[Federal Register: March 29, 2010 (Volume 75, Number 59)]
[Proposed Rules]
[Page 15362-15371]
[DOCID:fr29mr10-15]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM10-17-000]

Demand Response Compensation in Organized Wholesale Energy
Markets

March 18, 2010.
AGENCY: Federal Energy Regulatory Commission, Energy.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission is issuing a Notice
of Proposed Rulemaking (NOPR) proposing an approach for compensating
demand response resources in order to improve the competitiveness of
organized wholesale energy markets and thus ensure just and reasonable
wholesale rates. The Commission invites all interested persons to
submit comments in response to the regulatory text proposed herein.

DATES: Comments are due May 13, 2010.

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.
    Instructions: For detailed instructions on submitting comments and
additional information on the rulemaking process, see the Comment
Procedures Section of this document.

FOR FURTHER INFORMATION CONTACT:
Arnie Quinn, Federal Energy Regulatory Commission, Office of Energy
Policy & Innovation, 888 First Street, NE., Washington, DC 20426. (202)
502-8693<EMAIL_ADDRESS>Helen Dyson, Federal Energy Regulatory Commission, Office of the
General Counsel, 888 First Street, NE., Washington, DC 20426. (202)
502-8856<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

130 FERC ] 61,213, PJM Interconnection, LLC, Docket No. EL09-68-000

Notice of Proposed Rulemaking

Table of Contents

                                                               Paragraph
                                                                Numbers

I. Background...............................................           2
    A. Role of Demand Response in Organized Wholesale Energy           2
     Markets................................................
    B. Current ISO and RTO Demand Response Programs.........           7
    C. The Need for Reform..................................           9
II. Discussion..............................................          11
III. Information Collection Statement.......................          24
IV. Environmental Analysis..................................          32
V. Regulatory Flexibility Act Certification.................          33
VI. Comment Procedures......................................          41
VII. Document Availability..................................          45

    1. The Federal Energy Regulatory Commission (Commission) is
proposing to revise its regulations to establish the approach described
below as compensation for demand response \1\ resources \2\
participating in organized energy markets. We propose that Independent
System Operators (ISOs) and Regional Transmission Organizations (RTOs)
\3\ with tariff provisions permitting demand response providers to
participate as resources in energy markets by reducing consumption of
electricity from their expected levels in response to price signals be
required to pay to demand response providers, in all hours, the market
price for energy for such reductions.\4\
---------------------------------------------------------------------------

    \1\ Demand response means a reduction in the consumption of
electric energy by customers from their expected consumption in
response to an increase in the price of electric energy or to
incentive payments designed to induce lower consumption of electric
energy. 18 CFR 35.28(b)(4).
    \2\ Demand response resource means a resource capable of
providing demand response. 18 CFR 35.28(b)(5).
    \3\ The following RTOs and ISOs have organized wholesale
electricity markets: PJM Interconnection, LLC (PJM); New York
Independent System Operator, Inc. (NYISO); Midwest Independent
Transmission System Operator, Inc. (Midwest ISO); ISO New England,
Inc. (ISO-NE); California Independent System Operator Corp. (CAISO);
and Southwest Power Pool, Inc. (SPP).
    \4\ This provision applies only to demand response acting as a
resource in organized wholesale energy markets. The provision will
not apply to demand response under programs that ISOs and RTOs
administer for reliability or emergency conditions, such as, for
instance, Midwest ISO's Emergency Demand Response; NYISO's Emergency
Demand Response Program; PJM's Emergency Load Response; and ISO-NE's
Real-Time 30-Minute Demand Response Program, Real-Time and 2-Hour
Demand Response Program, and Real-Time Profiled Response Program.
This provision also will not apply to compensation in ancillary
services markets, which the Commission has addressed elsewhere. See
e.g., Wholesale Competition in Regions with Organized Electric
Markets, Order No. 719, 73 FR 64,100 (Oct. 28, 2008), FERC Stats. &
Regs. P 31,281 (2008) (Order No. 719 or Final Rule).
---------------------------------------------------------------------------

I. Background

A. Role of Demand Response in Organized Wholesale Energy Markets

    2. The Commission has acted over the last several decades to
implement Congressional policy to expand the wholesale energy markets
to facilitate entry of new resources and support competitive markets.
Most recently, the Commission in Order No. 719 implemented a series of
reforms aimed at improving the competitiveness of the organized energy
markets, finding that effective wholesale competition protects
consumers by, among other things, providing more supply options,
encouraging new entry and innovation, and spurring deployment of new
technologies.\5\ Improving the competitiveness of organized wholesale
markets, the Commission concluded, is therefore ``integral to the
Commission fulfilling its statutory mandate to ensure supplies of
electric energy at just, reasonable, and not unduly discriminatory or
preferential rates.'' \6\
---------------------------------------------------------------------------

    \5\ See Order No. 719 at P 1; see also Regional Transmission
Organizations, Order No. 2000, FERC Stats. & Regs. ] 31,089, at P 1
(1999), order on reh'g, Order No. 2000-A, FERC Stats. & Regs. ]
31,092 (2000), aff'd sub nom. Pub. Util. Dist. No. 1 of Snohomish
County, Washington v. FERC, 272 F.3d 607, 348 U.S. App. D.C. 205 (DC
Cir. 2001).
    \6\ Order No. 719 at P 1.
---------------------------------------------------------------------------

    3. As the Commission recognized in Order No. 719, active
participation by customers in organized wholesale energy markets
through demand reductions helps to increase competition in those
markets.\7\ Demand reductions whereby customers reduce electricity
consumption from normal usage levels in response to price signals can
generally occur in two ways: (1) Customers reduce demand by responding
to dynamic rates that are based on wholesale prices (sometimes called
``price-responsive demand''); and (2) customers can provide demand
response that acts as a resource in wholesale markets to balance supply
and demand. While a number of States and utilities are pursuing retail-
level price-responsive demand initiatives based on dynamic and time-
differentiated retail prices and utility investments, these are State
initiatives, and, thus, are not the subject of this proceeding.\8\ Our
focus here is on customers providing--through bids--demand response
that acts as a resource in organized wholesale energy markets.
---------------------------------------------------------------------------

    \7\ See Order No. 719 at P 48.
    \8\ Some ISOs and RTOs are engaged in stakeholder discussions
concerning the coordination necessary between wholesale markets and
retail rate design, and we expect to address any filings emerging
from those discussions in future proceedings.
---------------------------------------------------------------------------

    4. Demand response acting as a resource in organized wholesale
energy markets helps to improve the functioning and competitiveness of
such markets in several ways. First, demand response can lower prices.
When bid directly into the wholesale market, demand response--which
results in

lower demand--can result in lower clearing prices.\9\ For example, a
study conducted by PJM, which simulated the effect of demand response
on prices, demonstrated that a modest three percent load reduction in
the 100 highest peak hours corresponds to a price decline of six to 12
percent.\10\ Demand response can also lower prices in the organized
wholesale energy markets by reducing the need to dispatch higher-priced
generation, or construct new generation, in an effort to satisfy
load.\11\ Second, demand response can mitigate generator market
power.\12\ This is because the more demand response is able to reduce
demand, the more downward pressure it places on generator bidding
strategies by increasing the risk to a supplier that it will not be
dispatched if it bids a price that is too high.\13\ Third, demand
response has the potential to support system reliability and address
resource adequacy \14\ and resource management challenges surrounding
the unexpected loss of generation.\15\
---------------------------------------------------------------------------

    \9\ Wholesale Competition in Regions with Organized Electric
Markets, Order No. 719-A, FERC Stats. & Regs. ] 31,292 (2009).
    \10\ ISO-RTO Council Report, Harnessing the Power of Demand: How
ISOs and RTOs Are Integrating Demand Response into Wholesale
Electricity Markets, found at http://www.isorto.org/atf/cf/
%7B5B4E85C6-7EAC-40A0-8DC3-003829518EBD%7D/IRC_DR_Report_
101607.pdf.
    \11\ Id. (``Demand response tends to flatten an area's load
profile, which in turn may reduce the need to construct and use more
costly resources during periods of high demand; the overall effect
is to lower the average cost of producing energy.''). Similarly,
NYISO ``has experienced a significant increase in the registration
of the [demand response] programs that have effectively reduced the
need for additional [generation] capacity resources to the system
based on customer pledges to cut energy usage on demand.'' See
NYISO's 2009 Comprehensive Reliability Plan at 3, found at http://
www.nyiso.com/public/webdocs/newsroom /planning_reports/CRP__
FINAL_5-19-09.pdf.
    \12\ See Comments of NYISO's Market Monitor filed in Docket No.
ER09-1142-000, May 15, 2009 (Demand response ``contributes to
reliability in the short-term, resource adequacy in the long-term,
reduces price volatility and other market costs, and mitigates
supplier market power.'').
    \13\ Id.
    \14\ See ISO-RTO Council Report, Harnessing the Power of Demand:
How ISOs and RTOs Are Integrating Demand Response into Wholesale
Electricity Markets at 4, found at http://www.isorto.org/atf/cf/
%7B5B4E85C6-7EAC-40A0-8DC3-003829518EBD%7D/IRC_DR_Report_
101607.pdf (``Demand response contributes to maintaining system
reliability. Lower electric load when supply is especially tight
reduces the likelihood of load shedding. Improvements in reliability
mean that many circumstances that otherwise result in forced outages
and rolling blackouts are averted, resulting in substantial
financial savings. * * *''); Smart Grid Policy, 126 FERC ] 61,253,
at P 19 and n.23 (2009) (``The Smart Grid concept envisions a power
system architecture that permits two-way communication between the
grid and essentially all devices that connect to it, ultimately all
the way down to large consumer appliances. * * * Once that is
achieved, a significant proportion of electric load could become an
important resource to the electric system, able to respond
automatically to customer-selected price or dispatch signals
delivered over the Smart Grid infrastructure without significant
degradation of service quality.'').
    \15\ For instance, in ERCOT, on February 26, 2008, through a
combination of a sudden drop in power supplied by wind generators, a
quicker-than-expected ramping up of demand, and the loss of thermal
generation, ERCOT found itself short of reserves. The system
operator called on all demand response resources, and 1200 MW of
Load acting as Resource (LaaRs) responded within ten minutes,
bringing ERCOT back into balance, from 59.85 Hz back to 60 Hz.
---------------------------------------------------------------------------

