[Federal Register: March 25, 2009 (Volume 74, Number 56)]
[Proposed Rules]
[Page 12747-12769]
[DOCID:fr25mr09-47]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket Nos. RM08-19-000, RM08-19-001, RM09-5-000, RM06-16-005]

Mandatory Reliability Standards for the Calculation of Available
Transfer Capability, Capacity Benefit Margins, Transmission Reliability
Margins, Total Transfer Capability, and Existing Transmission
Commitments and Mandatory Reliability Standards for the Bulk-Power
System

Issued March 19, 2009.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: Pursuant to section 215 of the Federal Power Act, the
Commission proposes to approve six Modeling, Data, and Analysis
Reliability Standards submitted to the Commission for approval by the
North American Electric Reliability Corporation, the Electric
Reliability Organization certified by the Commission. The proposed
Reliability Standards require certain users, owners, and operators of
the Bulk-Power System to develop consistent methodologies for the
calculation of available transfer capability or available flowgate
capability.

DATES: Comments are due May 26, 2009.

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

FOR FURTHER INFORMATION CONTACT: Mason Emnett (Legal Information),
Office of the General Counsel, Federal Energy Regulatory Commission,
888 First Street, NE., Washington, DC 20426,<PHONE_NUMBER>, Cory
Lankford (Legal Information), Office of the General Counsel, Federal
Energy Regulatory Commission, 888 First Street, NE., Washington, DC
20426,<PHONE_NUMBER>, Keith O'Neal (Technical Information), Office of
Electric Reliability, Federal Energy Regulatory Commission, 888 First
Street, NE., Washington, DC 20426,<PHONE_NUMBER>, Christopher Young
(Technical Information), Office of Electric Reliability, Federal Energy
Regulatory Commission, 888 First Street, NE., Washington, DC 20426,
(202) 502-6403.

SUPPLEMENTARY INFORMATION:

Table of Contents

                                                              Paragraph
                                                               numbers

I. Background..............................................            4
    A. Order Nos. 888 and 889..............................            4
    B. Order Nos. 890 and 693..............................            8
II. Proposed Reliability Standards.........................           12
    A. Coordination with Business Practice Standards.......           17
    B. Available Transmission System Capability, MOD-001-1.           19
    C. Capacity Benefit Margin Methodology, MOD-004-1......           26
    D. Transmission Reliability Margin Methodology, MOD-008-          41
     1.....................................................

    E. Three Methodologies for Calculating Available                  51
     Transfer Capability...................................
        1. Area Interchange Methodology, MOD-028-1.........           53
        2. Rated System Path Methodology, MOD-029-1........           61
        3. Flowgate Methodology, MOD-030-2.................           65
    F. Implementation Plan.................................           72
III. Discussion............................................           75
    A. Implementation of the Reliability Standards.........           80
        1. Available Transfer Capability Implementation               87
         Documents.........................................
        2. Capacity Benefit Margin Implementation Documents           95
        3. Transmission Reliability Margin Implementation             98
         Documents.........................................
    B. Proposed Modifications of the Reliability Standards.          102
        1. Availability of Implementation Documents........          103
        2. Consistent Treatment of Assumptions.............          106
        3. Capacity Benefit Margin (MOD-004-1).............          109
        4. Calculation of Total Transfer Capability under            112
         the Rated System Path Methodology (MOD-029-1).....
        5. Treatment of Network Resource Designations......          116
    C. Violation Risk Factors and Violation Severity Levels          121
    D. Disposition of Other Reliability Standards..........          130
        1. MOD-010-1 through MOD-025-1.....................          130
        2. Reliability Standards Proposed to be Retired or           133
         Withdrawn.........................................
    E. Definitions.........................................          139
IV. Information Collection Statement.......................          143
V. Environmental Analysis..................................          148
VI. Regulatory Flexibility Act Certification...............          149
VII. Comment Procedures....................................          151
VIII. Document Availability................................          155

    1. Pursuant to section 215 of the Federal Power Act (FPA),\1\ the
Federal Energy Regulatory Commission (Commission) proposes to approve,
and direct modifications to, six Modeling, Data and Analysis (MOD)
Reliability Standards submitted to the Commission by the North American
Electric Reliability Corporation (NERC), which has been certified by
the Commission as the Electric Reliability Organization (ERO) for the
United States.\2\ The proposed Reliability Standards pertain to
methodologies for the consistent and transparent calculation of
available transfer capability or available flowgate capability. The
Commission also proposes to retire the existing MOD Reliability
Standards replaced by the versions proposed here. The retirement of
these Reliability Standards would be effective upon the effective date
of the proposed MOD Reliability Standards.
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    \1\ 16 U.S.C. 824o.
    \2\ North American Electric Reliability Corp., 116 FERC ] 61,062
(ERO Certification Order), order on reh'g & compliance, 117 FERC ]
61,126 (ERO Rehearing Order) (2006), appeal docketed sub nom. Alcoa,
Inc. v. FERC, No. 06-1426 (DC Cir. Dec. 29, 2006).
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    2. In Order No. 890, the Commission found that the lack of a
consistent and transparent methodology for calculating available
transfer capability is a significant problem because the calculation of
available transfer capability, which varies greatly depending on the
criteria and assumptions used, may allow the transmission service
provider to discriminate in subtle ways against its competitors.\3\ The
calculation of available transfer capability is one of the most
critical functions under the open access transmission tariff (OATT)
because it determines whether transmission customers can access
alternative power supplies. Improving transparency and consistency of
available transfer capability calculation methodologies will eliminate
transmission service providers' wide discretion in calculating
available transfer capability and ensure that customers are treated
fairly in seeking alternative power supplies. The Commission believes
that the Reliability Standards proposed here address the potential for
undue discrimination by requiring industry-wide transparency and
increased consistency regarding all components of the available
transfer capability calculation methodology and certain definitions,
data, and modeling assumptions.
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    \3\ Preventing Undue Discrimination and Preference in
Transmission Service, Order No. 890, 72 FR 12266 (Mar. 15, 2007),
FERC Stats. & Regs. ] 31,241 (2007), order on reh'g, Order No. 890-
A, 73 FR 2984 (Jan. 16, 2008), FERC Stats & Regs. ] 31,261 (2007),
order on reh'g, Order No. 890-B, 73 FR 39092 (July 8, 2008), 123
FERC ] 61,299 (2008), order on reh'g, Order No. 890-C, 126 FERC ]
61,228 (2009).
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    3. The Commission proposes to approve the Reliability Standards
filed by NERC in this proceeding as just, reasonable, not unduly
discriminatory or preferential, and in the public interest. These
Reliability Standards represent a step forward in eliminating the broad
discretion previously afforded transmission service providers in the
calculation of available transfer capability. The proposed Reliability
Standards will enhance transparency in the calculation of available
transfer capability, requiring transmission operators and transmission
service providers to calculate available transfer capability using a
specific methodology that is both explicitly documented and available
to reliability entities who request it.\4\ The proposed Reliability
Standards also require documentation of the detailed representations of
the various components that comprise the available transfer capability
equation, including the specification of modeling and risk assumptions
and the disclosure of outage processing rules to other reliability
entities. These actions will make the processes to calculate available
transfer capability and its various components more transparent,

which in turn will allow the Commission and others to ensure
consistency in their application.
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    \4\ Reliability entities include: transmission service
providers, planning coordinators, reliability coordinators, and
transmission operators as those entities are defined in the NERC
Glossary. Standards adopted by the North American Energy Standards
Board (NAESB) govern disclosure of this information to other
entities. The Commission addresses the proposed NAESB business
practices in a Notice of Proposed Rulemaking issued concurrently in
Docket No. RM05-5-013. See Standards for Business Practices and
Communication Protocols for Public Utilities, 126 FERC ] 61,248
(2009).
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I. Background

A. Order Nos. 888 and 889

    4. In April 1996, as part of its statutory obligation under
sections 205 and 206 of the FPA \5\ to remedy undue discrimination, the
Commission adopted Order No. 888 prohibiting public utilities from
using their monopoly power over transmission to unduly discriminate
against others.\6\ In that order, the Commission required all public
utilities that own, control or operate facilities used for transmitting
electric energy in interstate commerce to file open access non-
discriminatory transmission tariffs that contained minimum terms and
conditions of non-discriminatory service. It also obligated such public
utilities to ``functionally unbundle'' their generation and
transmission services. This meant that public utilities had to take
transmission service (including ancillary services) for their own new
wholesale sales and purchases of electric energy under the open access
tariffs, and to separately state their rates for wholesale generation,
transmission and ancillary services.\7\ Each public utility was
required to file the pro forma OATT included in Order No. 888 without
any deviation (except a limited number of terms and conditions that
reflect regional practices).\8\ After their OATTs became effective,
public utilities were allowed to file, pursuant to section 205 of the
FPA, deviations that were consistent with or superior to the pro forma
OATT's terms and conditions.
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    \5\ 16 U.S.C. 824d, 824e.
    \6\ Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities; Recovery
of Stranded Costs by Public Utilities and Transmitting Utilities,
Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ]
31,036 (1996), order on reh'g, Order No. 888-A, 62 FR 12274 (Mar.
14, 1997), FERC Stats. & Regs. ] 31,048 (1997), order on reh'g,
Order No. 888-B, 81 FERC ] 61,248 (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 (DC
Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \7\ This is known as ``functional unbundling'' because the
transmission element of a wholesale sale is separated or unbundled
from the generation element of that sale, although the public
utility may provide both functions.
    \8\ See Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,769-70
(noting that the pro forma OATT expressly identified certain non-
rate terms and conditions, such as the time deadlines for
determining available transfer capability in section 18.4 or
scheduling changes in sections 13.8 and 14.6, that may be modified
to account for regional practices if such practices are reasonable,
generally accepted in the region, and consistently adhered to by the
transmission service provider).
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    5. The same day it issued Order No. 888, the Commission issued a
companion order, Order No. 889,\9\ addressing the separation of
vertically integrated utilities' transmission and merchant functions,
the information transmission service providers were required to make
public, and the electronic means they were required to use to do so.
Order No. 889 imposed Standards of Conduct governing the separation of,
and communications between, the utility's transmission and wholesale
power functions, to prevent the utility from giving its merchant arm
preferential access to transmission information. All public utilities
that owned, controlled or operated facilities used in the transmission
of electric energy in interstate commerce were required to create or
participate in an Open Access Same-Time Information System (OASIS) that
was to provide existing and potential transmission customers the same
access to transmission information.
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    \9\ Open Access Same-Time Information System (Formerly Real-Time
Information Networks) and Standards of Conduct, Order No. 889, 61 FR
21737 (May 10, 1996), FERC Stats. & Regs. ] 31,035 (1996), order on
reh'g, Order No. 889-A, FERC Stats. & Regs. ] 31,049 (1997), order
on reh'g, Order No. 889-B, 81 FERC ] 61,253 (1997).
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    6. Among the information public utilities were required to post on
their OASIS was the transmission service provider's calculation of
available transfer capability. Though the Commission acknowledged that
before-the-fact measurement of the availability of transmission service
is ``difficult,'' the Commission concluded that it was important to
give potential transmission customers ``an easy-to-understand indicator
of service availability.'' \10\ Because formal methods did not then
exist to calculate available transfer capability and total transfer
capability, the Commission encouraged industry efforts to develop
consistent methods for calculating available transfer capability and
total transfer capability.\11\ Order No. 889 ultimately required
transmission service providers to base their calculations on ``current
industry practices, standards and criteria'' and to describe their
methodology in an Attachment C to their tariffs.\12\ The Commission
noted that the requirement that transmission service providers purchase
only available transfer capability that is posted as available ``should
create an adequate incentive for them to calculate available transfer
capability and total transfer capability as accurately and as uniformly
as possible.'' \13\
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    \10\ Order No. 889, FERC Stats. & Regs. ] 31,035 at 21749.
    \11\ Id. at 21750.
    \12\ Id.
    \13\ Id.
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    7. Although Order No. 888 obligated each public utility to
calculate the amount of transfer capability on its system available for
sale to third parties, the Commission did not standardize the
methodology for calculating available transfer capability, nor did it
impose any specific requirements regarding the disclosure of the
methodologies used by each transmission service provider.\14\ As a
result, a variety of available transfer capability calculation
methodologies have been used with very few clear rules governing their
use. Moreover, there was often very little transparency about the
nature of these calculations, given that many transmission service
providers historically filed only summary explanations of their
available transfer capability methodologies in Attachment C to their
OATTs.
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    \14\ Order No. 888, FERC Stats. & Regs. ] 31,036 n.610.
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B. Order Nos. 890 and 693

