an organization may delegate a task to another organization, it may not
delegate its responsibility for ensuring that the task is accomplished.
    135. According to Ontario IESO, the Commission's proposal is
inconsistent with the NERC Functional Model, which envisions one
responsible entity for each reliability function. In contrast, the
Commission's proposal would split the same function between different
organizations such as an ISO and a local control center. PJM claims
that, under the Functional Model, single entity registration is a
foundational cornerstone for ensuring clear responsibility and
accountability for compliance with Reliability Standards.
    136. Ontario IESO asserts that the Commission's proposal is also
problematic because in the event of a violation it will be difficult to
determine who violated the Reliability Standard--the entity making the
decision or the entity implementing the decision. Ontario IESO argues
that, although the NERC Functional Model is not foolproof, it avoids
complications by distinguishing between responsibility and performance.
The ISO is the responsible entity and it delegates some of its tasks to
local control centers, but retains the overall responsibility.
    137. According to Ontario IESO, NERC has recognized that, although

organizations such as local control centers play an important role in
reliability, they are not responsible entities. Therefore, NERC has
made such organizations subject to compliance audits and placed other
requirements on them. In addition, NERC intends that the regional
reliability plans will document the relationships between the local
control centers and the entity that delegates its responsibility to
such centers. The current framework has a mechanism for accommodating
reliability considerations for organizations such as local control
centers. In this regard, NERC's ongoing formal certification of
reliability coordinator, balancing authority and transmission provider
will be useful in determining any delegation of tasks to local control
centers that must take place for a clear demarcation of
responsibilities. Ontario IESO advises that, since NERC has not
finished this task, the Commission should defer its decision in this
regard.
    138. ISO/RTO Council states that the Commission should not use the
term ``local control center'' because it will cause confusion. The NERC
Functional Model does not define the term and it means different things
in different regions. For example, in MISO, which consists of 25
balancing areas, ``local control center'' is an equivalent term for
balancing area although this was probably not the Commission's intent
in the NOPR. Therefore, ISO/RTO Council argues that the Reliability
Standards should be limited to defining the tasks in the context of
users, owners and operators of the Bulk-Power System; any delegation of
responsibilities to a local control center or any other organization
should take place in the context of ISO/RTO governing documents,
operating agreements, tariffs and other arrangements with transmission
owners and related stakeholders. This approach, according to ISO/RTO
Council will address the Commission's concerns with respect to local
control centers without preempting possible regional solutions.
    139. FirstEnergy believes that, while independent authority to
operate the transmission system should be self-evident, in RTO
environments with local control centers, the tasks performed by each
entity do not encompass the entirety of tasks performed by the
transmission operator under the Functional Model. It suggests that NERC
should revise the Functional Model to create certification and
registration requirements for local control authorities within RTOs
that perform real-time operations of the transmission system.
FirstEnergy states that a revised NERC Functional Model should
recognize local control centers that take some direction from RTOs yet
maintain authority to act independently to carry-out functional tasks
that require real-time operation of the system. According to
FirstEnergy, the required registration and certification of such
entities would clearly indicate the need for operational personnel in
these control rooms to be NERC-certified. It concludes that at a
minimum, a NERC certification for the tasks performed by such local
control center individuals would be an enhancement over the current
situation.
    140. ISO-NE argues that the Commission should not mandate that the
tasks performed by local control centers be included in the definition
of transmission operator because to do so would be to suggest that a
local control center has independent autonomy in operating the Bulk
Power System which would conflict with the ``one set of hands on the
wheel'' philosophy. It explains that local control center personnel in
New England implement tasks delegated to them by ISO-NE for operation
of designated transmission facilities. Therefore, ISO-NE submits, the
scope of the Reliability Standard need not be expanded.
ii. Commission Determination
    141. In response to the many concerns of commenters, the Commission
clarifies that it did not intend to change existing contracts, impose
new organizational structures or otherwise affect existing agreements
that set forth the responsibilities of various entities. Rather, its
intent was to allow enough granularity in the definitions so that the
appropriate user, owner or operator of the Bulk-Power System would be
identified for each Reliability Standard. We agree also with MISO's
statement that nothing in the Functional Model requires one entity to
be responsible for all of the tasks within a function, regardless of
who actually performs the task.
    142. The Commission's concern is that, particularly in the ISO, RTO
and pooled resource context, there should be neither unintended
redundancy nor gaps for responsibilities within a function. In
particular, the Commission is concerned that such ``gaps'' could occur
in the context of several Reliability Standards addressing matters
related to activities other than directing or implementing real-time
operations.\74\ For example, the involvement of a transmission operator
at an ISO or RTO with respect to the requirements related to
telecommunications facilities (COM-001-1) from the local control room
and blackstart restoration plans (EOP-005-0) may be minimal. Because
the operators at local control centers actually perform all or most of
the tasks contemplated under various Reliability Standards, we are
concerned that there may be unintended gaps in such responsibilities if
the existing contracts between the ISO or RTO and owners of the
facilities do not address such responsibilities.
---------------------------------------------------------------------------

    \74\ See, e.g., CIP-001--Sabotage Reporting; COM-001--
Telecommunications; EOP-003--Load Shedding Plans; EOP-004--
Disturbance Reporting; EOP-005--System Restoration Plans; EOP-008--
Plans for Loss of Control Center Functionality; PRC-001--System
Protection Coordination; PRC-007--Assessing Consistency with Entity
Underfrequency Load Shedding Programs with Regional Reliability
Organizations UFLS Program Requirements; PRC-009--Analysis and
Documentation of Underfrequency Load Shedding Performance Following
an Underfrequency Event; PRC-010--Technical Assessment of the Design
and Effectiveness of Undervoltage Load Shedding Program; PRC-022--
UFLS Program Performance; and TOP-006--Monitoring System Conditions.
---------------------------------------------------------------------------

    143. In response to MISO, we did not intend to be prescriptive in
assigning tasks to specific entities. The intent was to allow
flexibility in identifying the actual user, owner or operator of the
Bulk-Power System that would be responsible for complying with the
Requirements in the Reliability Standards. One approach could be that
the RTO, ISO or other pooled resource registers as the transmission
operator pursuant to the NERC compliance registry process and, while
retaining ultimate responsibility, assigns specific tasks to be
performed by what are sometimes known as local control centers or other
relevant organizations. Alternatively, the local control center
operators could register together with the RTO, ISO or pooled resources
as transmission operators clearly delineating their specific
responsibilities with regard to the Requirements of particular
Reliability Standards. Such joint registration must assure that there
is no overlap between the decisionmaking and implementation functions,
i.e., that there are not two sets of hands on the wheel. Again, our
intent is to ensure that there is neither redundancy nor gap in
responsibility for compliance with the Requirements of a Reliability
Standard, while allowing entities flexibility to determine how best to
accomplish this goal.
    144. Consistent with our above explanation, we agree with NPCC that
there is a difference between being assigned to perform a task and
being responsible for completing the task. The organization that
registers with NERC to perform a function will be the

responsible entity and, while it may delegate the performance of that
task to another, it may not delegate its responsibility for ensuring
the task is completed.
    145. Accordingly, the Commission directs that the ERO, in
registering RTOs, ISOs and pooled resource organizations (or, indeed in
registering any entity), assure that there is clarity in the assigning
responsibility and that there are no gaps or unnecessary redundancies
with regard to the entity or entities responsible for compliance with
the Requirements of each relevant Reliability Standard. Accordingly,
although the Commission is not requiring NERC to amend the Functional
Model, we believe our concerns can be addressed by having the ERO,
through its compliance registry process, ensure that each user, owner
and operator of the Bulk-Power System is registered for each
Requirement in the Reliability Standards that relate to transmission
owners to assure there are no gaps in coverage of the type discussed
here.
5. Regional Reliability Organizations
    146. The NOPR stated that 28 proposed Reliability Standards would
apply, in whole or in part, to a regional reliability organization.\75\
Further, many of the proposed Reliability Standards that have
compliance measures refer to the regional reliability organization as a
compliance monitor. The Commission stated in the NOPR that it was not
persuaded that a regional reliability organization's compliance with a
Reliability Standard can be enforced as proposed by NERC because it
does not appear that a regional reliability organization is a user,
owner or operator of the Bulk-Power System.
---------------------------------------------------------------------------

    \75\ NOPR at P 54.
---------------------------------------------------------------------------

    147. The Commission proposed to approve and direct modification of
five Reliability Standards that apply partially to regional reliability
organizations. For the other Reliability Standards that apply to
regional reliability organizations, the Commission proposed, as an
interim measure, to direct the ERO to use its authority pursuant to
Sec.  39.2(d) of our regulations to require users, owners and operators
to provide to the regional reliability organizations information
related to data gathering, data maintenance, reliability assessments
and other process-type functions. The NOPR explained that this approach
is necessary to ensure that there will be no gap during the transition
from the current voluntary system to a mandatory system in which
Reliability Standards are enforced by the ERO and Regional Entities.
The NOPR proposed that, in the long run, Regional Entities should be
made responsible, through delegation from the ERO, for the functions
currently performed by the regional reliability organizations. To
implement this, the Commission proposed the modification of delegation
agreements to require the Regional Entities to assume responsibility
for noncompliance. In addition, the Commission proposed that the
Reliability Standards should be modified to apply to the users, owners
and operators of the Bulk-Power System that are responsible for
providing information. The Commission proposed to require that any
Reliability Standard that references a regional reliability
organization as a compliance monitor be modified to refer to the ERO as
the compliance monitor.
    148. The Commission stated that, while it is important that the
existing regional reliability organizations continue to fulfill their
current roles during the transition to a regime where Reliability
Standards are mandatory and enforceable, the Commission does not
understand why, once the transition is complete, a regional reliability
organization should play a role separate from a Regional Entity whose
function and responsibility is explicitly recognized by section 215 of
the FPA. The Commission sought comment on whether there is any need to
maintain separate roles for regional reliability organizations with
regard to establishing and enforcing Reliability Standards under
section 215.
a. Comments
    149. NERC believes it can remove references to regional reliability
organizations and Regional Entities from the Reliability Standards,
with the exception of retaining the Regional Entities as the compliance
enforcement authorities. However, NERC and California PUC request that
the Commission reconsider its proposal to direct that the ERO be listed
as the compliance monitor in each Reliability Standard. California PUC
states that naming NERC as the compliance monitor deprives the Regional
Entities of their enforcement role under section 215. NERC believes it
will be clearer, and consistent with the delegation agreements, to
designate the Regional Entity as the compliance monitor in almost all
Reliability Standards. According to NERC, this would also be helpful to
distinguish those few Reliability Standards that are monitored directly
by NERC.
    150. ReliabilityFirst, TANC and SoCal Edison agree with the
Commission that regional reliability organizations and Regional
Entities cannot be users, owners or operators of the Bulk-Power System
and should not be subject to compliance with Reliability Standards.
TANC states that Reliability Standards that reference a regional
reliability organization need to be revised to reference a user, owner
or operator of the Bulk-Power System in order to comply with the
statute.
    151. EEI agrees with the Commission's proposal to direct the ERO to
require users, owners and operators to provide the information related
to data gathering, data maintenance, reliability assessments and other
process-type functions that previously have applied to regional
reliability organizations. EEI also agrees that, in the long run, it is
appropriate to make the Regional Entities responsible through
delegation from the ERO for various functions now performed by regional
reliability organizations. In doing so, and during the transition in
particular, EEI maintains that it is important that functions now
performed by the regional councils, such as planning, be continued.
    152. A number of commenters discuss the possible ongoing role for a
regional reliability organization. For example, Ontario IESO, NPCC and
National Grid state that the Commission should recognize that the
regional reliability organizations will continue to play a role in
areas including developing regional reliability plans and adequacy
requirements that are outside the jurisdiction of the ERO. NPCC states
that enforcement of adequacy requirements should continue to reside
with the regional reliability organization. National Grid states that
the role of regional reliability organizations can be preserved in a
variety of ways, including requiring obligations currently imposed upon
regional reliability organizations to be included in the regional
delegation agreements.
    153. NPCC further maintains that regional reliability organizations
should continue to function as regional sites for technical expertise
for enhanced reliability requirements through adopting regionally-
specific criteria. According to NPCC, eliminating the ability for
regions to develop and propose new criteria that enhance system
reliability would edge the system closer towards the lowest common
denominator rather than striving towards operational excellence.
Further, Ontario IESO and NPCC state that regional reliability
organizations

should be allowed to perform certain functions for their members, such
as system operator workshops, forums for coordination of operations and
planning and operational readiness conference calls.
    154. Massachusetts DTE comments that a regional reliability
organization should be allowed to propose a Reliability Standard that
may exceed or enhance the proposed mandatory Reliability Standards to
ensure regional reliability. It further states that any regional
reliability criteria proposed by a regional reliability organization
should be vetted through a regional stakeholder process and then
specifically adopted by the appropriate state regulatory authorities.
    155. Although MRO does not oppose regional reliability
organizations, with regard to establishing and enforcing mandatory
Reliability Standards, MRO, Constellation and Xcel state that there is
no need to maintain a separate role for regional reliability
organizations. Because Regional Entities may perform non-reliability
functions, Constellation states that maintaining regional reliability
organizations will result in unnecessary cost. While Constellation has
no objection to the Regional Entities performing non-statutory
functions, it states that the Commission should not allow Regional
Entities to impose Reliability Standards developed by the regional
reliability organizations as mandatory Reliability Standards.
    156. MidAmerican believes that it will be important to separate the
compliance functions of the Regional Entities from non-compliance
functions currently assigned to the regional reliability organizations.
It states that this can be done by: (1) Separating these functions
internally in the Regional Entities; (2) separating these functions in
different organizations; or (3) separating these functions by assigning
non-compliance related functions currently assigned to the regional
reliability organizations to other users, owners and operators. This
will minimize conflicts between the Regional Entity core compliance
function and the non-compliance regional reliability organization
requirements.
b. Commission Determination
    157. The Commission adopts the NOPR proposal to eliminate
references to the regional reliability organization as a responsible
entity in the Reliability Standards. We conclude that this approach is
appropriate because, as explained in the NOPR, such entities are not
users, owners or operators of the Bulk-Power System. NERC indicates
that it can remove such references, except that the Regional Entity
should be identified as the compliance monitor where appropriate. While
the Commission originally proposed that the ERO should be designated as
the compliance monitor, we agree with NERC's approach and believe that
identifying the Regional Entity as the compliance monitor will provide
useful specificity as to which entity will be immediately tasked with
monitoring compliance with a particular Reliability Standard. However,
as we stated in Order No. 672, the ERO retains responsibility to ensure
that a Regional Entity implements its enforcement program in a
consistent manner, and to periodically review the Regional Entity's
enforcement activities.\76\
---------------------------------------------------------------------------

    \76\ Order No. 672 at P 654.
---------------------------------------------------------------------------

    158. For those Reliability Standards that identify the regional
reliability organization as the sole applicable entity, and that relate
to data gathering, data maintenance, reliability assessments and other
process-type functions,\77\ the NOPR proposed:
---------------------------------------------------------------------------

    \77\ EOP-007, MOD-011, MOD-013, MOD-014, MOD-015, MOD-024, MOD-
025, PRC-002, PRC-003, PRC-006, PRC-012, PRC-013, PRC-014, PRC-020,
TPL-005 and TPL-006.

    as an interim measure * * * to direct the ERO to use its
authority pursuant to Sec.  39.2(d) of our regulations to require
users, owners and operators to provide to the regional reliability
organizations the information related to data gathering, data
maintenance, reliability assessments and other ``process''-type
functions. We believe that this approach is necessary to ensure that
there will be no ``gap'' during the transition from the current
voluntary reliability model to a mandatory system in which
Reliability Standards are enforced by the ERO and Regional Entities.
In the long run, we propose to make the Regional Entities
responsible, through delegation by the ERO, for the functions
currently performed by the regional reliability organizations. As
part of this change, the delegation agreements to the Regional
Entities should be modified to bind the Regional Entities to assume
these duties and responsibility for noncompliance. In addition, the
Reliability Standards should be modified to apply through the
Functional Model, to the users, owners and operators of the Bulk-
Power System that are responsible for providing information.\78\
---------------------------------------------------------------------------

    \78\ NOPR at P 57 (footnotes omitted).

    159. We continue to believe that this is a reasonable interim
measure, and note that EEI and others support this approach. To ensure
that the ERO properly and timely addresses this matter, we direct the
ERO to submit an informational filing within 90 days of the Final Rule
that describes its plan and schedule for developing both an interim and
long-term resolution based upon the above direction.
    160. In response to the Commission's inquiry in the NOPR,
commenters identify a number of possible continuing roles for regional
reliability organizations. Such activities are beyond the scope of this
proceeding. Clearly, any such role must be limited to non-statutory
functions. Some commenters suggest that regional reliability
organizations may have a role in developing voluntary criteria.
Regional reliability organizations should not develop voluntary
criteria that address the same or similar matters as mandatory and
enforceable Reliability Standards, because that is the responsibility
of the Regional Entities.\79\
---------------------------------------------------------------------------

    \79\ See ERO Certification Order at P 281.
---------------------------------------------------------------------------

D. Mandatory Reliability Standards

1. Legal Standard for Approval of Reliability Standards
    161. The NOPR explained that section 215(d)(2) of the FPA states
that the Commission may approve a Reliability Standard if it determines
that it is just, reasonable, not unduly discriminatory or preferential
and in the public interest. Further, Order No. 672 laid out a series of
factors it would consider when assessing whether to approve or remand a
Reliability Standard.\80\
---------------------------------------------------------------------------

    \80\ Order No. 672 at P 262, 321-37.
---------------------------------------------------------------------------

    162. In response to NERC's suggestion that a proposed Reliability
Standard developed through its open and inclusive process is assured to
be ``just, reasonable, and not unduly discriminatory or preferential,''
the NOPR explained that:

    While an open and transparent process certainly is extremely
important to the overall success of implementing section 215 of the
FPA, an evaluation of any proposed Reliability Standard must focus
primarily on matters of substance rather than procedure. We will,
therefore, review each Reliability Standard in addition to the
process through which it was approved by NERC to ensure that the
Reliability Standard is just, reasonable, not unduly discriminatory
or preferential, and in the public interest.\81\
---------------------------------------------------------------------------

    \81\ NOPR at P 74.

    163. Further, with regard to NERC's ``benchmarks'' for evaluating a
proposed Reliability Standard,\82\ the Commission explained that it
would not be constrained by such benchmarks in approving or remanding a
proposed Reliability Standard. Rather, Order No. 672 identified factors
that the Commission will consider when determining whether a proposed

Reliability Standard satisfies the statutory requirements.
---------------------------------------------------------------------------

    \82\ Id. at P 9-12. The benchmarks are: applicability, purpose,
performance requirements, measurability, technical basis in
engineering and operations, completeness, consequences for
noncompliance, clear language, practicality, and consistent
terminology.
---------------------------------------------------------------------------

a. Comments
    164. NERC states that 83 of the Reliability Standards are ``just,
reasonable, not unduly discriminatory or preferential, and in the
public interest,'' and should therefore be approved and made effective
as mandatory Reliability Standards. NERC believes that, by following
NERC's Reliability Standards development process, a Reliability
Standard should meet the requirement that a standard be ``just,
reasonable, not unduly discriminatory or preferential.'' Further, NERC
asserts that, by filing with the Commission the written record of
development for each Reliability Standard, NERC has given the
Commission strong evidence that those 83 Reliability Standards are
just, reasonable, and not unduly discriminatory or preferential.
    165. NERC states that the requirement that a Reliability Standard
be ``in the public interest'' provides the Commission with broad
discretion to review and approve a Reliability Standard. According to
NERC, implicit in the ``public interest'' test is that a Reliability
Standard is technically sound and ensures an adequate level of
reliability, and that the Reliability Standards provides a
comprehensive and complete set of technically sound requirements that
establish an acceptable threshold of performance necessary to ensure
reliability of the Bulk-Power System. NERC states that it believes that
approving those 83 Reliability Standards as enforceable as NERC begins
operating as the ERO meets this objective and will achieve an adequate
level of reliability as required by law. NERC asserts that adopting
fewer of the Reliability Standards would both create potential
reliability risks and communicate that some aspects of reliability are
not viewed as important enough to be the subject of mandatory and
enforceable Reliability Standards under the FPA.
    166. FirstEnergy states that each proposed standard should be
reviewed against the following criteria: (1) Clarity; (2) technical
means to comply; (3) practicability; (4) consistency and (5) costs.
b. Commission Determination
    167. The Commission agrees with NERC that an open and transparent
process is important in implementing section 215 of the FPA and
developing proposed mandatory Reliability Standards. However, in Order
No. 672, the Commission rejected the presumption that a proposed
Reliability Standard developed through an ANSI-certified process
automatically satisfies the statutory standard of review.\83\ The
Commission reiterates that simply because a proposed Reliability
Standard has been developed through an adequate process does not mean
that it is adequate as a substantive matter in protecting reliability.
We will, therefore, review each Reliability Standard to ensure that the
Reliability Standard is just, reasonable, not unduly discriminatory or
preferential, and in the public interest, giving due weight to the ERO.
---------------------------------------------------------------------------

    \83\ Order No. 672 at P 338.
---------------------------------------------------------------------------

    168. In response to FirstEnergy, the Commission has already laid
out the factors against which to review a Reliability Standard, as well
as other considerations.\84\ The Commission has no need to revisit this
issue.
---------------------------------------------------------------------------

    \84\ Id. at P 262, 321-37. (A proposed Reliability Standard
must: (1) Provide for the Reliable Operation of Bulk-Power System
facilities; (2) be designed to achieve a specified reliability goal
and must contain a technically sound means to achieve this goal; (3)
be clear and unambiguous regarding what is required and who is
required to comply; (4) clearly state the possible consequences for
violating the proposed Reliability Standard; (5) include a clear
criterion or measure of whether an entity is in compliance with a
proposed Reliability Standard; (6) achieve its reliability goal
effectively and efficiently; (7) not reflect the ``lowest common
denominator.'')
---------------------------------------------------------------------------

2. Commission Options When Acting on a Reliability Standard
    169. In the NOPR, the Commission proposed that, for this
rulemaking, it would take one of four actions with regard to each
proposed Reliability Standard: (1) Approve; (2) approve as mandatory
and enforceable; and direct modification pursuant to section 215(d)(5);
(3) request additional information; or (4) remand. In fact, the NOPR
did not propose to remand any proposed Reliability Standard.\85\
---------------------------------------------------------------------------

    \85\ NOPR at P 78-82.
---------------------------------------------------------------------------

    170. With regard to the second category, the Commission explained
that it would take two separate and distinct actions under the statute.
First, pursuant to section 215(d)(2) of the FPA, the Commission would
approve a proposed Reliability Standard, which would be mandatory and
enforceable upon the effective date of the Final Rule. Second, the
Commission would direct NERC to submit a modification of the
Reliability Standard to address specific issues or concerns identified
by the Commission pursuant to section 215(d)(5) of the FPA.
    171. With regard to the third category, ``request additional
information,'' the NOPR explained that some Reliability Standards do
not contain sufficient information to enable the Commission to propose
a disposition. For those Reliability Standards, the Commission
identified the needed information, and proposed not to approve or
remand these Reliability Standards until all the relevant information
is received. As an example, the NOPR explained that many of the fill-
in-the-blank standards would not be approved or remanded until the
Commission had received all the necessary information.
a. Comments
    172. Most commenters generally support the Commission's proposal to
have four courses of action it may take on a Reliability Standard.
However, Xcel has concerns about the legality of approving many of the
proposed Reliability Standards as mandatory but, at the same time,
ordering the ERO to make specific modifications to them. According to
Xcel, section 215(d) does not expressly create this ``approve but
modify'' option. To the contrary, section 215(d)(4) suggests that the
Commission should remand to the ERO a standard that it disapproves ``in
whole or in part.''
    173. While many commenters support the Commission proposal to
approve certain Reliability Standards as mandatory and enforceable; and
direct NERC to modify them pursuant to section 215(d)(5), they are
concerned that the Commission's directives to modify certain
Reliability Standards are too prescriptive.\86\ They contend that, in
prescribing particular requirements, metrics, or specific language to
be used, the Commission is setting the Reliability Standard outside the
open Reliability Standards development process and not giving due
weight to the ERO under section 215 of the FPA. NRECA, for example,
argues there is a major distinction between (a) requiring a Reliability
Standard to address a specific matter and (b) requiring (as opposed to
suggesting) a specific Reliability Standard or requiring a reliability
matter to be addressed in a specific way. These commenters ask that the
Final Rule state that a directive to improve a Reliability Standards be
in the form of an objective to be achieved or concern or deficiency to
be resolved within the Reliability Standard, rather than a particular
requirement, metric, or specific language to be used.
---------------------------------------------------------------------------

    \86\ See, e.g., NERC, Entergy, EEI, APPA, National Grid, NRECA,
TAPS, ISO-NE and Duke.
---------------------------------------------------------------------------

    174. Many commenters request that the Commission require that
changes to any Reliability Standard be made through NERC's Reliability
Standard

development procedure.\87\ NERC states that there are areas where the
Commission proposes a specific directive on a particular Reliability
Standard that is well beyond the bounds of current utility practice.
According to NERC, these recommendations are often derived from the
Staff Preliminary Assessment or are based on a limited number of
comments to that assessment. NERC anticipates that the issue of concern
with respect to these Reliability Standards will be addressed, but the
results may be somewhat different than anticipated by the Commission.
Similarly, EEI and Progress state that NERC should not pre-determine
the outcome of the Reliability Standard development procedure in
response to the Commission's guidance. Ontario IESO states that the
Commission should allow its detailed input on the proposed Reliability
Standards to be considered through Reliability Standards development
process.
---------------------------------------------------------------------------

    \87\ See, e.g., NERC, EEI, ELCON, CEA, NYSRC, TVA, LPPC, NPCC,
Ontario IESO, Constellation, Progress and Dynegy.
---------------------------------------------------------------------------

    175. According to EEI, NERC should be permitted to provide, if the
Commission's guidance for modification of a proposed Reliability
Standard is not adopted in the Reliability Standard development
procedure, an explanation for that outcome when it submits the modified
standard to the Commission for approval. Constellation asks the
Commission to clarify that, if the ERO Reliability Standards
development process does not result in a Reliability Standard that
includes the Commission's proposed modifications, the existing
Reliability Standard would remain in effect until such time as NERC
proposes and the Commission approves a different Reliability Standard
(approved through the Reliability Standards development process).
    176. Manitoba and Northwest Requirements Utilities disagree with
the Commission's proposal to approve certain Reliability Standards and,
separately, direct NERC to make modifications. Some commenters, such as
California PUC, Northwest Requirements Utilities and SMA state that the
users, owners and operators of the Bulk-Power System should not be
expected to comply with Reliability Standards that are not finalized or
need modification. Northwest Requirements Utilities contends that
complete and clear Reliability Standards and requirements are necessary
to fair enforcement, particularly if monetary sanctions may apply.
Manitoba and California PUC state that approving Reliability Standards
that still require modification would lead to differing interpretations
of the Reliability Standards and confusion.
    177. CEA asserts that the proposed directives to modify certain
Reliability Standards, while not remands, reflect engagement in the
standards-setting process that may interfere with the ERO's ability to
effectively function as an international body. For example, Manitoba
states that the Commission's proposed modifications without industry
input may unintentionally place Manitoba in a position where it must
recommend that the Government of Manitoba disallow the Commission's
prescribed modifications to several NERC Reliability Standards, thus
creating discrepancies between Reliability Standards across North
America.
    178. FirstEnergy agrees with the Commission's rejection of the
concept of ``conditional approval'' in favor of approve but modify to
ensure that enforceable standards are in place. However, it asks that
the Commission consider waiving, or at least substantially reducing,
penalties for violations of some enforceable, but yet-to-be-completed
or modified Reliability Standards because compliance with such
Reliability Standards may prove difficult to determine. FirstEnergy
therefore suggests that the Commission exercise due discretion in
enforcing affected Reliability Standards, especially where the
Commission itself has found that a standard is incomplete or ambiguous.
International Transmission agrees that in instances where the
Commission has proposed material changes to a Reliability Standard and
its associated measurements, risk factors and Levels of Non-Compliance,
it may be appropriate for the ERO to exercise enforcement discretion on
a case-by-case basis.
    179. SoCal Edison is concerned that entities may not have an
opportunity to (1) review the Reliability Standards that are adopted in
the Final Rule and (2) make any necessary changes in their operating or
planning practices in order to incorporate differences between the NOPR
and the Final Rule. SoCal Edison recommends the Commission specifically
state the ``effective date'' for compliance with each Reliability
Standard in its Final Rule. SoCal Edison is concerned because some
standards have a proposed NERC ``effective'' date after the Final Rule.
    180. Northern Indiana states it is concerned how a June 2007
effective date will impact electric system reliability during the
critical summer peak demand period, particularly given the many
problems with the standards that have been identified. Northern Indiana
believes the Commission's current actions may, in the near term, create
a lower probability of success in achieving the Commission's stated
objectives. Northern Indiana suggests that the traditional summer peak
season is not a good time to implement broad changes in electric system
operations, procedures and protocols.
    181. NRECA states it is concerned by the NOPR's efforts to
establish specific one and three year time frames for resolution of
various matters. It states that the Commission is authorized to comment
on priorities and suggest timing, it must allow NERC to follow its
ANSI-certified Reliability Standards development process.
    182. NERC requests that the Commission provide a directive in the
Final Rule requiring NERC to address both the Commission's concerns
with the existing Reliability Standards and all comments filed in this
rulemaking proceeding suggesting specific improvements to the
Reliability Standards. NERC states that if the Commission acts on the
views expressed on a specific Reliability Standard by an individual
commenter in this rulemaking, it may encourage others to avoid
participating in the NERC process and instead wait until a proposed new
or modified Reliability Standard reaches the Commission approval stage
to express their views on the standards. NERC states that no commenter
should be entitled to have its comments on a specific Reliability
Standard resolved by the Commission in this rulemaking proceeding.
    183. NERC maintains that referring all comments to the NERC
Reliability Standards development process for resolution is consistent
with NERC's obligation to facilitate an open stakeholder process for
the development of Reliability Standards. NERC asserts that it gives
fair consideration to all comments and objections on a proposed new or
revised Reliability Standard and such comments are either resolved to
the satisfaction of the commenter, or reasons are stated as to why the
commenter's recommendation should not be adopted.
b. Commission Determination
    184. The Commission affirms the four possible courses of action
that it will take with regard to each proposed Reliability Standard:
(1) Approve; (2) approve as mandatory and enforceable; and direct
modification pursuant to section 215(d)(5); (3) request additional
information; or (4) remand. Each course of action is justified and has
a sound basis in the statute. Xcel questions the

legality of the second option above, which it incorrectly equates to
``conditional acceptance.'' Rather, as explained in the NOPR,\88\ the
Commission is taking two independent actions, both authorized by the
statute. First, we are exercising our authority, contained in section
215(d)(2) of the FPA, to approve a proposed Reliability Standard.
Second, we are directing the ERO to submit a modification of the
Reliability Standard to address specific issues or concerns identified
by the Commission, pursuant to section 215(d)(5) of the FPA.\89\
Accordingly, we reject Xcel's contention and adopt the NOPR proposal on
this matter.
---------------------------------------------------------------------------

    \88\ See NOPR at P 79-80.
    \89\ 16 U.S.C. 824o(d)(5) ( ``[t]he Commission * * * may order
the Electric Reliability Organization to submit to the Commission a
proposed Reliability Standard or modification to a Reliability
Standard that addresses a specific matter if the Commission
considers such a new or modified Reliability Standard appropriate to
carry out this section.'').
---------------------------------------------------------------------------

    185. With regard to the many commenters that raise concerns about
the prescriptive nature of the Commission's proposed modifications, the
Commission agrees that a direction for modification should not be so
overly prescriptive as to preclude the consideration of viable
alternatives in the ERO's Reliability Standards development process.
However, in identifying a specific matter to be addressed in a
modification to a Reliability Standard, it is important that the
Commission provide sufficient guidance so that the ERO has an
understanding of the Commission's concerns and an appropriate, but not
necessarily exclusive, outcome to address those concerns. Without such
direction and guidance, a Commission proposal to modify a Reliability
Standard might be so vague that the ERO would not know how to
adequately respond.
    186. Thus, in some instances, while we provide specific details
regarding the Commission's expectations, we intend by doing so to
provide useful guidance to assist in the Reliability Standards
development process, not to impede it.\90\ We find that this is
consistent with statutory language that authorizes the Commission to
order the ERO to submit a modification ``that addresses a specific
matter'' if the Commission considers it appropriate to carry out
section 215 of the FPA.\91\ In the Final Rule, we have considered
commenters' concerns and, where a directive for modification appears to
be determinative of the outcome, the Commission provides flexibility by
directing the ERO to address the underlying issue through the
Reliability Standards development process without mandating a specific
change to the Reliability Standard. Further, the Commission clarifies
that, where the Final Rule identifies a concern and offers a specific
approach to address the concern, we will consider an equivalent
alternative approach provided that the ERO demonstrates that the
alternative will address the Commission's underlying concern or goal as
efficiently and effectively as the Commission's proposal.
---------------------------------------------------------------------------

    \90\ Moreover, in the NOPR, the Commission first discussed in
detail its substantive concerns regarding a particular proposed
Reliability Standard and, to provide greater clarity regarding the
Commission proposal, then summarized the proposed findings and
modifications. It appears that such summaries of broader and fuller
discussions led to misunderstandings of the NOPR proposals.
    \91\ 16 U.S.C. 824o(d)(5).
---------------------------------------------------------------------------

    187. Consistent with section 215 of the FPA and our regulations,
any modification to a Reliability Standard, including a modification
that addresses a Commission directive, must be developed and fully
vetted through NERC's Reliability Standard development process. The
Commission's directives are not intended to usurp or supplant the
Reliability Standard development procedure. Further, this allows the
ERO to take into consideration the international nature of Reliability
Standards and incorporate any modifications requested by our
counterparts in Canada and Mexico. Until the Commission approves NERC's
proposed modification to a Reliability Standard, the preexisting
Reliability Standard will remain in effect.
    188. We agree with NERC's suggestion that the Commission should
direct NERC to address NOPR comments suggesting specific new
improvements to the Reliability Standards, and we do so here. We
believe that this approach will allow for a full vetting of new
suggestions raised by commenters for the first time in the comments on
the NOPR and will encourage interested entities to participate in the
ERO Reliability Standards development process and not wait to express
their views until a proposed new or modified Reliability Standard is
filed with the Commission. As noted throughout the standard-by-standard
analysis that follows, various commenters provide specific suggestions
to improve or otherwise modify a Reliability Standard that address
issues not raised in the NOPR. In such circumstances, the Commission
directs the ERO to consider such comments as it modifies the
Reliability Standards during the three-year review cycle contemplated
by NERC's Work Plan through the ERO Reliability Standards development
process. The Commission, however, does not direct any outcome other
than that the comments receive consideration.
    189. We disagree with commenters, such as Xcel, suggesting that the
Commission should not approve Reliability Standards that we require
NERC to modify. The Commission is only approving those Reliability
Standards that it has determined to be just, reasonable, not unduly
discriminatory or preferential, and in the public interest. As
discussed more fully in the discussion of the individual Reliability
Standards, we have determined that each approved Reliability Standard
is sufficiently clear and independently enforceable. Because we believe
that these Reliability Standards are enforceable as written, the
Commission will not exempt them from enforcement.
    190. The Commission disagrees with Northern Indiana that the
Reliability Standards should not be implemented in summer of 2007.\92\
Most or all users, owners and operators of the Bulk-Power System have
participated in NERC's voluntary reliability regime for years and are
familiar with the proposed Reliability Standards. Others have had
notice of the Reliability Standards since they were filed by NERC in
April 2006. We are not persuaded that making Reliability Standards
enforceable, most of which were being complied with on a voluntary
basis, will require broad changes in electric system operations,
procedures and protocols. Therefore, we do not see any reason to
further delay implementation of the mandatory Reliability Standards.
---------------------------------------------------------------------------

