WEQ-002 OASIS Standards and Communication Protocols Business Practice Standards to: (1) Align the standards' security requirements with other cybersecurity guidelines and best practices; (2) remove legacy functionality that potentially provides a vehicle for cyber-attacks; and (3) incorporate more secure communication and encryption methodologies. 27 Specifically, NAESB revised WEQ-001-13.1.3 to include a reference to 18 CFR 37.7. 28 NAESB revised WEQ-002-5 to require transmission providers or the agent to whom a transmission provider has delegated the responsibility of meeting any requirements associated with OASIS, referred to as a Transmission Services Information Provider (TSIP), to apply industry-recognized best practices in the implementation and maintenance of OASIS nodes and supporting infrastructure. Included in these modifications is a requirement that TSIPs implement guidelines for user passwords and authentication aligned with National Institute of Standards and Technology (NIST) Special Publication (SP) 800-63B. WEQ-002-5 was also modified to require TSIPs to use cryptographic models that conform to the NIST Federal Information Processing Standards (FIPS) Publication 140-3.

19. To protect OASIS nodes, NAESB further revised WEQ-002-5 to require TSIPs to: (1) Incorporate firewalls, intrusion detection, and intrusion prevention systems; (2) ensure OASIS applications are secure against common industry recognized vulnerabilities; (3) apply software patches and updates in a timely fashion, ideally within seven days of availability; and (4) perform quarterly vulnerability scans and penetration testing as well as annual business continuity and disaster recovery exercises. 29 Additionally, WEQ-002-5 includes a requirement that, at least on an annual basis, TSIPs review their OASIS nodes and make any necessary changes to implementation to conform with updates to the industry recognized best practices.

20. NAESB revised WEQ-002-2.3 to require the use of Transportation Layer Security (TLS) Version 1.2 or higher, consistent with NIST 800-52 which now requires the use of TLS Version 1.2, and the utilization of TLS Version 1.3 by January 1, 2024. WEQ-002-2.3 and WEQ-002-5.1.1 were revised to require the use of a Hypertext Transfer Protocol Secure (HTTPS) connection to access information posted on OASIS, including the use of server-side only HTTPS connections to access information that must be made publicly available. All references within the standards to Hypertext Transfer Protocol (HTTP) were removed or modified to HTTPS. 30 Finally, NAESB revised WEQ-002-2.3 and WEQ-002-2.4 to remove language that required the use of communication protocols and internet tools to support private internet and dial-up internet connections, which were deemed outdated and no longer utilized by the industry. 31

21. In response to the Sandia surety assessment, NAESB revised the specification document, titled the NAESB Accreditation Requirements for Authorized Certificate Authorities, which establishes technical requirements for issuing digital certificates under the WEQ-012 Public Key Infrastructure (PKI) Business Practice Standards. 32 NAESB reports that the new version of the specification document enables secure electronic commercial transactions via data encryption and entity authentication. NAESB states the revisions will help to ensure that the digital certificates issued by NAESB Authorized Certificate Authorities under the WEQ-012 PKI Business Practice Standards will continue to provide secure communications necessary to carry out commercial transactions, including e-Tagging as well as the accessing OASIS nodes and the NAESB EIR.

22. NAESB's cybersecurity-related changes to the WEQ-000 Abbreviations, Acronyms, and Definition of Terms Business Practice Standards, the WEQ-001 OASIS Business Practice Standards, and the WEQ-002 OASIS Standards and Communication Protocols Business Practice Standards appear reasonable and do not appear inconsistent with any Commission directives or findings in other orders. Accordingly, we propose to incorporate by reference, into the Commission's regulations at 18 CFR 38.1(b), NAESB's revised cybersecurity standards in WEQ-000, WEQ-001, and WEQ-002, as set forth in the WEQ Version 003.3 Standards.

23. NAESB's WEQ Version 003.3 Standards include modifications to the WEQ-008 Transmission Loading Relief (TLR)—Eastern Interconnection Business Practice Standards to improve the congestion management process by incorporating PFV. 33 This standards development effort was the result of a multi-year coordination effort beginning in 2006  34 between NAESB, NERC, and EIDSN, Inc. According to NAESB, a recent field trial of the PFV process conducted by EIDSN, Inc. indicated that it provides a more accurate model of the electric system than the current process. NAESB also asserts that the field trial shows that the PFV process provides a better analysis of the impacts on flowgates and assigns transmission loading relief obligations more accurately.

24. The current congestion management procedure for the Eastern Interconnection considers e-Tags, market flows, and the network and native load (NNL) calculations to allocate relief obligations on a pro-rata basis. However, this process can sometimes cause a deviation between the actual, real-time impacts and the calculated NNL impacts used for relief obligation as the NNL calculation uses static data and assumes that all generators in the Eastern Interconnection have firm transmission service. Under the PFV enhanced congestion management process, the market flows and NNL calculation are replaced by the generation-to-load impact, which uses real-time data reported by the balancing authorities to determine the calculated energy flows on a flowgate and assign relief obligations during a transmission loading relief event.

25. The revised WEQ-008 Transmission Loading Relief (TLR)—Eastern Interconnection Business Practice Standards require a balancing authority to elect one of two different methodologies for assigning curtailment priorities: Tag Secondary Network Transmission Service Method (TSNTS Method) or Generator Prioritization Method (GP Method). In the TSNTS Method, e-Tags are used to establish curtailment priority and entities using this methodology must tag not only inter-balancing authority transactions but also intra-balancing authority transactions, including pseudo-ties. Under the GP Method, a generator schedule is used, which lists the firm and non-firm transmission priorities of each generator to determine the assignment of curtailments. The revised WEQ-008 Transmission Loading Relief (TLR)—Eastern Interconnection Business Practice Standards also allow entities with seams agreements incorporated into their tariffs or other governing documents to submit to the Interchange Distribution Calculator (IDC) tool  35 overrides to transmission priorities for those flowgates that are documented in the agreements. 36

26. For entities opting to use the TSNTS Method, relief obligations are assigned through curtailments utilizing the expanded e-Tagging requirements. Together, the expanded, real-time data provided to the IDC tool under both the TSNTS Method and the GP Method results in a more accurate calculation of system impacts and provides reliability coordinators in the Eastern Interconnection an improved view of the current operating state of the bulk electric system through increased visibility of the source and magnitude of parallel interchange flows.

27. In addition, the revised WEQ-008 Transmission Loading Relief (TLR)—Eastern Interconnection Business Practice Standards establish a System Data Exchange (SDX) as a central repository administered by an association of reliability coordinators in the Eastern Interconnection that is a data source for the IDC. The SDX supports data submission for dynamic schedules and pseudo-ties for the two new methodologies ( i.e., the TSNTS Method and the GP Method) for assigning curtailment priorities.

28. The revised WEQ-008 Transmission Loading Relief (TLR)—Eastern Interconnection Business Practice Standards specify the process for balancing authorities to make an initial declaration of which of the two methodologies will be used for assigning curtailment priorities, the process for subsequent switching between methodologies (which requires a minimum of 180 calendar days' advance notice to the affected load serving entities), and the process for designating network resources when balancing authority areas are consolidated. Conforming changes are also made to the WEQ-008 Transmission Loading Relief (TLR)—Eastern Interconnection Business Practice Standards which describe in detail the steps to be taken when transmission loading relief procedures are invoked, primarily to ensure that generation-to-load impacts, lower priority secondary network transmission service, transactions using non-firm grandfathered transmission service, non-firm point-to-point intra balancing authority transactions not tagged, non-firm pseudo-ties, and transactions for dynamic schedules that use lower priority non-firm transmission service are included in the calculation when assigning curtailment and relief obligations.

29. NAESB's revisions to WEQ-008 Transmission Loading Relief (TLR)—Eastern Interconnection Business Practice Standards do not appear inconsistent with any Commission directives or findings in other orders. Accordingly, we propose to incorporate by reference, into the Commission's regulations at 18 CFR 38.1(b), NAESB's revised standards that modify the WEQ-008 Transmission Loading Relief (TLR)—Eastern Interconnection Business Practice Standards, as set forth in the WEQ Version 003.3 Standards.

30. The NAESB WEQ Version 003.3 Standards contain three modifications to the OASIS suite of standards that NAESB developed to ensure consistency with certain policies articulated by the Commission in Order Nos. 676-I and 890. NAESB addressed the final two directives contained in FERC Order No. 890. First, NAESB modified pertinent standards  37 to support new OASIS functionality that allows for the posting of third party offers of planning redispatch services, as well as provide additional information regarding the curtailment of firm transmission service. 38 NAESB also revised WEQ-001 to strike the preamble language in WEQ-001-9 and WEQ-001-10 consistent with Commission Action in Order No. 676-I.

31. Order No. 890 required that “transmission providers modify their OASIS to allow for the posting of third party offers to supply planning redispatch,”  39 and the Commission reiterated the directive in Order 890-B. 40 In response, NAESB modified the OASIS suite of standards to clarify the roles and responsibilities of the third party providing the redispatch service, the transmission customer acquiring the planning redispatch service, and the transmission provider that provides the platform on OASIS for posting the planning redispatch service offer. As part of these OASIS suite of standards modifications, NAESB established two new OASIS templates  41 to support the posting by a transmission provider of third party offers of planning redispatch service. The first new template is dedicated to capturing generator information that may be used in a planning redispatch offer, including the identification of the generating unit(s) and the host balancing authority area. The second new template provides planning redispatch offer parameters, such as the identification of the redispatch generator, the amount of capacity over time, cost, and the flowgate(s) where congestion can be relieved. NAESB reports that the new process increases efficiency for third parties by allowing the third parties to reference a generator as part of a redispatch offer and no longer requires third parties to reproduce the same generator information each time an offer is made. Accordingly, we propose to incorporate by reference, into the Commission's regulations at 18 CFR 38.1(b), NAESB's revised OASIS suite of standards  42 that established two new OASIS templates that support the optional posting by a transmission provider of third party offers of planning redispatch service, as set forth in NAESB's WEQ Version 003.3 Business Practice Standards.

32. Order No. 890 requires transmission providers to post to OASIS “all circumstances and events contributing to the need for a firm service curtailment, specific services and customers curtailed (including the transmission provider's own retail loads), and the duration of the curtailment.”  43 In response, NAESB made additional modifications to the OASIS suite of standards, as well as consistency changes to WEQ-000 Abbreviations, Acronyms, and Definition of Terms Business Practice Standards. NAESB's changes to the standards included modifications to existing templates and the creation of two new templates to provide the mechanism for transmission providers to post the required additional information regarding the curtailment of firm transmission service, including the curtailment of non-firm transmission service that preceded any firm transmission curtailments.

33. NAESB states that three issues arose as part of this standards development process. First, NAESB states that the information needed to meet the posting requirements is contained in two separate tools: The Interchange Distribution Calculator (IDC) tool for the Eastern Interconnection, managed by EIDSN, Inc., and the Enhanced Curtailment Calculator (ECC) tool for the Western Interconnection, managed by California Independent System Operator (CAISO). Although both the IDC and ECC tools produce information to be posted to OASIS in accordance with the standards, NAESB states that its members determined that the need for a mechanism to transfer data from the tools to OASIS should be addressed as part of any industry implementation rather than through standards modifications.

34. Second, as part of the Order No. 890 standards development efforts, NAESB and its stakeholders examined FERC Order Nos. 845  44 and 845-A to gauge their potential effect on the NAESB effort. 45 NAESB and its stakeholders concluded, absent specific direction from the Commission to the contrary, that the issues raised in these orders were separate and distinct from the directive in FERC Order 890; NAESB therefore completed the Order No. 890 standards development requirements.

35. Third, NAESB notes that the standards include a requirement that transmission providers post information related to the curtailment of non-firm transmission in order to provide transmission customers with complete transparency regarding all firm transmission curtailments. NAESB states its stakeholders largely concluded that posting information about non-firm curtailments to OASIS fully addresses the directive in FERC Order No. 890 that information be posted regarding all circumstances contributing to the need for firm transmission service curtailment.