    5. Given its ability to lower electricity prices and ensure
reliability, demand response can play a critical role in helping the
Commission fulfill its mandate under the Federal Power Act (FPA) to
ensure that rates charged for energy are just and reasonable.\16\
Accordingly, and consistent with national policy requiring facilitation
of demand response,\17\ the Commission has acted to remove barriers to
participation of demand response resources in organized wholesale
electricity markets. For example, in Order No. 890, the Commission
modified the pro forma Open Access Transmission Tariff to allow non-
generation resources, including demand response resources, to be used
in the provision of certain ancillary services where appropriate on a
comparable basis to service provided by generation resources.\18\ Order
No. 890-A further requires transmission providers to develop
transmission planning processes that treat all resources, including
demand response, on a comparable basis.\19\
---------------------------------------------------------------------------

    \16\ 16 U.S.C. 824d (2006).
    \17\ See EPAct 2005, Public Law 109-58, Sec.  1252(f), 119 Stat.
594, 965 (2005) (``It is the policy of the United States that * * *
unnecessary barriers to demand response participation in energy,
capacity, and ancillary service markets shall be eliminated.'').
    \18\ Preventing Undue Discrimination and Preference in
Transmission Service, Order No. 890, FERC Stats. & Regs. ] 31,241 at
P 887-88 (2007), order on reh'g, Order No. 890-A, FERC Stats. &
Regs. ] 31,261 (2007), order on reh'g and clarification, Order No.
890-B, 73 FR 39092 (Jul. 8, 2008), 123 FERC ] 61,299 (2008), order
on reh'g, Order No. 890-C, 126 FERC ] 61,228 (2009), order on
clarification, Order No. 890-D, 129 FERC ] 61,126 (2009).
    \19\ Order No. 890-A at P 216.
---------------------------------------------------------------------------

    6. The Commission built on these reforms in Order No. 719,
requiring ISOs and RTOs to, among other things, accept bids from demand
response resources in their markets for certain ancillary services on a
basis comparable to other resources.\20\ The Commission also required
each ISO and RTO ``to reform or demonstrate the adequacy of its
existing market rules to ensure that the market price for energy
reflects the value of energy during an operating reserve shortage,''
\21\ for purposes of encouraging existing generation and demand
resources to continue to be relied upon during an operating reserve
shortage, and encouraging entry of new generation and demand
resources.\22\
---------------------------------------------------------------------------

    \20\ Order No. 719 at P 47-49.
    \21\ Id. P 194.
    \22\ Id. P 247.
---------------------------------------------------------------------------

B. Current ISO and RTO Demand Response Programs

    7. In addition to the foregoing efforts, the Commission has issued
orders in recent years approving various types of ISO and RTO demand
response programs. As noted above, some of these programs are
administered for reliability and emergency conditions. Apart from these
programs, wholesale customers and qualifying large retail customers may
bid demand response directly into the day-ahead and real-time energy
markets, certain ancillary service markets and capacity markets.\23\
Demand response providers participating as resources in the day-ahead
and real-time energy markets are the subject of this proceeding.
---------------------------------------------------------------------------

    \23\ Other demand response programs allow demand response to be
used as a capacity resource and as a resource during system
emergencies or permit the use of demand response for synchronized
reserves and regulation service. See, e.g., PJM Interconnection,
LLC, 117 FERC ] 61,331 (2006); Devon Power LLC, 115 FERC ] 61,340,
order on reh'g, 117 FERC ] 61,133 (2006), appeal pending sub nom.,
Maine Pub. Utils. Comm'n v. FERC, No. 06-1403 (DC Cir. 2007); New
York Indep. Sys. Operator., Inc., 95 FERC ] 61,136 (2001); NSTAR
Services Co. v. New England Power Pool, 95 FERC ] 61,250 (2001); New
England Power Pool and ISO New England, Inc., 100 FERC ] 61,287,
order on reh'g, 101 FERC ] 61,344 (2002), order on reh'g, 103 FERC ]
61,304, order on reh'g, 105 FERC ] 61,211 (2003); PJM
Interconnection, LLC, 99 FERC ] 61,227 (2002).
---------------------------------------------------------------------------

    8. With particular regard to demand response compensation for this
latter category of resources, the Commission previously has allowed a
system-by-system approach, whereby each RTO and ISO has developed its
own compensation methodologies for demand response resources in its
energy market. As a result, the levels of compensation for demand
response vary significantly among RTOs and ISOs. PJM pays the
Locational Marginal Price (LMP) \24\ minus the generation and
transmission portions of the retail rate.\25\ ISO-NE and NYISO
currently pay LMP

when prices are above a threshold level, with the levels differing
between the RTOs.\26\ The Midwest ISO currently has a program that pays
LMP for demand response in the real-time energy market when the demand
response provider has purchased the amount reduced in the day-ahead
market for energy and ancillary services.\27\ CAISO pays LMP in its
participating load program that allows qualifying resources to provide
day-ahead and real-time energy and non-spinning reserves.\28\ SPP
currently has no demand response program at all.\29\ ISOs and RTOs have
continued to examine the effectiveness of demand response compensation
in their respective regions, and, as a result, the issue of proper
compensation continues to be the subject of several proceedings.\30\
---------------------------------------------------------------------------

    \24\ LMP refers to the price calculated by the ISO or RTO at
particular locations or electrical nodes within the ISO or RTO
footprint and is used as the market price to compensate generators.
There are variations in the way ISOs and RTOs calculate LMP;
however, each method establishes the marginal value of resources in
that market. Nothing in this NOPR is intended to change ISO and RTO
methods for calculating LMP.
    \25\ PJM FERC Electric Tariff, Sixth Revised Sheet No. 388D.01.
    \26\ For example, under ISO-NE's Real Time Price Response
Program, the minimum bid is $100/MWh and a demand response resource
is paid the higher of LMP or $100/MWh. See Section III.1.3 of the
ISO New England Transmission, Markets and Services Tariff, Section 1
of the Second Restated New England Power Pool Agreement. NYISO
implements a day-ahead demand response program by which resources
bid into the market at a minimum of $75/MWh and can get paid the
LMP. See NYISO Incentivized Day-Ahead Economic Load Curtailment
Program, Fifth Revised Tariff Sheet No. 34-34A, 89.
    \27\ See Charges and Credits for Real-Time Energy and Operating
Reserve Market Energy Purchases and Sales Associated with Demand
Response Resources. Midwest ISO FERC Electric Tariff, Fourth Revised
Volume No. 1, Second Revised Sheet No. 1114.
    \28\ See section <IP_ADDRESS> IFM Payments for Supply of Energy,
CAISO FERC Electric Tariff.
    \29\ However, the Commission has directed SPP to report on ways
it can incorporate demand response into its imbalance market.
Southwest Power Pool, Inc., 114 FERC ] 61,289, at P 229 (2006). In
its orders addressing SPP's compliance with Order No. 719, the
Commission also directed SPP to make a subsequent compliance filing
addressing demand response participation in its organized markets.
Southwest Power Pool, Inc., 129 FERC ] 61,163, at P 51 (2009).
    \30\ See PJM Interconnection, LLC, Docket No. EL09-68-000; ISO
New England, Inc., Docket No. ER09-1051-000; ISO New England, Inc.,
Docket No. ER08-830-000; Midwest Indep. Transmission Sys. Operator,
Inc., Docket No. ER09-1049-000.
---------------------------------------------------------------------------

C. The Need for Reform

    9. Despite the benefits of demand response and various efforts by
the Commission, ISOs and RTOs to address barriers to and compensation
for demand response participation, demand response providers
collectively play a small role in wholesale markets. After several
years of observing demand response participation in ISO and RTO markets
with different, and often evolving, demand response compensation
structures, the Commission is concerned that some existing, inadequate
compensation structures have hindered the development and use of demand
response. The impediment has been addressed at Commission-sponsored
technical conferences concerning demand response, where participants
have confirmed that customers ``must have confidence that appropriate
price signals will be sustained by stable competitive pricing
structures, before they will make an investment in demand response.''
\31\ Some participants have advised that demand response quite simply
will not occur without adequate compensation.\32\
---------------------------------------------------------------------------

    \31\ Transcript of Order No. 719 technical conference at 24,
statement by James Eber, Director of Demand Response at Commonwealth
Edison, found at http://www.ferc.gov/EventCalendar/
EventDetails.aspx?ID=3994&CalType=%20&CalendarID=116&Date=05/21/
2008&View=Listview.
    \32\ See Statements of Larry Stalica, Vice President, Linde
Energy Services, Inc. FERC Technical Conference--Demand Response in
Organized Electric Markets, May 21, 2008, found at http://
www.ferc.gov/EventCalendar/Files/20080521081612-
Stalica,%20Linde%20Energy%20Services.pdf. (``The mere avoidance of
electricity prices often provides insufficient value to offset these
real costs. Demand response will not occur if customers do not have
an economic incentive to reduce consumption.'').
---------------------------------------------------------------------------