    8. Section 215 of the FPA requires a Commission-certified ERO to
develop mandatory and enforceable Reliability Standards, which are
subject to Commission review and approval. If approved, the Reliability
Standards are enforced by the ERO, subject to Commission oversight, or
by the Commission independently. As the ERO, NERC worked with industry
to develop Reliability Standards improving consistency and transparency
of available transfer capability calculation methodologies. On April 4,
2006, as modified on August 28, 2006, NERC submitted to the Commission
a petition seeking approval of 107 proposed Reliability Standards,
including 23 Reliability Standards pertaining to Modeling, Data and
Analysis (MOD). The MOD group of Reliability Standards is intended to
standardize methodologies and system data needed for traditional
transmission system operation and expansion planning, reliability
assessment and the calculation of available transfer capability in an
open access environment.
    9. On February 16, 2007, the Commission issued Order No. 890, which
addressed and remedied opportunities for undue discrimination under the
pro forma OATT adopted in Order No. 888. Among other things, the
Commission required industry-wide consistency and transparency of all
components of available transfer

capability calculation and certain definitions, data and modeling
assumptions. The Commission concluded that the lack of industry-wide
standards for the consistent calculation of available transfer
capability poses a threat to the reliable operation of the Bulk-Power
System, particularly with respect to the inability of one transmission
service provider to know with certainty its neighbors' system
conditions affecting its own available transfer capability values. As a
result of this reliability concern, the Commission asserted that the
proposed available transfer capability reforms were also supported by
FPA section 215, through which the Commission has the authority to
direct the ERO to submit a Reliability Standard that addresses a
specific matter.\15\ Thus, the Commission in Order No. 890 directed
industry to develop Reliability Standards, using the ERO's Reliability
Standards development procedures, that provide for consistency and
transparency in the methodologies used by transmission owners to
calculate available transfer capability.
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    \15\ FPA section 215(d)(5). 16 U.S.C. 824o(d)(5).
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    10. The Commission stated in Order No. 890 that the available
transfer capability-related Reliability Standards should, at a minimum,
provide a framework for available transfer capability, total transfer
capability and existing transmission commitments calculations. The
Commission did not require a single computational process for
calculating available transfer capability because, among other things,
it found that the potential for discrimination and decline in
reliability level does not lie primarily in the choice of an available
transfer capability calculation methodology, but rather in the
consistent application of its components, input and exchange data, and
modeling assumptions.\16\ The Commission found that, if all of the
available transfer capability components, and certain data inputs and
assumptions are consistent, the three available transfer capability
calculation methodologies would produce predictable and sufficiently
accurate, consistent, equivalent and replicable results.\17\
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    \16\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 1029.
    \17\ Id. P 1030.
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    11. On March 16, 2007, the Commission issued Order No. 693,
approving 83 of the 107 Reliability Standards filed by NERC in April
2006.\18\ Of the 83 approved Reliability Standards, the Commission
approved ten MOD Reliability Standards.\19\ However, the Commission
directed NERC to prospectively modify nine of the ten approved MOD
Reliability Standards to be consistent with the requirements of Order
No. 890.\20\ The Commission reiterated the requirement from Order No.
890 that all available transfer capability components (i.e., total
transfer capability, existing transmission commitments, capacity
benefit margin, and transmission reliability margin) and certain data
input, data exchange, and assumptions be consistent and that the number
of industry-wide available transfer capability calculation formulas be
few in number, transparent and produce equivalent results.\21\ The
Commission directed public utilities, working through the NERC
Reliability Standards and NAESB business practices development
processes, to produce workable solutions to implement the available
transfer capability-related reforms adopted by the Commission. The
Commission also deferred action on 24 proposed Reliability Standards,
which did not contain sufficient information to enable the Commission
to propose a disposition.\22\
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    \18\ Mandatory Reliability Standards for the Bulk-Power System,
Order No. 693, 72 FR 16416 (Apr. 4, 2007), FERC Stats. & Regs. ]
31,242, order on reh'g, Order No. 693-A, 120 FERC ] 61,053 (2007).
    \19\ Id. P 1010.
    \20\ Id.
    \21\ Id. P 1029-30; see also Order No. 890, FERC Stats. & Regs.
] 31,241 at P 207.
    \22\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 287-303.
Some of these Reliability Standards required the regional
reliability organizations to develop criteria for use by users,
owners or operators within each region. The Commission set aside
such Reliability Standards and directed NERC to provide additional
details prior to considering them for approval. Id. P 287-303.
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II. Proposed Reliability Standards

    12. In response to the requirements of Order No. 890 and related
directives of Order No. 693,\23\ on August 29, 2008, NERC submitted for
Commission approval five MOD Reliability Standards: MOD-001-1--
Available Transmission System Capability, MOD-008-1--TRM Calculation
Methodology (hereinafter Transmission Reliability Margin Methodology),
MOD-028-1 Area Interchange Methodology, MOD-029-1--Rated System Path
Methodology, and MOD-030-1--Flowgate Methodology.\24\ On November 21,
2008, NERC submitted for Commission approval a sixth MOD Reliability
Standard: MOD-004-1--Capacity Benefit Margin (hereinafter Capacity
Benefit Margin Methodology). On March 6, 2009, NERC submitted for
Commission approval: MOD-030-2--a revised Flowgate Methodology
Reliability Standard and withdrew its request for approval of MOD-030-
1.
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    \23\ The Reliability Standards were originally due on December
10, 2007. See Order No. 890, FERC Stats. & Regs. ] 31,241 at P 223.
NERC requested additional time to develop the Reliability Standards
in order to address concerns raised in its stakeholder process. See
NERC November 21, 2007 Request for Extension of Time, Docket Nos.
RM05-17-000, et al, at 7. The Commission ultimately granted three
requests for extension of time, extending NERC's deadline by over
seven months, so that NERC could develop the Reliability Standards
proposed here.
    \24\ NERC designates the version number of a Reliability
Standard as the last digit of the Reliability Standard number.
Therefore, version zero Reliability Standards end with ``-0'' and
version one Reliability Standards end with ``-1.''
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    13. The Available Transmission System Capability Reliability
Standard (MOD-001-1) serves as an ``umbrella'' Reliability Standard
that requires each applicable entity to select and implement one or
more of the three available transfer capability methodologies found in
MOD-028-1, MOD-029-1, or MOD-030-2. MOD-004-1 and MOD-008-1 provide for
the calculation of capacity benefit margin and transmission reliability
margin, which are inputs into the available transfer capability
calculation. If approved, NERC states that its filing wholly addresses
eight of the 24 Reliability Standards that the Commission did not
approve in Order No. 693 because further information was needed.
    14. NERC contends that the proposed Reliability Standards will have
no undue negative effect on competition, nor will they unreasonably
restrict available transfer capability on the Bulk-Power System beyond
any restriction necessary for reliability and do not limit use of the
Bulk-Power System in an unduly preferential manner. NERC contends that
the increased rigor and transparency introduced in the development of
available transfer capability and available flowgate capability
calculations serve to mitigate the potential for undue advantages of
one competitor over another. Under the proposed Reliability Standards,
applicable entities are prohibited from making transmission capability
available on a more conservative basis for commercial purposes than for
either planning for native load or use in actual operations, thereby
mitigating the potential for differing treatment of native load
customers and transmission service customers. NERC states that data
exchange, which has been heretofore voluntary, is now mandatory and it
is required that the data be used in the available transfer capability/
available flowgate capability calculations. None of these requirements
exist in the

current available transfer capability-related Reliability Standards.
NERC contends that these improvements help the Commission achieve many
of the primary objectives of Order No. 890 regarding transparency,
standardization and consistency in available transfer capability
calculations.
    15. NERC states that all three methodology Reliability Standards
(MOD-028-1, MOD-029-1, and MOD-030-2) share fundamental equations that,
while mathematically equivalent, are written in slightly different
forms. As a result, the manner of determining the components varies
between methodologies. The employment of any two methodologies, given
the same inputs, may produce similar, but not identical, results. As
noted by NERC there are fundamental differences in the proposed
methodologies that can keep them from producing identical results. For
example, the rated system path methodology does not use the same
frequent simulations of power flow used by the other two methodologies.
NERC states that the rated system path methodology therefore will
rarely generate numbers that identically match those determined by an
entity using the other two methodologies.
    16. NERC proposes to make the MOD Reliability Standards proposed
here applicable to transmission operators and transmission service
providers. NERC states that the drafting team considered applying the
Reliability Standards to the transmission operator instead of the
transmission service provider. According to NERC, the Reliability
Standard drafting team believes that the NERC Functional Model supports
a determination that responsibility for several of the requirements
lies with the transmission operator.\25\ NERC also states that a number
of entities argued in the NERC drafting process that the transmission
service provider actually undertakes efforts to meet those
requirements. NERC states that the drafting team believes this points
to a delegation of tasks to a larger entity that is the byproduct of a
regional transmission organization and its regional transmission
tariff. Accordingly, NERC states that the MOD Reliability Standards
retain the use of transmission operators in the Reliability Standards,
and explained to entities how delegation or joint registration
organizations address the compliance implications of the assignment.
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    \25\ NERC has developed a ``Functional Model'' that defines the
set of functions that must be performed to ensure the reliability of
the Bulk-Power System. The Functional Model identifies 14 functions
and the name of a corresponding entity responsible for fulfilling
each function. NERC's functional model can be found at http://
www.nerc.com/page.php?cid=2/247/108.
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A. Coordination With Business Practice Standards

    17. NERC states that it has worked closely and collaboratively with
NAESB, conducting numerous joint meetings and conference calls, to
develop the Reliability Standards proposed here and related NAESB
business-practice standards.\26\ NERC states that the focus of the
proposed Reliability Standards is to address only the reliability
aspects of available transfer capability and available flowgate
capability and not to address the commercial aspects of available
transfer capability, except to the extent that commercial system
availability closely matches actual remaining system capability. The
associated NAESB business practice standards are intended to focus on
the competitive aspects of these processes. Through implementation of
these Reliability Standards, access to the grid may indirectly be
restricted, but NERC states that NAESB business practices and
Commission orders related to these Reliability Standards ensure that
any limitation will be applied in a manner that ensures open access and
promotes competition.
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    \26\ As noted above, the Commission addresses the proposed NAESB
business practices in a Notice of Proposed Rulemaking issued
concurrently in Docket No. RM05-5-013.
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    18. According to NERC, it and NAESB have coordinated the
development of these business practices and the Reliability Standards
to ensure that there are no duplications or double counting between the
business practice standards and the Reliability Standards, and they
will continue to coordinate as necessary so that the available transfer
capability-related Reliability Standards are compatible and consistent.