36. NAESB's revised standards appear consistent with the Commission's directive in Order No. 890. In Order No. 890, the Commission required “transmission providers, working through NAESB, to develop a detailed template for the posting of additional information on OASIS regarding firm transmission curtailments.”  46 Moreover, the Commission further stated that “Transmission providers need not implement this new OASIS functionality and any related business practices until NAESB develops appropriate standards.”  47 NAESB states that it does not intend to develop standards to facilitate the required posting of this additional information on OASIS, but instead “by consensus it was determined that the issue should be addressed as part of any industry implementation rather than through standards modifications.”  48

37. NAESB states that the information needed to meet the posting requirements is contained in the IDC and ECC tools for Eastern Interconnection and Western Interconnection and that the need for a mechanism to transfer data from the tools to OASIS, should be addressed as part of any industry implementation rather than through NAESB within a standards modification and development process.

38. NAESB's modifications and consistency changes to address the directive in FERC Order No. 890 appear reasonable and do not appear inconsistent with any Commission directives or findings in other orders. Accordingly, we propose to incorporate by reference, into the Commission's regulations at 18 CFR 38.1(b), NAESB's modifications to the OASIS suite of standards, 49 as well as consistency changes to WEQ-000 Abbreviations, Acronyms, and Definition of Terms Business Practice Standards to support the final FERC Order No. 890 directive, as set forth in the WEQ Version 003.3 Standards.

39. In Order No. 676-I, the Commission declined to adopt through its incorporation by reference process the preamble language in WEQ-001-9 and WEQ-001-10. The Commission declined to incorporate by reference the two preambles because they appeared to permit transmission providers the option to implement their own entity-specific procedures, which does not help ensure consistency across the bulk power system. 50 In the WEQ Version 003.3 Standards, NAESB proposes to make the changes to each of these Business Practice Standards to reflect the Commission's Order No. 676-I decision not to incorporate by reference the preamble language. Accordingly, we propose to incorporate by reference, into the Commission's regulations at 18 CFR 38.1(b), NAESB's revised WEQ-001-9 and WEQ-001-10, as set forth in the WEQ Version 003.3 Standards.

40. The WEQ Version 003.3 Standards include additions and revisions to the WEQ-001 OASIS Business Practice Standards, WEQ-004 Coordinate Interchange Business Practice Standards, and WEQ-023 Modeling Business Practice Standards, which result from NAESB coordination with NERC. NAESB developed these additions and revisions in response to NERC's proposal, initiated via two separate Standards Requests, that NAESB review the retirements proposed by NERC within the NERC Modeling, Data, and Analysis (MOD) Reliability Standards  51 as well as the NERC Interchange Scheduling and Coordination (INT) Reliability Standards  52 in the interest of continued coordination between the organizations.

41. Available Transfer Capacity (ATC) is defined to be “[a] measure of the transfer capability remaining in the physical transmission network for further commercial activity over and above already committed uses.”  53 Since Order Nos. 888 and 889 were issued in 1996, ATC has been a key component of the Commission's open access transmission policy. The Commission has emphasized the important role of ATC, stating that “the calculation of ATC is one of the most critical functions under the open access transmission tariff (OATT) because it determines whether transmission customers can access alternative power supplies.”  54 The Commission has noted the broad range of transmission customers affected by ATC calculations, including loads, power producers, and power marketers. 55

42. In Order No. 890, the Commission found that transmission owners utilized a variety of ATC calculation methodologies and very few clear rules governed their use. 56 The complexity created by these multiple approaches presented obstacles to calculating ATC consistently and accurately. In Order No. 890, the Commission adopted a number of reforms addressing the potential for remaining undue discrimination in the determination of ATC by requiring consistency in how ATC is evaluated, as well as providing greater transparency about how a transmission provider calculates and allocates ATC. 57 In Order No. 890, the Commission directed industry to develop Reliability Standards, using the NERC Reliability Standards development procedures that provide for consistency and transparency in the methodologies used by transmission owners to calculate ATC. 58 Additionally, the Commission directed public utilities, working through NAESB, to develop workable Business Practice Standards to improve the consistency and transparency of ATC calculations, 59 while reducing the opportunity for transmission providers to exercise excessive discretion that could undermine the overarching policy goal of ensuring non-discriminatory, open access.

43. In response, NERC worked with industry to develop Reliability Standards improving consistency and transparency of ATC calculation methodologies, which NERC would audit and enforce. NERC submitted its MOD standards to the Commission in April 2006. 60 The MOD standards related to ATC eventually became known as the MOD A Reliability Standards. The MOD A Reliability Standards helped to standardize the methodologies and system data needed for traditional transmission system operation and expansion planning, reliability assessment and the calculation of available transfer capability, as well as helping to enable nondiscriminatory access to the transmission system.

44. In February 2014, NERC petitioned the Commission to permit it to retire its MOD A ATC Reliability Standards. 61 NERC argued that ATC and AFC values are commercial in nature. NERC also asked that the Commission approve MOD-001-2 which would replace, consolidate and improve upon the MOD A standards in addressing the reliability issues associated with the determination of ATC and AFC. At the same time, NERC requested that NAESB develop business practice standards for the commercial aspects of ATC and AFC. 62 NAESB first developed the WEQ-023 Modeling Business Practice Standards through its stakeholder process and submitted them to the Commission as part of the WEQ Version 003.1 Standards, filed with the Commission in its October 2015 Filing. 63 The Commission, however, did not incorporate most of those standards by reference, because it was still considering NERC's proposed retirement of MOD A Reliability Standards and had initiated a proceeding to consider proposed changes to the calculation of ATC. 64

45. In WEQ Version 003.3, NAESB made additional revisions and included new standards to the WEQ-023 Modeling Business Practice Standards: WEQ-023-1 (General Requirements), WEQ-023-2 (ATC Requirements), WEQ-023-3 (CBM Scheduling Requirements), WEQ-023-4 (TRM Requirements), which were all developed as a result of NAESB's review of NERC Reliability Standards MOD-001-1a, MOD-004-1, MOD-008-1, MOD-028-2, MOD-029-2a, and MOD-030-3, and the proposed NERC Reliability Standard MOD-001-2.

46. In response to NERC's proposed retirement of the MOD A Reliability Standards NAESB developed the WEQ-023 Modeling Business Practice Standards. They are composed of six subordinate sections and an appendix. WEQ-023-1 includes general requirements and lists the three allowable methodologies for calculating ATC or AFC. WEQ-023-2 describes these three allowable methodologies: area interchange, rated system path, and flowgate. WEQ-023-3 describes the calculation of capacity benefit margin (CBM), for those transmission providers that use CBM. Similarly, WEQ-023-4 describes the calculation of transmission reliability margin (TRM), for those transmission providers that use TRM. WEQ-023-5 describes how postbacks should be used. WEQ-023-6 requires a description and posting of grandfathered agreements. Finally, WEQ-023-A includes a table and examples for the use of postback conditions in calculation of ATC or AFC. As noted above, the latter two requirements and the Appendix were incorporated by reference in Order No. 676-I.

47. NAESB states that these modifications ensure that all commercially relevant requirements needed by the industry to calculate ATC and AFC are included in the WEQ-023 Modeling Business Practice Standards. The WEQ-023 Modeling Business Practice Standards, in part, incorporate forty-five requirements and sub-requirements previously included in NERC Reliability Standard MOD-001-2. The WEQ-023 Modeling Business Practice Standards also include two new requirements not previously included in the NERC Reliability Standards addressing contract path management. These two requirements, which are contained in WEQ-023-1.4 and WEQ-023-1.4.1, limit the amount of firm transmission service across a path between balancing authorities to the contract path limit for that given path.

48. NAESB also modified WEQ-001-13.1.5 to replace references to the NERC MOD-A Reliability Standards with references to WEQ-023 Modeling Business Practice Standards  65 and made consistency changes to WEQ-000 Abbreviations, Acronyms, and Definition of Terms Business Practice Standards.

49. The Commission stated in Order No. 729 that calculation of ATC is one of the most critical functions under the OATT, because it determines whether transmission customers can access alternative power supplies. It found that the improved transparency and consistency of ATC calculation methodologies would limit transmission service providers' wide discretion in calculating ATC and ensure that customers are treated fairly in seeking alternative power supplies. 66 Because of the importance of the ATC calculation and as a result of the proposed retirement of NERC's MOD A Reliability Standards, the Commission is proposing to revise its regulations to establish the general criteria transmission owners must use in calculating ATC. The Commission also is proposing to adopt the NAESB standards as they appear generally consistent with those criteria. The Commission, however, seeks comment herein on whether the NAESB standards could be improved by providing additional detail to further protect transmission customers. We seek comment on whether the proposed regulatory text included below will provide a clear basis for establishing that transmission provider ATC calculations must be transparent, consistent, and not unduly discriminatory or preferential. We also seek comment on whether we should develop additional new regulations to maintain the current level of detail related to ATC calculations; if so, what level of detail those regulations should have.

50. The Commission is proposing to revise its regulations governing the calculation of ATC and TTC in 18 CFR 37.6(b)(2)(i):

51. This proposed regulation, in conjunction with the WEQ-023 Modeling Business Practice Standards, will help ensure that all transmission customers will be treated fairly when seeking alternative power supplies, 68 and will provide for comparable and not unduly discriminatory or preferential treatment of native load customers and transmission service customers. As the Commission stated in Order No. 729, “the potential for discrimination and decline in reliability level does not lie primarily in the choice of an available transfer capability calculation methodology, but rather in the consistent application of its components, input and exchange data, and modeling assumptions.”  69 We preliminarily find that this proposed regulation will ensure that transmission owners implement the NAESB standards in a way that helps to ensure non-discriminatory treatment to all transmission customers.

52. We propose to incorporate by reference these WEQ-023 Modeling Business Practice Standards into the Commission's regulations at 18 CFR 38.1(b). However, as discussed below, we have concerns that certain of these business practice standards may lack the detail currently provided by the currently enforceable NERC MOD A Reliability Standards. Because the calculation of ATC determines whether transmission customers can access alternative power supplies, 70 these calculations have significant commercial implications. Accordingly, we request parties to submit comments on whether the NAESB Business Practice Standards WEQ-023-1 (General Requirements), WEQ-023-2 (ATC Requirements), WEQ-023-3 (CBM Scheduling Requirements), and WEQ-023-4 (TRM Requirements), as explained in the paragraphs below, provide sufficient details to protect transmission customers. Further, we seek comment on whether the Commission should start its own process to adopt more specific regulations regarding ATC calculations or by modifying the pro forma OATT or, alternatively, ask NAESB to consider providing additional details and more specific requirements in further revisions to these standards in a subsequent WEQ Version filing.

53. The currently effective NERC Reliability Standard MOD-001-1a (General Requirements), which NERC proposes to retire, provides both transparency into and consistency of ATC computations for transmission customers. It includes nine requirements, and the loss or replacement of Requirements R3 through R7 may raise concerns regarding both transparency and consistency. For example, Requirements R3.6, R3.6.1, and R3.6.2 of MOD-001-1a require each Transmission Service Provider  71 to describe in its ATC Implementation Document (ATCID) how it accounts for generation and transmission outages. Although NAESB's proposed revisions in WEQ-023-1.1.1.2 and WEQ-023-1.3.2 require the Transmission Service Provider to describe how it accounts for outages, these requirements provide significantly less detail than MOD-001-1a regarding the means by which the outages should be accounted. This lack of detail raises concerns of consistency in the ATCID, as specified in WEQ-023-1.3. We seek comment as to whether these changes could reduce transparency and consistency in ATC calculations, and if so, how this should be remedied.