    10. Indeed, there are indications that demand response resources
react correspondingly to increases or decreases in payment. PJM
provides a case study on this point. It first implemented its Economic
Load Response Program (Economic Program) providing for demand response
compensation in June 2002.\33\ Several years later, starting in January
2008, when PJM reduced its compensation for demand response, settled
demand reductions began decreasing from previous years.\34\
Specifically, PJM's Market Monitor noted that, from 2007 to 2008,
following the decrease in compensation, settled demand reductions
decreased by 36.8 percent, from 714,200 MWh to 458,300 MWh, and the
decline has continued at least through March 2009.\35\ Although the
Commission had rejected a request to prevent the compensation decrease
from occurring as per the terms of PJM's then-existing tariff, the
Commission encouraged PJM and its stakeholders to continue analyzing
the effectiveness of PJM's demand response program with the decreased
payments for demand response.\36\ Based upon our own review, the
Commission is now concerned that evidence of demand reductions in PJM,
and inadequate demand response participation, now and in the future,
may be the result of compensation that is no longer just and
reasonable, because, as detailed below, the existing and varying levels
of compensation generally fail to reflect the marginal value of demand
response resources to ISO and RTO energy markets.
---------------------------------------------------------------------------

    \33\ See PJM Interconnection, LLC, 99 FERC ] 61,227 (2002).
PJM's Economic Program provided for payment of LMP for all demand
response reductions when LMP equaled or exceeded $75/MWh and paid
LMP minus the generation and transmission components of the retail
rate when LMP was less than $75/MWh.
    \34\ The tariff provision providing for payment of LMP when LMP
equaled or exceeded $75/MWh terminated by its terms on December 31,
2007, and, since then, PJM has paid only LMP minus the generation
and transmission components of the retail rate.
    \35\ Monitoring Analytics, Barriers to Demand Side Response in
PJM at 22 (July 1, 2009).
    \36\ PJM Interconnection, LLC, 121 FERC ] 61,315, at P 29
(2007).
---------------------------------------------------------------------------

II. Discussion

    11. Given the importance of demand response resources to the
competitiveness of organized wholesale electricity markets, and based
upon our experience to date with demand response in the ISO- and RTO-
administered markets, the Commission proposes to address compensation
for demand response resources participating in organized wholesale
energy markets generically in this proceeding. The Commission proposes
to add section 35.18(g)(1)(v) to our regulations to establish a
specific compensation approach for demand response resources
participating in organized wholesale energy markets (such as the day-
ahead and real-time markets administered by the ISOs and RTOs). Under
the proposed section, each Commission-approved ISO and RTO that has a
tariff provision providing for participation of demand response
resources in its energy market must pay demand response resources, in
all hours, the market price for energy, i.e., full LMP, for demand
reductions made in response to price signals.\37\
---------------------------------------------------------------------------

    \37\ This provision will not apply to programs that ISOs and
RTOs administer for reliability or emergency conditions. In those
situations, the ISO and RTO tariffs may provide compensation that is
not necessarily related solely to energy prices but is designed to
prevent involuntary load curtailment.
---------------------------------------------------------------------------

    12. The Commission proposes to take this action generically to
address issues that are common to the RTO and ISO markets in a
coordinated manner in a single proceeding. As discussed further below,
we believe paying demand response resources the LMP in all hours will
compensate those resources in a manner that reflects the marginal value
of the resource to each RTO and ISO, comparable to treatment of
generation resources. This will improve the competitiveness of the
organized wholesale energy markets and, in turn, help to ensure that
energy prices in those markets are just and reasonable.
    13. As explained above, we have previously accepted a variety of
ISO and

RTO proposals for compensation for demand response providers, with
different levels of payment. As we have gained experience with these
programs, we are concerned that the current compensation levels appear
to have become unjust and unreasonable. Providers may submit price and
quantity bids into the organized wholesale energy markets and the
market clears at the marginal resource yet they fail to compensate
demand response at levels that reflect the marginal value of the
resource being used by the RTO or ISO to balance supply and demand. The
current wholesale compensation levels may therefore be leading to
under-investment in demand response resources, resulting in higher, and
unjust and unreasonable, prices in the organized electricity markets.
To help ensure that wholesale prices in ISOs and RTOs remain just and
reasonable, we are proposing to require each ISO and RTO to pay the LMP
to demand response providers participating in the organized wholesale
energy markets.
    14. It is a well-established practice in the organized wholesale
energy markets to rely on LMPs to encourage efficient behavior by
market participants. The LMP represents the value of additional supply
or reductions in consumption at each node within the RTO or ISO and,
thus, reflects the marginal cost of the last unit necessary to
efficiently balance supply and demand.\38\ The LMP is therefore the
primary mechanism for compensating generation resources clearing in the
organized electricity markets, which the Commission has found
encourages ``more efficient supply and demand decisions in both the
short run and long run.'' \39\
---------------------------------------------------------------------------

    \38\ See ISO New England, Inc., 100 FERC ] 61,287, at P 71
(2002) (LMP ``provide[s] appropriate price signals indicating the
value of additional resources or conservation at each node in the
transmission system''); Cleco Power LLC, et al., 103 FERC ] 61,272,
at P 67 (2003) (``It is widely observed that markets work
efficiently when prices reflect marginal costs, i.e., when the
market price will be equal to the cost of bringing to market the
last unit necessary to balance supply and demand.'').
    \39\ See New England Power Pool, 101 FERC ] 61,344, at P 35
(2002).
---------------------------------------------------------------------------

    15. Given that the LMP represents the marginal value of the
resource being used by the RTO or ISO to balance supply and demand, it
follows that the LMP should be paid to any resource clearing in the
RTO's or ISO's energy market. In balancing supply and demand, a one
megawatt reduction in demand is equivalent to a one megawatt increase
in energy for purposes of meeting load requirements and maintaining a
reliable electric system. The ISO or RTO is able to avoid dispatching
suppliers with higher bids, be they generation or demand response, by
accepting a lower bid to either reduce consumption or increase
generation. As Dr. Alfred E. Kahn noted in a recent PJM proceeding in
Docket No. EL09-68-000, consumers offering to reduce consumption should
be induced ``to behave as they would if the market mechanisms alone
were capable of rewarding them directly for efficient economizing.''
\40\ This is because ``the (incremental) costs saved by curtailments in
demand clearly will be LMP--including the marginal costs of generation.
So, in the end the LMP inducement is the economically correct one.''
\41\ This appears to be true across all ISOs and RTOs and, therefore,
it appears appropriate to compensate both generation and demand
response resources participating in the organized wholesale electricity
markets at the LMP.
---------------------------------------------------------------------------

    \40\ Kahn Affidavit at 4.
    \41\ Id. at 3.
---------------------------------------------------------------------------

    16. Ultimately, the markets themselves will determine the level of
generation and demand response resources needed to balance energy and
demand. The level of compensation provided to each resource, however,
affects its willingness and ability to participate in the market.\42\
For example, demand response resources need to make investments in
technologies to enable participation in the organized wholesale energy
markets, as well as incur costs in changing their operations in order
to provide demand response. In those markets paying less than the LMP
to demand response resources, such resources have less revenues to
support investment in demand response-enabling technology (such as
metering equipment, energy usage monitors and process controls)
necessary to enable more wholesale market participation by demand
response resources. Where compensation for demand response is
inadequate, demand response resources will be hesitant to invest in
demand response devices. Compared to existing compensation levels,
paying the LMP in all hours should allow more demand response resources
to cover their investment costs and increase their ability to
participate in the organized wholesale electric markets.
---------------------------------------------------------------------------

    \42\ Generation and demand response resources have the potential
to earn other revenues through bilateral arrangements, capacity
markets where they exist, and ancillary services.
---------------------------------------------------------------------------

    17. Increased levels of demand response participation, in turn,
should lead to lower clearing prices in the organized wholesale energy
markets. As the Commission explained in accepting PJM's Economic Load
Response Program:

    Without a demand response mechanism, [an independent system
operator] is forced to work under the assumption that all customers
have an inelastic demand for energy and will pay any price for
power. There is ample evidence that this is not true. Many
customers, given the right tools, can and will manage their demand.
* * * A working demand response program puts downward pressure on
price, because suppliers have additional incentives to keep bids
close to their marginal production costs and high supply bids are
more likely to reduce the bidder's energy sales. Appropriate price
signals to customers thus helps to mitigate market power as high
supply bids are more likely to reduce the bidders' energy sales.
Suppliers thus have additional incentive to keep bids close to their
marginal production costs.\43\

    \43\ PJM Interconnection, LLC, 99 FERC ] 61,227, at 61,939
(2002) (quoting PJM Interconnection, LLC, 99 FERC ] 61,139, at
61,573 (2002)).