B. Available Transmission System Capability, MOD-001-1

    19. NERC proposes the Available Transmission System Capability
Reliability Standard (MOD-001-1) as part of a set of Reliability
Standards which are designed to work together to support a common
reliability goal: to ensure that transmission service providers
maintain awareness of available system capability and future flows on
their own systems as well as those of their neighbors. NERC states
that, historically, differences in implementation of available transfer
capability methodologies and a lack of coordination between
transmission service providers have resulted in cases where available
transfer capability has been overestimated. As a result, systems have
been oversold, resulting in potential or actual system operating limits
and interconnection reliability operating limits being exceeded. NERC
states that MOD-001-1 is the foundational Reliability Standard that
obliges entities to select a methodology and then calculate available
transfer capability or available flowgate capability using that
methodology, thereby ensuring that the determination of available
transfer capability is accurate and consistent across North America and
that the transmission system is neither oversubscribed nor
underutilized.
    20. NERC states that, unlike the current set of voluntary available
transfer capability standards, MOD-001-1 requires adherence to a
specific documented and transparent methodology. NERC states that it
requires applicable entities to calculate available transfer capability
on a consistent schedule and for specific timeframes. According to
NERC, MOD-001-1 requires users, owners and operators to disclose
counterflow assumptions and outage processing rules to other
reliability entities. NERC states that this Reliability Standard
prohibits applicable entities from making transmission capability
available on a more conservative basis for commercial purposes than the
system's capability in actual operations. NERC's MOD-001-1 also
requires entities, for the first time, to exchange and use available
transfer capability data. NERC states that the Reliability Standard
reflects industry's consensus best practices for determining available
transfer capability.
    21. As proposed, this Reliability Standard includes nine
requirements, which would be applicable to all transmission service
providers and transmission operators. To ensure consistency of
enforcement, NERC states that each requirement is supported by a
measure that identifies what is required and how the requirement will
be enforced.
    22. Under NERC's proposed Requirement R1, a transmission operator
must select one of three methodologies for calculating available
transfer capability or available flowgate capability for each available
transfer capability path for each time frame (hourly, daily or monthly)
for the facilities in its area. As stated above, the three proposed
methodologies are: The area interchange methodology, the rated system
path methodology, and the flowgate methodology.
    23. Several proposed requirements within this Reliability Standard
address

the calculation of available transfer capability or available flowgate
capability. Requirement R2 requires each transmission service provider
to calculate available transfer capability or available flowgate
capability values hourly for the next 48 hours, daily for the next 31
calendar days and monthly for the next 12 months. Requirement R6
requires each transmission operator in its calculation of total
transfer capability or total flowgate capability to use assumptions no
more limiting than those used in its planning of operations. NERC
contends that, consistent with the requirements of Order No. 890 and
related directives of Order No. 693, Requirement R6 will minimize the
differences between total transfer capability and total flowgate
capability for transmission and transfer capability used in native load
and reliability assessment studies.\27\ Similarly, Requirement R7
requires each transmission service provider, in its calculation of
available transfer capability or available flowgate capability, to use
assumptions no more limiting than those used in its planning of
operations. NERC contends that this requirement addresses the
Commission's directive in Order No. 693 for the ERO to modify the
available transfer capability Reliability Standards to include a
requirement that the assumptions used in available transfer capability
and available flowgate capability calculations be consistent with those
used for planning the expansion or operation of the Bulk-Power System
to the maximum extent possible.\28\ Requirement R8 requires each
transmission service provider to recalculate available transfer
capability at a certain specified interval (hourly, daily, monthly)
unless the input values specified in the available transfer capability
calculation have not changed. NERC contends that Requirement R8
satisfies the Commission's directive to calculate available transfer
capability on a consistent time interval.\29\
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    \27\ See Order No. 890, FERC Stats. & Regs. ] 31,241 at P 237;
Order No. 693, FERC Stats. & Regs. ] 31,242 at P 1051.
    \28\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 1057; see
also Order No. 890, FERC Stats. & Regs. ] 31,241 at P 292.
    \29\ See Order No. 890, FERC Stats. & Regs. ] 31,241 at P 301;
Order No. 693, FERC Stats. & Regs. ] 31,242 at P 1057.
---------------------------------------------------------------------------

    24. MOD-001-1 also proposes several record keeping and information
sharing requirements for transmission service providers. Requirement R3
requires each transmission service provider to keep an available
transfer capability implementation document that explains the
implementation of its chosen methodology(ies), its use of counterflows,
the identities of entities with which it exchanges information for
coordination purposes, any capacity allocation processes, and the
manner in which it considers outages. Requirement R4 requires
transmission service providers to keep specific reliability entities
advised regarding changes to the available transfer capability
implementation document.\30\ Requirement R5 requires the transmission
service provider to make the available transfer capability
implementation document available to those same reliability
entities.\31\ Finally, proposed Requirement R9 allows a transmission
service provider thirty calendar days to begin to respond to a request
from any other transmission service provider, planning coordinator,
reliability coordinator or transmission operator for certain data to be
used in the requestor's available transfer capability or available
flowgate capability calculations.
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    \30\ These include: Each planning coordinator, reliability
coordinator, and transmission operator associated with the
transmission service provider's area; and each planning coordinator,
reliability coordinator, and transmission service provider adjacent
to the transmission service provider's area.
    \31\ Although the Reliability Standards only require the
transmission service provider to make the available transfer
capability implementation document available to certain reliability
entities, the NAESB standard on OASIS posting requirements (Standard
001-13.1.5) requires transmission service providers to provide a
link to the document on OASIS.
---------------------------------------------------------------------------

    25. In Order No. 693, the Commission directed the ERO to develop
modifications to the available transfer capability Reliability
Standards to include a requirement that applicable entities make
available assumptions and contingencies underlying available transfer
capability and total transfer capability calculations. NERC contends
that this Reliability Standard addresses this issue by requiring
disclosure in the available transfer capability implementation document
under Requirement R3.1 and part of the data exchange required by
Requirement R9. NERC states that it has agreed with NAESB that
requirements for posting information are more appropriately addressed
through the NAESB process. Accordingly, NERC states that NAESB will be
addressing the requirements associated with posting this information,
instead of NERC.

C. Capacity Benefit Margin Methodology, MOD-004-1

    26. As proposed, the Capacity Benefit Margin Methodology
Reliability Standard (MOD-004-1) provides for the calculation of
capacity benefit margin, which is defined by NERC as the amount of firm
transmission capability preserved by the transmission service provider
for load-serving entities, whose loads are located on that transmission
service provider's system, to enable access by the load-serving
entities to generation from interconnected systems to meet generation
reliability requirements.\32\ The purpose of this Reliability Standard
is to promote the consistent and reliable calculation, verification,
preservation, and use of capacity benefit margin to support analysis
and system operations. NERC states that preservation of capacity
benefit margin for a load-serving entity allows that entity to reduce
its installed generating capacity below that which may otherwise have
been necessary without interconnections to meet its generation
reliability requirements. NERC states that the transmission transfer
capability preserved as capacity benefit margin is intended to be used
by the load-serving entities only in times of emergency generation
deficiencies.
---------------------------------------------------------------------------

    \32\ See North American Electric Reliability Council, Glossary
of Terms Used in Reliability Standards (Effective February 12,
2008), available at: http://www.nerc.com/docs/standards/rs/
Glossary_12Feb08.pdf.
---------------------------------------------------------------------------

    27. NERC proposes to apply MOD-004-1 to transmission service
providers, transmission planners, load-serving entities, resource
planners and balancing authorities. As discussed more fully below, NERC
states that it does not specify a particular methodology for
calculating capacity benefit margin, but rather improves transparency
by requiring adherence to specific documented and transparent
methodology to ensure consistent and reliable calculation,
verification, preservation and use of capacity benefit margin.
    28. To improve consistency and transparency in the calculation of
capacity benefit margin, the proposed Reliability Standard imposes
twelve requirements on entities electing to use a capacity benefit
margin. Requirement R1 requires the transmission service provider that
maintains capacity benefit margin to prepare and keep current a
capacity benefit margin implementation document that includes at a
minimum: (1) The process through which a load-serving entity within a
balancing authority associated with the transmission service provider,
or the resource planner associated with that balancing authority area,
may ensure that its need for transmission capacity to be set aside as
capacity benefit margin will be reviewed and accommodated by the
transmission service provider to the extent transmission capacity is

available; (2) the procedure and assumptions for establishing capacity
benefit margin for each available transfer capability path or flowgate;
and (3) the procedure for a load-serving entity or balancing authority
to use transmission capacity set aside as capacity benefit margin,
including the manner in which the transmission service provider will
manage situations where the requested use of capacity benefit margin
exceeds the amount of capacity benefit margin available.
    29. Requirement R2 requires the transmission service provider to
make its current capacity benefit margin implementation document
available to the transmission operators, transmission service
providers, reliability coordinators, transmission planners, resource
planners, and planning coordinators that are within or adjacent to the
transmission service provider's area, and to the load-serving entities
and balancing authorities within the transmission service providers
area, and notify those entities of any changes to the capacity benefit
margin implementation document prior to the effective date of the
change.
    30. Requirements R3 and R4 require each load-serving entity and
resource planner determining the need for transmission capacity to be
set aside as capacity benefit margin for imports into a balancing
authority to develop that need by using one or more of the following to
determine the generation capability import requirement: \33\ loss of
load expectation studies, loss of load probability studies,
deterministic risk-analysis studies, and reserve margin or resource
adequacy requirements established by other entities, such as
municipalities, state commissions, regional transmission organizations,
independent system operators, regional reliability organizations, or
regional entities.
---------------------------------------------------------------------------

    \33\ NERC defines the generation capability import requirement
as the amount of generation capability from external sources
identified by a load-serving entity or resource planner to meet its
generation reliability or resource adequacy requirement as an
alternative to internal resources.
---------------------------------------------------------------------------