54. Requirements R3.2, R3.2.1, and R3.2.2 of MOD-001-1a require each Transmission Service Provider to describe how counterflows are accounted for in its ATCID. NAESB's proposed revisions in WEQ-023-1 do not require the inclusion of this description in the ATCID, despite the fact counterflows are a key variable in the determination of ATC. We seek comment on whether additional information on the incorporation of counterflows is necessary for increased transparency in ATC calculations, and if so, how this should be remedied.

55. Requirement R3.5 of MOD-001-1a requires each Transmission Service Provider to describe how it allocates transfer or flowgate capability among multiple lines or sub-paths, among multiple owners or users, or between Transmission Service Providers in its ATCID. NAESB's proposed revisions in WEQ-023-1 do not appear to require a Transmission Service Provider to describe how ATC or AFC will be allocated. We seek comment on whether the potential absence of a description of allocation of ATC may reduce transparency and thereby increase discretion and the potential for discrimination to occur, and if so, how this should be remedied.

56. Requirements R4 and R5 of MOD-001-1a require each Transmission Service Provider to notify certain entities before implementing a new ATCID and to make that document publicly available. NAESB does not appear to have proposed new requirements for sharing changes before implementation in WEQ-023-1.7, which could lead to a potential transparency concern. We seek comment as to whether not sharing changes before implementation will reduce transparency for transmission customers, and if so, how this should be remedied.

57. Of particular note, Requirements R6 and R7 of MOD-001-1a obligate each Transmission Operator to use assumptions no more limiting that those used in its planning of operations calculations. Ensuring that the criteria a Transmission Service Provider uses to plan and operate its system are consistent with the criteria used in scheduling commercial transactions provides an assurance that transmission customers will have access to transfer capability that is physically available. We seek comment on whether the potential absence of such a requirement in the NAESB WEQ-023-1 Modeling Business Practice Standards raises consistency issues and could create additional discretion and the potential for the consistency of ATC calculations to decline, and if so, how this should be remedied.

58. The currently effective NERC Reliability Standard MOD-004-1 (Capacity Benefit Margin), which NERC also proposes to retire, provides transparency and consistency for transmission customers. This standard includes 12 requirements, and the loss or replacement of several of these existing NERC requirements in the NAESB WEQ-023 Modeling Business Practice Standards raise concerns for the Commission. For example, Requirements R1.1, R1.2, and R1.3 of MOD-004-1 currently obligate a Transmission Service Provider to provide descriptions of how CBM values are determined and allocated. WEQ-023-1.5, simply requires a Transmission Service Provider that maintains CBM to post a CBM Implementation Document (CBMID) that describes the process to schedule CBM. We seek comment as to whether eliminating the description of the development of CBM values and the allocation of CBM risks a reduction of detail and transparency to users of CBM or other transmission customers. Similarly, Requirements R3, R3.1, and R3.2 of MOD-004-1 provide detail on how load-serving entities determine that their CBM needs are set aside. NAESB WEQ-023-1.5 does not appear to address whether load-serving entities retain a role in the CBM determination process. The currently effective Requirements R5, R5.1, and R5.2 of MOD-004-1 require that at least every 13 months a Transmission Service Provider updates CBM for the future 13-month period, and to provide some details on how it calculates CBM. NAESB WEQ-023-1.5 does not include requirements related to the updating of CBM values or details of its calculation. We seek comment on whether this potential absence will decrease transparency in the ATC calculations, and if so, how this should be remedied.

59. Requirements R7, R8, R9, R9.1, and R9.2 of MOD-004-1 currently require a Transmission Service Provider to notify load-serving entities if they were allocated CBM, and to provide supporting data and documentation. The NAESB WEQ-023 Modeling Business Practice Standards do not appear to include requirements for notification or public posting, but rather in WEQ-023-1.7 provide that information shall be available within 45 days of a request. We seek comment on whether the net effect of these changes may raise concerns regarding the transparency to users of CBM or other transmission customers, and if so, how this should be remedied.

60. The currently effective NERC Reliability Standard MOD-008-1 (Transmission Reliability Margin), again, which NERC proposes to retire, provides detail, transparency and accuracy for transmission customers. This NERC Reliability Standard includes five requirements, and the loss or replacement of several of these existing NERC requirements within the NAESB WEQ-023 Modeling Business Practice Standards raise concerns. Specifically, Requirements R1, R1.1, R1.2, and R1.3 provide detail regarding the information that the Transmission Service Provider must represent in its Transmission Reliability Margin Implementation Document (TRMID), including the components of uncertainty considered in establishing TRM. NAESB WEQ-023-4.1 requires only that a Transmission Operator that determines TRM maintain a TRMID that specifies the components it includes in TRM, but without specification as to these inputs. We seek comment on whether this potential lack of detail could lead to inconsistency and increased discretion, and if so, how this should be remedied.

61. Requirement R4 of MOD-008-1 requires the Transmission Service Provider to update TRM at least once every 13 months. NAESB WEQ-023-4 does not include specific requirements to update TRM values. We seek comment on whether the potential lack of such requirements could contribute to insufficient transparency and discretion, and if so, how this should be remedied.

62. As discussed above, the NERC MOD A Reliability Standards include the three “ATC methodology” standards, which contain the specific requirements applicable to each entity that selects and implements that ATC methodology. NERC proposes to retire each of the three. The first of these three ATC methodology standards, NERC Reliability Standard MOD-028-2 (Area Interchange Methodology), describes the area interchange methodology for determining available transfer capability. NERC used this standard to increase consistency and reliability in the development and documentation of transfer capability calculation for short-term use performed by entities using the area interchange methodology to support analysis and system operations. 72 The Area Interchange Methodology is described in WEQ-023-2.1. MOD-028-2 consists of eleven requirements. We seek comment on how three of these MOD-028-2 requirements, Requirements R2.2, R3, and R6, are reflected in NAESB WEQ-023-2.1. MOD-028-2 Requirement R1 provides details regarding the content that a Transmission Service Provider is required to include in its ATCID, specifically with respect to its methodology for determining Total Transfer Capability (TTC). The NAESB standard WEQ-023-2.1 only requires a general description of these factors and appears to provide a lesser degree of detail regarding certain components of the determination such as source/sink and point of delivery (POD)/point of receipt (POR).

63. MOD-028-2 Requirement R2.2 currently requires each Transmission Operator to calculate TTC using a model that meets a scope specified in the requirement and includes rating information specified by the generator owners and transmission owners whose equipment is represented in the model. In addition, MOD-028-2 Requirement R2.2 requirement obligates a transmission provider to use a transmission model that contains the modeling data and topology for immediately adjacent and beyond Reliability Coordination areas when computing TTC. WEQ-023-2.1 does not appear to require the models to use data and topology for either immediately adjacent or beyond Reliability Coordination areas. We seek comment as to whether the potential absence of this requirement in NAESB's Area Interchange Methodology, WEQ-023-2.1 could raise coordination issues for transmission customers when scheduling transactions across areas, and if so, how this should be remedied.

64. MOD-028-2 Requirement R3 details the information that a Transmission Operator must include from adjacent and other Transmission Service Providers in its determination of TTC for the on-peak and off-peak intra-day and next-day time periods, including expected generation and transmission outages, additions, and retirements, load forecasts, and unit commitment and dispatch order. NAESB WEQ-023-2.1 does not appear to include such a coordination requirement. We seek comment as to whether the removal of such a coordination requirement could potentially constitute a lack of specificity in the NAESB Business Practice Standards that could detract from the usefulness of computed ATC values, and if so, how this should be remedied.

65. MOD-028-2 Requirement R6 provides details on the process by which each Transmission Operator must establish TTC, which it must communicate to the Transmission Service Provider, including the representation of neighboring area system operating limits. The NAESB WEQ-023-2.1 Modeling Business Practice Standards appear to provide no guidance on the process for establishing TTC. We seek comment on whether NAESB WEQ-023-2.1, Area Interchange Methodology, should include additional guidance in the calculation of TTC will increase transparency and consistency in ATC calculations, and if so, how this should be remedied.

66. The second of the three ATC methodology standards, NERC Reliability Standard MOD-029-2a (Rated System Path Methodology) describes the rated system path methodology for determining ATC. This NERC Reliability Standard provides consistency, accuracy and transparency in the development and documentation of transfer capability calculations for short-term use performed by entities used the rated system path methodology supports analysis and system operations. 73 This NERC Reliability Standard includes eight requirements, and we seek comment on how two of the requirements, Requirements R1 and R4, are addressed in the NAESB WEQ-023 Modeling Business Practice Standards. The Rated System Path Methodology is described in WEQ-023-2.2.

67. First, under MOD-029-2a Requirement R1, a Transmission Operator must calculate total transfer capability using a model that meets detailed scope and criteria specified in the requirement. However, WEQ-023-2.2.1 only requires that an entity choosing to use the rated system path methodology must use the lesser of the maximum allowable contractual allocation or the Transmission Operator's reliability limit. The NAESB WEQ-023-2.2 Modeling Business Practice Standards do not appear to have standards that account for geographic specifications, time period consistency, remedial action systems, and in-service elements that are not present. Similarly, MOD-029-2a Requirement R2 lists a detailed process by which the Transmission Operator must establish total transfer capability, however, NAESB WEQ-023-2.2 does not appear to describe a similar process in its standards. We seek comment as to whether these potential discrepancies could lead to an inappropriate decrease in modeling consistency or accuracy and, if so, how this should be remedied.

68. MOD-029-2a Requirement R4 requires the Transmission Operator to make available to the Transmission Service Provider the appropriate most recent value for TTC and the TTC study report within seven days of its finalization. The NAESB WEQ-023 Modeling Business Practice Standards includes a standard, WEQ-023-1.7, under which certain specified entities with a reliability need may request clarification of a transmission provider's total transfer capability, or its ATCID, CBMID, or TRMID, and receive the requested information within 45 days, and under WEQ-023-2.2.2 the Transmission Operator shall provide the Transmission Service Provider with the most current values of TTC within seven calendar days of their establishment. We seek comment as to whether these provisions in the WEQ-023-2.2 are sufficient to maintain the transparency and data availability provided under the current MOD A standards, and if not, how this should be remedied.

69. The third of the three ATC “methodology” standards, NERC Reliability Standard MOD-030-3 (Flowgate Methodology), describes the flowgate methodology for determining available transfer capability and has eleven requirements. The purpose of this NERC Reliability Standard is to provide consistency, accuracy, and reliability in the development and documentation of transfer capability calculations for short-term use performed by entities using the flowgate methodology to support analysis and system operations. 74 The Flowgate Methodology is described in WEQ-023-2.3.

70. MOD-030-3 Requirements R1 and R2 provide detail regarding the information a Transmission Service Provider must include in its ATCID. Requirement R1 includes the criteria used to determine which facilities should be considered potential flowgates, and what information is to be used about adjacent balancing authority areas. Requirement R2 contains a list of minimum characteristics used to identify a particular set of transmission facilities as a flowgate. We seek comment on whether an appropriate degree of transparency and consistency in the identification of flowgates is maintained through WEQ-023-1.1.1.3.1 and elsewhere under the NAESB WEQ-023 Modeling Business Practice Standards and if so, how this should be remedied.

71. MOD-030-3 Requirements R3.2 and R3.3 require each Transmission Operator to provide a transmission model that meets specified criteria and establish requirements for daily and monthly updates of the modeling values used in AFC calculations, including adjacent areas. We seek comment as to whether a requirement to update available flowgate capability calculations is necessary in NAESB WEQ-023-2.3 or elsewhere in the NAESB WEQ-023 Modeling Business Practice Standards. Similarly, Requirement R4 details how a Transmission Service Provider shall represent the sources and sinks associated with transmission service when conducting AFC calculations. These NERC requirements do not appear to be carried into the NAESB WEQ-023-2.3 Modeling Business Practice Standards. We seek comment on whether these omissions could lead to a reduction of calculation accuracy or an unwarranted increase in discretion and if so, how this should be remedied.