    18. Additionally, increasing the aggregate amount of demand
response resources in the organized wholesale energy markets will help
to move prices closer to the levels that would result if all demand
could respond to the marginal cost of energy. Paying the LMP to those
potential demand response resources who are capable of responding--but
who have not been participating as a resource due to inadequate
compensation--should bring those additional demand response resources
into the organized wholesale energy markets. But again, the markets
themselves will determine the appropriate level of demand response, and
generation, resources needed by the ISO and RTO to balance energy and
demand based on their relative bids into the markets.
    19. We recognize that the appropriate level of compensation for
demand response resources participating in organized wholesale energy
markets has been the subject of debate. In various proceedings, some
parties have advocated payment of LMP minus components of the retail
rate, on the theory that such an approach permits all consumers to
react as if they were paying LMP.\44\ Some parties have argued that
payment of LMP is appropriate only during the most expensive hours,\45\
on the theory that

demand response will have the greatest impact during those hours in
which the aggregate supply curve is steep (i.e., when supply is less
elastic). Given the current barriers to demand response \46\ and the
evolving nature of the technology enabling demand response, a perfect
solution or payment scheme may not exist. We nonetheless believe that
paying LMP in all hours to the demand response resources that can
participate in the organized wholesale energy markets is the correct
approach at this time, because that payment reflects the marginal
effect of each demand response resource in the hour, just as the LMP
reflects the marginal effect of generation resources in each hour. LMP
is the marginal value of both demand response and generation in any
hour, regardless of whether it is morning or evening, daytime or
nighttime, weekday or weekend.\47\
---------------------------------------------------------------------------

    \44\ Professor William W. Hogan has argued, for instance, that
payment of LMP (without an offset for some portion of the retail
rate) over-compensates individual demand response providers and
might result in more demand response than is efficient. See
Attachment to Answer of Electric Power Supply Association, Providing
Incentives for Efficient Demand Response, William W. Hogan, October
29, 2009, submitted in Docket No. EL09-68-000.
    \45\ See PJM's Transmittal Letter at 29 submitted in Docket No.
EL09-68-000.
    \46\ A recent Commission Staff report details several barriers
to demand response, including regulatory barriers, such as lack of a
direct connection between wholesale and retail prices, lack of
dynamic prices, measurement and verification challenges, lack of
real-time information sharing, and ineffective demand response
program design; technological barriers, such as lack of advanced
metering infrastructure and the high cost of some enabling
technologies; and other barriers, such as lack of customer awareness
and education. Federal Energy Regulatory Commission Staff, A
National Assessment of Demand Response Potential (June 2009), found
at http://www.ferc.gov/legal/staff-refports/06-09-demand-
response.pdf. In compliance filings submitted by RTOs and ISOs and
their market monitors pursuant to Order No. 719, as well as in
responsive pleadings, parties have mentioned additional barriers,
such as the inability of demand response resources to set LMP,
minimum size requirements, and others.
    \47\ We note that in PJM, 17 percent of load reductions by
demand response resources for that year occurred between the non-
peak hours of 11 p.m. and 8 a.m. See 2008 State of the Market Report
for PJM, Volume 2, Table 2-93 at 103, found at http://
www.monitoringanalytics.com/reports/PJM_State_of_the_Market/
2008/2008-som-pjm-volume2.pdf.
---------------------------------------------------------------------------

    20. We, nevertheless, seek comment on the need to compensate demand
response acting as a resource in organized wholesale energy markets.
Commenters may address whether current compensation for demand response
providers acting as a resource in the organized wholesale energy
markets is adequately procuring demand response. We further solicit
comment on alternative approaches to compensating demand response
resources participating in organized wholesale energy markets, and the
merit of those approaches in comparison to the one proposed here. In
particular, we ask for comment on whether a reduction in consumption is
comparable to an increase in electricity production for purposes of
balancing supply and demand, and whether, therefore, demand response
providers and generators should receive comparable compensation. We
further seek comment on whether paying LMP to demand response resources
is comparable compensation or is more or less than comparable to
compensation paid to generation in the ISO and RTO energy markets. We
also request comment on whether payment of LMP should apply to all
hours, and, if not, the criteria that should be used for establishing
the hours when LMP should apply. Additionally, we seek comment on
whether requiring payment of LMP is appropriate across all ISOs and
RTOs, or whether variations among ISOs and RTOs justify varying levels
of demand response resource compensation. To that end, we further seek
comment on whether the Commission should allow regional variations for
an ISO or RTO that does not seek to compensate demand response
resources participating in the organized wholesale energy market.
    21. Organized wholesale energy markets are evolving and, as such,
the rules and regulations related to those markets will continue to
evolve. This is no less so for demand response, as the markets, and the
types of demand response participating in them, continue to evolve.
Therefore, it may be necessary in the future for industry and the
Commission to reassess the appropriate method for compensating demand
response resources in organized wholesale energy markets.\48\
Accordingly, we also seek comment on whether, and under what
circumstances, the Commission should conduct periodic reviews of demand
response compensation and the criteria that should be used in making
such assessments.
---------------------------------------------------------------------------

    \48\ Indeed, the Commission's proposed action in this proceeding
is evidence of our continuing assessment of compensation for demand
response resources. In PJM Interconnection, LLC, 121 FERC ] 61,315
(2007), the Commission rejected a complaint that PJM's existing
compensation for demand response (LMP minus the generation and
transmission components of the retail rate) was unjust and
unreasonable, finding that there was insufficient evidence at the
time to make such a finding. As we have acquired more experience
with the participation of demand response resources in the organized
wholesale energy markets, we are concerned that compensation for
demand response in PJM and other RTO and ISO markets may no longer
be just and reasonable.
---------------------------------------------------------------------------

    22. With specific regard to the proposed regulatory text set forth
below, we seek comments on whether terms such as ``expected levels,''
``price signals,'' and ``market prices'' are sufficiently defined.
    23. Because we are addressing generically in this rulemaking
proceeding the same issues raised in the PJM proceeding in Docket No.
EL09-68-000, that docket is hereby terminated.\49\ The Commission will
take administrative notice of the record in the PJM proceeding so that
parties in that proceeding need not refile affidavits or other evidence
introduced there.
---------------------------------------------------------------------------

    \49\ See Michigan Pub. Power Agency v. Midwest Indep.
Transmission Sys. Operator, Inc., 128 FERC ] 61,268, at P 29 n.47
(2009) (Commission has discretion to decide when and where it will
resolve an issue).
---------------------------------------------------------------------------

III. Information Collection Statement

    24. The Office of Management and Budget (OMB) requires that OMB
approve certain information collection and data retention requirements
imposed by agency rules.\50\ Therefore, the Commission is submitting
the proposed modifications to its information collections to OMB for
review and approval in accordance with section 3507(d) of the Paperwork
Reduction Act of 1995.\51\
---------------------------------------------------------------------------

    \50\ 5 CFR 1320.11(b) (2009).
    \51\ 44 U.S.C. 3507(d) (2006).
---------------------------------------------------------------------------

    25. The Office of Management and Budget's (OMB) regulations require
approval of certain information collection requirements imposed by
agency rules. Upon approval of a collection(s) of information, OMB will
assign an OMB control number and an expiration date. Respondents
subject to the filing requirements of a rule will not be penalized for
failing to respond to these collections of information unless the
collections of information display a valid OMB control number.
    26. The Commission is submitting these reporting requirements to
OMB for its review and approval under section 3507(d) of the Paperwork
Reduction Act. Comments are solicited on the Commission's need for this
information, whether the information will have practical utility, the
accuracy of provided burden estimates, ways to enhance the quality,
utility, and clarity of the information to be collected, and any
suggested methods for minimizing the respondent's burden, including the
use of automated information techniques.
    Burden Estimate: The Public Reporting burden for the requirements
contained in the NOPR is as follows:

----------------------------------------------------------------------------------------------------------------
                                                 Number of        Number of        Hours per       Total annual
               Data collection                  respondents       responses         response          hours
----------------------------------------------------------------------------------------------------------------
FERC-516
Transmission Organizations with Organized                  6                1                6               36
 Electricity Markets........................
----------------------------------------------------------------------------------------------------------------

    Information Collection Costs: The Commission seeks comments on the
costs to comply with these requirements. The Commission has projected
the average annualized cost of all respondents to be the following: 36
hours @ $220 per hour = $7,920 for respondents. No capital costs are
estimated to be incurred by respondents.
    Title: FERC-516 ``Electric Rate Schedule Tariff Filings''.
    Action: Proposed Collections.
    OMB Control No: 1902-0096.
    Respondents: Business or other for profit, and/or not for profit
institutions.
    Frequency of Responses: One time to initially comply with the rule,
and then on occasion as needed to revise or modify.
    27. Necessity of the Information: The information from FERC-516
enables the Commission to exercise its statutory obligation under
Sections 205 and 206 of the FPA. FPA section 205 specifies that all
rates and charges, and related contracts and service conditions for
wholesale sales and transmission of energy in interstate commerce be
filed with the Commission and must be ``just and reasonable.'' In
addition, FPA section 206 requires the Commission upon complaint or its
own motion, to modify existing rates or services that are found to
unjust, unreasonable, unduly discriminatory or preferential. The
Commission needs sufficient detail to make an informed and reasonable
decision concerning the appropriate level of rates, and the
appropriateness of non-rate terms and conditions, and to aid customers
and other parties who may wish to challenge the rates, terms, and
conditions proposed by the utility.
    28. This proposed rule, if adopted, would amend the Commission's
regulations to obligate ISOs and RTOs to pay the market price for
energy to demand response resources for demand reductions within each
respective ISO and RTO region. Requiring ISOs and RTOs to pay the
market price for energy to demand response resources for demand
reductions in response to price signals will potentially reduce the
market clearing price of electricity. The Commission has emphasized the
importance of demand response as a vehicle for improving the
competitiveness of organized wholesale electricity markets and ensuring
supplies of energy at just, reasonable and not unduly discriminatory or
preferential rates.\52\
---------------------------------------------------------------------------

    \52\ Order No. 719 at P 16.
---------------------------------------------------------------------------

    29. Internal review: The Commission has reviewed the requirements
pertaining to organized wholesale electric markets and determined the
proposed requirements are necessary to its responsibilities under
sections 205 and 206 of the FPA.
    30. These requirements conform to the Commission's plan for
efficient information collection, communication and management within
the energy industry. The Commission has assured itself, by means of
internal review, that there is specific, objective support for the
burden estimates associated with the information requirements.
    31. Interested persons may obtain information on the reporting
requirements by contacting: Federal Energy Regulatory Commission, 888
First Street, NE., Washington, DC 20426 [Attention: Michael Miller,
Office of the Executive Director, Phone:<PHONE_NUMBER>, fax: (202)
273-0873, e-mail<EMAIL_ADDRESS>Comments on the
requirements of the proposed rule may also be sent to the Office of
Information and Regulatory Affairs, Office of Management and Budget,
Washington, DC 20503 [Attention: Desk Officer for the Federal Energy
Regulatory Commission], e-mail<EMAIL_ADDRESS>
IV. Environmental Analysis