    31. Requirement R5 requires the transmission service provider to
establish at least every 13 months a capacity benefit margin value for
each available transfer capability path or flowgate to be used for
available transfer capability or available flowgate capability during
the 13 full calendar months (months 2-14) following the current month
(the month in which the transmission service provider is establishing
the capacity benefit margin values). Similarly, Requirement R6 requires
the transmission planner to establish a capacity benefit margin value
for each available transfer capability path or flowgate to be used in
planning during each of the full calendar years two through ten
following the current year (the year in which the transmission planner
is establishing the capacity benefit margin values). All values must
reflect consideration of each of the following, if available: (1) Any
studies performed by load-serving entities or resource planners
pursuant to Requirement R3 for loads within the transmission service
provider's area; or (2) any reserve margin or resource adequacy
requirements for loads within the transmission service provider's area
established by other entities, such as municipalities, state
commissions, regional transmission organizations, independent system
operators, regional reliability organizations, or regional entities.
Once determined, the capacity benefit margin values will be allocated
along available transfer capability paths based on the expected import
paths or source regions provided by load-serving entities or resource
planners. Capacity Benefit Margin values for flowgates will be
allocated based on the expected import paths or source regions provided
by load-serving entities or resource planners and the distribution
factors associated with those paths or regions, as determined by the
transmission service provider.
    32. Requirements R7 and R8 require the transmission service
provider and the transmission planner to notify, within 31 calendar
days after the establishment of capacity benefit margin, all load-
serving entities and resource planners that determined they had a need
for capacity benefit margin of the amount, or the amount planned, of
capacity benefit margin set aside.
    33. Requirement R9 requires the transmission service provider that
maintains capacity benefit margin and the transmission planner to
provide, subject to confidentiality and security requirements, copies
of the applicable supporting data, including any models, used for
determining capacity benefit margin or allocating capacity benefit
margin over each available transfer capability path or flowgate to each
of the associated transmission operators and to any transmission
service provider, reliability coordinator, transmission planner,
resource planner, or planning coordinator within 30 calendar days of
their making a request for the data.
    34. Requirement R10 requires the load-serving entity or balancing
authority to request to import energy over firm transfer capability set
aside as capacity benefit margin only when experiencing a declared
level 2 or higher NERC energy emergency alert.
    35. When reviewing an arranged interchange using capacity benefit
margin, Requirement R11 requires all balancing authorities and
transmission service providers to waive, within the bounds of reliable
operation, any real-time timing and ramping requirements.
    36. Requirement R12 requires all transmission service providers
maintaining capacity benefit margin to approve, within the bounds of
reliable operation, any arranged interchange using capacity benefit
margin that is submitted by an ``energy deficient entity'' \34\ under
an energy emergency alert level 2 if the capacity benefit margin is
available, the emergency is declared within the balancing authority
area of the energy deficient entity, and the load of the energy
deficient entity is located within the transmission service provider's
area.
---------------------------------------------------------------------------

    \34\ Energy deficient entities are defined by NERC in the
Capacity and Energy Emergencies Reliability Standard. See EOP-002-2,
Attachment 1.
---------------------------------------------------------------------------

    37. NERC states that the proposed Reliability Standard complies
with the requirements of Order No. 890 and related directives of Order
No. 693 because it sets standards that allow load-serving entities to
request transfer capability to be set aside in the form of capacity
benefit margin in a consistent and transparent manner. Consistent with
the Commission's direction, the Reliability Standard provides an
approach for determining capacity benefit margin that is flexible and
does not mandate a particular methodology.\35\ NERC contends that this
is appropriate because various parts of the country have already
developed robust methodologies for determining capacity benefit margin.
NERC states that Requirements R3 and R4 allow load-serving entities or
resource planners to perform specific studies to determine their need
for capacity benefit margin. By specifying the types of studies load-
serving entities or resource planners must perform, NERC contends that
MOD-004-1 ensures that capacity benefit margin and transmission
reliability margin are not used for the same purpose.\36\ In response
to the Commission's transparency requirement,\37\ NERC states that
Requirement R9 ensures that capacity benefit margin studies are made
available to the appropriate reliability entities for their review and

analysis. With regard to public disclosure, NERC states that it has
agreed with NAESB that requirements for posting information are more
appropriately addressed through the NAESB process.
---------------------------------------------------------------------------

    \35\ Citing Order No. 693, FERC Stats. & Regs. ] 31,242 at P
1078; see also Order No. 890, FERC Stats. & Regs. ] 31,241 at P 257.
    \36\ Citing Order No. 693, FERC Stats. & Regs. ] 31,242 at P
1105.
    \37\ Citing id. P 1077.
---------------------------------------------------------------------------

    38. Requirements R5 and R6 require that the transmission service
provider and transmission planner utilize the information contained in
the studies if it has been provided to them when establishing capacity
benefit margin values and mandate the re-evaluation of capacity benefit
margin at least once every thirteen months.\38\ NERC states that,
consistent with Order Nos. 890 and 693, Requirements R5 and R6 also
require allocation of capacity benefit margin based on the available
transfer methodology chosen under MOD-001-1.\39\ NERC states that
Requirements R10, R11 and R12 specify the manner in which capacity
benefit margin is to be used.\40\ NERC states that any additional
requirements specified by the transmission service provider must be
identified in the capacity benefit margin implementation document, as
mandated in Requirement R1.3.
---------------------------------------------------------------------------

    \38\ Citing Order No. 890, FERC Stats. & Regs. ] 31,241 at P
358. NERC states that it chose thirteen months to ensure enough
flexibility for a yearly update without being so prescriptive as to
require it on a specific day.
    \39\ Citing id. at P 257; Order No. 693, FERC Stats. & Regs. ]
31,242 at P 1082.
    \40\ Citing Order No. 890, FERC Stats. & Regs. ] 31,241 at P
256-7.
---------------------------------------------------------------------------

    39. In response to the requirement that capacity benefit margins be
verifiable,\41\ NERC states that Requirements R5, R6 and R9 ensure that
the studies used to establish a need for capacity benefit margin are
made available to any of the reliability entities specified in
Requirement R9 that request them. NERC explains that the Reliability
Standard does not mandate the verification of requested amounts of
capacity benefit margin because it would place a functional entity
(either the transmission service provider or transmission planner) in
the position of having to judge the quality of each request, which
could create conflicts of interest or potentially result in liability
for that entity. Rather than mandate any particular approach for
validation, NERC states that Requirements R3 and R4 mandate the
specific kinds of studies to be performed and supporting information
that is to be maintained when determining the underlying need for
capacity benefit margin. To the extent that entities do not use these
methods or maintain this supporting information, NERC states that they
will be in violation of the Reliability Standard.
---------------------------------------------------------------------------

    \41\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 1077.
---------------------------------------------------------------------------

    40. In response to the Commission's call for clarity in the process
for requesting capacity benefit margin,\42\ NERC states that
Requirement R1.1 requires the transmission service provider explain the
process by which load-serving entities and resource planners may ensure
that their need for transmission capacity to be set aside as capacity
benefit margin is reviewed and accommodated by the transmission service
provider to the extent transmission capacity is available. Requirement
R1.3 requires the transmission service provider to describe the
procedure for load-serving entities and resource planners to use
transmission capacity that has been set aside as capacity benefit
margin. If the requested use of capacity benefit margin exceeds the
amount of capacity benefit margin available, Requirement R1.3 also
requires a description of how the transmission service provider will
manage such situations. In addition, NERC states that Requirements R7
and R8 mandate that the transmission service provider notify load-
serving entities and resource planners that determined they had a need
for capacity benefit margin of the amount of capacity benefit margin
set aside, so that they may make informed decisions about how to
proceed if their full request for capacity benefit margin could not be
accommodated.
---------------------------------------------------------------------------

    \42\ Id. P 1081.
---------------------------------------------------------------------------

D. Transmission Reliability Margin Methodology, MOD-008-1

    41. As proposed, the Transmission Reliability Margin Methodology
Reliability Standard (MOD-008-1) provides for the calculation of
transmission reliability margin, which describes the reliability
aspects of determining and maintaining a transmission reliability
margin and the components of uncertainty that may be considered when
making that determination. The purpose of this Reliability Standard is
to promote the consistent and reliable calculation, verification,
preservation, and use of transmission reliability margin to support
analysis and system operations. Transmission reliability margin is
transmission transfer capability set aside to mitigate risks to
operations, such as deviations in dispatch, load forecast, outages, and
similar such conditions. It is distinctly different from capacity
benefit margin, which is transmission transfer capability set aside to
allow for the import of generation upon the occurrence of a generation
capacity deficiency.
    42. NERC proposes to apply MOD-008-1 only to transmission operators
that have elected to keep a transmission reliability margin. As
discussed more fully in the discussion section below, NERC states that
the Reliability Standard does not specify one approach for calculating
transmission reliability margin, but rather improves transparency by
providing the key requirements and items that must be contained in any
transmission reliability margin methodology.\43\
---------------------------------------------------------------------------

    \43\ NERC August 29, 2008 Filing, Docket No. RM08-19-000 at 38
(NERC Filing).
---------------------------------------------------------------------------

    43. To improve the transparency of transmission reliability margin
calculations, the proposed Reliability Standard imposes five
requirements on transmission service providers electing to keep a
transmission reliability margin. Requirement R1 provides that a
transmission operator must keep a transmission reliability margin
implementation document that explains how specific risks such as
aggregate load forecast uncertainty, load distribution uncertainty, and
forecast uncertainty in transmission system topology \44\ are accounted
for in the transmission reliability margin, how transmission
reliability margin is allocated, and how transmission reliability
margin is determined for various time frames.
---------------------------------------------------------------------------

    \44\ This includes, but is not limited to, forced or unplanned
outages and maintenance outages; allowances for parallel path (loop
flow) impacts; allowances for simultaneous path interactions;
variations in generation dispatch (including, but not limited to,
forced or unplanned outages, maintenance outages and location of
future generation); short-term system operator response (operating
reserve actions); reserve sharing requirements; and inertial
response and frequency bias.
---------------------------------------------------------------------------

    44. Requirement R2 allows a transmission operator to account only
for the risks identified in Requirement R1 in transmission reliability
margin, and prohibits the transmission operator from incorporating
risks that are addressed in capacity benefit margin.\45\ It allows
reserve sharing to be included in transmission reliability margin.
---------------------------------------------------------------------------

    \45\ The capacity benefit margin Reliability Standard, MOD-004-
1, was filed on November 21, 2008 in Docket No. RM09-5-000.
---------------------------------------------------------------------------

    45. Requirement R3 requires each applicable entity to make the
transmission reliability margin implementation document and associated
information available to the following reliability entities if
requested: Transmission service provider, reliability coordinator,
planning coordinator, transmission planner, and transmission operator.

    46. Requirement R4 provides that each applicable transmission
operator must determine the transmission reliability margin value per
the methods described in the transmission reliability margin
implementation document at least once every thirteen months. Finally,
Requirement R5 states that each applicable transmission operator must
provide that transmission reliability margin value to its transmission
service providers and transmission planners no more than seven days
after it has been determined.
    47. NERC states that MOD-008-1 complies with Order No. 890 by
specifying the critical areas of analysis required for transmission
reliability margin.\46\ Further, it states that it has specified the
appropriate uses of transmission reliability margin in Requirement R1
and prohibited the use of other values and double counting in
Requirement R1. In addition, it maintains that MOD-008-1 complies with
Order No. 693 by imposing clear requirements for making documents
supporting the transmission reliability margin determination available
through Requirements R1 and R3.
---------------------------------------------------------------------------

    \46\ NERC Filing at 32 (citing Order No. 890, FERC Stats. &
Regs. ] 31,241 at P 273).
---------------------------------------------------------------------------

    48. In response to the requirement to expand the applicability of
the transmission reliability margin Reliability Standard to planning
authorities and reliability coordinators,\47\ NERC states that the
drafting team was not able to identify any requirements for these
entities, based on the current drafting of the Reliability Standard.
Therefore, these entities are not included in the proposed Reliability
Standard. NERC states that, until such time as the transmission
reliability margin methodology becomes more detailed, there does not
seem to be any measurable action that can be imposed on the planning
coordinator \48\ or reliability coordinator.
---------------------------------------------------------------------------

    \47\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 1126.
    \48\ The Commission notes that NERC uses the terms planning
coordinator and planning authority interchangeably in its standards,
as indicated in the proposed additions to the glossary of terms,
addressed below. The interchangeable use of these terms may lack the
clarity generally preferred, but the Commission understands that
NERC is currently working on modifications to address this issue.
---------------------------------------------------------------------------

    49. In response to the Commission's statement that it would not
require transfer capability that is set aside as transmission
reliability margin to be sold on a non-firm basis,\49\ NERC states that
it has included this requirement in each of the three methodologies as
a part of firm and non-firm equations. NERC states that, because some
of the uncertainties included in the transmission reliability margin
may reduce or be eliminated as one approaches real time, the non-firm
equations allow for the partial release of transmission reliability
margin. In the Area Interchange Methodology (MOD-028-1), this is
addressed in Requirement R11; in the Rated System Path Methodology
(MOD-029-1), this is addressed in Requirement R8; and in the Flowgate
Methodology (MOD-030-2), this is addressed in Requirement R9.
---------------------------------------------------------------------------

    \49\ See Order No. 890, FERC Stats. & Regs. ] 31,241 at P 273.
---------------------------------------------------------------------------

    50. NERC contends that choosing a ``best'' approach to transmission
reliability margin calculation would require a much more thorough
technical effort. NERC therefore requests that the Commission provide
additional guidance on this topic regarding its priority and a
determination whether or not such an effort should be included in
NERC's annual planning process.