72. As discussed above, we seek comment on the adequacy of the NAESB WEQ-023 Modeling Business Practice Standards to replace the existing NERC MOD A Reliability Standards when their proposed retirement becomes effective, and whether to encourage NAESB to include additional detail or other further modifications in future versions of the Modeling Business Practice Standards. In summary, while we propose to incorporate these standards by reference, we also seek comments on: (i) The overall effectiveness of the standards in NAESB's WEQ-023 Modeling Business Practice Standards; (ii) whether the NAESB Business Practice Standards sufficiently limit transmission provider discretion over ATC; (iii) whether customer concerns expressed in response to the April 2015 technical workshop regarding inconsistencies between transmission systems in treatment of outages need to be addressed; (iv) whether the posting and sharing of data and information used in determining ATC is sufficiently transparent; (v) whether the specificity of modeling requirements is sufficient to ensure nondiscriminatory access; (vi) whether the ATC calculation components described correspond with operations, modeling, and planning data used by Transmission Providers; (vii) whether the level of detail required in the ATCID is sufficient to ensure nondiscriminatory access; and (viii) whether the Commission should seek to address the concerns raised in response to these comments through a new request to NAESB and its stakeholder process.

73. The WEQ Version 003.3 Standards modify the WEQ-004 Coordinate Interchange Business Practice Standards to ensure e-Tagging transactions will continue to function as needed for commercial purposes. The WEQ-004 Coordinate Interchange Business Practice Standards revisions incorporate commercially relevant requirements proposed for retirement by NERC from the NERC INT Reliability Standards  75 and include a requirement to register pseudo-ties in the NAESB Electric Industry Registry (EIR). 76

74. NAESB's revised WEQ-004 Coordinate Interchange Business Practice Standards to ensure e-Tagging transactions continue to function as needed for commercial purposes do not appear inconsistent with any Commission directives or findings in other orders. Accordingly, we propose to incorporate by reference, into the Commission's regulations at 18 CFR 38.1(b), NAESB's revised standards modify the WEQ-004 Coordinate Interchange standards to ensure e-Tagging transactions will continue to function as needed for commercial purposes, as set forth in NAESB's WEQ Version 003.3 Standards.

75. The WEQ Version 003.3 Standards also revise the Appendix D—Commercial Timing Tables  77 in the WEQ-004 Coordinate Interchange Business Practice Standards. The Appendix D—Commercial Timing Tables were revised to ensure entities do not receive additional time to conduct market assessments beyond the prescribed timing parameters. The revisions therefore provide additional clarity as to the timing requirements for conducting e-Tagging transactions and correct an unrelated typographical error in Appendix A—e-Tagging Service Performance Requirements and Failure Procedures.

76. NAESB's revised WEQ-004 Coordinate Interchange Business Practice Standards, Appendix D—Commercial Timing Tables, and corrected Appendix A—e-Tagging Service Performance Requirements and Failure Procedures provide additional clarity regarding the timing requirements for conducting e-Tagging transactions, and do not appear inconsistent with any Commission directives or findings in other orders. Accordingly, we propose to incorporate by reference, into the Commission's regulations at 18 CFR 38.1(b), NAESB's revised standards that modify the Appendix D—Commercial Timing Tables, WEQ-004 Coordinate Interchange Business Practice Standards, as set forth in NAESB's WEQ Version 003.3 Standards.

77. In addition to the standards revisions that NAESB made to comply with various Commission directives and requests, the WEQ Version 003.3 Standards also include revisions undertaken by NAESB to support the Parallel Flow Visualization (PFV) congestion management process (described above), as well as changes to the OASIS suite of standards that support transparency, consistency, and efficiency.

78. The WEQ Version 003.3 Standards include additions, revisions, and reservations intended to increase transparency, consistency, and/or efficiency for the industry in the utilization of OASIS. As a result, the WEQ Version 003.3 Standards include changes to the OASIS suite of standards. First, the OASIS suite of standards was modified to provide additional query functionality within OASIS by accommodating multiple query variables. 78 These changes allow for multiple transmission service requests and transmission service reservations to be returned in a single query response, reducing the need for a transmission customer or transmission provider to conduct multiple queries.

79. Second, the OASIS suite of standards was modified  79 to establish a mechanism within OASIS to document all encumbrances to unconditional firm transmission service, such as untagged pseudo-ties. NAESB states this new mechanism provides increased visibility regarding encumbrances on OASIS, which will serve to prevent encumbered unconditional firm transmission capacity from being released as non-firm ATC or AFC. Further, NAESB states the new mechanism will result in improved transparency regarding encumbrances which will help to ensure that any encumbered capacity is only used for its intended purpose.

80. Third, the OASIS suite of standards was revised  80 to provide new functionality and improve efficiencies regarding dynamic notifications to transmission customers and rollover rights renewal. The HTTP format for dynamic notifications was replaced with a generic email format that could be utilized for any status notifications deadline.

81. Fourth, the WEQ-001 OASIS Business Practice Standards were modified to provide clarity regarding the use of Next Hour Market Service and the 0-NX transmission product code. 81 NAESB states the revised standards clarify that the 0-NX transmission product code is the lowest curtailment priority and can be used for purposes outside of the identification of Next Hour Market Service.

82. Fifth, modifications were made to NITS-related standards  82 within the WEQ OASIS suite of standards. NITS allows transmission customers the ability to integrate and economically dispatch network resources to serve network load, making the treatment of these customers comparable to how the transmission provider would utilize its own system to serve its native load customers. NAESB states substantive changes provide increased flexibility in the use of scheduling rights, improve efficiencies to the query functionality, support the use of fractional megawatt values in generator attributes, and create new dynamic notifications.

83. Accordingly, we propose to incorporate by reference into the Commission's regulations at 18 CFR 38.1(b) NAESB's additions, revisions, and reservations to the OASIS suite of standards, which include the WEQ-001 OASIS Business Practice Standards, the WEQ-002 OASIS Standards and Communication Protocols Business Practice Standards, the WEQ-003 OASIS Data Dictionary Business Practice Standards, and WEQ-013 OASIS Implementation Guide Business Practice Standards, as set forth in NAESB's WEQ Version 003.3 Standards.

84. As discussed briefly above, the Commission proposes to incorporate by reference into its regulations the proposed NAESB Business Practice Standards that address the revisions related to the surety assessment on cybersecurity performed by Sandia on a different timeline than for the remainder of the changes proposed by NAESB in WEQ Version 003.3. The Commission proposes that industry filers submit compliance filings on proposed cybersecurity nine months after the publication of a final rule in this proceeding, with implementation required no sooner than three months after compliance filings are submitted to the Commission, for a total implementation period of at least 12 months.

85. The Commission notes that for the WEQ Version 003.3 Standards that pertain to OASIS, NAESB includes in its Business Practice Standards WEQ 002-6, a 12-month implementation period. WEQ 002-6 provides a nine-month proposed timeline for transmission providers to implement all changes required to support the OASIS-related standards and an additional three months following this implementation period for transmission customers to complete any necessary actions. WEQ-002-6 also requires OASIS nodes to maintain full support for queries and uploads as formatted under the past version of the OASIS-related standards during the full 12-month proposed implementation timeline.

86. The Commission proposes to implement the WEQ Version 003.3 Standards, other than those related to cybersecurity, 83 under an 18-month implementation timeline. Nonetheless, the Commission acknowledges that based upon when the Commission issues a final rule, industry may be required to incorporate certain changes proposed under WEQ Version 003.3 Standards while also implementing changes required by Order No. 676-I. 84 There is the potential for industry to be required to incorporate the changes made in the WEQ 003.2 Standards as adopted by the Commission in Order No. 676-I either immediately prior to or simultaneously with the changes required in the WEQ Version 003.3 Business Practice Standards based upon when the Commission decides to issue a final rule herein. 85 Given this possibility, the Commission requests comments on how best to proceed with the implementation of the remaining WEQ 003.3 Business Practice Standards, including the standards related to PFV and OASIS, but not those related to cybersecurity, to be incorporated by reference. Specifically, rather than being implemented on the separate timeline for the cybersecurity, as described herein: Should the Commission require the industry to implement WEQ Version 003.2 prior to WEQ Version 003.3. Alternatively, should the Commission cancel the implementation obligation of WEQ Version 003.2 and instead require implementation of all accepted WEQ Version 003.3 standards, including WEQ Version 003.2 changes, within 18 months. 86 Please provide comment as to a preferred approach and timeline for implementation of these various WEQ Standards.

87. The Office of the Federal Register requires agencies incorporating material by reference to discuss, in the preamble of the proposed rule, the ways that the materials it incorporates by reference are reasonably available to interested parties and how interested parties can obtain the materials. 87 The regulations also require agencies to summarize in the preamble of the proposed rule the material it incorporates by reference. The standards we are proposing to incorporate by reference in this NOPR consist of 14 suites of business practice standards applicable to public utilities that own, operate, or control facilities used for the transmission of electric energy in interstate commerce or for the sale of electric energy at wholesale in interstate commerce and any non-public utility that seeks voluntary compliance with jurisdictional transmission tariff reciprocity conditions. These can be summarized as follows.

88. The WEQ-000 Abbreviations, Acronyms, and Definition of Terms Business Practice Standards provide a single location for all abbreviations, acronyms, and defined terms referenced in the WEQ Business Practice Standards. These standards provide common nomenclature for terms within the wholesale electric industry, thereby reducing confusion and opportunities for misinterpretation or misunderstandings among industry participants.

89. The OASIS suite of business practice standards (WEQ-001 Open Access Same-Time Information Systems (OASIS), WEQ-002 OASIS Standards and Communication Protocols, WEQ-003 OASIS Data Dictionary, and WEQ-013 OASIS Implementation Guide) support the FERC posting and reporting requirements that provide information about each transmission provider's performance of the requirements of its pro forma OATT. The OASIS system is used for scheduling transmission on the bulk power system, comprises the computer systems and associated communications facilities that public utilities are required to provide for the purpose of making available to all transmission users comparable interactions, and provides transmission service information and any back-end supporting systems or user procedures that collectively perform the transaction processing functions for handling requests on OASIS. These standards establish business practices and communication protocols that provide for consistent implementation across OASIS sites as well as consistent methods for posting to OASIS.

90. The WEQ-001 OASIS Business Practice Standards define the general and specific transaction processing requirements and related business processes required for OASIS. The standards detail requirements related to standard terminology for transmission and ancillary services, attribute values defining transmission service class and type, ancillary and other services definitions, OASIS registration procedures, procurement of ancillary and other services, path naming, next hour market service, identical transmission service requests, redirects, resales, transfers, OASIS postings, procedures for addressing ATC or AFC methodology questions, rollover rights, conditional curtailment option reservations, auditing usage of Capacity Benefit Margin, coordination of requests for service across multiple transmission systems, consolidation, preemption and right-of-first refusal process, and NITS requests.

91. The WEQ-002 OASIS Standards and Communication Protocols Business Practice Standards define the technical standards for OASIS. These standards detail network architecture requirements, information access requirements, OASIS and point-to-point interface requirements, implementation, and NITS interface requirements.

92. The WEQ-003 OASIS Data Dictionary Business Practice Standards define the data element specifications for OASIS.

93. The WEQ-004 Coordinate Interchange Business Practice Standards define the commercial processes necessary to facilitate interchange transactions via Request for Interchange (RFI) and specify the arrangements and data to be communicated by the entity responsible for authorizing the implementation of such transactions (the entities responsible for balancing load and generation).

94. The WEQ-005 Area Control Error (ACE) Equation Special Cases Business Practice Standards define commercial-based requirements regarding the obligations of a balancing authority to manage the difference between scheduled and actual electrical generation within its control area. Each balancing authority manages its ACE in accordance with the NERC Reliability Standards. These standards detail requirements for jointly owned utilities, supplemental regulation service, and load or generation transfer by telemetry.