    32. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\53\ The
Commission concludes that neither an Environmental Assessment nor an
Environmental Impact Statement is required for this NOPR under section
380.4(a)(15) of the Commission's regulations, which provides a
categorical exemption for approval of actions under sections 205 and
206 of the FPA relating to the filing of schedules containing all rates
and charges for the transmission or sale of electric energy subject to
the Commission's jurisdiction, plus the classification, practices,
contracts and regulations that affect rates, charges, classifications,
and services.\54\
---------------------------------------------------------------------------

    \53\ Order No. 486, Regulations Implementing the National
Environmental Policy Act, 52 FR 47897, FERC Stats. & Regs.
Regulations Preambles 1986-1990 ] 30,783 (1987).
    \54\ 18 CFR 380.4(a)(15) (2009).
---------------------------------------------------------------------------

V. Regulatory Flexibility Act Certification

    33. The Regulatory Flexibility Act of 1980 (RFA) \55\ generally
requires a description and analysis of final rules that will have
significant economic impact on a substantial number of small
entities.\56\ ISOs and RTOs, not small entities, are impacted directly
by this rule.
---------------------------------------------------------------------------

    \55\ 5 U.S.C. 601-12 (2000).
    \56\ The RFA definition of ``small entity'' refers to the
definition provided in the Small Business Act, which defines a
``small business concern'' as a business that is independently owned
and operated and that is not dominant in its field of operation. See
15 U.S.C. 601(3) (2000) (citing to section 3 of the Small Business
Act, 15 U.S.C. 632 (2000)). The Small Business Size Standards
component of the North American Industry Classification system
defines a small utility as one that, including its affiliates, is
primarily engaged in the generation, transmission, or distribution
of electric energy for sale, and whose total electric output for the
preceding fiscal years did not exceed 4 MWh. 13 CFR 121.202 (Sector
22, Utilities, North American Industry Classification System, NAICS)
(2004).
---------------------------------------------------------------------------

    34. California Independent System Operator Corp. (CAISO) is a non-
profit organization comprised of more than 90 electric transmission-
owning companies and generators operating in its markets and serving
more than 30 million customers.
    35. New York Independent System Operator, Inc. (NYISO) is a non-
profit organization that oversees wholesale electricity markets serving
19.2 million customers. NYISO manages a 10,775-mile network of high-
voltage lines.
    36. PJM Interconnection, LLC (PJM) is comprised of more than 450
members including power generators, transmission owners, electricity
distributors, power marketers, and large industrial customers, serving
13 States and the District of Columbia.
    37. Southwest Power Pool, Inc. (SPP) is comprised of 50 members
serving 4.5 million customers in eight States and has 52,301 miles of
transmission lines.
    38. Midwest Independent Transmission System Operator, Inc. (Midwest
ISO) is a non-profit organization with over 131,000

megawatts of installed generation. Midwest ISO has 93,600 miles of
transmission lines and serves 15 States and one Canadian province.
    39. ISO New England, Inc. (ISO-NE) is a regional transmission
organization serving six States in New England. The system is comprised
of more than 8,000 miles of high-voltage transmission lines and several
hundred generation facilities, of which more than 350 are under ISO-
NE's direct control.
    40. The Commission believes this rule will not have a significant
economic impact on a substantial number of small entities, and
therefore no regulatory flexibility analysis is required.

VI. Comment Procedures

    41. The Commission invites interested persons to submit comments on
the proposed regulatory text that commenters may wish to discuss.
Comments are due 45 days after publication in the Federal Register.
Comments must refer to Docket No. RM10-17-000,\57\ and must include the
commenter's name, the organization they represent, if applicable, and
their address in their comments.
---------------------------------------------------------------------------

    \57\ Because this NOPR terminates Docket No. EL09-68-000,
comments should not refer to that proceeding.
---------------------------------------------------------------------------

    42. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's Web site at http://
www.ferc.gov. The Commission accepts most standard word processing
formats. Documents created electronically using word processing
software should be filed in native applications or print-to-PDF format
and not in a scanned format. Commenters filing electronically do not
need to make a paper filing.
    43. Commenters that are not able to file comments electronically
must send an original and 14 copies of their comments to: Federal
Energy Regulatory Commission, Secretary of the Commission, 888 First
Street, NE., Washington, DC 20426.
    44. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.

VII. Document Availability

    45. In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.
    46. From FERC's Home Page on the Internet, this information is
available on eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket
number field.
    47. User assistance is available for eLibrary and the FERC's Web
site during normal business hours from FERC Online Support at (202)
502-6652 (toll free at 1-866-208-3676) or e-mail at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. E-mail the Public Reference Room at
<EMAIL_ADDRESS>
List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and
recordkeeping requirements.

    By direction of the Commission. Commissioner Moeller is
concurring in part and dissenting in part with separate statement
attached.

Nathaniel J. Davis, Sr.,
Deputy Secretary.

    In consideration of the foregoing, the Commission proposes to amend
Chapter I, Title 18 of the Code of Federal Regulations as follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

    1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42
U.S.C. 7101-7352.

    2. Amend Sec.  35.28 by adding paragraph (g)(1)(v) to read as
follows:

Sec.  35.28  Non-discriminatory open access transmission tariff.

* * * * *
    (g) * * *
    (1) * * *
    (v) Demand response compensation in energy markets. Each
Commission-approved independent system operator or regional
transmission organization that has a tariff provision permitting demand
response resources to participate as a resource in the energy market by
reducing consumption of electric energy from their expected levels in
response to price signals must pay to those demand response providers,
in all hours, the market price for energy for these reductions.
* * * * *

    Note: The following material will not appear in the Code of
Federal Regulations.

UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION

Demand Response Compensation in Organized Wholesale Energy Markets,
Docket No. RM10-17-000
PJM Interconnection, L.L.C., Docket No. EL09-68-000

Issued March 18, 2010.

    MOELLER, Commissioner, concurring, in part and dissenting, in part:
    As our country's demand for energy increases, the reduction of
energy usage through demand response programs will play a critical role
in meeting our needs and it is my hope that this nascent industry will
thrive and succeed. In the Energy Policy Act of 2005, Congress
established a policy to encourage the use of demand response by: (1)
facilitating the deployment of technology to enable customers to
participate in demand response programs; and (2) eliminating
unnecessary barriers to demand response participation.\1\
---------------------------------------------------------------------------

    \1\ Energy Policy Act of 2005, Pub. L. No. 109-58 Sec.  1252(f),
119 Stat. 594 (2005).
---------------------------------------------------------------------------

    Even before this law was passed, this Commission supported similar
policies in the organized electric markets by encouraging the use of
price responsive demand during high priced energy periods.\2\
---------------------------------------------------------------------------

    \2\ PJM Interconnection, L.L.C., 99 FERC ] 61,227, at 61,943
(2002) see also Order No. 719 at P 16 (``Thus, enabling demand-side
resources * * * improves the economic operation of electric power
markets by aligning prices more closely with he value customers
place on electric power.'')
---------------------------------------------------------------------------

    Demand response is playing an increasingly critical role in our
nation's energy supply mix. Additional demand response has the
potential to produce more efficient market outcomes, contribute to a
cleaner environment,\3\ result in lower costs to customers, and help to
check market power since it provides a countervailing willingness to
reduce demand in the face of high prices.\4\ With respect to prices,
studies have shown that sometimes a small decrease in demand from
demand response resources during peak periods can significantly reduce
market prices. In sum, the benefits that demand

response resources can bring to the energy markets are proven and
significant.
---------------------------------------------------------------------------

    \3\ A recent report by the National Research Council, Hidden
Costs of Energy: Unpriced Consequences of Energy Production and Use,
provides estimates of the cost associated with air pollution as the
result of energy production.
    \4\ California Indep. Sys. Operator Corp., 116 FERC ] 61,274, at
P 689.
---------------------------------------------------------------------------

    The initial success of demand response has resulted in a steady
maturation of the demand response industry. However, as the industry
continues to mature, we must ensure that our policies are properly
tailored to guide the development of demand response in a manner that
will result in economically-efficient outcomes. Moving too quickly to
reach a desired result can result in unintended consequences--and I
believe that today's decision to propose a standard payment could have
unintentional effects on both demand response participation and the
efficient operation of the organized markets over the longer term.
    In today's notice of proposed rulemaking (NOPR), the majority
concludes that the Commission should require a standard payment to
compensate demand response resources. Specifically, the majority's
proposed outcome would be that these resources are paid the market
price (i.e., the locational marginal price or ``LMP'') for energy
reductions in all 8,760 hours of the year. This determination is
followed by questions such as whether other compensation designs could
also work; questions that I believe would have been more appropriately
asked prior to establishing this NOPR.\5\ For that reason, I believe
that a preliminary issuance (such as a Notice of Inquiry) should have
been established to collect and analyze the evidence in advance of
initiating a formal rulemaking proceeding.
---------------------------------------------------------------------------

    \5\ To the extent that this NOPR asks questions to determine
whether the proposed rule is just and reasonable, I concur.
---------------------------------------------------------------------------

    While the majority claims that it is ``concerned that compensation
for demand response in PJM and other RTO and ISO markets may no longer
be just and reasonable'', the NOPR lacks a thorough discussion of the
evidence that they relied upon to substantiate their concerns.\6\ The
NOPR also lacks a sufficient explanation of the ``experience'' that
FERC has recently gained that would otherwise support the conclusion
that the organized electric markets ``fail to compensate demand
response at levels that reflect the marginal value of the resource
being used by the RTO or ISO to balance supply and demand.'' \7\
---------------------------------------------------------------------------