E. Three Methodologies for Calculating Available Transfer Capability

    51. In Order No. 890, the Commission did not require a uniform
methodology for calculating available transfer capability. The
Commission noted that NERC was developing Reliability Standards for
three available transfer capability calculation methodologies and
concluded that, if all of the available transfer capability components
and certain data inputs and assumptions are consistent, the three
available transfer capability calculation methodologies being developed
by NERC will produce predictable and sufficiently accurate, consistent,
equivalent and replicable results.\50\ Consistent with Order No. 890,
NERC proposes three methodologies for calculating available transfer
capability as detailed in the following Reliability Standards: MOD-028-
1, MOD-029-1 and MOD-030-2. NERC contends that these three
methodologies meet the requirements established by the Commission in
Order No. 890, as well as those established in Order No. 693.
---------------------------------------------------------------------------

    \50\ Id. P 210.
---------------------------------------------------------------------------

    52. NERC asserts that the three methodologies are a significant
improvement over the existing available transfer capability related
requirements. While current MOD-001-0 is essentially a ``fill-in-the-
blank'' Reliability Standard,\51\ the proposed methodologies replace
the original fill-in-the-blank standard by specifying in detail how
total transfer capability is to be determined--from modeling
requirements, to the simulation of dispatch to determine native load
impacts, to the treatment of reservations and to the incorporation of
neighboring data. According to NERC, MOD-001-1 specifies how existing
transmission commitments and available transfer capability are to be
determined in detail and clearly describes the treatment of capacity
benefit margin and transmission reliability margin in the available
transfer capability equations. Thus, NERC contends, these Reliability
Standards reduce the potential for seams discrepancies and improve the
wide-area understanding of the Bulk-Power System on a forward-looking
basis. NERC states that, by promoting consistency, standardization and
transparency, they directly support and improve the reliability of the
Bulk-Power System and help achieve the Commission's objectives stated
in Order No. 890.
---------------------------------------------------------------------------

    \51\ A fill-in-the-blank Reliability Standard requires the
regional entities to develop criteria for use by users, owners or
operators within each region. In Order No. 693, the Commission held
24 Reliability Standards (mainly fill-in-the-blank standards) as
pending until further information was provided on each standard and
requires users, owners and operators to follow these pending
standards as ``good utility practice'' pending their approval by the
Commission.
---------------------------------------------------------------------------

1. Area Interchange Methodology, MOD-028-1
    53. NERC states that the area interchange methodology is
characterized by determination of incremental transfer capability via
simulation, from which total transfer capability can be mathematically
derived. Capacity benefit margin, transmission reliability margin, and
existing transmission commitments are subtracted from the total
transfer capability, and postbacks and counterflows are added, to
derive available transfer capability. NERC also states that, under the
area interchange methodology, total transfer capability results are
generally reported on an area to area basis.
    54. MOD-028-1 describes the area interchange methodology
(previously referred to as the network response available transfer
capability methodology) for determining available transfer capability.
NERC intends to use the Area Interchange Methodology Reliability
Standard to increase consistency and reliability in the development and
documentation of transfer capability calculation for short-term use
performed by entities using the area interchange methodology to support
analysis and system operations.
    55. This Reliability Standard would apply only to transmission
operators and transmission service providers that

have elected to implement this particular methodology as part of their
compliance with MOD-001-1, Requirement R1. The proposed Reliability
Standard consists of eleven requirements. Requirement R1 provides the
additional information that a transmission service provider using the
area interchange methodology must include in its available transfer
capability implementation document. This includes information
describing how the selected methodology has been implemented, in such
detail that, given the same information used by the transmission
operator, the results of the total transfer capability calculations can
be validated; a description of the manner in which the transmission
operator will account for interchange schedules in the calculation of
total transfer capability; any contractual obligations for allocation
of total transfer capability; a description of the manner in which
contingencies are identified for use in the total transfer capability
process; and information on how sources and sinks for transmission
service are accounted for in available transfer capability
calculations.
    56. Pursuant to Requirement R2, each transmission operator must
calculate total transfer capability using a model that meets the scope
specified in the requirement and includes rating information specified
by generator owners and transmission owners whose equipment is
represented in the model.
    57. Requirement R3 details the information the transmission
operator must include in its determination of total transfer capability
for the on-peak and off-peak intra-day and next day time periods, as
well as days two through 31 and for months two through 13.\52\
Requirement R4 requires each transmission operator to determine total
transfer capability while modeling contingencies and reservations
consistently, and respect any contractual allocations of total transfer
capability.
---------------------------------------------------------------------------

    \52\ This information includes: Expected generation and
transmission outages, additions, and retirements; load forecasts;
and unit commitment and dispatch order.
---------------------------------------------------------------------------

    58. Requirement R5 provides that each transmission operator must
determine total transfer capability on a periodic basis (as specified
in the requirement) or upon certain operating conditions significantly
affecting bulk electric system topology.
    59. Requirement R6 provides the detailed process by which each
transmission operator must establish total transfer capability, which
must be provided to the transmission service provider within the time
frames specified in Requirement R7.
    60. Requirements R8 through R11 specify the formulas and detailed
specifications of the variables for calculating firm and non-firm
existing transmission commitments and firm and non-firm available
transfer capability.
2. Rated System Path Methodology, MOD-029-1
    61. NERC states that the rated system path methodology is
characterized by an initial total transfer capability, determined via
simulation. As with the area interchange methodology, capacity benefit
margin, transmission reliability margin, and existing transmission
commitments are subtracted from the total transfer capability, and
postbacks and counterflows are added, to derive available transfer
capability. NERC also states that, under the rated system path
methodology, total transfer capability results are generally reported
as specific transmission path capabilities.
    62. MOD-029-1 describes the rated system path methodology for
determining available transfer capability. NERC intends to use this
Reliability Standard to increase consistency and reliability in the
development and documentation of transfer capability calculations for
short-term use performed by entities using the rated system path
methodology to support analysis and system operations.
    63. This Reliability Standard would apply only to transmission
operators and transmission service providers that have elected to
implement rated system path methodology as part of their compliance
with MOD-001-1 Requirement R1. To implement this calculation, this
Reliability Standard consists of eight requirements. Under Requirement
R1, a transmission operator must calculate total transfer capability
using a model that meets the scope and criteria specified in the
requirement. Requirement R2 lists a detailed process by which the
transmission operator must establish total transfer capability.
Pursuant to Requirement R3, the transmission operator must establish
total transfer capability as the lesser of the system operating limit
or the value determined in Requirement R2. The transmission operator
must then provide a transmission service provider with the appropriate
total transfer capability values and study report within seven days of
finalization of the study report required in Requirement R4.
    64. Requirements R5 through R8 provide that each applicable
transmission service provider must calculate firm and non-firm existing
transmission commitments and firm and non-firm available transfer
capability using a specified formula and detailed specification of the
variables.
3. Flowgate Methodology, MOD-030-2
    65. NERC states that the flowgate methodology is characterized by
identification of key facilities as flowgates. Total flowgate
capabilities are determined based on facility ratings and voltage and
stability limits. The impacts of existing transmission commitments are
determined by simulation. To determine the available flowgate
commitments, the transmission service provider or operator must
subtract the impacts of existing transmission commitments, capacity
benefit margin, and transmission reliability margin, and add the
impacts of postbacks and counterflows. Available flowgate capability
can be used to determine available transfer capability.
    66. MOD-030-2 describes the flowgate methodology (previously
referred to as the flowgate network response available transfer
capability methodology) for determining available transfer capability.
NERC states that the purpose of the Flowgate Methodology Reliability
Standard is to increase consistency and reliability in the development
and documentation of transfer capability calculations for short-term
use performed by entities using the flowgate methodology to support
analysis and system operations.
    67. This Reliability Standard would apply only to transmission
operators and transmission service providers that have elected to
implement this particular methodology as part of their compliance with
MOD-001-2. As proposed, the Flowgate Methodology consists of eleven
requirements. Requirement R1 states that a transmission service
provider implementing this methodology must include the following
information in its available transfer capability implementation
document in addition to that already required in the Available
Transmission System Capability Reliability Standard (MOD-001-1): the
criteria used by the transmission operator to identify sets of
transmission facilities as flowgates that are to be considered in
available flowgate capability calculations, and information on how
sources and sinks for transmission service are accounted for in
available flowgate capability calculations.
    68. Under Requirement R2, each applicable transmission operator
must determine and manage the flowgates used in the methodology based
on the criteria listed in the requirement,

establish its total flowgate capability based on the criteria listed in
the requirement, and provide total flowgate capability to the
transmission service provider within seven days of their
determination.\53\ To achieve consistency in each component of the
available transfer capability calculation, the Commission, in Order No.
890, directed public utilities, working through NERC, to develop an
available flowgate capability definition and requirements used to
identify a particular set of transmission facilities in a flowgate.\54\
As part of the development of the Flowgate Methodology, NERC states
that the Reliability Standard drafting team developed a definition of
available flowgate capability. In addition, NERC states that
Requirement R2 of this Reliability Standard contains a list of minimum
characteristics that are to be used to identify a particular set of
transmission facilities as a flowgate.
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    \53\ MOD-030-2 is identical to MOD-030-1 except for certain
modifications to Requirements R2 and R11. First, NERC added new sub-
requirements R<IP_ADDRESS> and R<IP_ADDRESS>. to clarify that, if any limiting
element is kept within its limit for its associated worst
contingency by operating within the limits of another flowgate, then
no new flowgate needs to be established for such limiting elements
or contingencies. Second, NERC modified sub-requirement R2.1.3. to
state that the list of flowgates does not need to include any
flowgates created to address temporary operating conditions.
Finally, NERC modified Requirement R11 to eliminate the obligation
to convert total flowgate capability to total transfer capability.
The Commission notes that the modification to Requirement R11 does
not alter the posting requirements of 18 CFR 37.6(b)(3).
    \54\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 313.
---------------------------------------------------------------------------