95. The WEQ-006 Manual Time Error Correction Business Practice Standards define the commercial based procedures to be used for reducing time error to within acceptable limits of true time. These standards have subsequently been marked reserved by NAESB. In Order No. 676-I, the Commission incorporated by reference WEQ Version 003.1 of the Manual Time Error Correction Business Practice Standards, effectively rejecting NAESB's proposal to retire these standards. 88

96. The WEQ-007 Inadvertent Interchange Payback Business Practice Standards define the methods in which inadvertent energy is paid back, mitigating the potential for financial gain through the misuse of paybacks for inadvertent interchange. Inadvertent interchange is interchange that occurs when a balancing authority cannot fully balance generation and load within its area. The standards allow for the repayment of any imbalances through bilateral in-kind payback, unilateral in-kind payback, or other methods as agreed to.

97. The WEQ-008 Transmission Loading Relief—Eastern Interconnection Business Practice Standards define the business practices for cutting transmission service during a TLR event. These standards detail requirements for the use of interconnection-wide TLR procedures, interchange transaction priorities for use with interconnection-wide TLR procedures, and the Eastern Interconnection procedure for physical curtailment of interchange transactions.

98. The WEQ-011 Gas/Electric Coordination Business Practice Standards define communication protocols intended to improve coordination between the gas and electric industries in daily operational communications between transportation service providers and gas-fired power plants. The standards include requirements for communicating anticipated power generation fuel for the upcoming day as well as any operating problems that might hinder gas-fired power plants from receiving contractual gas quantities.

99. The WEQ-012 Public Key Infrastructure (PKI) Business Practice Standards establish the cybersecurity framework for parties partaking in transactions via a transmission provider's OASIS or e-Tagging system. The NAESB PKI framework secure wholesale electric market electronic commercial communications via encryption of data and the electronic authentication of parties to a transaction using a digital certificate issued by a NAESB certified certificate authority. The standards define the requirements for parties utilizing the digital certificates issued by the NAESB certificate authorities.

100. The WEQ-013 OASIS Implementation Guide Business Practice Standards detail the implementation of the OASIS Business Practice Standards. The standards detail requirements related to point-to-point OASIS transaction processing, OASIS template implementation, preemption and right-of-first-refusal processing, NITS application and modification of service processing, and secondary network transmission service.

101. The WEQ-015 Measurement and Verification of Wholesale Electricity Demand Response Business Practice Standards define a common framework for transparency, consistency, and accountability applicable to the measurement and verification of wholesale electric market demand response practices. The standards describe performance evaluation methodology and criteria for the use of equipment, technology, and procedures to quantify the demand reduction value—the measurement of reduced electrical usage by a demand resource.

102. The WEQ-021 Measurement and Verification of Energy Efficiency Products Business Practice Standards define a common framework for transparency, consistency, and accountability applicable to the measurement and verification of wholesale electric market energy efficiency practices. The standards establish energy efficiency measurement and verification criteria and define requirements for energy efficiency resource providers for the measurement and verification of energy efficiency products and services offered in the wholesale electric markets.

103. The WEQ-022 EIR Business Practice Standards define the business requirements for entities utilizing the NAESB managed EIR, a wholesale electric industry tool that serves as the central repository for information needed in the scheduling of transmission through electronic transactions. The standards describe the roles within EIR, registration requirements, and cybersecurity.

104. The WEQ-023 Modeling Business Practice Standards provide technical details concerning the calculation of ATC for wholesale electric transmission services. The WEQ-023 standards are intended to address the aspects of certain of the NERC MOD A Reliability Standards relating to modeling, data and analysis that are included in the NERC's proposed retirement of its MOD A Reliability Standards.

105. In addition, NAESB has adopted an additional eight suites of standards that, consistent with our past decisions, we are not proposing to incorporate by reference. 89

106. Our regulations provide that copies of the standards incorporated by reference may be purchased from the North American Energy Standards Board, 801 Travis Street, Suite 1675, Houston, TX 77002, Phone: (713) 356-0060, website: http://www.naesb.org/ . Copies of the standards may be inspected at the Federal Energy Regulatory Commission, Public Reference and Files Maintenance Branch, 888 First Street NE, Washington, DC 20426, Phone: (202) 502-8371, website: http://www.ferc.gov . 90

107. NAESB is a private consensus standards developer that develops voluntary wholesale and retail standards related to the energy industry. The procedures used by NAESB make its standards reasonably available to those affected by the Commission regulations, which generally is comprised of entities that have the means to acquire the information they need to effectively participate in Commission proceedings. 91 NAESB provides a free electronic read-only version of the standards for a three business day period or, in the case of a regulatory comment period, through the end of the comment period. 92 Participants can join NAESB, for an annual membership cost of $7,500, which entitles them to full participation in NAESB and enables them to obtain these standards at no additional cost. 93 Non-members may obtain a complete set of Standards Manuals, Booklets, and Contracts from any of the quadrants (WEQ, WGQ, or Retail) on CD for $2,000 and the Individual Standards Manual or Booklets for each standard by email for $250 per manual or booklet. 94 In addition, NAESB considers requests for waivers of the charges on a case by case basis based on need.

108. 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, 44 U.S.C. 3507(d). 95 OMB's regulations require approval of certain information collection requirements imposed by agency rules. 96 Upon approval of a collection(s) of information, OMB will assign an OMB control number and an expiration date. Respondents subject to the filing requirements of this rule will not be penalized for failing to respond to these collections of information unless the collections of information display a valid OMB control number.

109. The Commission solicits comments on the Commission's need for this information, whether the information will have practical utility, the accuracy of the provided burden estimates, ways to enhance the quality, utility, and clarity of the information to be collected, and any suggested methods for minimizing respondents' burden, including the use of automated information techniques.

110. The following burden estimate is based on the projected costs for the industry to implement the new and revised business practice standards adopted by NAESB and proposed to be incorporated by reference in this NOPR. 97 The NERC Compliance Registry, as of April 28, 2020, identifies approximately 162 in the United States that are subject to this proposed rulemaking.

Costs to Comply with Paperwork Requirements:

The estimated annual costs are as follows:

FERC-516E: 162 entities × 1 response/entity × (6 hours/response × $83.00/hour) = $80,676

FERC-717: 162 entities × 1 response/entity × (30 hours/response × $83.00/hour) = $403,380

Titles: FERC-516E, Electric Rate Schedule and Tariff Filings and FERC-717, Standards for Business Practices and Communication Protocols for Public Utilities.

Action: Proposed amendment to regulations pertaining to the existing collections of information FERC-516E and FERC-717.

OMB Control Nos: 1902-0290 (FERC-516E) and 1902-0173 (FERC-717).

Respondents: Business or other for profit, and not for profit institutions.

Frequency of Responses: On occasion.

Necessity of the Information: This proposed rule, if implemented, will amend its regulations to incorporate by reference, with certain enumerated exceptions, the latest version (Version 003.3) of the Standards for Business Practices and Communication Protocols for Public Utilities adopted by the Wholesale Electric Quadrant (WEQ) of the North American Energy Standards Board (NAESB). WEQ Version 003.3 includes standards developed in accordance with recommendations of the Department of Energy sponsored cybersecurity surety assessment of the NAESB Business Practice Standards that was conducted in 2019. Additional standards were developed in response to the directives from FERC Order No. 890, such as the standards developed to support Parallel Flow Visualization, intended to improve congestion management procedures for the Eastern Interconnection. The WEQ Version 003.3 Standards also include, in their entirety, the WEQ-023 Modeling Business Practice Standards contained in the WEQ Version 003.1 Standards, which address the technical issues affecting ATC and AFC calculation for wholesale electric transmission services, with the addition of certain revisions and corrections. The revisions made by NAESB in the WEQ Version 003.3 Standards are designed to aid public utilities with the consistent and uniform implementation of requirements promulgated by the Commission as part of the pro forma Open Access Transmission Tariff.

Internal Review: The Commission has reviewed NAESB's proposal and has made a preliminary determination that the proposed revisions are both necessary and useful. In addition, the Commission has assured itself, by means of its internal review, that there is specific, objective support for the burden estimates associated with the information requirements.

111. 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: DataClearance@ferc.gov, phone: (202) 502-8663].

112. Comments concerning the information collections proposed in this NOPR and the associated burden estimates should be sent to the Commission at this docket and be email 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: oira_submission@omb.eop.gov . Please refer to the appropriate docket number of this notice of proposed rulemaking Docket Nos. RM05-5-029 and RM05-5-030 in your and OMB Control Nos. 1902-0290 (FERC-516E) and 1902-0173 (FERC-717) in your submission.

113. 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. 98 The actions proposed here fall within categorical exclusions in the Commission's regulations for rules that are clarifying, corrective, or procedural, for information gathering, analysis, and dissemination, and for sales, exchange, and transportation of electric power that requires no construction of facilities. 99 Therefore, an environmental assessment is unnecessary and has not been prepared in this NOPR.

114. The Regulatory Flexibility Act of 1980 (RFA)  100 generally requires a description and analysis of proposed rules that will have significant economic impact on a substantial number of small entities. The RFA does not mandate any particular outcome in a rulemaking. It only requires consideration of alternatives that are less burdensome to small entities and an agency explanation of why alternatives were rejected.

115. The Small Business Administration (SBA) revised its size standards (effective January 22, 2014) for electric utilities from a standard based on megawatt hours to a standard based on the number of employees, including affiliates. Under SBA's standards, some transmission owners will fall under the following category and associated size threshold: Electric bulk power transmission and control, at 500 employees. 101 The Commission estimates that 24 of the 162 respondents are small or 14.8% of the respondents affected by this NOPR.

116. The Commission estimates that the impact on these entities is consistent with the paperwork burden of $2,988 per entity used above. 102 The Commission does not consider $2,988 to be a significant economic impact. Based on the above, the Commission certifies that implementation of the proposed Business Practice Standards will not have a significant impact on a substantial number of small entities. Accordingly, no initial regulatory flexibility analysis is required.

117. The Commission invites interested persons to submit comments on the matters and issues proposed in this document to be adopted, including any related matters or alternative proposals that commenters may wish to discuss. Comments are due November 3, 2020. Comments must refer to Docket Nos. RM05-5-029 and RM05-5-030, and must include the commenter's name, the organization they represent, if applicable, and their address in their comments.

118. The Commission encourages comments to be filed electronically via the eFiling link on the Commission's website 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.

119. 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.

120. 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.

121. 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 ). At this time, the Commission has suspended access to the Commission's Public Reference Room due to the President's March 13, 2020 proclamation declaring a National Emergency concerning the Novel Coronavirus Disease (COVID-19).

122. 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.

123. User assistance is available for eLibrary and the Commission's website during normal business hours from the Commission's Online Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-8371, TTY (202) 502-8659. Email the Public Reference Room at public.referenceroom@ferc.gov .

In consideration of the foregoing, the Commission proposes to amend parts 37 and 38, chapter I, title 18, Code of Federal Regulations, as follows:

Proxy advisory firms that respond best to this proposal will likely gain a relative competitive advantage. Firms that limit or eliminate conflicts of interest and modify their services to better align with the guidance of these proposed regulations could gain market share relative to firms that do not. Firms that are willing to tailor their voting guidelines, strategies, and costs according to each plan's investment guidelines could gain market share relative to firms that do not.

Moreover, as noted previously, if some portion of rule-induced increases in returns would be associated with transactions in which the opposite party experiences decreased returns of equal magnitude, then this portion of the proposed rule's impact would, from a society-wide perspective, be appropriately categorized as a transfer.

The Department considered a purely principles-based approach that would not have included the permitted practices in paragraph (e)(3)(iii). However, for the reasons described above, the Department believes that clearly articulating examples of permitted proxy voting policies would be helpful to plan fiduciaries and ultimately beneficial to plan participants and beneficiaries. A purely principles-based approach could result in a responsible fiduciary, for each individual proxy proposal, having to determine whether to vote. This determination process could consume significant plan resources, even where the potential economic benefit to the plan is small or difficult to determine. A responsible fiduciary might arrive at his or her own policies for simply not voting, or voting in a specific manner on certain types of proposals, based on the plan's limited exposure to a stock or the economic immateriality of the matter being voted upon. However, under a principles-based approach fiduciaries would likely be cautious about adopting such policies, and might believe it prudent to be able to demonstrate in each case why a decision was made not to vote, and therefore err on the side of devoting excessive resources to voting decisions. The Department invites comment on the inclusion of permitted practices and their usefulness in aiding a fiduciary's determination of whether to vote.