    \6\ NOPR at n. 57. In support of the conclusion that
compensation may no longer be just and reasonable, the preamble
provides an example involving PJM's Economic Load Response Program
and the drop of settled demand reductions experienced after the
subsidy payments expired per the terms of PJM's tariff. NOPR at P
10. While the cited level of reduction is a fact, the PJM market
monitor stated that ``[w]hile the removal of the incentive program,
effective November 2007, may have reduced participation, the exact
role of the elimination of the incentive program is not known
because there were changes to other key factors which directly
impact participation.'' Citing Monitoring Analytics, Barriers to
Demand Side Response in PJM, at 22 (July 1, 2009). More recently,
the PJM market monitor recognized that between 2008 and 2009,
``[t]here were many factors contributing to the lower levels of
participation and lower revenues in the Economic Program, including
lower price levels in 2009, lower load levels, and improved
measurement and verification.'' Notably, while payments from the
Economic Program have fallen substantially since 2007, capacity
revenue for demand response has increased significantly (rising 114%
to $303 million from 2008 to 2009). Citing Monitoring Analytics,
State of the Market Report for PJM, at 111 (March 11, 2010).
    \7\ NOPR at P 13.
---------------------------------------------------------------------------

    To the contrary, the record in Docket No. EL09-68-000 shows wide
disagreement in the industry regarding the issue of demand response
compensation. In that proceeding, State utility commissions,\8\ the
grid operator, industry economists, and the market participants all
reached various conclusions regarding the question of how to compensate
demand response resources in PJM.\9\ In light of such rigorous debate,
I am not sure if the Commission has a sustainable rationale to support
a finding that the proposed rule is just and reasonable and that the
existing compensation methods (that have been approved by this
Commission) are no longer just and reasonable.
---------------------------------------------------------------------------

    \8\ Compare the position of the Indiana Utility Regulatory
Commission (i.e., LMP less the generation portion of retail rates
(LMP-G) is an accepted indication of cost-effectiveness) with the
position taken by the New Jersey Board of Public Utilities and the
District of Columbia Public Service Commission (i.e., compensation
for demand response should be based solely on LMP). Comments filed
in Docket No. EL09-68-000.
    \9\ While there appears to be no disagreement that the correct
price signal for all customers is the LMP, the debate centers on
whether demand response resources should be paid the LMP or should
realize the value of LMP if they choose to reduce demand.
Additionally, at certain times, the LMP can become negative, meaning
that generators must pay into the market to the extent they generate
power. Should demand response resources likewise be required to pay
into the market during negative LMP events, or should they be
exempt?
---------------------------------------------------------------------------

    In fact, only recently did the Commission issue an order that not
only sustained the manner by which PJM compensates demand response
resources but also encouraged PJM and its stakeholders to identify and
analyze issues to improve their demand response program.\10\
Subsequently, PJM filed a detailed report explaining that while the
stakeholder process did not yield a consensus position, the PJM Board
moved forward and developed a compromise solution that was designed to
strengthen its demand response markets.\11\ In lieu of evaluating the
merits of the proposal approved by PJM's Board, the NOPR terminates the
PJM docket and directs PJM and its stakeholders to focus on whether
demand response resources should be paid the market price--a question
that has undoubtedly been analyzed, addressed and debated at numerous
stakeholder meetings.
---------------------------------------------------------------------------

    \10\ PJM Industrial Customer Coalition v. PJM Interconnection,
L.L.C., 121 FERC ] 61,315, at P 29 (2007) (Wellinghoff and Kelly,
Comm'rs, dissenting).
    \11\ PJM did note that the concept of paying LMP-G received
considerable support and ``conservatively could be said to have
garnered at least a three-quarters majority approval.'' See PJM
Supplemental Report in Docket No. EL09-68-000 at 24-25.
---------------------------------------------------------------------------

    Since today's NOPR does not sufficiently explain the need for a
uniform compensation approach, I am troubled by the decision to
terminate PJM's individual proceeding. If approved, PJM's efforts
toward developing a compromise solution for its market would have
likely resulted in additional demand response participation and its
associated benefits. However, with this NOPR's issuance, PJM and the
other RTOs must now refrain from making changes to its demand response
compensation rules pending the outcome of the rulemaking proceeding.
The NOPR may also discourage some emerging organized markets from
continuing to evolve toward the LMP model, as well as discourage some
non-organized regions from seriously considering moving toward a market
structure.
    Ultimately, I want demand response to thrive and succeed in all the
energy markets.\12\ However, there are only so many policy decisions
and rulemakings that this Commission can make to encourage its
development. As mentioned in the preamble, the primary barrier to
increased demand response is the disconnect between retail and
wholesale prices and the remedy resides at the retail level where there
is a lack of dynamic pricing. The approach embraced in the NOPR may
also lead to a situation where residential ratepayers could be
subsidizing other classes of service while unable to participate
themselves in demand response

programs. Absent attention to these issues, it will be difficult for
any proposal to place generation and demand response on a precisely
level playing field.
---------------------------------------------------------------------------

    \12\ My concern here goes to highlight the differences between
regions with competitive wholesale markets and those that consist of
largely bilateral market structures. By imposing a uniform
compensation requirement, this proposed rulemaking could further
exacerbate bifurcated approach toward national policy: entities in a
competitive wholesale market must comply with increasingly
burdensome requirements while entities operating in bilateral
markets are often free from requirements that otherwise advance
national policy goals.
---------------------------------------------------------------------------

    Until then, this Commission must review what options it has
available without resorting to policies that would adversely enable the
short-term development of demand response at the expense of its longer-
term success. In closing, I believe that demand response programs have
great potential to enhance the organized energy markets and I look
forward to their continued development. I am concerned, however, that a
one-size-fits-all approach could result in uneconomic outcomes that
ultimately set back the future development of demand response.

Philip D. Moeller,
Commissioner.
[FR Doc. 2010-6478 Filed 3-26-10; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 77, Number 140 (Friday, July 20, 2012)]
[Notices]
[Pages 42797-42801]
[FR Doc No: 2012-17696]

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Office of the Secretary

[Docket No. DOT-OST-2012-0102]

Privacy Act of 1974; Department of Transportation Office of the
Secretary--DOT/OST-100 Investigative Record System

AGENCY: Office of the DOT Chief Information Office, Office of the
Secretary, DOT.

ACTION: Notice of revised Privacy Act system of records.

-----------------------------------------------------------------------

SUMMARY: In accordance with the Privacy Act of 1974, the Department of
Transportation proposes to update and reissue a current Department of
Transportation system of records titled, DOT/OST 100 Investigative
Record System. This system of records will allow the Department of
Transportation Office of the Inspector General to collect and maintain
records on individuals who may be complainants, subjects, witnesses,
and others who may be identified during the course of an investigation.
The records and information collected and maintained in this system are
used to document the processing of allegations of violations of
criminal, civil, and administrative laws and regulations relating to
DOT programs, operations, and employees, as well as contractors and
other individuals and entities associated with DOT.
    As a result of biennial review of the system, this system of
records notice has been updated within the system name, system
location, categories of individuals and records in the system,
authority for maintenance of the system, purposes, routine uses, as
well as storage, retrievability, safeguards, retention and disposal,
system manager and address, notification procedure, and record source
categories. There will be no change to the Privacy Act exemptions in
place for this system of records. However, the system of records notice
as published in 2000 omitted certain exemptions contained in DOT's
Privacy Act regulations. The revised system of records notice will
correct this error. Additionally, this notice includes non-substantive
changes to simplify the formatting and text of the previously published
notice. This updated and revised system will be included in the
Department of Transportation's inventory of record systems.

DATES: Effective August 18, 2012. Written comments should be submitted
on or before the effective date. If no comments are received, the
proposal will become effective on the above date. If comments are
received, the comments will be considered and, where adopted, the
documents will be republished with changes.

ADDRESSES: You may submit comments, identified by Docket Number DOT-
OST-2012-0102, by one of the following methods:
     Federal e-Rulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
     Mail: Docket Management Facility, U.S. Department of
Transportation, 1200 New Jersey Ave. SE., West Building Ground Floor,
Room W12-140, Washington, DC 20590-0001.
     Hand Delivery or Courier: West Building Ground Floor, Room
W12-140, 1200 New Jersey Ave. SE., between 9 a.m. and 5 p.m. ET, Monday
through Friday, except Federal Holidays.
     Fax:<PHONE_NUMBER>.
    Instructions: You must include the agency name and docket number
DOT-OST-2012-0102.
    All comments received will be posted without change to http://www.regulations.gov, including any personal information provided.
Anyone is able to search the electronic form of all comments received
in any of our dockets by the name of the individual submitting the
comment (or signing the comment, if submitted on behalf of an
association, business, labor union, etc.).
    Docket: For access to the docket to read background documents or
comments received, go to http://www.regulations.gov or to the street
address listed above. Follow the online instructions for accessing the
docket.