    \92\ See discussion below regarding the Trial Period, section
II.D.4.
---------------------------------------------------------------------------

    191. In response to SoCal Edison, Reliability Standards will become
effective the latter of the effective date of this Final Rule or the
ERO's proposed NERC effective date. The Commission disagrees with SoCal
Edison that users, owners and operators of the Bulk-Power System will
not have an opportunity to review the Reliability Standards that are
adopted in the Final Rule and incorporate differences between the NOPR
and the Final Rule into their operating practices. The Reliability
Standards approved in this Final Rule are approved as proposed by the
ERO. No changes will be made immediately based on the Commission's
direction to modify those Reliability Standards. Any modifications will
be developed through the ERO's Reliability Standards development
process and should have a

proposed effective date that will take into account any time needed for
users, owners and operators of the Bulk-Power System to incorporate the
necessary changes. Therefore, there is no need for any entity to make
any changes based on differences between the NOPR and the Final Rule.
    192. NRECA's assertion that the Commission should not establish
timelines to resolve matters is a collateral attack on Order No. 672.
In that order, the Commission adopted its regulations to provide that
the Commission, when ordering the ERO to submit to the Commission a
proposed Reliability Standard or proposed modification to a Reliability
Standard that addresses a specific matter, may order a deadline by
which the ERO must submit a proposed or modified Reliability
Standard.\93\
---------------------------------------------------------------------------

    \93\ See 18 CFR 39.5(g).
---------------------------------------------------------------------------

3. Prioritizing Modifications to Reliability Standards
    193. As discussed above, the Commission proposed to approve certain
Reliability Standards and, as a separate action, proposed to direct the
ERO to modify many of the same Reliability Standards pursuant to
section 215(d)(5) of the FPA. In the NOPR, the Commission recognized
that it is not reasonable to expect the modification of such a
substantial number of Reliability Standards in a short period of time.
Thus, the NOPR provided guidance on the prioritization of needed
modifications.\94\
---------------------------------------------------------------------------

    \94\ NOPR at P 85-87.
---------------------------------------------------------------------------

    194. The NOPR proposed that NERC first focus its resources on
modifying those Reliability Standards that have the largest impact on
near-term Bulk-Power System reliability, including many of the proposed
modifications that reflect Blackout Report recommendations. Further,
the Commission identified a group of Reliability Standards that it
believes should be given the highest priority by the ERO based on the
above guidance.\95\ The NOPR explained that the list is not meant to be
exclusive or inflexible and solicited ERO and commenter input. The NOPR
proposed that NERC address the ``high priority'' modifications within
one year of the effective date of the Final Rule.
---------------------------------------------------------------------------

    \95\ Id. at Appendix D (High Priority List).
---------------------------------------------------------------------------

    195. In addition, the NOPR proposed that the ERO promptly address
certain proposed modifications that are not necessarily identified as
``high priority'' but may be addressed in a relatively short time frame
because the proposed modifications are relatively minor or
``administrative'' in nature. The NOPR further proposed that the ERO
develop a detailed, comprehensive Work Plan to address all of the
modifications that are directed pursuant to a Final Rule. The Work Plan
would take a staggered approach and complete all the proposed
modifications within either two or three years from the effective date
of the Final Rule.
    196. As noted above, on December 1, 2006, NERC submitted its Work
Plan as an informational filing. According to the Work Plan, NERC will
revise the existing Reliability Standards to incorporate improvements.
A total of 31 different projects will be completed over a three-year
period.\96\ Some of the projects address revising a single Reliability
Standard. The largest project includes revising 19 Reliability
Standards focusing on related topics. NERC asserts that grouping the
Reliability Standards in this manner will be the most efficient use of
the resources and will allow consistency in requirements on related
standards. NERC states that the Work Plan incorporates modifications
that were proposed in the NOPR, but it will modify its Work Plan to
align it with the modifications the Commission orders in the Final
Rule. In addition, the Work Plan will remain dynamic as new Reliability
Standards are proposed and priorities evolve. The Work Plan will be
updated on an annual basis, and more frequently if needed.
---------------------------------------------------------------------------

    \96\ Some projects relate to new Reliability Standards that are
not before the Commission in the instant rulemaking.
---------------------------------------------------------------------------

    197. According to the Work Plan, NERC will periodically report
progress and revisions to the Work Plan and timetable to the
Commission. NERC's intent is to provide accountability for the revision
and development of Reliability Standards, while recognizing it is
impossible to have a fixed schedule when working in a consensus-driven
process addressing complex technical matters.
a. Comments
    198. NERC states that it is pleased that the Commission did not
propose specific deadlines in the NOPR for completing the directives to
improve the Reliability Standards. NERC requests that the Commission
not state specific delivery dates, because developing consensus
Reliability Standards on complex technical matters within fixed time
frames may not be realistic in all cases. NERC states that it will
report the reasons for any delays in the schedule and will work to
ensure that no unnecessary delays occur due to lack of attention or
effort.
    199. NERC expresses concern that the Commission suggests in the
NOPR that it may direct some early modifications to the Reliability
Standards that appear to provide quick results.\97\ According to NERC,
because of the procedural requirements of the Reliability Standards
development process, this would delay work that is more important. NERC
states that it can make such changes quickly for a particular
Reliability Standard if there are no other changes to that standard.
However, NERC's Work Plan contemplates that almost every Reliability
Standard is to be upgraded; modifying each standard in multiple steps
would add significant delay.
---------------------------------------------------------------------------

    \97\ NOPR at P 86.
---------------------------------------------------------------------------

    200. APPA similarly cautions the Commission that the industry does
not have unlimited ability to simultaneously reevaluate the Reliability
Standards, prepare for NERC's and the Regional Entities' compliance
monitoring and enforcement programs, and actually plan and operate
their utility systems on a reliable basis. According to APPA, NERC
should promptly address the administrative elements of those
Reliability Standards that are now at best incomplete, with missing
Compliance Measures, Levels of Non-Compliance and Violation Risk
Factors. NERC must also deal with the regional fill-in-the-blank
standards and criteria that have not yet been submitted to either NERC
or to the Commission for review and approval.
    201. International Transmission states that the Commission should
not direct NERC to make changes to the Reliability Standards within a
specific time frame because this would circumvent the Reliability
Standard development process. It asks the Commission to instruct the
ERO to initiate the Reliability Standards development process in a time
frame that would likely result in their presentation to the Commission
by a desired date, acknowledging that a revised Reliability Standard
may not reach industry consensus and thus not meet the Commission's
desired time frame. Further, International Transmission believes that
the priority of a Reliability Standard for subsequent modification
should be based on the standard's ``Violation Risk Factor.''
Reliability Standards that have the greatest impact on bulk electric
system reliability should be addressed first. All high risk
requirements should be addressed in the 2007 Work Plan. International
Transmission states the addition of Measures and Levels of Non-

Compliance is neither minor nor administrative in nature, although
designated by the Commission as such and called for an accelerated time
period for their addition.
    202. MRO recommends that the Commission place a greater emphasis on
directing NERC to develop clear and measurable Requirements. If the
Requirements are not clear and measurable, the Measures and Levels of
Non-Compliance will be fundamentally flawed. MRO also states that there
are numerous Requirements that are now part of the Reliability
Standards that came from elements of the former NERC Operating Manual
that were never intended as Requirements. It believes that this, in
part, has created certain difficulties that have resulted in a lack of
Measures or Levels of Non-Compliance in the Reliability Standards. MRO
provides examples of such difficulties in its comments regarding
specific Reliability Standards. MRO suggests grouping each Requirement
with its associated Measure and Level of Non-Compliance thus making it
clear to the user, owner or operator as to which Requirements, Measures
and Levels of Non-Compliance are related thereby reducing confusion.
    203. APPA and Alcoa state that the Commission did not give
sufficient time for comments on NERC's submitted Work Plan. APPA notes
that the Work Plan will have to be revised following issuance of the
Final Rule.
b. Commission Determination
    204. Given the concerns raised by commenters, the Commission will
not adopt the NOPR's proposal to direct some early modifications to the
Reliability Standards. We agree with NERC that modifying each
Reliability Standard first to address administrative concerns, then
sending it back to the Reliability Standards development process to
address any modifications directed by the Commission or requested by
stakeholders, might lead to an unacceptable delay.
    205. While the Commission agrees with International Transmission
that a good starting point for prioritizing modifications to a
Reliability Standard could be based on the Reliability Standard's
``Violation Risk Factor,'' the Commission will not mandate that the ERO
do so. The ERO should take into account the views of its stakeholders,
including the concerns raised in this proceeding by APPA, International
Transmission and MRO, in revising its Work Plan following issuance of
this Final Rule.
    206. In Order No. 890, the Commission directed public utilities,
working through NERC, to modify the ATC-related Reliability Standards
within 270 days of publication of Order No. 890 in the Federal
Register.\98\ Our action there affects approximately nine MOD
Reliability Standards and one FAC Reliability Standard that are before
us in this proceeding. The ERO must submit its revised Work Plan within
90 days of the effective date of the Reliability Standards approved in
this order as an informational filing to: (1) Reflect modification
directives contained in the Final Rule; (2) include the timeline for
completion of ATC-related Reliability Standards as ordered in Order No.
890 and (3) account for the views of its stakeholders, including those
raised in this proceeding.
---------------------------------------------------------------------------

    \98\ Preventing Undue Discrimination and Preference in
Transmission Service, Order No. 890, 72 FR 12266(March 15, 2007),
FERC Stats. & Regs. ] 31,241 (2007) at P 223.
---------------------------------------------------------------------------

    207. The Commission disagrees with NERC that we should not set
specific delivery dates. A Work Plan with specific target dates will
provide a valuable tool and incentive to timely address the
modifications directed in this Final Rule. We note that the ERO
previously prepared and submitted to the Commission for informational
purposes one iteration of such a Work Plan that identifies target dates
for the modification of Reliability Standards. Accordingly, we direct
the ERO to submit as an informational filing, within 90 days of the
effective date of this Final Rule, a Work Plan that identifies a plan
for addressing the modifications to the Reliability Standards directed
by the Commission in this Final Rule and a schedule with delivery dates
for completing such modifications. The ERO should make every effort to
meet such delivery dates. However, we understand that there may be
certain cases in which the ERO is not able to meet a Commission's
deadline. In those instances, the ERO must inform the Commission of its
inability to meet the specified delivery date and explain why it will
not meet the deadline and when it expects to complete its work.
4. Trial Period
    208. NERC and some commenters to the Staff Preliminary Assessment
recommended that the Commission establish a ``trial period'' during
which time the ERO would determine, but not collect, monetary
penalties. In the NOPR, the Commission expressed concern that a trial
period that commences with the effective date of mandatory and
enforceable Reliability Standards may interfere with their being made
effective by summer 2007. Thus, the NOPR did not propose a trial
period.\99\
---------------------------------------------------------------------------

    \99\ Id. at P 92-93.
---------------------------------------------------------------------------

    209. However, the Commission recognized that there are entities
that have not historically participated in the pre-existing voluntary
reliability system (including some relatively small entities) that may
not be familiar with what is required for compliance with the proposed
mandatory Reliability Standards. For such entities, the NOPR proposed
that the ERO and Regional Entities use their discretion in imposing
penalties on such entities for the first six months the Reliability
Standards are in effect. However, the Commission, the ERO and the
Regional Entities would still retain the authority to impose penalties
on such entities if warranted by the circumstances.
a. Comments
    210. Most commenters request that the Commission reconsider the
proposal to reject a trial period during which the Reliability
Standards are mandatory and enforceable but during which penalties
would not be assessed for violating a Reliability Standard.\100\ EEI,
for example, notes that the compliance enforcement program and the
delegation agreements have not yet been approved by the Commission and
there may be a short time between their approval and the projected
start date for enforcing the Reliability Standards. Therefore,
commenters generally state that a trial period is appropriate to ensure
that the compliance monitoring and enforcement processes work as
intended and that entities have time to implement new processes, such
as required data systems; after June 2007, commenters generally state
that NERC and the Regional Entities would be able to require remedial
actions where there is an immediate actual or potential risk to
reliable interconnected operations. Further, some state that a trial
period would allow NERC to resolve issues with unfinished standards or
ambiguous standards for which the Commission has directed improvements.
If the Commission rejects a six-month trial period, several entities,
such as EEI, PG&E, Xcel and NYSRC, request that the Commission extend
NERC's discretionary enforcement to all entities, not just those new to
the Reliability Standards.
---------------------------------------------------------------------------

    \100\ See, e.g., EEI, APPA, TAPS, EPSA, CAISO, Bonneville,
California PUC, Cleveland, Otter Tail, Northwest Requirements
Utilities, TVA and SMA.
---------------------------------------------------------------------------

    211. NPCC essentially agrees with the Commission that there should
be no trial period, but if the definition of Bulk-Power System is
substantially altered to

draw in a broad range of entities that have not traditionally been
subject to pre-existing reliability standards, a transition period is
appropriate to bring them into compliance. Where a Reliability Standard
has missing or incomplete compliance measures, ATC states that the
Commission should make these standards mandatory to avoid gaps, but not
assess monetary penalties for non-compliance. ATC agrees with the
Commission that the new mandatory reliability regime should be
operational by June 2007, noting that it has been over three years
since the August 2003 Blackout and over a year since EPAct 2005 was
enacted.
    212. Several entities state that the Commission's proposal to allow
the ERO and Regional Entities discretion in setting penalties does not
go far enough, even if it is applied to all users, owners and operators
of the Bulk-Power System. For example, SERC maintains that its proposed
delegation agreement and the NERC Compliance Monitoring and Enforcement
Program may not allow discretion in imposing penalties.
    213. NERC states that it understands and supports the importance
the Commission places on the ERO having the ability to impose a
financial penalty if a Bulk-Power System user, owner or operator
violates a mandatory Reliability Standard that is in effect, especially
for egregious behavior. However, NERC continues to maintain that a
validation period for the compliance process and the calculation of
penalties is important and proposes a modified approach to that taken
by the Commission. NERC asks the Commission to authorize NERC and the
Regional Entities to exercise discretion to calculate financial
penalties, but not collect them in the case of most violations through
December 31, 2007. At the same time it asks the Commission to specify
that in a situation in which an entity violates a clear and well-
understood Reliability Standard that causes a significant disturbance
on the Bulk-Power System, or in the face of other aggravating
circumstances such as repeated or intentional violations, the ERO and
the Regional Entities would have the authority and responsibility to
hold the offending entity fully accountable for the violation, by the
assessment of financial penalties.
    214. NERC states that this alternative approach is supported by the
newness of the compliance enforcement program, the Sanctions Guidelines
and the penalty matrix, and the Violation Risk Factors, which have not
been approved by the Commission. Further, NERC claims that initiating
operations under mandatory Reliability Standards with the collection of
penalties as the rule rather than the exception may increase the risk
of numerous legal challenges occurring in the early stages of
implementing mandatory Reliability Standards, whereas NERC would expect
a rapid decline in such challenges after its proposed validation
period. In a reply comment, Xcel supports NERC's proposed approach.
    215. If the Commission rejects NERC's proposed modified approach,
NERC asks that it and the Regional Entities be given broad discretion
in setting penalties during this time period and that this discretion
not be limited to small entities or those who are new to Reliability
Standards. Avista/Puget also urges the Commission, the ERO and the
Regional Entities to exercise enforcement discretion more broadly than
proposed in the NOPR. Penalties should be waived for an initial period
in several situations, including where a Reliability Standard is
applied based on new or different interpretations.
    216. Some commenters request that the Commission grant a longer
trial period in certain cases. For instance, TANC believes that for
smaller entities the Commission should, at a minimum, adopt a trial
period of at least one year to provide adequate time to evaluate and
comply with the new mandatory Reliability Standards. Bonneville and
NPCC suggest that, for Reliability Standards that have an annual
reporting requirement, the compliance cycle should start on June 2007
so that a Reliability Standard that relies on data reporting back into
the prior year should have an initial compliance measurement date of
June 2008. AMP-Ohio states that the Commission's proposal does not go
far enough and suggests a ``ramp-up'' period for entities that are new
to standards, through and including the entity's first compliance audit
or, if the Commission rejects this proposal, the Commission should
extend the trial period from six to twelve months. Reliant also
advocates a phase-in of penalties over six to twelve months, with an
increasing scale of penalties over time.
    217. Portland General and Tacoma request that the Commission
institute a one-year trial period to allow the industry time to
finalize the language of the mandatory Reliability Standards and to
allow users, owners and operators time to adapt to the final language.
For any Reliability Standard that requires modification, Tacoma
requests that the Commission provide a six-month trial period beyond
the date when the Reliability Standard is completed. Bonneville asks
that the Commission extend the trial period for Reliability Standards
that have missing or ambiguous measures or severity levels until those
issues are resolved. National Grid states that enforcement discretion
should not be limited in scope or duration and should be extended to
any situation in which a Reliability Standard is applied in a novel
manner, including when a Reliability Standard is interpreted for the
first time.
    218. PG&E asserts that NERC and the Regional Entities should have
discretion in imposing fines for violations of Reliability Standards
during a transition period. Where an entity shows a good faith effort
to comply with a new or changed Reliability Standard promptly and
thoroughly, NERC and/or the Regional Entity should be permitted to
consider those efforts in assessing fines. PG&E suggests a transition
period of three to six months. Without such discretion, entities may be
pressured to implement Reliability Standards hastily and inadequately.
PG&E also notes that some entities in WECC have voluntarily
participated in WECC's enforcement program. The new regime entails
procedural and substantive changes. Entities that have complied
voluntarily should not be penalized by denying them an opportunity to
adjust.
    219. WECC states that it continues to believe that a trial period
of more than six months is appropriate, but it is not requesting that
the Commission revisit its decision on this issue. WECC asks that
Regional Entities have somewhat greater flexibility in monitoring and
enforcing compliance during the initial period of implementation.
According to WECC, the Commission should recognize that, in the early
stages of implementation, penalties should be reserved for clear
situations where Registered Entities are refusing to comply.
Unreasonably harsh enforcement in the early stages of implementation
may damage the current level of reliability by diverting resources away
from developing solutions in order to avoid fines and support
litigation. This flexibility should continue beyond six months after
the effective date, if necessary, for those Reliability Standards
requiring modification, until such modifications have become effective.
    220. According to WECC, it is extremely important that United
States, Canadian and Mexican authorities enforce their respective
standards within WECC in a way that avoids conflicting obligations.
WECC thus suggests that the Commission grant WECC substantial
discretion to focus on education and facilitation of compliance with
NERC Reliability Standards while

it seeks to promote consistent enforcement internationally.
b. Commission Determination
    221. The Commission adopts its proposal not to institute a formal
trial period. As we explained in the NOPR, a trial period is
inconsistent with mandatory and enforceable Reliability Standards
taking effect in a timely manner.\101\ The Commission's overriding
concern is the reliability of the Bulk-Power System, and mandatory and
enforceable Reliability Standards becoming effective in a timely manner
are essential to ensuring the reliability of the Bulk-Power System.
Accordingly, the Commission will not adopt a formal trial period.
---------------------------------------------------------------------------

    \101\ NOPR at P 92.
---------------------------------------------------------------------------

    222. The Commission is, however, also cognizant of commenters'
concerns. In the NOPR, the Commission proposed that the ERO and
Regional Entities use their enforcement discretion in imposing
penalties on entities that historically had not participated in the
pre-existing voluntary reliability regime, although authority to impose
a penalty on such an entity would be retained ``if warranted by the
circumstances.'' \102\ In light of commenters'' concerns, including the
fact that there are new aspects to the Reliability Standards and the
proposed compliance program that will apply to all users, owners and
operators of the Bulk-Power System, the Commission directs the ERO and
Regional Entities to focus their resources on the most serious
violations during an initial period through December 31, 2007. This
thoughtful use of enforcement discretion should apply to all users,
owners and operators of the Bulk-Power System, and not just those new
to the program as originally proposed in the NOPR. This approach will
allow the ERO, Regional Entities and other entities time to ensure that
the compliance monitoring and enforcement processes work as intended
and that all entities have time to implement new processes.
---------------------------------------------------------------------------

    \102\ Id. at P 93.
---------------------------------------------------------------------------

    223. By directing the ERO and Regional Entities to focus their
resources on the most serious violations through the end of 2007, the
ERO and Regional Entities will have the discretion necessary to assess
penalties for such violations, while also having discretion to
calculate a penalty without collecting the penalty if circumstances
warrant. Further, even if the ERO or a Regional Entity declines to
assess a monetary penalty during the initial period, they are
authorized to require remedial actions where a Reliability Standard has
been violated. Furthermore, where the ERO uses its discretion and does
not assess a penalty for a Reliability Standard violation, we encourage
the ERO to establish a process to inform the user, owner or operator of
the Bulk-Power System of the violation and the potential penalty that
could have been assessed to such entity and how that penalty was
calculated. We leave to the ERO's discretion the parameters of the
notification process and the amount of resources to dedicate to this
effort. Moreover, the Commission retains its power under section
215(e)(3) of the FPA to bring an enforcement action against a user,
owner or operator of the Bulk-Power System.
    224. The Commission believes that the goal should be to ensure
that, at the outset, the ERO and Regional Entities can assess a
monetary penalty in a situation where, for example, an entity's non-
compliance puts Bulk-Power System reliability at risk. Requiring the
ERO and Regional Entities to focus on the most serious violations will
allow the industry time to adapt to the new regime while also
protecting Bulk-Power System reliability by allowing the ERO or a
Regional Entity to take an enforcement action against an entity whose
violation causes a significant disturbance. Our approach strikes a
reasonable balance in ensuring that the ERO and Regional Entities will
be able to enforce mandatory Reliability Standards in a timely manner,
while still allowing users, owners and operators of the Bulk-Power
System time to acquaint themselves with the new requirements and
enforcement program. In addition, our approach ensures that all users,
owners and operators of the Bulk-Power System take seriously mandatory,
enforceable reliability standards at the earliest opportunity and
before the 2007 summer peak season.
    225. National Grid, among others, states that the Commission should
allow enforcement discretion on an ongoing basis, for example, when the
ERO or a Regional Entity interprets a Reliability Standard for the
first time. The Commission agrees that, separate from our specific
directive that all concerned focus their resources on the most serious
violations during an initial period, the ERO and Regional Entities
retain enforcement discretion as would any enforcement entity. Such
discretion, in fact, already exists in the guidelines; as we stated in
the ERO Certification Order, the Sanction Guidelines provide
flexibility as to establishing the appropriate penalty within the range
of applicable penalties.\103\
---------------------------------------------------------------------------

    \103\ ERO Certification Order at P 451.
---------------------------------------------------------------------------

5. International Coordination
    226. In response to concerns regarding international coordination
of action on proposed Reliability Standards, the Commission reaffirmed
its recognition of the importance of international coordination,
previously discussed in both Order No. 672 \104\ and the ERO
Certification Order.\105\
---------------------------------------------------------------------------

    \104\ See Order No. 672 at P 400.
    \105\ ERO Certification Order at P 286.
---------------------------------------------------------------------------

a. Comments
    227. Ontario IESO agrees with the Commission ``that NERC's
development of a coordination process, together with the existing means
of communications and coordination such as the United States--Canada
Bilateral Electric Oversight Group will provide the necessary
mechanisms for international coordination'' and supports the
coordination process proposed by NERC in its October 18, 2006 filing in
Docket No. RR06-1-003.\106\
---------------------------------------------------------------------------

    \106\ Compliance Filing of the North American Electric
Reliability Council and the North American Electric Reliability
Corporation Addressing Non-Governance Issues, Appendix 3C, Docket
No. RR06-1-000 (October 18, 2006).
---------------------------------------------------------------------------

    228. EEI and National Grid state that it is not sufficient to
coordinate remands through NERC alone because both the Commission and
Canadian provincial authorities have the ultimate say in approving
applicable Reliability Standards. They advocate that the various
regulators commit to coordinate through a formal mechanism, such as a
memorandum of understanding. According to EEI, the Commission should
coordinate with its international counterparts when directing
modifications to Reliability Standards to ensure that the resulting
Reliability Standards are uniform to the greatest extent possible. NPCC
adds that the Commission should coordinate with its international
counterparts when proposing to hold, remand or reject a proposed
Reliability Standard to avoid inconsistencies in Reliability Standards
application.
    229. National Grid states that, where similar interpretations and
modifications to Reliability Standards are not adopted by the
provincial authorities in Canada, there is potential for conflicting
requirements for interconnected facilities. The Alberta ESO is also
concerned that, due to regulatory/legislative requirements and industry
structures in Canada, some of the Reliability Standards may not be
implemented as they are written.

Therefore it requests that the Commission require that the
international coordination process include a provision where variances
are identified by these international governmental authorities to
minimize the possibility of a governmental authority remanding a
Reliability Standard. According to Alberta ESO, while the goal should
be consistent, North America-wide Reliability Standards, there will be
instances where this is not achievable.
    230. WIRAB advises that some Canadian provinces or Mexican
authorities may approve NERC-proposed Reliability Standards with
changes or modifications. It is important to allow minor variations
across such jurisdictions to minimize the possibility of a governmental
authority remanding a Reliability Standard. According to WIRAB, the
goal should be a consistent system throughout North America with enough
flexibility for some jurisdictional variation when uniformity is not
immediately possible.
b. Commission Determination
    231. In the January 2007 Compliance Order, the Commission stated
that, to minimize the possibility of a governmental authority directing
a remand, it seemed appropriate for such governmental authorities to
have an opportunity to provide NERC with input prior to its filing for
governmental approval of a proposed Reliability Standard.\107\ In that
order, the Commission agreed with NERC's proposal to facilitate
informal conferences to provide an opportunity for governmental
authorities to consult with NERC and stakeholder representatives
regarding Reliability Standard development work-plans, objectives and
priorities, and emerging Reliability Standards.\108\ While we did not
initiate a formal mechanism for coordination as EEI and National Grid
now suggest, we did state that we anticipate that the Commission and
counterpart governmental authorities in Canada and Mexico will convene
regular meetings to coordinate on issues relating to reliability. We
reaffirm that approach as an appropriate framework for addressing
matters of international coordination in the context of continent-wide
Reliability Standards.
---------------------------------------------------------------------------

    \107\ January 2007 Compliance Order at P 44.
    \108\ Id.
---------------------------------------------------------------------------

    232. We agree with Alberta ESO and WIRAB that the goal should be
consistent, North America-wide Reliability Standards, but that this may
not be achievable in all instances. For example, in this rulemaking the
Commission is approving several regional differences in Reliability
Standards; in the United States, NERC identifies regional variations by
submitting them to the Commission in the form of a Reliability
Standard.\109\
---------------------------------------------------------------------------

    \109\ Order No. 672 at P 296.
---------------------------------------------------------------------------

    233. In response to WIRAB, if a governmental authority in Canada or
Mexico requests that NERC modify a continent-wide Reliability Standard
rather than create a regional variance, NERC must submit any revised
Reliability Standard to the Commission. The Commission will then have
an opportunity to review the proposed revised Reliability Standard,
taking into account the request of the foreign governmental authority.

E. Common Issues Pertaining to Reliability Standards

1. Blackout Report Recommendation on Liability Limitations
    234. In the NOPR, the Commission stated that the Blackout Report
recommendations, many of which address key issues for assuring Bulk-
Power System reliability, have received international support and
represent a well-reasoned and sound basis for action. Thus, in the
discussion of a particular proposed Reliability Standard, the NOPR
often recognized the merit of a specific Blackout Report recommendation
and reaffirmed the reasoning behind such recommendation in proposing to
approve, with a proposed directive to modify, a specific Reliability
Standard. Further, the Commission indicated that a modification to a
proposed Reliability Standard based on a Blackout Report recommendation
should receive the highest priority in terms of NERC's Work Plan.\110\
---------------------------------------------------------------------------

    \110\ NOPR at P 99-100.
---------------------------------------------------------------------------

    235. The Blackout Report's Recommendation No. 8 recognized that
timely and sufficient action to shed load on August 14, 2003, would
have prevented the spread of the blackout beyond northern Ohio, and
recommended that legislative bodies and regulators should: (1)
Establish that operators (whether organizations or individuals) who
initiate load shedding pursuant to operational guidelines are not
subject to liability suits and (2) affirm publicly that actions to shed
load pursuant to such guidelines are not indicative of operator
failure.\111\
---------------------------------------------------------------------------

    \111\ Blackout Report at 147
---------------------------------------------------------------------------

a. Comments
    236. EEI states that the Commission should adopt OATT liability
limitations to implement Blackout Report Recommendation No. 8 because
compliance with mandatory Reliability Standards may expose transmission
operators to liability for actions required by a Reliability Standard;
Blackout Report Recommendation No. 8 identified this concern and
recommended that legislative bodies and regulators establish that
operators who initiate load shedding are not subject to liability. EEI
disagrees with the suggestion that the Commission cannot shield
operators from liability suits. EEI states that the Commission has the
authority under FPA sections 205 and 206 to provide liability
protection and has done so for several transmission operators in
several cases by approving amendments to open access transmission
tariffs providing for liability limitations.\112\ However, it notes
that the Commission has rejected efforts by other parties to implement
similar protections.\113\
---------------------------------------------------------------------------

    \112\ EEI at 16, citing Southwest Power Pool, Inc., 112 FERC ]
61,100 (2005); Midwest Independent Transmission System Operator,
Inc., 110 FERC ] 61,164 (2005); ISO New England, Inc., 106 FERC ]
61, 280, order on reh'g, 109 FERC ] 61,147 (2004).
    \113\ Id., citing Southern Company Services, Inc., 113 FERC ]
61,239 (2005).
---------------------------------------------------------------------------

b. Commission Determination
    237. Consistent with Order No. 890, the Commission does not adopt
new liability protections.\114\ The Commission does not believe any
further action is needed to implement Blackout Report Recommendation
No. 8. First, the Task Force found that no further action is
needed.\115\ Further, the Blackout report indicated that some states
already have appropriate protection against liability suits.\116\
Finally, in Order No. 888, the Commission declined to adopt a uniform
federal liability standard and decided that, while it was appropriate
to protect the transmission provider through force majeure and
indemnification provisions from damages or liability when service is
provided by the transmission provider without negligence, it would
leave the determination of liability in other instances to other
proceedings.\117\ Order

No. 890 reaffirmed this decision. EEI has offered no arguments that
demonstrate that an OATT limit on liability is warranted.
---------------------------------------------------------------------------

    \114\ Order No. 890 at P 1671-77.
    \115\ U.S.-Canada Power System Outage Task Force, Final Report
on Implementation of Task Force Recommendations at 22 (Oct. 3,
2006), available at http://www.oe.energy.gov/news/blackout.htm

(``Action Required at Fully Implement Recommendation 8: No further
action under this recommendation is needed'').
    \116\ Id. (``In the United States, some state regualtors have
informally expressed the view that there is appropriate protection
against liability suits for parties who shed load according to
approved guidelines.'')
    \117\ Order No. 888-B, 81 FERC ] 61,248 at 62,081 (1997), order
on reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in
relevant part sub nom. Transmission Access Policy Study Group v.
FERC, 225 F.3d 667 (D.C. Cir. 2000), aff'd sub nom. New York v.
FERC, 535 U.S. 1 (2002).
---------------------------------------------------------------------------

2. Measures and Levels of Non-Compliance
    238. The NOPR noted that, according to the Staff Preliminary
Assessment, a number of proposed Reliability Standards do not contain
Measures \118\ or Levels of Non-Compliance,\119\ or both. NERC, in its
petition, identified 21 Reliability Standards that lack Measures or
Levels of Non-Compliance and indicated that it planned to file modified
Reliability Standards that include the missing Measures and Levels of
Non-Compliance in November 2006. On November 15, 2006, NERC made this
filing.
---------------------------------------------------------------------------

    \118\ Although NERC does not formally define ``Measures,'' NERC
explains that they ``are the evidence that must be presented to show
compliance'' with a standard and ``are not intended to contain the
quantitative metrics for determining satisfactory performance.''
NERC Comments to the Staff Preliminary Assessment at 104.
    \119\ ``Levels of Non-Compliance'' are established criteria for
determining the severity of non-compliance with a Reliability
Standard. The Levels of Non-Compliance range from Level 1 to Level
4, with Level 4 being the most severe.
---------------------------------------------------------------------------

    239. In the NOPR, while the Commission recognized the importance of
having Measures and Levels of Non-Compliance specified for each
Reliability Standard, the Commission also stated that the absence of
these two elements is not critical to the determination of whether to
approve a proposed Reliability Standard. Rather, the most critical
elements of a Reliability Standard are the Requirements, and, if
properly drafted, a Reliability Standard may be enforced even in the
absence of specified Measures or Levels of Non-Compliance.\120\ Thus,
the NOPR proposed to approve a Reliability Standard even though it may
lack Measures or Levels of Non-Compliance, or where these elements
contain ambiguities, provided that the Requirement is sufficiently
clear and enforceable. Where a Reliability Standard would be improved
by providing missing Measures or Levels of Non-Compliance or by
clarifying ambiguities with respect to Measures or Levels of Non-
Compliance, the NOPR proposed to approve the Reliability Standard and
concurrently direct NERC to modify the Reliability Standard
accordingly.
---------------------------------------------------------------------------

    \120\ NOPR at P 105-07.
---------------------------------------------------------------------------

    240. The NOPR explained that the common format of NERC's proposed
Reliability Standards calls for a ``data retention'' metric. Yet, some
proposed Reliability Standards either do not contain a data retention
requirement or state that no record retention period applies. In the
NOPR, the Commission requested comment on: (1) Whether the retention
time periods specified in various Reliability Standards proposed by
NERC are sufficient to foster effective enforcement and (2) what, if
any, additional records retention requirements should be established
for the proposed Reliability Standards.
a. Improving Measures and Levels of Non-Compliance
i. Comments
    241. A number of commenters raise concerns regarding the adequacy
of current Measures and Levels of Non-Compliance. Some commenters, such
as Nevada Companies, state that some Reliability Standards do not need
multiple Measures and multiple Levels of Non-Compliance when such items
do not fit the context of the specific Reliability Standard. According
to Nevada Companies, some proposed Reliability Standards are more like
business practices that are susceptible to a pass/fail test, and are
not necessarily amenable to multiple Measures and Levels of Non-
Compliance. Progress and Xcel maintain that Measures and Levels of Non-
Compliance do not necessarily need to be added to every Reliability
Standard.
    242. Constellation is concerned that the Levels of Non-Compliance
do not appear to be based on objective criteria, but rather appear to
be based on arbitrary criteria and assumptions regarding the impact on
reliability, which could lead to penalties that are excessive compared
to the violation. MISO states that the original intent of the Levels of
Non-Compliance was to assign a scale based on the impact on the
Interconnection. MISO asserts that many Requirements are rated at too
high a level and that many events that would be rated ``level 4'' are
really just administrative requirements. It asserts that there are more
``level 4'' events than other categories, when logic would imply a
pyramid structure with only a few items at the highest ``level 4.''
MISO states there should be a simplified process that measures the true
impact on reliability. MISO and Dynegy state that there should also be
an ``administrative infraction'' category created in addition to the
current ``low,'' ``medium'' and ``high,'' so that the enforcement of
supporting tasks can be handled expeditiously.
    243. NYSRC states that, in NERC's rush to file with the Commission
the 20 revised Reliability Standards with new Measures and Levels of
Non-Compliance, the revised Reliability Standards were submitted to the
NERC ballot body as a group, rather than individually. It maintains
that the group treatment prevented stakeholders from providing the
careful attention that each revised Reliability Standard deserves.
NYSRC believes that, as a result, Requirements for a number of these
Reliability Standards are flawed. While their prompt approval may be
justified to have them in place for the upcoming summer, there is not a
sufficient basis for the Commission to conclude that the weaknesses
identified in these 20 Reliability Standards have been adequately
addressed. NYSRC recommends that the Commission approve the 20 revised
Reliability Standards and direct the ERO to more carefully address the
weaknesses identified in those standards and to individually submit
each revised standard to a ballot for separate consideration.
    244. MISO, International Transmission and Constellation also raise
concerns with NERC's Violation Risk Factors. They are concerned that
risk is, in some cases, being confused with importance. For example,
MISO states that NERC appears to be assigning risk to every sentence in
each proposed Reliability Standard, including explanatory information
and administrative requirements, thereby confusing risk with
importance. MISO states that, while there may be many things that a
transmission operator does that are important, failure to do an
important thing one time would not necessarily jeopardize the
Interconnection or cause a cascading failure.
    245. MISO believes the definition of risk should reflect the
likelihood that something serious is likely to happen if an event
occurs. International Transmission, Constellation and MISO believe that
a high risk event should, in and of itself, pose a significant threat
to reliability and should not assume that multiple events occur
simultaneously. According to MISO, only a small number of Requirements
in the Reliability Standards fit the true definition of high risk.
Constellation maintains that rating too many Requirements as high risk
will water down the Requirements, and could shift the focus of
attention away from the truly high risk Requirements, leading to a less
effective, less efficient reliability program.

ii. Commission Determination
    246. With regard to the comments of Nevada Companies, Progress and
others, we believe that the ERO should have flexibility in initially
developing appropriate Measures and Levels of Non-Compliance. For
example, the ERO in the first instance should determine whether a
Measure is necessary for every Requirement of a particular Reliability
Standard, or whether every Reliability Standard must have the same
number of Levels of Non-Compliance. Entities interested in developing
meaningful Measures and Levels of Non-Compliance should, we find,
participate in the ERO's Reliability Standards development process to
ensure that their opinions are considered.
    247. With regard to the concerns of MISO and Constellation, we
agree as a general principle that Levels of Non-Compliance should be
based on objective criteria and that a ``level 4'' violation should
reflect a commensurate level of severity in its impact on Bulk-Power
System reliability. However, we will allow the ERO in the first
instance to determine whether specific revisions to particular
Reliability Standards are needed to address these concerns. While we
consider the appropriateness of Measures and Levels of Non-Compliance
in our standard-by-standard review, we believe in the first instance it
is the responsibility of the ERO to develop meaningful Measures and
Levels of Non-Compliance, and those seeking to influence the process,
as we have already found, should participate in the ERO's Reliability
Standards development process. Likewise, we leave it to the ERO to
determine initially whether there is any merit in developing a category
of ``administrative infraction'' as suggested by some commenters.
    248. The Commission agrees with NYSRC that, as a general matter,
each Reliability Standard should be independently balloted in the
Reliability Standards development process. However, the Commission will
not require the ERO to resubmit each of the 20 revised Reliability
Standards to the Reliability Standards development process for separate
consideration. We do not believe such an action is required by the
statute and would otherwise unnecessarily delay implementation of the
proposed Reliability Standards. However, we expect that the ERO's
Reliability Standards development process will provide adequate
opportunity for independent consideration by stakeholders of each
standard under consideration in the future.
    249. MISO, International Transmission and Constellation raise
concerns with NERC's Violation Risk Factors. The NERC board approved
the Violation Risk Factors for Version 0 Reliability Standards and
submitted them to the Commission on February 23, 2007. The Commission
is reviewing the Violation Risk Factors in a seprate proceeding in
Docket No. RR07-9-000. Thus, these issues are not ripe for
consideration in this Final Rule. MISO, International Transmission and
Constellation may raise concerns they have with the Violation Risk
Factors in that separate proceeding.
b. Enforcement Implications
i. Comments
    250. Certain commenters, such as EEI, Northeast Utilities, APPA and
TAPS, state that Reliability Standards that lack clear Measures or
Levels of Non-Compliance should not be fully enforced because they are
not just and reasonable and raise potential due process concerns. APPA
states that this is equally true of Reliability Standards that lack
Violation Risk Factors or Violation Severity Levels because there is
not proper notice as to the amount or range of monetary penalties to be
assessed for a particular violation. APPA recommends that the
Commission approve Reliability Standards that lack Measures and
Violation Severity Levels, but that, until the deficiencies are
corrected, require NERC and Regional Entities to waive imposition of
monetary penalties. APPA would, however, reserve the Commission's right
to impose monetary sanctions where warranted and also require
compliance with NERC and Regional Entity remedial action directives for
these Reliability Standards.
    251. WIRAB disagrees that Reliability Standards can be consistently
enforced based solely on sufficiently clear and enforceable
Requirements. According to WIRAB, Levels of Non-Compliance are needed
to inform parties of the consequences of non-compliance. WIRAB is
concerned that a complex penalty structure that requires Regional
Entities to consider multiple subjective mitigating and aggravating
factors will compound the problems of missing and ambiguous Measures
and Levels of Non-Compliance. A simple penalty structure would reduce
enforcement ambiguities, increase uniformity and promote greater
clarity. FirstEnergy states that, without Measures and Levels of Non-
Compliance, a Reliability Standard cannot meet the Commission's
requirement that a Reliability Standard must have a ``clear criterion
or measure of whether an entity is in compliance with a proposed
Reliability Standard.'' \121\
---------------------------------------------------------------------------

    \121\ FirstEnergy at 10-11, citing NOPR at P 16; see also Order
No. 672 at P 262, 321-37.
---------------------------------------------------------------------------

    252. Progress and Xcel state that the Commission should clarify
that the Measures and Levels of Non-Compliance are included solely for
guidance and that only violations of the Requirements are subject to
penalties. Portland General maintains that the Measures are an integral
part of each Reliability Standard because entities will need to know
the Measures so that they can build them into their compliance efforts
from the beginning. In a similar vein, National Grid states that the
lack of clear Measures or Levels of Non-Compliance also makes it
difficult for users, owners and operators to tailor their businesses
and practices toward compliance or to track ongoing compliance.
ii. Commission Determination
    253. The Commission disagrees with commenters that a Reliability
Standard cannot reasonably be enforced, or is otherwise not just and
reasonable, solely because it does not include Measures and Levels of
Non-Compliance. The Commission adopts the position it took in the NOPR
that, while Measures and Levels of Non-Compliance provide useful
guidance to the industry, compliance will in all cases be measured by
determining whether a party met or failed to meet the Requirement given
the specific facts and circumstances of its use, ownership or operation
of the Bulk-Power System. As we explained in the NOPR, and reiterate
here:

    The most critical element of a Reliability Standard is the
Requirements. As NERC explains, ``the Requirements within a standard
define what an entity must do to be compliant * * * [and] binds an
entity to certain obligations of performance under section 215 of
the FPA.'' If properly drafted, a Reliability Standard may be
enforced in the absence of specified Measures or Levels of Non-
Compliance.\122\

    \122\ NOPR at P 105 (footnote omitted).
---------------------------------------------------------------------------

    254. APPA, WIRAB and others contend that, without Measures and
Levels of Non-Compliance, a Reliability Standard should not be
enforced. We disagree. Where a Reliability Standard has Requirements
that are sufficiently clear so that an entity is aware of what it must
do to comply, sufficient notice has been provided. While it can be
helpful to provide additional guidance

regarding the amount or range of monetary penalties that may be
assessed for a particular violation, the absence of such information is
not a defect that renders a Reliability Standard unenforceable. Where
the Requirement in a Reliability Standard is sufficiently clear, an
entity will know what it should be doing to comply and will know that
there are consequences for failure to comply. Therefore, where a
Requirement in a Reliability Standard is sufficiently clear, we approve
the Reliability Standard even though it may lack Measures or Levels of
Non-Compliance. Where a Reliability Standard can be improved by
providing missing Measures or Levels of Non-Compliance or by clarifying
ambiguities with respect to Measures or Levels of Non-Compliance, we
approve the Reliability Standard and concurrently direct NERC to modify
it accordingly.\123\
---------------------------------------------------------------------------

    \123\ APPA raises concerns regarding the completeness or
adequacy of Measures and Levels of Non-Compliance in its discussion
of specific Reliability Standards. In such instances, APPA argues
that the Reliability Standard should not be enforced until current
Measures and Levels of Non-Compliance are improved or, where
incomplete, new ones developed. Applying our above rationale to
these particular circumstances, while the ERO should improve or
develop Measures and Levels of Non-Compliance where necessary, we
will not delay the enforcement of such Reliability Standards until
the ERO develops such improvements or additions.
---------------------------------------------------------------------------

    255. In response to FirstEnergy, where the Requirement in a
Reliability Standard is sufficiently clear, that Reliability Standard
meets the requirement that it must have a ``clear criterion or measure
of whether an entity is in compliance with a proposed Reliability
Standard.'' The fact that NERC, in certain circumstances, did not
include Measures and Levels of Non-Compliance does not make an
otherwise clear Requirement unenforceable. Neither section 215 nor the
Commission's regulations require the level of specificity sought by
FirstEnergy in order for a Reliability Standard to be enforceable.
    256. Progress and Xcel seek clarification that Measures and Levels
of Non-Compliance are included solely for guidance and that only
violations of the Requirements are subject to penalties. While the
Commission generally agrees that it is a violation of the Requirements
that is subject to a penalty, we recognize that because Measures are
intended to gauge or document compliance, failure to meet a Measure is
almost always going to result in a violation of a Requirement.
    257. While we applaud NERC for adding additional levels of detail
to its compliance enforcement program, we note that NERC and the
Regional Entities should have further guidance as to how to use their
enforcement discretion from the Commission's Policy Statement on
Enforcement.\124\ Further, if NERC does not submit Violation Risk
Factors and Violation Severity Levels before NERC's enforcement program
becomes effective, the Commission has reserved the ability to take
appropriate action to ensure that the penalty-setting process described
in the Sanction Guidelines is operative.\125\
---------------------------------------------------------------------------

    \124\ Enforcement of Statutes, Orders, Rules, and Regulations,
113 FERC ] 61,068 (2005) (Policy Statement on Enforcement).
    \125\ January 2007 Compliance Order at P 93.
---------------------------------------------------------------------------

c. Data Retention
i. Comments
    258. In the NOPR, the Commission solicited comments regarding the
sufficiency of data retention requirements in the Reliability
Standards.\126\ NERC states that the compliance data retention
requirement is a defined element in the Reliability Standard template
and that all data retention requirements, even those that are currently
missing, will be reviewed and updated as part of the Reliability
Standards Work Plan. NERC requests that the Commission not attempt to
fix specific data retention requirements on the basis of comments
received during this proceeding. NERC would prefer that the Commission
direct those comments and any goals the Commission may have with regard
to data retention back to NERC for resolution through the Reliability
Standards development process.
---------------------------------------------------------------------------

    \126\ NOPR at P 107.
---------------------------------------------------------------------------

    259. SoCal Edison supports the data retention requirements in the
Reliability Standards. APPA and SERC recommend that data retention
requirements should be stated in each Reliability Standard and
determined on a case-by-case basis through the Reliability Standards
development process.
    260. SERC agrees with NERC that an appropriate retention period is
five years unless otherwise specified in a Reliability Standard. ISO-NE
submits that any data retention policy established by the ERO should be
in line with the five year civil penalty statute of limitations for
violations of NERC Standards, while APPA cautions that detailed
operational data may be so voluminous that a five-year retention
requirement would be burdensome and of questionable value. MRO believes
that the Reliability Standards retention period should be commensurate
with operating and planning horizons, documentation related to a
planning standard should be retained longer and that there should be a
retention period of at least three years.
    261. FirstEnergy states that individual record retention
requirements on a standard-by-standard basis will create confusion and
will be difficult to track. It therefore suggests that the Commission
establish a uniform records retention standard of ``current calendar
year plus three years'' for all proposed Reliability Standards that
include a data retention requirement. Similarly, Entergy states that
data retention requirements established for the Reliability Standards
should be uniform and asks the Commission to direct the ERO to
implement records retention requirements of no longer than three years.
    262. International Transmission and Entergy comment that only the
relevant core reliability requirements of the Reliability Standards
should be subject to data retention requirements. International
Transmission states that, in instances where retaining evidence of
compliance is impractical or where no evidence exists of compliance, it
is appropriate that no documentation be retained. Otherwise the record
retention period should be no less than the prevailing audit frequency.
Progress and Xcel agree that inclusion of data retention metrics in the
Reliability Standards would be useful, but the Commission should make
clear that violations of the data retention metrics are not subject to
separate penalties under section 215 of the FPA.
ii. Commission Determination
    263. The Commission agrees that it is appropriate for each
Reliability Standard to have a data retention requirement. We are not
persuaded that a one-size fits all approach to data retention is
appropriate, however, because different Reliability Standards may
require data to be retained for shorter or longer periods. Nor are we
persuaded that the Commission should set a data retention requirement
for any Reliability Standard for which one is currently lacking.
Therefore, the Commission will not prescribe a set data retention
period to apply to all Reliability Standards. Instead, the Commission
directs the ERO to review and update the data retention requirements in
each Reliability Standard as it is reevaluated through its Reliability
Standards development process and submit the result for Commission
approval. In doing so, NERC should take into account the comments
raised in this proceeding and should seek input from other industry
stakeholders.

3. Ambiguities and Potential Multiple Interpretations
    264. In the NOPR, the Commission proposed that a proposed
Reliability Standard that has Requirements that are so ambiguous as to
not be enforceable should be remanded.\127\ A Reliability Standard that
has sufficiently clear Requirements, Measures and Levels of Non-
Compliance language and otherwise satisfies the statutory standard of
review should be approved. A proposed Reliability Standard that has
sufficiently clear Requirements, but Measures or Levels of Non-
Compliance that are ambiguous (or none at all), should be approved in
some cases with a directive that the ERO develop clear and objective
Measures and Levels of Non-Compliance language. In other cases, where
some ambiguity may exist but there is also a common interpretation for
certain terms based on the best practices within the industry, the
Commission proposed to adopt that interpretation in the NOPR.
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    \127\ NOPR at P 110-12.
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a. Comments
    265. NERC maintains that, even if the Commission believes that
there is some degree of ambiguity in some of the Reliability Standards,
making the Reliability Standards mandatory enables NERC and Regional
Entities to respond to questionable performance by clarifying to the
responsible entity, and others, on a going-forward basis what behavior
would constitute compliance with the Reliability Standards. Thereafter,
participants would know how NERC and the Regional Entities were
interpreting the Reliability Standards. According to NERC, this
information would become part of the public record and help to
eliminate any ambiguity as to what constitutes compliant and
noncompliant behavior under a Reliability Standard. In contrast, if the
Reliability Standards remain voluntary or temporarily unapproved, NERC
contends that it and the Regional Entities will lack a legal basis to
compel corrective behavior.
    266. In contrast, Reliant urges the Commission to either not
approve ambiguous Reliability Standards or approve them without
subjecting entities to penalties. The level of ambiguity in many cases
appears to violate the ``just and reasonable'' criteria for approval.
It states that entities should not be found in violation based on
retroactive interpretation of a Reliability Standard.
    267. EEI expresses concern that approval and enforcement of a
Reliability Standard that includes ambiguous requirements or lacks
certain technical features or specificity may raise due process
concerns if the required performance or performance measurements are
not ``clear and unambiguous.'' Both in this docket and on a going
forward basis, EEI questions whether proposed Reliability Standards
with various shortcomings or deficiencies are sufficiently clear to
meet the legal standard of review.
    268. EEI and Wisconsin Electric state that it is not clear what
``common interpretations'' the Commission refers to in the NOPR or
whether they are accepted or known across the industry. Wisconsin
Electric states that common interpretations and best practices must be
clearly spelled out and made available for review. These
interpretations should be incorporated into the audit guidelines.
Further, EEI states that common interpretations should not supersede
provisions that are clearly stated in a Reliability Standard. According
to EEI, if part of a proposed Reliability Standard is not clear, the
NERC Reliability Standards development process should be used to
clarify it. Further, EEI maintains that the Commission should require
the ERO to review all existing industry sources, such as the NERC
glossary or Institute of Electrical and Electronics Engineers (IEEE)
standards, to supplement the interpretation of Reliability Standards.
Undocumented ``common interpretations'' should be relied on only as a
last resort. Moreover, EEI contends that, if such interpretations are
to be used as a basis for assessing compliance and enforcement, they
must be clearly spelled out and made available in advance.
    269. MISO notes that some Reliability Standards may have portions
applicable to five or more entities and that there are situations where
a particular functional entity is not mentioned in the
``Applicability'' section of the Reliability Standard, but they show up
in the Requirements. It believes that the industry needs a database-
style tool that is a companion to the Reliability Standards that
permits any functional entity to sort and find all requirements and
supporting compliance information applicable to it. Such a tool would
help entities prevent oversights and also help NERC eliminate
redundancy in the Reliability Standards.
    270. MISO also states that, in developing the Version 0 Reliability
Standards, there was a conscious decision to include supporting
information in the Reliability Standards themselves. As a result, there
is now explanatory material in the Reliability Standards that is
presented in context as Requirements. According to MISO, users now are
trying to figure out how to measure Requirements that are really
supporting text. MISO believes that the process should be simplified by
separating each Reliability Standard into its core requirements and
supporting information.
    271. Similarly, Constellation, International Transmission and
Dynegy comment that the Commission should distinguish between those
Requirements in each Reliability Standard that are core requirements as
opposed to supporting information, an explanatory statement, or an
administrative process. International Transmission and Dynegy state
that Measures should only apply to these core reliability requirements.
Reliant is also concerned that each Reliability Standard contains a
great deal of explanatory text, formatted to appear as enforceable
obligations.
    272. International Transmission, Reliant and MISO note that the
proposed Reliability Standards contain many inherently ambiguous
phrases or terms that can be misapplied, including ``adequate'' or
``adequately,'' ``sufficient,'' ``immediate,'' ``where technically
feasible,'' ``as soon as possible'' and ``where practical.'' Reliant
states that all ambiguous language must be eliminated before penalties
can be assessed. MISO and Wisconsin Electric state that, while use of
such terms may be acceptable in explanatory information, if a term
cannot be definitively and objectively defined, it should not appear in
the core Requirements of a Reliability Standard.
    273. Alcoa reiterates its concern that the Commission has not
defined the target level of reliability of the Bulk-Power System that
the Reliability Standards are intended to achieve. Further, Alcoa is
concerned that the proposed Reliability Standards are fragmented and
overlap and in some cases may result in inconsistent treatment of the
same issue. Alcoa states that the ERO should move towards a more
encompassing approach for developing Reliability Standards in which a
reliability goal is addressed from all aspects in a more consistent
manner. Therefore, Alcoa maintains that the Commission should require
NERC to engage in advance planning, mapping out what kind of
reliability is adequate for the Bulk-Power System and then developing a
plan to get there.
b. Commission Determination
    274. The Commission finds that it is essential that the
Requirements for each Reliability Standard, in particular, are
sufficiently clear and not subject to

multiple interpretations. Where the Requirements portion of a
Reliability Standard is sufficiently clear (and no other issues have
been identified), we approve the Reliability Standard. Upon review of
the Reliability Standards and the comments submitted in response to the
NOPR, the Commission finds that none of the Reliability Standards that
we approve today contain an ambiguity that renders it unenforceable or
otherwise unjust and unreasonable. As discussed in our standard-by-
standard review, each Reliability Standard that we approve contains
Requirements that are sufficiently clear as to be enforceable and do
not create due process concerns.
    275. The underlying assumption of many of the commenters seems to
be that the Reliability Standards must spell out in minute detail all
factual scenarios that might violate a Requirement and the precise
consequences of that violation. But due process requirements do not go
so far. Indeed, many government regulatory schemes provide far less
specificity in terms of what is required or proscribed, and yet those
regulations are routinely enforced.\128\ Indeed, many tariffs on file
with the Commission do not specify every compliance detail, but rather
provide some level of discretion as necessary to carry out a particular
act. This does not mean the tariffs are unenforceable; rather, it means
that, if a dispute arises over compliance and there is a legitimate
ambiguity regarding a particular fact or circumstance, that ambiguity
can be taken into account in the exercise of the Commission's
enforcement discretion. Therefore, we find that the Reliability
Standards must strike a balance between a level of specificity that
places users, owners and operators on notice of what is required, and a
level of generality that encompasses unanticipated but serious actions
or omissions that could affect Bulk-Power System reliability. We are
satisfied that the Requirements portions of each Reliability Standard
that we approve in this Final Rule appropriately strike this balance.
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    \128\ Many sections of the FPA, including section 215, use such
terms as just and reasonable or unduly discriminatory or
preferential or even the public interest.
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    276. Some commenters argue that certain Reliability Standards
require additional specificity or else users, owners and operators will
not understand the consequences of a violation. This notion is
similarly misplaced because the potential (if not actual) consequences
for any violation are clearly spelled out--the statute permits the ERO
to assess civil penalties of up to ``$1 million per violation, per
day'' in addition to other remedies. The Commission has explained how
it will approach civil penalties in its Enforcement Policy Statement.
The ERO has provided guidance in its compliance filings, and will
continue to do so, as to how it will administer compliance and
enforcement functions. Clarity should not be confused with certainty.
The former is provided by the statute, the Final Rule and the
aforementioned authorities. The latter is simply unavailable in this
context. Indeed, guaranteeing in advance specific enforcement outcomes
hampers necessary and appropriate enforcement flexibility and poses the
danger of users, owners and operators of the Bulk-Power System simply
calculating the cost of a violation into the cost of doing business--a
dynamic that would frustrate the very purpose of a mandatory
Reliability Standards system, which is to promote reliability.
    277. The Commission agrees with NERC that, even if some
clarification of a particular Reliability Standard would be desirable
at the outset, making it mandatory allows the ERO and the Regional
Entities to provide that clarification on a going-forward basis while
still requiring compliance with Reliability Standards that have an
important reliability goal. Further, we support the ERO's efforts to
review each of the current Reliability Standards to improve them and
provide yet further clarity. We encourage all interested entities,
especially those that have identified specific suggestions for
improvement, to participate in the ERO's Reliability Standards
development process.
    278. The Commission finds that these Reliability Standards, with
the interpretations provided by the Commission in the standard-by-
standard discussion, meet the statutory criteria for approval as
written and should be approved. In any event, penalties are warranted
under section 215 only when an entity knew or reasonably should have
known that its acts or omissions were contrary to the Reliability
Standards. Wisconsin Electric seems to interpret the Commission as
requiring that users, owners and operators of the Bulk-Power System
comply with best practices under the Reliability Standards. We
disagree. While we appreciate that many entities may perform at a
higher level than that required by the Reliability Standards, and
commend them for doing so, the Commission is focused on what is
required under the Reliability Standards; we do not require that they
exceed the Reliability Standards. We agree with EEI that a common
interpretation cannot supplant a provision that is clearly stated in a
Reliability Standard. We also agree, however, that, over time, these
interpretations could be incorporated either into the Reliability
Standard itself through the Reliability Standards development process
or the ERO and Regional Entity audit guidelines.
    279. The Commission disagrees with MISO that some Reliability
Standards as proposed are unclear with respect to applicability. In
certain situations, Bulk-Power System reliability depends on more than
one entity complying with a Reliability Standard. Further, in certain
situations, the Requirement of a Reliability Standard may reference an
entity that is not itself responsible for compliance with the
Reliability Standard, for example, where an entity responsible for
compliance must report information to or communicate with another
entity, without that other entity being required to comply with the
Reliability Standard. However, in its review of Reliability Standards,
the ERO should ensure that, if a functional entity must comply with the
Reliability Standards, it must be mentioned in the Applicability
section. In this regard, we encourage the ERO to consider development
of a database-style tool that is a companion to the Reliability
Standards that permits any user, owner or operator to sort and find all
Requirements applicable to it.
    280. In response to MISO, Constellation, International Transmission
and Dynegy, the Commission believes that the Requirements in each