The Department also considered including a specific numeric cap for the materiality permitted practice in paragraph (e)(3)(iii)(C), but opted not to do so until it has the opportunity to review the comments solicited earlier in this preamble on this question. The Department similarly invites comments here on those issues for purposes of this regulatory impact analysis.

The Department also invites comments generally on its choice of permitted practices, including whether any should not be retained and whether any other practices should be added.

The Department's economic assessment of this proposal's effects is subject to uncertainty. The Department invites comments that can more fully inform its assessment.

Cost Savings —As noted earlier, the Department currently lacks complete data on plans' exercise of their shareholder rights appurtenant to their stock holdings, including proxy voting activities, and on the attendant costs and benefits. The Department invites comments that illuminate these activities, including their costs and benefits, as well as comments regarding how this proposal would change these activities.

In light of the uncertainty regarding the proxy voting activities of ERISA plans, and the attendant costs and benefits of this proposal, the Department presents an illustration below of an analytical approach to evaluating the possible impacts of this notice of proposed rulemaking (NPRM). Details on the estimated impacts of this proposed rule are presented in a supplemental illustrative analysis in Appendix A. This illustration is a part of the Department's solicitation of comments on an appropriate methodology and assumptions for evaluating the costs and savings that could result from the rule. The analytical model assumes that proxies are primarily voted by asset managers or other service providers. The Department also assumes that the proposed rule may require some plans or service providers to expend more effort researching whether a proxy vote will have a relevant economic impact on the plan and how the plan should vote in cases in which the proposal has such an economic impact. Service providers, plans, or both, may also need to provide more documentation of their decisions than they already produce. Additionally, plans may take advantage of the permitted practices described in the proposal that allow them to conserve plan assets, because they may not need to conduct as extensive an amount of research or expend as much time on documenting decisions. In this illustration, the Department estimates that each service provider will vote 9.3 times, on average, per stock. 101 If there are 1,988 service providers impacted by the rule's requirements, 102 and 8,020 stocks voted annually per service provider, then the Department estimates that those entities take a cumulative total of 148,276,968 annual stock votes. 103 As discussed previously, some stocks may fall within the permitted practice provisions of the rule and would be less burdensome to research and document. The Department assumes that 5.6 percent of all proxy votes could fall outside the permitted practices and would still need to be researched, voted, and documented under the proposal. 104 For votes falling within the permitted practices, on average the Department estimates that responsible plan fiduciaries would take 30 minutes to conduct research and 10 minutes to document each vote at a total cost of $435,042,756. 105 For votes falling outside the permitted practices, the Department estimates two hours of research and 20 minutes to document each vote at a total cost of $100,175,208. Under this illustrative analysis, the total costs of a hypothetical alternative to the proposed rule, for increases in research and documentation costs, excluding cost savings that could occur if the permitted practices are used, could reach $535,217,964. The cost savings from the permitted practices are discussed later. However, the Department fully expects that most of these potential costs will not be realized, because plans will use the permitted practices to avoid incurring them. The Department requests comments on the assumptions and underlying data used to reach this illustrative estimate.

As discussed elsewhere in this preamble, while the Department believes that the common practices of most plans related to proxy voting are generally consistent with the standards in the proposal, we lack data for the share of plans that do not currently meet such standards. To illustrate the potential burden for firms whose practices are inconsistent with the proposed standards, DOL assumes that research costs will increase by 5% and that documentation costs will increase by 1%. The Department requests data that could be used to estimate the share of plans that do not currently meet such standards.

To illustrate potential cost savings from responsible plan fiduciaries using the permitted practices, the Department notes that responsible plan fiduciaries do not have to vote proxies that fall within the permitted practices, which could save at least some of the costs associated with research and documentation. The Department intends that the permitted practices will impact a large share of all proxy votes and the burden associated with these votes when using the permitted practices will likely be very low. By way of illustration, if under permitted practices 10 percent of proxy votes are no longer voted and responsible plan fiduciaries therefore did not incur research and documentation costs, the total cost savings could exceed $1 billion. 106

Demand for New Services —The Department also invites comments regarding whether this proposal, if finalized, would create a demand for new services, and if so, what alternate services or relationships with service providers might result and how overall plan expenses could be impacted.

Other Securities —This proposal generally would govern plans' exercise of shareholder rights appurtenant to their stock holdings of individual companies, but not to their holdings of other securities. The Department cannot determine whether some plans nonetheless would modify their practices with respect to other securities because of this proposal. As noted earlier, ERISA pensions held just 5.5 percent of total corporate equity in 2019, down from a high of 22 percent in 1985. Mutual funds, in contrast, held 22 percent of all corporate equity in 2019, up from 6 percent in 1985. 107 As ERISA-covered pensions have shifted from defined benefit to defined contribution plans, both the proportion of pension assets invested in mutual funds and the proportion of all mutual fund shares owned by pensions have increased dramatically. In 2019, ERISA-covered pensions held 25 percent of all mutual fund shares, up from 8 percent in 1985. ERISA would apply to any proxy votes for mutual fund shares and shares of other funds registered with the SEC for which the plan fiduciary is responsible. ERISA does not govern the management of the portfolio internal to a fund registered with the SEC, including such fund's exercise of its shareholder rights appurtenant to the portfolio of stocks it holds, though ERISA would apply to similar funds organized as collective investment trusts. The Department invites comments as to whether or how this proposal might influence plans' exercise of shareholder rights for SEC-registered funds, or their selection of such funds as plan investments, as well as comments on the costs and benefits associated with any such influence, such as impacts on the ability to achieve a quorum at shareholder meetings of such funds.

Operation of Permitted Practices —The permitted practices provisions in paragraph (e)(3)(iii) would deliver benefits by relieving plans from much of the cost of deciding whether and how to vote proxies. Responsible fiduciaries might be inclined to use the permitted practices as expansively as possible, to conserve plan assets or even in some cases in an effort to reduce possible exposure to fiduciary liability when exercising shareholder rights. However, a responsible fiduciary may use them less expansively if for practical reasons it is operationally more efficient to do so, or if the fiduciary identifies an opportunity to advance the plan's economic interest by voting on a proposal that falls within the permitted practices. Accordingly, the Department invites comments on the optimal operation of the permitted practices provisions.

Fiduciaries would still be required to vote shares in situations not encompassed by proxy voting policies adopted pursuant to the permitted practices provisions of paragraph (e)(3)(iii) if they prudently determine that the matter being voted upon would have an economic impact on the plan. For instance, the Department believes that voting the shares of plan holdings that comprise a small portion of total plan assets rarely advances plans' economic interests, but invites comments on whether or under what circumstances such voting might do so. For example, might this sometimes be the case for large plans and asset managers for whom even a small threshold of total plan assets would represent a large financial stake in dollar terms that might justify the cost of deciding whether and how to vote? As an illustration, a five-percent threshold for a pension plan with more than $1 billion in assets would be more than $50 million. In 2017, there were 1,391 plans with more than $1 billion in assets each. These plans together represented just 0.2 percent of all pension plans, but held $5.3 trillion in assets, representing more than one-half of ERISA-covered pension assets.

More generally, the Department solicits comments on whether the permitted practices included in this proposal might produce unintended costs by discouraging responsible fiduciaries from voting shares when voting may be economically beneficial.

Non-ERISA Investors —Many asset managers serve both ERISA plans and other investors. The Department invites comments as to whether any such asset managers currently follow uniform proxy policies for both, and vote shares uniformly for both. The Department believes such uniform voting for ERISA and non-ERISA clients may sometimes jeopardize responsible fiduciaries' satisfaction of their duties under ERISA. However, as noted earlier in the preamble, this concern may be mitigated in the case of investment managers subject to the SEC's jurisdiction by the fact that federal securities law requires investment advisers to make the determination in their client's best interest and not to place the investment adviser's own interests ahead of their client's. 108 Where an SEC registered investment adviser has assumed the authority to vote on behalf of its client, the SEC would require the investment adviser, among other things, must have a reasonable understanding of the client's objectives and must make voting determinations that are in their best interest.

Under this proposed rule, responsible fiduciaries might increase their demands for asset managers to implement separate policies customized for particular ERISA plans or for ERISA plans generally, such as policies that align with the proposed permitted practices in paragraph (e)(3)(iii). The Department invites comments on the degree to which such customized policies by asset managers could benefit ERISA plans or increase plan costs.

Asset Allocation —This proposal could exert influence on a plan's asset allocation. For example, the quantitative threshold provision in paragraph (e)(3)(iii)(C) would permit responsible fiduciaries, after prudently considering the relevant factors, to adopt proxy voting policies allowing them to refrain from voting shares when the plan's holding in a single issuer is sufficiently small relative to the plan's total investment that the outcome of the vote is unlikely to have a material impact on the investment performance of the plan's portfolio. This provision might produce additional economic benefits by promoting fuller and more optimal diversification where it may otherwise have been lacking. That is, the quantitative threshold could prompt a fiduciary to diversify what otherwise would have been a concentration of more than the specified threshold amount of a plan's portfolio in a single stock. The Department invites comments on this possibility.

Vote Categories — Proxy votes can be tallied in four ways: For, against/withhold, abstain, and not voted. The vast majority of outstanding shares are held in “street name” by intermediaries, such as broker-dealers. Broker-dealers may have discretionary authority to vote proxies without receiving voting instructions from the owner of the shares for routine and noncontroversial matters, such as the ratification of a company's independent auditors. For matters in which a broker-dealer does not have discretionary authority to vote, a broker non-vote is required. For matters that require approval of a majority of shares present and voting, abstentions (which are cast neither for nor against a proposal) and broker non-votes are not counted in the final tally. For matters that require approval of a majority of the shares issued and outstanding, abstentions or broker-non votes are treated as votes against the proposal. If an investor is unsure about a matter or unsure whether her interests and management's interests are aligned, the investor arguably should abstain. The Department requests comments on how often this alignment of interests might occur, and on whether additional direction on voting, such as on the distinction between not voting and abstaining, would be beneficial to fiduciaries.

The proposed rule would benefit ERISA-covered plans, as it provides guidance regarding how ERISA's fiduciary duties apply to proxy voting and in particular when fiduciaries should refrain from voting. Plan fiduciaries will be able to conserve plan assets as they refrain from researching and voting on proposals that are unlikely to economically impact the plan, and thereby increase the return on plan assets. The Department believes that the benefits of the proposal would justify its costs, but also invites comments on this question.

As part of its continuing effort to reduce paperwork and respondent burden, the Department conducts a preclearance consultation program to allow the general public and federal agencies to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA). 109 This helps to ensure that the public understands the Department's collection instructions, respondents can provide the requested data in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the Department can properly assess the impact of collection requirements on respondents.

Currently, the Department is soliciting comments concerning the proposed information collection request (ICR) included in the Fiduciary Duties Regarding Proxy Voting and Shareholder Rights ICR. To obtain a copy of the ICR, contact the PRA addressee shown below or go to www.RegInfo.gov.

The Department has submitted a copy of the proposed rule to the Office of Management and Budget (OMB) in accordance with 44 U.S.C. 3507(d) for review of its information collections. The Department and OMB are particularly interested in comments that:

• Evaluate whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;

• Evaluate the accuracy of the agency's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used;

• Enhance the quality, utility, and clarity of the information to be collected; and

• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology ( e.g., permitting electronic submission of responses).

Comments should be sent to the Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503 and marked “Attention: Desk Officer for the Employee Benefits Security Administration.” Comments can also be submitted by fax at (202) 395-5806 (this is not a toll-free number), or by email: OIRA_submission@omb.eop.gov. OMB requests that comments are received within 30 days of publication of the proposed rule to ensure their consideration.