FOR FURTHER INFORMATION CONTACT: For general questions please contact:
Seth B. Kaufman, Department of Transportation, Office of Inspector
General, Seventh Floor, J-3, 1200 New Jersey Ave. SE., Washington, DC
20590; or by facsimile<PHONE_NUMBER>. For privacy issues please
contact: Claire W. Barrett, Departmental Chief Privacy Officer, Privacy
Office, Department of Transportation, Washington, DC 20590;
<EMAIL_ADDRESS>or<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

I. Background

    In accordance with the Privacy Act of 1974, 5 U.S.C. 552a, the
Department of Transportation (DOT) Office of the Secretary proposes to
update and reissue a previously published DOT system of records titled
DOT/OST 100 Investigative Record System. This system of records will
allow the Department of Transportation Office of the Inspector General
to collect and maintain records on individuals who may be complainants,
subjects, witnesses, and others who may be identified during the course
of an investigation. As noted above, the primary intent of the revision
is to add routine uses to this system. We also seek to update and
clarify other parts of the system of records notice (SORN) in part to
reflect changes to the OIG organization and programs since its last
publication in 2000.
    The DOT Inspector General is responsible for conducting and
supervising independent and objective audits, inspections, and
investigations of the programs and operations of DOT. OIG promotes
economy, efficiency, and effectiveness within the Department and
prevents and detects fraud, waste, and abuse in its programs and
operations. OIG's Office of Investigations investigates allegations of
criminal, civil, and administrative misconduct involving DOT employees,
contractors, grantees, and Departmental programs and activities. This
includes investigating for violations of criminal laws by entities
regulated by DOT, regardless of whether they receive Federal funds.
These investigations can result in criminal prosecutions, fines, civil
monetary penalties, and administrative sanctions.
    The DOT/OST 100 Investigative Record System, system of records
assists the OIG with receiving and processing allegations of violation
of criminal, civil, and administrative laws and regulations relating to
DOT employees, contractors, grantees, regulated persons, and other
individuals and entities associated with DOT. The system includes both
paper investigative files and OIG's electronic case management and
tracking information system which also generates reports. The case
management system allows OIG to manage information provided during the
course of its investigations, and, in

the process, to facilitate its management of investigations and
investigative resources. Through this system, OIG can create a record
showing disposition of allegations; track actions taken by management
regarding misconduct; track legal actions taken following referrals to
the U.S. Department of Justice for prosecution or civil action; provide
a system for creating and reporting statistical information; and track
government property and other resources used in investigative
activities.
    This SORN makes several changes to the existing system of records.
It amends the system name, system locations, purposes, routine uses, as
well as storage, retrievability, safeguards, retention and disposal,
system manager and address, notification procedure, and record source
categories.
    OIG's field office locations have undergone changes since this SORN
was last updated. The proposed SORN will not list the location of
specific field offices to avoid the need to update the SORN as
locations of OIG field offices change. OIG's field offices are
available on the OIG Web site. Accordingly, listing of individual
regional offices in the SORN is not necessary.
    The categories of individuals and records covered by the system
have been revised to more clearly reflect OIG practice. The revision
does not make any substantive change in longstanding OIG practice.
Accordingly, there are no privacy impacts associated with these
changes.
    The categories of individuals covered by the previously published
SORN include present and former DOT employees, DOT contractors and
employees as well as grantees, sub-grantees, contractors,
subcontractors and their employees and recipients of DOT monies, and
other individuals or incidents subject to investigation within the
purview of the Inspector General Act. In the revised SORN, we clarify
that the system includes complainants, individuals alleged to have been
involved in wrongdoing, individuals identified as possibly relevant to
the investigation or who are contacted by OIG during the investigation;
and DOT OIG investigative personnel. The revised SORN does not reflect
any expansion of the categories of individuals covered by the system.
We are also clarifying the record categories in the system. The
previously published SORN describes the categories as the results of
investigations. A report of investigation by nature contains many types
of personal information. The SORN that has been in place does not,
however, describe with particularity the types of personal information
that may be contained in this system. The revised SORN gives more
information about the categories of records that OIG actually maintains
in this system.
    The authority for the maintenance of the system has been amended to
include additional authority. In 1999, the Motor Carrier Safety
Improvement Act, Public Law 106-159, Section 228, clarified that OIG's
statutory authority of the Inspector General of the Department of
Transportation includes authority to conduct, pursuant to Federal
criminal statutes, investigations of allegations that a person or
entity has engaged in fraudulent or other criminal activity relating to
the programs and operations of the Department or its operating
administrations. It also provided that the authority to conduct these
investigations extends to any person or entity subject to the laws and
regulations of the Department or its operating administrations, whether
or not they are recipients of funds from the Department or its
operating administrations. Although this law, later codified at 49
U.S.C. Sec.  354, was intended to be a clarification of OIG's existing
statutory authority, we believe it appropriate to cite this statute in
the authority section of the SORN.
    The purposes of the system have been revised to more clearly
identify OIG practices. The existing version states that the purposes
of the system are to ``[d]ocument the administration of investigations
and inquiries conducted under of the Inspector General Act of 1978.''
The Inspector General Act provides authority for OIG to conduct a
number of different types of investigations. The proposed version
contains more specific purposes for the system, but makes no
substantive changes.
    The routine uses have been updated to reflect current practices
with the OIG community. New routine uses include disclosure of records
in this system of records to the media and the public when the public
interest requires and when such disclosure does not constitute an
unwarranted invasion of privacy. The routine use for public and media
disclosures is to fulfill the mission of the Inspector General to deter
and detect waste, fraud, abuse, and violations of law. It could be used
for media releases for purposes such as helping to locate suspects or
publicizing particular cases to maximize their deterrent value. These
types of disclosures will require the approval of OIG counsel after
review of the privacy interests involved and the need for public
disclosure. We also propose a routine use for disclosure to individuals
who are in danger or in situations involving an imminent danger of
death or physical harm. The new routine uses also include disclosure of
records to recipients of Federal funds and entities regulated by DOT
when such disclosure is for the purpose of recovering DOT funds or
enabling disciplinary or corrective action. This routine use would help
employers to take appropriate action with respect to their employees,
contractors, subcontractors, and others who have committed violations
of law, agency policy, or other misconduct. We also seek a routine use
for disclosures to other Federal agencies the purpose of oversight,
such as peer reviews of the OIG Office of Investigations. Accordingly,
any effects on privacy interests due to these routine uses are
justified, appropriate, and in the public interest.
    The revised SORN also updates storage, retrievability, and
safeguards to reflect modern standards. For instance, the storage and
retrievability sections explicitly reference the use of electronic
records. The access controls on electronic records include two-factor
authentication, password protection features, and network
authentication. These new access controls increase the privacy
protections afforded to these records.
    The retention and disposal section reflects the National Archives
and Records Administration (NARA)-approved disposition schedule for
these records which was approved since the last update to the SORN.
    The system manager and address is being changed to reflect a title
change for the head of the OIG Office of Investigations. The previously
published SORN lists the system manager as the Assistant Inspector
General for Investigations. The duties, functions, and authority for
the Principal Assistant Inspector General for Investigations are in all
material respects the same as those formerly held by the Assistant
Inspector General for Investigations. In addition, the address of the
system manager is being updated to reflect a relocation of the
Department of Transportation to a new building within the District of
Columbia. Accordingly, there are no substantive changes to these
sections. The record source categories more clearly state the types of
sources for records that are obtained for this system. The previously
published SORN states that record sources are obtained from interviews,
review of records and other authorized investigative techniques. The
previously published SORN emphasizes the methods by which OIG obtains
records.

In this revision, we seek to clarify the types of individuals from
which OIG obtains records. These changes do not reflect any substantive
changes.
    Consistent with DOT's information sharing mission, information
stored in the DOT/OST 100 Investigative Record System system of records
may be shared with appropriate Federal, State, local, tribal, foreign,
or international government agencies. This sharing will only take place
after OIG determines that the receiving agency has a need to know the
information to carry out law enforcement or other functions consistent
with the routine uses set forth in this system of records notice.
    There will be no change to the Privacy Act exemptions previously
established for this system of records. The Appendix to Part 10, Title
49, Code of Federal Regulations, contains the Privacy Act exemptions
for all DOT systems of records. Paragraph D of Part II of the Appendix
provides that those portions of DOT/OST 100 consisting of investigatory
material compiled for the purpose of determining suitability,
eligibility, or qualifications for Federal civilian employment,
military service, or access to classified information or used to
determine potential for promotion in the armed services, are exempt
from sections (c)(3) (Accounting of Certain Disclosures), (d) (Access
to Records), (e)(4)(G), (H), and (I) (Agency Requirements), and (f)
(Agency Rules) of 5 U.S.C. 552a to the extent that disclosure of such
material would reveal the identity of a source who provided information
to the Government under an express or, prior to September 27, 1975, an
implied promise of confidentiality (5 U.S.C. 552a(k)(5) and (7)). These
exemptions under (k)(5) and (k)(7) appear to have been inadvertently
omitted when DOT/OST 100 was last published in 2000. The revised SORN
corrects this error and harmonizes the SORN with these exemptions that
have been codified in Federal regulations for many years.
    The exemption for records used to determine promotion in the armed
forces potential is needed for records relating to the United States
Coast Guard (USCG). USCG was part of DOT until its transfer to the
Department of Homeland Security in March 2003. OST/DOT 100 contains
records of investigations relating to USCG programs and operations.
Until these records reach their end of the retention period, OIG has
need of this exemption. After the retention period is over, OIG will
re-assess its need for this exemption.

II. Privacy Act

    The Privacy Act (5 U.S.C. 552a) governs the means by which the
Federal Government collects, maintains, and uses personally
identifiable information (PII) in a System of Records. A ``System of
Records'' is a group of any records under the control of a Federal
agency from which information about individuals is retrieved by name or
other personal identifier. The Privacy Act requires each agency to
publish in the Federal Register a System of Records notice (SORN)
identifying and describing each System of Records the agency maintains,
including the purposes for which the agency uses PII in the system, the
routine uses for which the agency discloses such information outside
the agency, and how individuals to whom a Privacy Act record pertains
can exercise their rights under the Privacy Act (e.g., to determine if
the system contains information about them and to contest inaccurate
information).
    In accordance with 5 U.S.C. 552a(r), DOT has provided a report of
this system of records to the Office of Management and Budget and to
Congress.
SYSTEM OF RECORDS:
    Department of Transportation (DOT)/OST-100.

SYSTEM NAME:
    Department of Transportation/Office of the Inspector General--100
Investigative Record System.

SECURITY CLASSIFICATION:
    Unclassified--sensitive.

SYSTEM LOCATION:
    Records are maintained at the DOT OIG Headquarters in Washington,
DC, and in DOT OIG field offices nationwide. Records are also
maintained by Federal Records Centers.

CATEGORIES OF INDIVIDUALS COVERED BY THE SYSTEM:
    Individuals filing complaints of criminal, civil, or administrative
violations, including, but not limited to, fraud, waste, or
mismanagement; individuals alleged to have been involved in such
violations; individuals identified as having been adversely affected by
matters investigated by the OIG; individuals who have been identified
as possibly relevant to, or who are contacted as part of, an OIG
investigation, including: (A) current and former employees of the DOT,
other Federal agencies, and DOT contractors, grantees, and persons
whose association with current and former employees relate to alleged
violations under investigation; and, (B) witnesses, complainants,
confidential informants, suspects, defendants, or parties who have been
identified by the DOT OIG, other DOT components, other agencies, or
members of the general public in connection with authorized OIG
functions; and DOT OIG employees performing investigative functions.

CATEGORIES OF RECORDS IN THE SYSTEM:
    Categories of records in this system include:
     Investigative agent name and contact information
     Individual's name and aliases;
     Date of birth;
     Social Security Number;
     Telephone and cell phone numbers;
     Physical and mailing addresses;
     Electronic mail addresses;
     Physical description;
     Citizenship;
     Photographs;
     Job title, employment position, and other employment data;
     Medical history;
     Any other personal information relevant to the subject
matter of an OIG investigation;
     Investigative files containing complaints and allegations,
witness statements; transcripts of electronic monitoring; subpoenas and
legal opinions and advice; reports of investigation; reports of
criminal, civil, and administrative actions taken as a result of the
investigation; and other relevant evidence;
     Property receipts establishing chain of custody of
evidence.

AUTHORITY FOR MAINTENANCE OF THE SYSTEM:
    The Inspector General Act of 1978, as amended, and 49 U.S.C. 354.

PURPOSE(S):
    The records and information collected and maintained in this system
are used to document the processing of allegations of violations of
criminal, civil, and administrative laws and regulations relating to
DOT programs, operations, and employees, as well as contractors and
other individuals and entities associated with DOT; monitor case
assignments, status, disposition, and results; manage investigations
and information provided during the course of such investigations;
track actions taken by management regarding misconduct and other
allegations; track legal actions taken following referrals to the
Department of Justice for prosecution or litigation; create and report
statistical information; and manage property records establishing chain
of custody of evidence.

ROUTINE USES OF RECORDS MAINTAINED IN THE SYSTEM, INCLUDING CATEGORIES
OF USERS AND THE PURPOSES OF SUCH USES:
    In addition to those disclosures generally permitted under the
Privacy Act, all or a portion of the records or information contained
in this system may be disclosed outside DOT as a routine use pursuant
to 5 U.S.C. 552a(b)(3) as follows:
    1. To other Federal, State, local, or foreign agencies or
administrations, and licensing and professional discipline authorities,
having interest or jurisdiction in the matter.
    2. To third parties in the course of an investigation, when
necessary to obtain pertinent information.
    3. To any person when disclosure of the record is needed to enable
the recipient of the record to take action to recover money or property
of DOT, when such recovery will accrue to the benefit of the United
States, or when disclosure of the record is needed to enable the
recipient of the record to take appropriate disciplinary or corrective
action to maintain the integrity of DOT programs or operations.
    4. To complainants and/or victims to the extent necessary to
provide such persons with information and explanations concerning the
progress and/or results of the investigation or case arising from the
matters of which they complained and/or of which they were a victim.
    5. To media and the public when the public interest requires,
unless it is determined by OIG counsel that release of specific
information in the context of a particular case would constitute an
unwarranted invasion of personal privacy.
    6. To an individual or individuals who are in danger or in
situations involving an imminent danger of death or physical injury.
    7. To other agencies and the Council of Inspectors General on
Integrity and Efficiency (CIGIE) for purposes of conducting and
reviewing peer reviews of the OIG to ensure adequate internal
safeguards and management procedures exist or to ensure that standards
applicable to Government audits, investigations, or other agency
activities are applied and followed.
    8. For other routine uses of the information, applicable to all DOT
Privacy Act systems of Records, see ``Prefatory Statement of General
Routine Uses'' (available at http://www.dot.gov/privacy/privacyactnotices).

DISCLOSURE TO CONSUMER REPORTING AGENCIES:
    None.

POLICIES AND PRACTICES FOR STORING, RETRIEVING, ACCESSING, RETRAINING,
AND DISPOSING OF RECORDS IN THE SYSTEM:
STORAGE:
    Records in this system are stored electronically and/or on paper in
secure facilities. Electronic records may be stored on magnetic disc,
tape, digital media, and CD-ROM.

RETRIEVABLITY:
    Paper media are retrieved alphabetically by name of subject or
complainant, by case number, and/or by special agent name and/or
employee identifying number. Electronic media are retrieved by the name
or identifying number for a complainant, subject, victim, or witness;
by case number; by special agent name or other personal identifier; or
by field office designation.

SAFEGUARDS:
    Records in this system are safeguarded in accordance with
applicable rules and policies, including all applicable DOT automated
systems security and access policies. Strict controls have been imposed
to minimize the risk of compromising the information that is being
stored. Access to records in this system is limited to those
individuals who have a need to know the information for the performance
of their official duties and who have appropriate clearances or
permissions.
    Paper files are stored in file cabinets in a locked file room to
which only authorized personnel are provided access, on a need-to-know
basis.

RETENTION AND DISPOSAL:
    Records will be retained and disposed in accordance with National
Archives and Records Administration (NARA) records disposition schedule
for OIG Investigative Case Files (N1-398-02-1, March 3, 2002).
    Files containing information or allegations which old, are of an
investigative nature but do not relate to a specific investigation such
as anonymous or vague allegations not warranting an investigation,
matters referred to constituents or other agencies for handling, and
support files providing general information which may prove useful in
Inspector General investigations are destroyed when 5 years old.
    All other investigative case files (except those that are unusually
significant for documenting major violations of criminal law or ethical
standards by agency officials or others) are placed in inactive files
when case is closed. The cutoff for inactive files occurs at the end of
fiscal year. These files are destroyed ten years after cut off. The
disposition of significant cases (i.e., those that result in national
media attention, Congressional investigations and/or substantive
changes in agency policy or procedures) will be determined by NARA and
will be scheduled separately.

SYSTEM MANAGER(S) AND ADDRESS:
    The System Manager is the Principal Assistant Inspector General for
Investigations, DOT OIG, Seventh Floor, JI-1, 1200 New Jersey Ave. SE.,
Washington, DC 20590.

NOTIFICATION PROCEDURE:
    The Secretary of Transportation has exempted this system from the
notification, access, and amendment procedures of the Privacy Act
because it is a law enforcement system. However, the Office of
Inspector General will consider individual requests to determine
whether or not information may be released.
    Individuals seeking notification of and access to any record
contained in this system of records, or seeking to contest its content,
may submit a request in writing to the DOT or OIG FOIA Officer whose
contact information can be found at http://www.dot.gov/foia under
``Contact Us.'' If an individual believes more than one component
maintains Privacy Act records concerning him or her, the individual may
submit the request to the Departmental Freedom of Information Act
Office, U.S. Department of Transportation, Room W94-122, 1200 New
Jersey Ave. SE., Washington, DC 20590, ATTN: FOIA request.
    When seeking records about yourself from this system of records or
any other Departmental system of records your request must conform with
the Privacy Act regulations set forth in 49 CFR part 10. You must sign
your request, and your signature must either be notarized or submitted
under 28 U.S.C. 1746, a law that permits statements to be made under
penalty of perjury as a substitute for notarization. While no specific
form is required, you may obtain forms for this purpose from the Chief
Freedom of Information Act Officer, http://www.dot.gov/foia or
202.366.4542. In addition you should provide the following:
     An explanation of why you believe the Department would
have information on you;
     Identify which component(s) of the Department you believe
may have the information about you;
     Specify when you believe the records would have been
created;

     Provide any other information that will help the FOIA
staff determine which DOT component agency may have responsive records;
and
    If your request is seeking records pertaining to another living
individual, you must include a statement from that individual
certifying his/her agreement for you to access his/her records.
    Without this bulleted information the component(s) may not be able
to conduct an effective search, and your request may be denied due to
lack of specificity or lack of compliance with applicable regulations.

RECORD ACCESS PROCEDURES:
    See ``Notification Procedure'' above.

CONTESTING RECORD PROCEDURES:
    See ``Notification procedure'' above.

RECORD SOURCE CATEGORIES:
    Records are obtained from sources including, but not limited to,
the individual record subjects; DOT employees, grantees, and
contractors; employees of Federal, State, local, and foreign agencies;
and other persons and entities.

EXEMPTIONS CLAIMED FOR THE SYSTEM:
    Pursuant to 5 U.S.C. 552a(j)(2), this system is exempt from the
following provisions of the Privacy Act: 5 U.S.C. 552a (c)(3)-(4); (d);
(e)(1)-(3); (e)(4)(G)-(I); (e)(5); (e)(8); and (f)-(g).
    Pursuant to 5 U.S.C. 552a(k)(1), this system is exempt from the
following provisions of the Privacy Act, subject to the limitations set
forth in those subsections: 5 U.S.C. 552a(c)(3); (d); (e)(4)(G)-(I) and
(f).
    Pursuant to 5 U.S.C. 552a(k)(2), this system is exempt from the
following provisions of the Privacy Act, subject to the limitations set
forth in those subsections: 5 U.S.C. 552a(c)(3) and (d).
    Pursuant to 5 U.S.C. 552a(k)(5) and (k)(7), this system is exempt
from the following provisions of the Privacy Act, subject to the
limitations set forth in those subsections: 5 U.S.C. 552a (c)(3); (d);
(e)(4)(G)-(I); and (f).

    Issued in Washington, DC, on July 19, 2012.
Claire W. Barrett,
Departmental Chief Privacy Officer.
[FR Doc. 2012-17696 Filed 7-19-12; 8:45 am]
BILLING CODE 4910-9X-P