    69. Requirement R3 requires the transmission operator to provide
the transmission service provider with a transmission model that meets
a specified criteria and Requirement R4 provides that the transmission
service provider must evaluate reservations consistently when
determining available flowgate capability. When determining available
flowgate capability, Requirement R5 provides that each transmission
service provider must use the models given to it as described in
Requirement R3, include appropriate outages, and use the available
flowgate capability on external flowgates as provided by the
transmission service provider calculating available flowgate capability
for those flowgates.
    70. Requirements R6 and R7 require each transmission service
provider to calculate the impact of firm and non-firm existing
transmission commitments using a specified process. The transmission
service provider must calculate firm and non-firm available flowgate
capability using the formula and detailed specification of the
variables found in Requirements R8 and R9.
    71. Under Requirement R10, each transmission service provider shall
recalculate available flowgate capability at a certain specified
interval (hourly once per hour, daily once per day, monthly once per
week) unless the input values specified in the available flowgate
capability calculation have not changed. NERC contends that this
requirement satisfies the requirement in Order No. 890 and Order No.
693 that transmission service providers recalculate available transfer
capability on a consistent time interval. Finally, Requirement R11
provides the formula and variables that a transmission service provider
must use if it desires to convert available flowgate capability to
available transfer capability.\55\
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    \55\ Requirement R11 of MOD-030-1 would have directed
transmission service providers to use the same formula to convert
total flowgate capability to total transfer capability. The formula
provided in Requirement R11 of MOD-030-2 eliminates this obligation.
As noted above, this modification does not alter the posting
requirements of 18 CFR 37.6(b)(3).
---------------------------------------------------------------------------

F. Implementation Plan

    72. NERC proposes that the Available Transmission System Capability
Reliability Standard and the three methodology Reliability Standards
become effective the first day of the first quarter no sooner than one
calendar year after approval of all of these four Reliability Standards
by all appropriate regulatory authorities where approval is required or
is otherwise effective in those jurisdictions where approval is not
explicitly required. According to NERC, since the three methodology
Reliability Standards require information from neighboring reliability
entities for use in the development of its available transfer
capability and available flowgate capability values that is compulsory
under Requirement R9 of the Available Transmission System Capability
Reliability Standard (MOD-001-1), none of the methodology Reliability
Standards can be effectively implemented unless and until that
Reliability Standard has been implemented by all entities in all
jurisdictions.
    73. NERC states that, although some entities may already be
implementing the requirements in the Reliability Standards, many others
are not, especially with regard to the data exchange requirements
listed in Requirement R9 of MOD-001-1. Accordingly, software changes,
associated testing, and possible tariff filings will be required to
comply with the proposed Reliability Standards. Therefore, NERC
maintains that a minimum of one year from regulatory approval should be
allowed for entities to comply.
    74. NERC proposes that each of the Capacity Benefit Margin (MOD-
004-1) and Transmission Reliability Margin (MOD-008-1) Reliability
Standards require compliance on the first day of the first quarter no
sooner than one calendar year after approval of the Reliability
Standard by appropriate regulatory authorities where approval is
required or, where approval is not explicitly required, when the
Reliability Standard is otherwise effective. According to NERC, unlike
the other four proposed Reliability Standards included in this filing,
the Transmission Reliability Margin Reliability Standard replaces the
existing Reliability Standard MOD-008-0 and the Capacity Benefit Margin
Reliability Standard replaces MOD-004-0. As such, they do not require
coordinated implementation, as entities may rely on the previous
version of the Reliability Standards if any delay in implementing the
Reliability Standards occurs. NERC states that, although many entities
already use transmission reliability margin and capacity benefit
margin, compliance with these Reliability Standards may require
software changes, software regression testing, and possible tariff
changes. To accommodate these needs, NERC believes a one-year
implementation period is appropriate.

III. Discussion

    75. The Commission proposes to approve the revised MOD Reliability
Standards and related additions to the glossary of terms, to be
effective as proposed by NERC, as just, reasonable, not unduly
discriminatory or preferential, and in the public interest. These
Reliability Standards represent a step forward in eliminating the broad
discretion previously afforded transmission service providers in the
calculation of available transfer capability. As the Commission
explained in Order No. 890, excessive discretion in the calculation of
available transfer capability gives transmission service providers the
opportunity to discriminate in subtle ways in the provision of open
access transmission service.\56\ On systems where transmission capacity
is constrained, a lack of transparency and consistency in the
calculation of available transfer capability has led to recurring
disputes over whether transmission service providers have performed
those

calculations in a way that discriminates against competitors.
---------------------------------------------------------------------------

    \56\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 68.
---------------------------------------------------------------------------

    76. The Commission acted in Order No. 890 to limit this remaining
opportunity for discrimination by directing public utilities, working
through NERC, to develop Reliability Standards to govern the consistent
and transparent calculation of available transfer capability by
transmission service providers. In Order No. 693, the Commission
implemented that directive by requiring NERC to prospectively modify
the MOD Reliability Standards it filed in April 2006 to address the
requirements of Order No. 890. The proposed Reliability Standards
satisfy these requirements by enhancing transparency and consistency in
the calculation of available transfer capability, mandating that
transmission service providers and transmission operators perform their
calculations in accordance with methodologies that are both explicitly
documented and available to reliability entities who request them. The
proposed Reliability Standards also require documentation of the
detailed representations of the various components that comprise the
available transfer capability equation, and require transmission
service providers and transmission operators to specify modeling and
risk assumptions and disclosure of outage processing rules to other
reliability entities. These actions will make the processes to
calculate available transfer capability and its various components more
transparent which, in turn, will allow the Commission and others to
ensure that those calculations are performed consistently.
    77. Although the Commission believes that the proposed Reliability
Standards generally comply with the requirements of Order No. 890 and
related directives of Order No. 693, the Commission is concerned that
the implementation documents used by each transmission service provider
to implement the Reliability Standards could provide continuing
opportunities to discriminate in the provision of transmission service.
As discussed in further detail below, the Commission proposes to direct
the ERO to perform an audit of the implementation documents to
determine if they provide sufficient transparency to enable the
Commission and others to replicate and verify each transmission service
provider's calculations. Without adequate transparency, it will be
impossible for the Commission to ensure that transmission service
providers are consistently performing their available transfer
capability calculations when responding to requests for transmission
service. Ensuring adequate transparency also will enable the Commission
and others to verify that data and modeling assumptions used to
calculate available transfer capability are being used consistently
during relevant timeframes, such as in the calculation of short-term
available transfer capability and the planning of operations, as
required by the proposed Reliability Standards.\57\
---------------------------------------------------------------------------

    \57\ MOD-001-1, Requirements R6 and R7.
---------------------------------------------------------------------------

    78. The Commission also has concern regarding several of the
substantive requirements of the proposed Reliability Standards. To
address these concerns, the Commission proposes to direct the ERO to
develop modifications to the Reliability Standards to address the
discrete issues involving: the availability of each transmission
service provider's implementation documents; the consistent treatment
of assumptions in the calculation of available transfer capability; the
calculation, allocation, and use of capacity benefit margin; the
calculation of total transfer capability under the Rated System Path
Methodology; and, the treatment of network resource designations in the
calculation of available transfer capability.
    79. Finally, we note that the Commission in this proceeding
addresses only those revisions to the Reliability Standards filed to
comply with the available transfer capability-related requirements of
Order No. 890, as implemented by Order No. 693. In Order No. 693, the
Commission also directed the ERO to develop modifications to a number
of other Reliability Standards. The Commission expects the ERO to
comply in a timely and complete manner with those directives, to the
extent it has not already done so.

A. Implementation of the Reliability Standards

    80. The Available Transmission System Capability Reliability
Standard (MOD-001-1) serves as an ``umbrella'' Reliability Standard
that requires each applicable entity to select and implement one or
more of the three available transfer capability methodologies found in
MOD-028-1, MOD-029-1, or MOD-030-2. MOD-004-1 and MOD-008-1 provide for
the calculation of capacity benefit margin and transmission reliability
margin, which are inputs into the available transfer capability
calculation. Together, these Reliability Standards require transmission
service providers and transmission operators to prepare and keep
current implementation documents that contain certain information
specified in the Reliability Standards. The available transfer
capability implementation documents must describe the available
transfer capability methodology in such detail that the results of
their calculations can be validated when given the same information
used by the transmission service provider or transmission operator.\58\
---------------------------------------------------------------------------

    \58\ MOD-001-1, Requirement R3.
---------------------------------------------------------------------------

    81. The Commission is concerned that the proposed Reliability
Standards could be implemented by a particular transmission service
provider or transmission operator in a way that enables them to retain
the ability to unduly discriminate in the provision of open access
transmission service. Although the Reliability Standards require
transmission service providers to include certain minimum information
in each of the implementation documents, transmission service providers
are also permitted to include additional, undefined parameters and
assumptions in those documents. This could include criteria that are
themselves not sufficiently transparent to allow the Commission and
others to determine whether they have been consistently applied by the
transmission service provider in particular circumstances. This
discretion appears in the three available transfer capability
methodologies (MOD-028-1, MOD029-1, and MOD-030-2), as well as the
Reliability Standards governing the calculation of capacity benefit
margin (MOD-004-1) and transmission reliability margin (MOD-008-1).
    82. It is appropriate for transmission service providers to retain
some level of discretion in the calculation of available transfer
capability. Requiring absolute uniformity in criteria and assumptions
across all transmission service providers would preclude transmission
service providers from calculating available transfer capability in a
way that accommodates the operation of their particular systems. The
Reliability Standards need not be so specific that they address every
unique system difference or differences in risk assumptions when
modeling expected flows. Each transmission service provider should
retain some discretion to reflect unique system conditions or modeling
assumptions in its available transmission capability methodology.\59\
Any such system conditions or modeling assumptions, however, must be
made sufficiently transparent and be

implemented consistently for all transmission customers.
---------------------------------------------------------------------------

    \59\ Order No. 890-A, FERC Stats. & Regs. ] 31,261 at P 51.
---------------------------------------------------------------------------

    83. In order to ensure that this occurs, the Commission proposes to
direct the ERO to conduct an audit of the various implementation
documents developed by transmission service providers to confirm that
the complete available transfer capability methodologies reflected
therein, including the calculation of each component of available
transfer capability, are sufficiently transparent to allow the
Commission and others to replicate and verify those calculations and
thereby ensure that they are being implemented consistently for all
transmission customers. This audit would review the additional
parameters and assumptions included by transmission service providers
in their implementation documents as of the date the Reliability
Standards become effective, analyzing all parameters and assumptions to
determine if they are detailed enough to enable replication and
verification of calculations. Upon review of this analysis, the
Commission may direct the ERO to develop a modification to one or more
of the Reliability Standards to address any lack of transparency that
may exist in the calculation of available transfer capability and each
of its components.
    84. The Commission proposes to direct the ERO to complete this
audit no later than 180 days after the effective date of the
Reliability Standards, as approved by a final rule in this docket.\60\
The Commission also proposes to direct NERC to submit a timeline for
the completion of this audit within 30 days of the issuance of the
final rule in this docket. The Commission discusses below the specific
issues to be analyzed by NERC in its audit.
---------------------------------------------------------------------------

    \60\ The audit should be prepared and submitted by NERC staff
(or any consultants it may choose to employ), rather than the
drafting teams that developed the proposed Reliability Standards.
---------------------------------------------------------------------------

    85. Before turning to those issues, the Commission reiterates that
our intent is not to require the development of a single, uniform
methodology for calculating available transfer capability or its
components. In Order No. 890, the Commission found that the potential
for discrimination does not lie primarily in the choice of an available
transfer capability calculation methodology, but rather in the
consistent application of its components.\61\ The Commission
acknowledged that NERC was developing standards for three available
transfer capability calculation methodologies. The Commission concluded
that, if all of the available transfer capability components and
certain data inputs and assumptions are consistent, the three available
transfer capability calculation methodologies being developed by NERC
would produce predictable and sufficiently accurate, consistent,
equivalent and replicable results.\62\
---------------------------------------------------------------------------

    \61\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 208.
    \62\ Id. P 210.
---------------------------------------------------------------------------

    86. As the Commission explains in Order No. 890-C, issued
concurrently with this order, this does not mean that the results of
available transfer capability calculations on either side of an
interface must be identical in every instance. There are fundamental
differences in the three available transfer capability methodologies
set forth in the proposed Reliability Standards that may keep them from
producing identical results. Even where the same methodology is used by
transmission service providers on either side of an interface, unique
system differences or differences in risk assumptions can lead to
variations in available transfer capability values. The central goal of
the available transfer capability reforms adopted in Order No. 890 was
to limit remaining opportunities for discrimination by requiring each
transmission service provider's available capability transfer
methodology to be sufficiently transparent to allow for independent
validation that it has been consistently applied. Subject to
confirmation by NERC through its audit, the Commission believes that
the Reliability Standards will provide the necessary level of
transparency and, therefore, the results of available transfer
capability calculations will be sufficiently accurate, consistent,
equivalent and replicable.
1. Available Transfer Capability Implementation Documents
    87. First, the Commission proposes to direct the ERO to study
whether each available transfer capability implementation document
developed by each transmission service provider under the Reliability
Standards contains a level of specificity sufficient to allow the
Commission and others to replicate and verify calculations of available
transfer capability and available flowgate capability. Although MOD-
028-1, MOD-029-1, and MOD-030-2 each improves transparency and
consistency by requiring transmission service providers to use certain
specified data and variables in their calculations, they also allow
transmission service providers to use additional parameters and
assumptions as long as they are specified in their implementation
documents. Other than their inclusion in the available transfer
capability implementation document, there do not appear to be any
appreciable factors limiting a transmission service provider's
discretion to use particular parameters and assumptions.
    88. For example, in the Area Interchange Methodology (MOD-028-1),
Requirement R3.1 establishes variables to be used when calculating on-
peak and off-peak intra-day and next-day total transfer capabilities.
The requirement also allows transmission operators to use ``any other
values and additional parameters as specified in the [available
transfer capability implementation document].''\63\ The requirement
does not provide any further limitation on the other values and
additional parameters. Thus, although the requirement promotes
transparency and consistency, it could allow an entity to adopt values
and parameters that are not sufficiently transparent to ensure that the
transmission service provider is not discriminating in the provision of
transmission service through its calculation of available transfer
capability.
---------------------------------------------------------------------------

    \63\ MOD-028-1, Requirement R3.1.
---------------------------------------------------------------------------

    89. Similarly, Requirement R1 of the Rated System Path Methodology
(MOD-029-1) requires a transmission operator, when calculating total
transfer capabilities for available transfer capability, to use a
transmission model that meets the criteria set forth in the sub-
requirements. Requirement R1.1.9 allows a transmission operator to use
a model that ``models series compensation for each line at the expected
operating level unless specified otherwise in the [available transfer
capability implementation document].''\64\ Requirement R1.1.10 allows a
transmission operator to use a model that ``includes any other modeling
requirements or criteria specified in the [available transfer
capability implementation document].''\65\
---------------------------------------------------------------------------

    \64\ MOD-029-1, Requirement R1.1.9.
    \65\ MOD-029-1, Requirement R1.1.10.
---------------------------------------------------------------------------

    90. The same unrestrained discretion is found in the Flowgate
Methodology (MOD-030-2). Requirement R2.1 requires transmission
operators to include flowgates used in the available flowgate
capability based, at a minimum, on specified criteria. This criteria
includes, at Requirement R2.1.3, any limiting element/contingency
combination at least within the transmission model identified in

Requirement R3.4\66\ and R3.5\67\ that has been subjected to an
interconnection-wide congestion management procedure within the last 12
months, unless the limiting element/contingency combination is
accounted for using another available transmission capability
methodology. Requirement R2.1.4 allows transmission operators to
consider any limiting element/contingency combination within the
transmission model that has been requested to be included by any other
transmission service provider using the flowgate methodology or area
interchange methodology under certain circumstances.
---------------------------------------------------------------------------

    \66\ Requirement R3.4 requires the transmission operator to make
available to the transmission service provider a transmission model
to determine available flowgate capability that contains modeling
data and system topology for the facilities within its reliability
coordinator's area. Equivalent representation of radial lines and
facilities 161kv or below is allowed.
    \67\ Requirement R3.5 requires the transmission operator to make
available to the transmission service provider a transmission model
to determine available flowgate capability that contains modeling
data and system topology (or equivalent representation) for
immediately adjacent and beyond reliability coordination areas.
---------------------------------------------------------------------------

    91. In Order No. 890, the Commission expressed particular concern
regarding consistency in the use of counterflow assumptions in short-
term and long-term calculations of available transfer capability.\68\
The Reliability Standards achieve consistency by requiring each
transmission service provider to identify in its available transfer
capability implementation document how it accounts for counterflows and
to calculate available transfer capability using assumptions no more
limiting than those used in the planning of operations for the
corresponding time period.\69\ However, the Reliability Standards again
place no limit on the parameters the transmission service provider can
use to account for counterflows. Under MOD-028-1, MOD-029-1, and MOD-
030-2, transmission service providers are permitted to make adjustments
to available transfer capability or available flowgate capability to
reflect counterflows so long as such adjustments are allowed under the
counterflow methodology identified in the available transfer capability
implementation document.\70\
---------------------------------------------------------------------------

    \68\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 292-93;
Order 693, FERC Stats. & Regs. ] 31,242 at P 1039.
    \69\ MOD-001-1, Requirements R3.2, R7. NERC states in its filing
that additional guidance from the Commission would be necessary in
order to specify in greater detail a single ``best'' approach for
treating counterflows. See NERC Filing at 101. The Commission did
not require the development of a single approach for the treatment
of counterflows. Rather, the Commission required the development of
Reliability Standards that result in the use of counterflow
assumptions for short-term and long-term available transfer
capability calculations that are consistent with those used for the
planning of operations and system expansion. See Order No. 890, FERC
Stats. & Regs. ] 31,241 at P 292-93; Order 693, FERC Stats. & Regs.
] 31,242 at P 1039. The proposed Reliability Standards adequately
address that requirement by directing each transmission service
provider to identify in its implementation document how it will
address counterflows in its calculation of available transfer
capability and available flowgate capacity.
    \70\ MOD-028-1, Requirement R10; MOD-029-1, Requirement R7; MOD-
030-2, Requirement R8.
---------------------------------------------------------------------------

    92. The Commission also expressed concern in Order No. 890
regarding the treatment of reservations with the same point of receipt
(generator), but multiple points of delivery (load), in setting aside
existing transmission capacity.\71\ The Commission found that such
reservations should not be modeled in the existing transmission
commitments calculation simultaneously if their combined reserved
transmission capacity exceeds the generator's nameplate capacity at the
point of receipt. The Commission required the development of
Reliability Standards that lay out clear instructions on how these
reservations should be accounted for by the transmission service
provider. The proposed Reliability Standards achieve this by requiring
transmission service providers to identify in their implementation
documents how they have implemented MOD-028-1, MOD-029-1, or MOD-030-2,
including the calculation of existing transmission commitments.\72\
However, the Reliability Standards again place no limits on the
parameters that each transmission service provider can use.
---------------------------------------------------------------------------

    \71\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 245; Order
693, FERC Stats. & Regs. ] 31,242 at P 1033.
    \72\ MOD-001-1, Requirement R3.1. In its filing, NERC discusses
several options should the Commission desire to impose a uniform
approach regarding the treatment of reservations with the same point
of receipt, but multiple points of delivery. See NERC Filing at 90-
92. Neither Order No. 890 nor Order No. 693 directed that a single
approach be adopted to account for such reservations and, instead,
required only that instructions on how these reservations are
accounted for by the transmission service provider be clearly laid
out. See Order No. 890, FERC Stats. & Regs. ] 31,241 at P 245; Order
693, FERC Stats. & Regs. ] 31,242 at P 1033. The obligation of each
transmission service provider to identify in its implementation
document how they have implemented MOD-028-1, MOD-029-1, or MOD-030-
2, including the calculation of existing transmission capacity,
satisfies this requirement.
---------------------------------------------------------------------------

    93. The proposed Reliability Standards thus provide each
transmission service provider with substantial discretion when
implementing various aspects of its available transfer capability
methodology. The Commission recognizes that there are aspects of
calculations that require the use of parameters and assumptions
tailored to the particular needs of a transmission service provider. In
certain instances, however, this discretion could be used by a
transmission service provider to include criteria that allow for
discrimination in the provision of transmission service through
inconsistent calculation of available transfer capability. For example,
the use of parameters, modeling requirements, criteria, or assumptions
that are undefined or ``black box'' in nature would provide the
transmission service provider with the opportunity and ability to vary
its calculations depending on the customer seeking service. Such
discretion undermines the ability of the Commission and others to
replicate and verify the results of a transmission service provider's
calculations.
    94. In order to ensure that remaining opportunities for undue
discrimination are identified and eliminated, the Commission proposes
to direct the ERO to conduct a review of the additional parameters and
assumptions included by each transmission service provider in its
available transfer capability implementation document as of the date
the Reliability Standards become effective. Based on its review, NERC
would identify in the audit required above those instances in which
parameters and assumptions are not sufficiently specific or transparent
to allow the Commission and others to replicate and verify the results
of the transmission service provider's calculation of available
transfer capability or available flowgate capacity. Upon review of
NERC's analysis, the Commission may direct the ERO to develop a
modification to MOD-001-1 to address any lack of transparency. The
Commission seeks comment whether additional requirements should be
directed in this proceeding to ensure that the discretion provided
under the available transfer capability implementation documents cannot
be used to unduly discriminate in the provision of transmission
service.
2. Capacity Benefit Margin Implementation Documents
    95. Second, the Commission proposes to direct the ERO to study
whether the capacity benefit margin implementation documents developed
by transmission service providers under MOD-004-1 contain a level of
specificity sufficient to allow the Commission and others to replicate
and verify the calculation, allocation, and use of capacity benefit
margin by transmission service providers. As explained above, capacity

benefit margin is the amount of firm transmission capability preserved
by the transmission service provider for load-serving entities, whose
loads are located on that transmission service provider's system, to
enable access by the load-serving entities to generation from
interconnected systems to meet generation reliability requirements. As
NERC explained in its filing, various entities have already developed
methodologies for determining capacity benefit margin. Accordingly,
NERC proposed a Reliability Standard that allows transmission service
providers flexibility in choosing an appropriate methodology for
calculating, allocating and using capacity benefit margins. Although
MOD-004-1 specifies core elements that should be consistent among all
methodologies, the transmission service provider has discretion to use
any methodology to calculate, allocate, and use capacity benefit
margins, provided that it is identified and described in the
implementation document.
    96. For example, Requirements R5.1 and R6.1 of MOD-004-1 require
the transmission service provider to establish capacity benefit margin
values for each path and flowgate reflecting consideration of studies
provided by load-serving entities and resource planners demonstrating a
need for capacity benefit margin and applicable reserve margin or
resource adequacy requirements. Although Requirement R1.2 requires the
transmission service provider to identify in its capacity benefit
margin implementation document the procedures and assumptions for
establishing these path and flowgate values, the Reliability Standard
places no limitations or parameters on those procedures or assumptions.
As with MOD-001-1, MOD-004-1 would permit the transmission service
provider to adopt procedures and assumptions that are not sufficiently
transparent to ensure that the transmission provider is similarly
treating similarly-situated customers. The Commission is therefore
concerned that the Reliability Standard could be implemented by a
transmission service provider in a way that allows for undue discretion
in the provision of transmission service.
    97. In order to ensure that remaining opportunities for undue
discrimination are identified and eliminated, the Commission proposes
to direct the ERO to conduct a review of the procedures and assumptions
included by each transmission service provider in its capacity benefit
margin implementation document as of the date the Reliability Standards
become effective. Based on its review, NERC would identify in the audit
required above those instances in which additional procedures and
assumptions are not sufficiently specific or transparent to allow the
Commission and others to replicate and verify the calculation,
allocation and use of capacity benefit margin by the transmission
service provider.\73\ Upon review of NERC's analysis, the Commission
may direct the ERO to develop a modification to MOD-004-1 to address
any lack of transparency. The Commission seeks comment whether
additional requirements should be directed in this proceeding to ensure
that the discretion provided under the capacity benefit margin
implementation documents cannot be used to unduly discriminate in the
provision of transmission service.
---------------------------------------------------------------------------

    \73\ The scope of this audit should not include review of the
studies supporting requests for capacity benefit margin. The
Commission agrees with NERC that it would be inappropriate to place
a functional entity, such as the transmission service provider, in
the position of having to judge the quality of a study supporting a
customer's request for capacity benefit margin. Requirements R3 and
R4 of MOD-004-1 identify the specific kinds of studies that must be
performed and supporting information that is to be maintained when
determining a need for capacity benefit margin. Compliance with
these requirements can be audited by NERC and the regional entities
in the normal course of their compliance review. See Guidance Order
on Compliance Audits Conducted by the Electric Reliability
Organization and Regional Entities, 126 FERC ] 61,038 (2009).
---------------------------------------------------------------------------

3. Transmission Reliability Margin Implementation Documents
    98. Finally, the Commission proposes to direct the ERO to study
whether the transmission reliability margin implementation documents
developed by each transmission operator under the Reliability Standards
contain a level of specificity sufficient to allow the Commission and
others to replicate and verify the calculation and use of transmission
reliability margin. Transmission reliability margin is transmission
transfer capability set aside to mitigate risks to operations, such as
deviations in dispatch, load forecast, outages, and similar such
conditions. As NERC explains in its filing, transmission reliability
margin is a subjective quantity as it is almost entirely based on the
principles of risk management and risk tolerance, which vary from
entity to entity.\74\ Therefore, although MOD-008-1 identifies the
particular categories of uncertainty that transmission operators may
consider when establishing transmission reliability margin, the
transmission operator is permitted to use any methodology to calculate,
allocate, and use transmission reliability margins, provided that it is
identified and described in the implementation document.
---------------------------------------------------------------------------

    \74\ NERC Filing at 97.
---------------------------------------------------------------------------

    99. NERC states in its filing that guidance from the Commission
would be necessary in order to specify in greater detail a single
``best'' methodology to govern the calculation of a maximum
transmission reliability margin.\75\ The Commission does not believe
that it is necessary to establish a single methodology for calculating,
allocating and using transmission reliability margin. In Order Nos. 890
and 693, the Commission directed NERC to clarify how transmission
reliability margin should be calculated and allocated across paths or
flowgates and how to establish an appropriate maximum transmission
reliability margin.\76\ The Commission directed NERC to specify the
parameters for entities to use in determining uncertainties for which
transmission reliability margin can be set aside and used. The
Commission also directed the ERO to modify its Reliability Standards to
prevent the use of capacity benefit margin and transmission reserve
margin for the same purposes (i.e. double counting). The proposed
Reliability Standard accomplishes these directives by requiring each
transmission operator to identify in its transmission reliability
margin implementation document the components that will be used to
calculate transmission reliability margin, how those components will be
used, and how resulting transmission reliability margin values will be
allocated across paths or flowgates.\77\ This level of detail satisfies
the requirements of Order No. 890 and related directives of Order No.
693 by making each transmission operator's transmission reliability
margin methodologies transparent.
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    \75\ Id.
    \76\ Order No. 890, FERC Stats. & Regs. ] 31,241 at P 275; Order
No. 693, FERC Stats. & Regs. ] 31,242 at P 1122-23, 1126.
    \77\ MOD-008-1, Requirement R1.
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    100. However, as with MOD-001-1 and MOD-004-1, the Commission is
concerned that MOD-008-1 could be implemented by a transmission
operator in a way that allows for undue discrimination in the provision
of transmission service. For example, Requirements R1.1 and R1.2 of
MOD-008-1 require each transmission operator to include in its
transmission reliability margin implementation document the components
of uncertainty used in establishing a transmission reliability margin,
a description of how those components

are used in the calculation of transmission reliability margin, and a
description of how transmission reliability margin is allocated across
paths or flowgates. The transmission reliability margin implementation
document developed by transmission operators could include parameters,
modeling requirements, criteria or assumptions that are insufficiently
transparent, providing the transmission operator the opportunity and
ability to vary its calculations depending on the customer requesting
transmission service.
    101. In order to ensure that remaining opportunities for undue
discrimination are identified and eliminated, the Commission proposes
to direct the ERO to conduct a review of the procedures identified in
each transmission operator's transmission reserve margin implementation
document as of the date the Reliability Standards become effective.
Based on its review, NERC would identify in the audit required above
those instances in which procedures, criteria, or assumptions are not
sufficiently specific or transparent to allow the Commission and others
to replicate and verify the results of the transmission operator's
calculation of transmission reserve margin. Upon review of NERC's
analysis, the Commission may direct the ERO to develop a modification
to MOD-008-1 to address any lack of transparency. The Commission seeks
comment whether additional requirements should be directed in this
proceeding to ensure that the discretion provided under the
transmission reserve margin implementation documents cannot be used to
unduly discriminate in the provision of transmission service.

B. Proposed Modifications of the Reliability Standards

    102. While the Commission generally proposes to approve the
Reliability Standards as in compliance with Order No. 890 and the
related directives of Order No. 693, the Commission also proposes to
direct the ERO to develop modifications of the Reliability Standards to
comply with the following discrete issues: The availability of each
transmission service provider's implementation documents; the
consistent treatment of assumptions in the calculation of available
transfer capability; the calculation, allocation and use of capacity
benefit margin; the calculation of total transfer capability under the
Rated System Path Methodology; and, the treatment of network resource
designations in the calculation of available transfer capability. Each
of these issues is discussed below.
1. Availability of Implementation Documents
a. NERC Proposal
    103. The proposed Reliability Standards require that the available
transfer capacity, capacity benefit margin, and transmission
reliability margin implementation documents be made available to
specified entities. Requirement R4 of MOD-001-1 requires that the
following entities have access to the available transfer capability
implementation document: Each planning coordinator, reliability
coordinator, and transmission operator associated with the transmission
service provider's area; and each planning coordinator, reliability
coordinator, and transmission service provider adjacent to the
transmission service provider's area. Requirement R2 of MOD-004-1
requires each transmission service provider to make its capacity
benefit margin implementation document available to transmission
operators, transmission service providers, reliability coordinators,
transmission planners, resource planners, and planning coordinators
that are within or adjacent to the transmission service provider's
area, and to load-serving entities and balancing authorities within the
transmission service provider's area. Requirement R3 of MOD-008-1
requires each transmission operator to provide its transmission
reliability implementation document upon request by transmission
service providers, reliability coordinators, transmission planners, and
transmission operators. NERC states that it and NAESB have agreed that
requirements for making information available to other entities are
more appropriately addressed through the NAESB process.
b. Commission Proposal
    104. The Commission is concerned that the proposed Reliability
Standards potentially restrict the disclosure of the available transfer
capability, capacity benefit margin, and transmission reliability
margin implementation documents. NERC does not explain in its filings
why only certain entities would have access to these materials, nor why
the specified list of recipients varies for each document. While the
Commission notes that the proposed NAESB standards accompanying the
Reliability Standards would require transmission service providers to
post a link to the implementation documents on their OASIS, which would
result in disclosure beyond the specified entities listed in the
Reliability Standards, the Commission believes that it is important for
reliability purposes to require disclosure of the implementation
documents to a broader audience than provided in the Reliability
Standards. The Commission's jurisdiction under section 215 of the FPA
is broader than our jurisdiction to require compliance with the NAESB
standards under sections 205 and 206 of the FPA. These documents will
describe how the transmission provider will implement the Reliability
Standards and, therefore, should be disclosed by all transmission
service providers, not only those who are also public utilities.
    105. Therefore, to ensure sufficient transparency, the Commission
proposes to direct the ERO, pursuant to section 215(d)(5) of the FPA
and section 35.19(f) of our regulations, to modify the proposed
Reliability Standards to make the available transfer capability,
capacity benefit margin, and transmission reliability margin
implementation documents available to all customers eligible for
transmission service in a manner that is consistent with relevant NAESB
standards. The Commission seeks comment on any improvements that may be
necessary to improve access by transmission customers to the
implementation documents.
2. Consistent Treatment of Assumptions
a. NERC Proposal
    106. Under each of the methodologies contained in the proposed
Reliability Standards, available transfer capability is calculated as
total transfer capability minus existing transmission commitments,
capacity benefit margin, and transmission reliability margin, plus
postbacks and counterflows. NERC contends that the Reliability
Standards work together to ensure that similar risks will not be double
counted in the calculation of capacity benefit margin and transmission
reliability margin. Specifically, Requirement R2 of MOD-008-1 prohibits
a transmission operator from including any of the components of
capacity benefit margin in the components of uncertainty used to
calculate transmission reliability margin. NERC contends that MOD-004-1
addresses this prohibition by describing the specific type of studies
and requirements that may be used to determine a need for capacity
benefit margin.
b. Commission Proposal
    107. The Commission is concerned that proposed Reliability
Standards do not preclude a transmission service

provider from using data and assumptions in a way that double counts
their impact on available transfer capability and thereby skews the
amount of capacity made available to others. NERC states that MOD-004-1
and MOD-008-1 have been drafted to preclude the double counting of
similar risks in the calculation of capacity benefit margin and
transmission reliability margin. However, other components of the
available transfer capability calculation could be affected by the same
data or assumptions, and there is no apparent restriction in the
Reliability Standards from such data or assumptions in a way that
double counts their impact on available transfer capability.
    108. For example, the Reliability Standards would appear to allow
the transmission service provider to factor a reserve margin for
facility outages into more than one of the components of the available
transfer capability calculation. If the effect of the reserve margin
were to appear in multiple components of the available transfer
capability calculation in a similar way, under certain modeling
approaches the results of that calculation would be skewed. While it
may be appropriate for some variables to be factored into multiple
components of the available transfer capability calculation, such as
facility ratings, the Reliability Standards do not require that
assumptions affecting multiple components of the available transfer
capability calculation are implemented in a way that is consistent with
their actual effect on available transfer capability. The Commission
proposes to direct the ERO, pursuant to section 215(d)(5) of the FPA
and section 35.19(f) of our regulations, to modify the proposed
Reliability Standards to ensure that the proposed Reliability Standards
preclude a transmission service provider from using data and
assumptions in a way that double counts their impact on available
transfer capability and thereby skews the amount of capacity made
available to others.
3. Capacity Benefit Margin (MOD-004-1)
a. NERC Proposal
    109. As noted above, Requirements R5.1 and R6.1 of MOD-004-1
require transmission service providers to establish capacity benefit
margin values for each path and flowgate ``reflect[ing] consideration
of'' both (i) studies provided by load-serving entities and resource