PRA Addresses: Address requests for copies of the ICR to G. Christopher Cosby, Office of Policy and Research, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue NW, Room N-5718, Washington, DC 20210. The PRA Addressee may be reached by telephone at (202) 693-8410 or by fax at (202) 219-5333. These are not toll-free numbers. ICRs also are available at www.RegInfo.gov ( www.RegInfo.gov/public/do/PRAMain ).

It has long been the view of the Department that the duty to monitor necessitates proper documentation of the activities that are subject to monitoring. 110 Accordingly, the Department's proposal requires that plan fiduciaries maintain records on proxy voting activities and other exercises of shareholder rights, including records that demonstrate the basis for particular proxy votes and exercises of shareholder rights. This requirement applies to all pension plans with investments, including those that have shareholder rights and proxy votes that may need to be exercised. Fiduciaries' proxy voting decisions may only involve consideration of those factors economically relevant to the plan.

Plan fiduciaries that have followed prior guidance, or good business practices, are already performing much if not all of the recordkeeping actions the proposal would require. While the incremental burden of the proposal is generally small, perhaps even de minimis, the full burden of the requirements will be included below to allow for full evaluation of the requirements in the information collection.

According to the most recent Form 5500 data there are 709,527 pension plans (90,604 large plans and 618,923 small plans) and 8,475 health or welfare plans (5,626 large plans filing a schedule H, and 2,849 small plans filing a schedule I). 111 While the Schedule H collects information on a plan's stock holdings, Schedule I lacks the specificity to determine if small plans hold stocks. As shown in Table 1, 34,906 pension plans hold stocks and would have shareholder rights they may need to exercise. Additionally, 597 health and other welfare plans file the schedule H and report holding either common stocks or employer stocks. The Department lacks information on the number of small plans that hold stock. Small plans are significantly less likely to hold stock than larger plans. For purposes of estimating the burden, five percent of small plans are presumed to hold stock resulting in 30,946 small plans needing to comply with the information collection. Therefore, a total of 66,649 plans will need to comply with this information collection.

The proposed rule requires that the named plan fiduciary must maintain records on proxy voting activities and other exercises of shareholder rights, including records that demonstrate the basis for particular proxy votes and exercises of shareholder rights. Where the authority to vote proxies or exercise shareholder rights has been delegated to an investment manager pursuant to ERISA section 403(a)(2), or a proxy voting firm or another person performs advisory services as to the voting of proxies, plan fiduciaries must require such investment manager, proxy voting firm or other person to document the rationale for proxy voting decisions or recommendations. This is required of all plans with investments and includes plans that may exercise shareholder rights.

Much of the information needed to fulfill this requirement is generated in the normal course of business. Plans may need additional time to maintain the proper documentation, but this burden is likely to be reduced by the adoption of policies by plan fiduciaries that incorporate one or more of the proposed rule's permitted practices. The Department estimates that plan fiduciaries or investment managers will require a half hour annually and a half hour of help from clerical staff to maintain or document the required information. This is likely an overestimate, because many, if not most, plans use investment managers. These investment managers provide similar services for many plans. This results in an annual cost burden estimate of $6,291,078. 112

As a note, included in the uncertainty section of the regulatory impact analysis above is a model that seeks to quantify the costs and cost savings of the rule. It provides an alternative estimate of the documentation costs. Depending on comments received on the model, the Department could revise the burden associated with this ICR to reflect the estimates derived by using the model.

These paperwork burden estimates are summarized as follows:

Type of Review: New collection.

Agency: Employee Benefits Security Administration, Department of Labor.

Title: Fiduciary Duties Regarding Proxy Voting and Shareholder Rights.

OMB Control Number: 1210-NEW.

Affected Public: Businesses or other for-profits.

Estimated Number of Respondents: 66,499.

Estimated Number of Annual Responses: 66,499.

Frequency of Response: Occasionally.

Estimated Total Annual Burden Hours: N/A.

Estimated Total Annual Burden Cost: $6,291,078.

The Regulatory Flexibility Act (RFA)  113 imposes certain requirements with respect to federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act  114 and are likely to have a significant economic impact on a substantial number of small entities. The Department has determined that this proposal is likely to have a significant economic impact on a substantial number of small entities, and therefore presents this initial regulatory flexibility analysis of the proposed rule pursuant to section 603 of the RFA.

For purposes of analysis under the RFA, the Employee Benefits Security Administration (EBSA) considers employee benefit plans with fewer than 100 participants to be small entities. 115 The basis of this definition is found in section 104(a)(2) of ERISA, which permits the Secretary of Labor to prescribe simplified annual reports for plans that cover fewer than 100 participants. Under section 104(a)(3) of ERISA, the Secretary may also provide for exemptions or simplified annual reporting and disclosure for welfare benefit plans. Pursuant to the authority of section 104(a)(3), the Department has previously issued (see 29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10) simplified reporting provisions and limited exemptions from reporting and disclosure requirements for small plans, including unfunded or insured welfare plans, that cover fewer than 100 participants and satisfy certain requirements. While some large employers have small plans, small plans are generally maintained by small employers. Thus, the Department believes that assessing the impact of this proposed rule on small plans is an appropriate substitute for evaluating the effect on small entities. The definition of small entity considered appropriate for this purpose differs, however, from a definition of small business based on size standards promulgated by the Small Business Administration  116 pursuant to the Small Business Act. 117 Therefore, EBSA requests comments on the appropriateness of the size standard used in evaluating the impact of this proposed rule on small entities.

As detailed above, the Department is concerned that responsible plan fiduciaries, in their efforts to decide whether or how to vote plan shares—and where applicable, to vote them—and exercise other shareholder rights, may sometimes impose on plans costs that exceed the consequent economic benefits to the plans. Moreover, the Department has reason to believe that responsible fiduciaries may sometimes rely on third-party advice without taking sufficient steps to ensure that the advice is impartial and rigorous, potentially violating ERISA's standards of fiduciary care and loyalty in their exercise of plans' shareholder rights. Both of these concerns point to the risk that a plan's proxy voting activity will sometimes impair rather than advance participants' economic interest in their benefits. This proposed rule aims to ensure that the costs plans incur to vote proxies and exercise other shareholder rights are economically justified, and that responsible fiduciaries' use of third-party advice supports rather than jeopardizes their adherence to ERISA's fiduciary requirements.

Small plans may be especially likely to rely on third-party service providers, such as asset managers, to act as responsible fiduciaries or otherwise assist with the exercise of plans' shareholder rights. Many small plan sponsors are likely to lack the expertise to perform this function themselves. Small plans additionally stand to benefit most from the economies of scale that specialized service providers, such as asset managers and proxy advisory firms, can provide. Consequently, small plans may be especially vulnerable to any deficiencies in the services such entities provide, and to costs incurred to select and monitor service providers so as to minimize such deficiencies.

The proposal would affect ERISA-covered pension, health, and welfare plans that hold stock either through common stock or employer securities. This includes plans that indirectly hold stocks through Direct Filing Entities (DFE) such as common trusts, master trusts, pooled separate accounts, and 103-12 investment entities. Plans that only hold their assets in registered investment companies, such as mutual funds, will be unaffected by the proposed rule.

There is minimal data available about small plans' stock holdings. The primary source of information on assets held by pension plans is the Form 5500. Schedule H, which reports data on stock holdings, is filed almost exclusively by large plans. While the majority of participants and assets are in large plans, most plans are small plans (plans with fewer than 100 participants). It is likely that many small defined benefit plans hold stock. Many small defined contribution plans hold stock only through mutual funds, and consequently would not be affected by this proposal. In 2017, there were 39,000 small defined benefit plans and 580,000 small defined contribution plans. The Department lacks information on the number of small plans that hold stock; however, believes small plans are significantly less likely to hold stock than larger plans. For purposes of estimating the burden, five percent of small plans are presumed to hold stock resulting in approximately 30,950 small plans needing to comply with the proposed regulation.

Small service providers like asset managers could also be impacted by this rule. To the extent that service providers, and not plans, are the ones that primarily vote proxies, as discussed in section 3.3, below, they would incur costs, which they would likely pass on to their plan clients. An approach discussed in the alternative section suggests that 1,988 service providers could be providing services to plans. According to data from the 2012 Economic Census, 97 percent of firms reporting an NAICS code for portfolio management meet the SBA's definition of a small business. Accordingly, the Department estimates that approximately 1,930 small service providers would be affected by the proposed regulation. Thus, together with the approximately 30,950 small plans described above that we estimate would need to comply with the proposed regulation, overall, the Department estimates that approximately 32,880 small entities would be affected. The Department requests comments on the number of small entities the rule will affect.

This proposed rule would benefit small plans, by providing guidance regarding how ERISA's fiduciary duties apply to proxy voting and the monitoring of proxy advisory firms, and in particular when fiduciaries should refrain from voting. Plan fiduciaries would be able to better conserve plan assets by having clear direction to refrain from researching and voting on proposals that they prudently determine have no economic impact on the plan. The proposal also would benefit plans by improving the frequency with which voting resources are expended on matters that have an economic impact on the plan. Cost savings and other benefits to small plans would flow to plan participants and beneficiaries in the form of more secure retirement income.

As discussed under the Cost section above, while the Department assumes that small affected entities would spend some time familiarizing themselves with the rule, it expects that these familiarization costs would be minimal, because the activities that would be required by the proposed rule are reflected in common practice. The Department estimates it would take an hour for an in-house attorney to review the rule, at an hourly labor cost of $138.41. The Department requests comments or data to inform the Department's estimate of the costs associated with familiarization.

Fiduciaries of plans must ensure that all investments are prudently monitored. The proposed rule provides that fiduciaries responsible for the exercise of shareholder rights must maintain records in order to demonstrate compliance with ERISA's fiduciary provisions. The Department assumes that, because the documentation of fiduciary decision-making is a common practice, responsible fiduciaries are likely already recording and maintaining documentation related to their own and investment managers' actions, including their exercise of shareholder rights.

For plans that are not currently in full compliance, the rule will have a small impact to maintain records or document decisions related to voting proxies or exercising other shareholder rights. Much of the information required to comply with this requirement is generated by affected entities in the normal course of business; however, additional time may be required to maintain the proper documentation. The Department estimates that compliance with this proposed regulation would require 30 minutes of a plan fiduciary's time and 30 minutes of a clerical worker's time. The Department assumes an hourly rate of $134.21 for a plan fiduciary and an hourly rate of $55.14 for a clerical worker, resulting in an estimated per-entity annual cost of $94.68. 118 Under these assumptions, the Department believes that these requirements will not significantly increase costs for small plans. For service providers, the Department developed a model that illustrates the impact of the proposed rule by assuming that service providers, like asset managers, provide the required research and documentation that would be required to vote by proxy. The model is included for illustrative purposes as some of the assumption used are speculative. The following analysis should be viewed with the understanding of the high degree of uncertainty and the assumptions used. The model's costs estimates suggest an average cost per service provider of approximately $50,400 (for more information on the assumptions, see the Uncertainty section in the regulatory impact analysis). The Department does not have data on how the number of proxy votes a service provider would need to prepare differs by service provider size. Based on data supplied by SBA from the 2012 Census, the Department estimates that the estimated average cost of $50,400 would account for 0.8 percent of average annual revenue for all service providers. 119 Considering fixed costs and economies of scale, the costs of complying with the proposed regulation would likely account for a higher proportion of revenue for small service providers. If it were assumed that the costs of complying with the proposed regulation would be the same, regardless of firm size, the Department assumes it would account for 4.1 percent of revenues on average for small entities. 120 The estimated proportions of costs are broken down by firm size for small firms in the Revenue Test column in the table below.

These estimates likely overestimate the costs for small service providers. The cost estimate assumes that these service providers are researching and documenting proxy votes for over 8,000 stocks. While the Department does not have data on how the number of proxy votes prepared by service providers would vary by firm size, the Department believes that small entities are less likely to oversee investments over the investment universe considered here. Accordingly, the Department assumes smaller entities would need to research and document fewer proxy votes, resulting in reduced demand on time resources and overall lower cost.

Additionally, the data presented in the table below considers all firms for the respective industries. A majority of firms in these industries will not be providing services that are affected by these proposed rules. The table illustrates the impact on affected firms and the dispersion of firms by revenue. For example, the Department believes that the smallest firms are not likely to be providing proxy-voting services to ERISA plans. Therefore, the Department believes that what appears to be the most serious cost impact for firms with less than $100,000 in receipts would not occur.

The Department believes it is reasonable to assume that costs for small entities account for between 0.8 percent and 4.1 percent of revenues. A weighted average of these two approaches by firm size, results in an estimate that costs account for an average of 2.4 percent of revenues for small entities. The estimated proportions of costs are broken down by firm size for small firms in the Adjusted Revenue Test column in the table below. The Department requests comments on the model and its assumptions, particularly with regard to business size.

It is likely that service providers will pass most, if not all, of these costs onto their clients, which is estimated to be about $1,500 per plan holding stock. This initial regulatory flexibility analysis (IRFA) only considers the incremental cost the proposed regulation would impose on small entities. It, however, does not take into account the cost savings small entities would realize from the proposed regulation's permitted practices. As discussed in Appendix A, below, the Department intends that the permitted practices will impact a large share of all proxy votes, and the burden associated with these votes when using the permitted practices will likely be very low. Therefore, taking the permitted practices into account, the net burden on small entities would be smaller than the Department illustrates in the table above, and in some cases, small entities could even realize cost savings.

As discussed above, the Department's longstanding position is that the fiduciary duties of prudence and loyalty under ERISA sections 404(a)(1)(A) and 404(a)(1)(B) apply to the exercise of shareholder rights, including proxy voting, proxy voting policies and guidelines, and the selection and monitoring of proxy advisory firms. These duties apply to all affected entities—large and small.

The Department carefully considered the proposed rule's impact on small entities in deliberating alternatives for the proposal. For example, the Department considered a purely principles-based approach that would not have included the permitted practices in paragraph (e)(3)(iii) of the proposal. However, the Department was concerned that small entities would not sufficiently benefit for this approach. The Department believes that clearly articulating examples of permitted proxy voting policies would be helpful to small plan fiduciaries and ultimately beneficial to small plan participants and beneficiaries because it will reduce the frequency with which voting resources are expended on matters that do not have an economic impact on small plans compared to a purely principles-based approach paired with the permitted practices. The Department thus concluded that a purely principles-based approach would not have preserved plan assets or enhanced the retirement income security of participants and beneficiaries of small plans as much as the Department's chosen alternative.

Moreover, a purely principles-based approach could result in a responsible fiduciary, having to determine whether to vote each individual proxy proposal. This determination process could consume significant plan resources, even where the potential economic benefit to the plan is small or difficult to determine. A responsible fiduciary might arrive at his or her own policies for simply not voting, or voting in a specific manner on certain types of proposals, based on the plan's limited exposure to a stock or the economic immateriality of the matter being voted upon. However, under a principles-based approach fiduciaries would likely be cautious about adopting such policies, and might believe it prudent to be able to demonstrate in each case why a decision was made not to vote, and therefore err on the side of devoting excessive resources to voting decisions. By creating such uncertainty and caution in adopting such policies, this result would provide limited benefits on small entities and lead to unnecessary expenditure of plan assets. The Department invites comments on the impact of the inclusion of permitted practices on small entities and their usefulness in aiding a small plan fiduciary's determination of whether to vote.

The Department also considered including a specific numeric cap for the materiality permitted practice in paragraph (e)(3)(iii)(C), but opted not to do so until it has the opportunity to review the comments solicited earlier in this preamble on this question. The Department similarly invites comments regarding the impact on those issues on small entities for purposes of this IRFA. The Department also invites comments generally on its choice of permitted practices, including whether any should not be retained and whether any other practices should be added or additional alternatives considered to address specific circumstances affecting small entities.

The proposed rule would not conflict with any relevant federal rules. As discussed above, the proposal would merely clarify the application of ERISA's fiduciary duties to conform to significant changes in shareholder voting practices. The Department is monitoring other federal agencies whose statutory and regulatory requirements overlap with ERISA. In particular, the Department is monitoring SEC rules and guidance to avoid creating duplicate or overlapping requirements with respect to proxy voting.

Title II of the Unfunded Mandates Reform Act of 1995  121 requires each Federal agency to prepare a written statement assessing the effects of any federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (adjusted annually for inflation with the base year 1995) in any one year by state, local, and tribal governments, in the aggregate, or by the private sector. For purposes of the Unfunded Mandates Reform Act, as well as Executive Order 12875, this proposal would not include any federal mandate that the Department expects would result in such expenditures by state, local, or tribal governments, or the private sector. This proposed rule would not result in an expenditure of $100 million or more in any one year, because the Department is simply restating and modernizing fiduciary practices related to voting rights and aligning its regulations to the extent possible with guidance issued by the SEC.

Executive Order 13132 outlines fundamental principles of federalism and requires Federal agencies to adhere to specific criteria when formulating and implementing policies that have “substantial direct effects” on the states, the relationship between the National Government and states, or on the distribution of power and responsibilities among the various levels of government. Federal agencies promulgating regulations that have federalism implications must consult with state and local officials and describe the extent of their consultation and the nature of the concerns of state and local officials in the preamble to the rule.

In the Department's view, these proposed regulations do not have federalism implications because they do not have direct effects on the states, the relationship between the National Government and the states, or the distribution of power and responsibilities among various levels of government. The proposed regulations describe requirements and permitted practices related to the exercise of shareholder rights under ERISA. While ERISA generally preempts state laws that relate to ERISA plans, and preemption typically requires an examination of the individual law involved, it appears highly unlikely that the provisions in this proposed regulation would have preemptive effect on general state corporate laws. The Department welcomes input from affected states regarding this assessment.

In light of the uncertainty regarding the proxy voting activities of ERISA plans, and the attendant costs and benefits of this proposal, the Department is presenting an illustration below of an analytical approach to evaluating the possible impacts of this NPRM. This is part of the Department's solicitation of comments on an appropriate methodology and assumptions for evaluating the costs and savings that could result from the rule. The analytical model assumes that proxies are primarily voted by asset managers or other service providers. The Department also assumes that the proposed rule may require some plans or service providers to expend more effort researching whether a proxy vote will have a relevant economic impact on the plan and how the plan should vote in cases in which the proposal has such an economic impact. Service providers, plans, or both, may also need to provide more documentation of their decisions than they already produce. Additionally, plans may take advantage of the permitted practices described in the proposal that allow them to conserve plan assets, because they may not need to conduct as extensive an amount of research or expend as much time on documenting decisions. The analysis used in the illustration is based on a number of assumptions and estimates. Some of those assumptions and estimates are based on available data, but the Department does not have supporting data for some key assumptions and estimates. Specifically, the model portrays the following as described below and shown in tables 2-4 which are also found below.

An estimated 1,988 service providers may be impacted by the rule's requirements, shown in column A. This estimate is obtained by looking at the number of clients of three of the largest proxy advisory firms. 122 While service providers that are affected by this rule may not use the services of these proxy advisory firms, it is also likely that not all of these firms provide services to ERISA-covered plans.

To obtain the number of proxy votes that need to be evaluated, the estimate of the number of domestic stock (4,684) was obtained by looking at the number of shareholder meetings held, and  123 the estimate for the number of foreign stock (3,336) was obtained by the number of stock in a foreign stock index. 124 These estimates were used to arrive at an estimate of 8,020 total stocks voted annually. Each stock can have multiple related proxy votes. Therefore, the Department estimates that there are 9.3 votes per stock. 125 These assumptions lead to an estimate of 148,276,968 proxy votes that could be impacted by this rule as shown in column C of Table 2. 126

As discussed previously, some stocks may fall within the permitted practice provisions of the rule. The illustration assumes that proposals that are within the permitted practices would be less burdensome to research and document even if the permitted practices provisions did not exist. The Department estimates that 5.6 percent of all proxy votes will fall outside the permitted practices; therefore, they still would be required to be researched, voted, and documented under the proposal. 127 The following assumptions were made to estimate the burden of such researching, voting, and fulfilling documentation requirements. For votes falling within the permitted practices, on average the Department estimates that 30 minutes would be needed for responsible plan fiduciaries to conduct research and 10 minutes would be required to document each vote. For votes falling outside the permitted practices, the Department estimates that on average two hours would be needed for responsible plan fiduciaries to conduct research and 20 minutes would be required to document each vote. Using these assumptions, and other assumptions about the proposal's impact discussed below, the Department estimated the total hours required for responsible plan fiduciaries to research and document proxy votes.

The costs of the research and documentation requirements were calculated by multiplying the total research hours by a labor rate of $116.96 and the total documentation hours by a labor rate of $110.39. 128 Column H shows the total costs of the rule for increases in research and documenting costs, but excludes cost savings that could occur if the permitted practices are used. The cost savings from the permitted practices are discussed later. It should be noted that although the Department calculated costs in column H, most of these costs will not be realized, because plans will use the permitted practices to avoid incurring them.

As discussed elsewhere in this preamble, while the Department believes that the common practices of most plans related to proxy voting are generally consistent with the standards in the proposal, we do not know with any level of precision the percent of plans that are not currently meeting such standards. For purposes of illustrating possible impacts of this rule, the Department assumes that five percent of total research costs will be new as some responsible plan fiduciaries will improve their research conducted to determine whether they should or should not vote proxies and then how to vote. The Department modeled one percent of the total research costs as new, because some responsible plan fiduciaries will need to increase the quality of their documentation for some affected votes. The hours shown in columns D and E reflect that only some of the votes will necessitate new burden. To illustrate, the 3,499,336 hours in the first row of column D is obtained by the following: 1,988 service providers * 8,020 stocks * 9.3 proxy votes per stock * (1-0.056 for share of votes effected by permitted practices) * 0.5 hours of new research * 5 percent increase in research costs. 129

An illustration of potential cost savings that could be derived from responsible plan fiduciaries using the permitted practices was arrived at using the same model. As depicted in table 3, responsible plan fiduciaries do not have to vote proxies that fall within the permitted practices, which could save at least some of the costs associated with research and documentation. Columns A, B, and C of table 3 are obtained in the same manner as columns A, B, and C of table 2. Columns D and E are obtained in the same manner as in table 2 except replacing the assumption that five percent of the costs are new with an assumption about the number of proxy votes that will not be voted due to the permitted practices. For this illustration, the Department assumed that 10 percent of the proxy votes will not be voted and responsible plan fiduciaries will not incur research and documentation costs. Instead of thinking about this as a reduction in actual votes, it can also be viewed as a 10 percent reduction in costs if votes are still cast pursuant to the permitted practices that allow voting but reduce burden, such as paragraph (e)(3)(iii)(A) of the proposal, which would allow fiduciaries to adopt vote proxies in accordance with the voting recommendations of corporate management. The Department intends that the permitted practices will impact a large share of all proxy votes and the burden associated with these votes when using the permitted practices will likely be very low. Column H of table 3 is an illustration of the potential cost reduction from the use of the permitted practices.

This regulation is proposed pursuant to the authority in section 505 of ERISA (Pub. L. 93-406, 88 Stat. 894; 29 U.S.C. 1135) and section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978), effective December 31, 1978 (44 FR 1065, January 3, 1979), 3 CFR 1978 Comp. 332, and under Secretary of Labor's Order No. 1-2011, 77 FR 1088 (Jan. 9, 2012).

For the reasons set forth in the preamble, the Department is proposing to amend parts 2509 and 2550 of subchapters A and F of chapter XXV of title 29 of the Code of Federal Regulations as follows: