strikes an appropriate balance between efficient processing of highly
technical decisions and the opportunity for states and other entities
to comment in the exception process. Nonetheless, as discussed above,
requests for exclusion from the bulk electric system on local
distribution grounds will be determined by the Commission on a case-by-
case basis. In such proceedings, state regulatory authorities will have
an opportunity to intervene and provide comments.
---------------------------------------------------------------------------

    \190\ NERC ROP Petition, Att. 9 (``The Development Process and
Basis for the ROP Team's Recommended Provisions--How Stakeholder
Comments were Considered and Addressed'') at 7.
    \191\ Id.
---------------------------------------------------------------------------

    258. We disagree with Redding's characterization of how the
exception process is not necessary for determining whether an element
is used for local distribution. Redding's characterization

of the exception process leaves the determination of whether an element
is used for local distribution in the hands of registered entities or
NERC. However, as we explain in the local distribution discussion
above, in circumstances where there is a factual question as to whether
facilities not otherwise excluded from the bulk electric system by the
core definition and four exclusions should nonetheless be excluded
because they are used in local distribution, a determination should be
made by this Commission. In addition, in our discussion in section II.C
above regarding local distribution, we provide direction with respect
to how an entity may seek a determination of whether an element is used
in local distribution.
    259. Regarding Steel Manufacturers Association's concern that the
Rules of Procedure do not contemplate that an owner of an element that
is not a registered entity will be notified by a Regional Entity that
its facilities are being considered for inclusion in the bulk electric
system, we note that section 4.1 of Appendix 5C the Rules of Procedure
states that when a Regional Entity requests an exception, the Regional
Entity ``shall prepare and submit copies of its exception request (or
portions thereof) to all applicable entities* * *.'' \192\ Further,
section 4.4 of Appendix 5C provides that, if the submitting entity is
not the owner (i.e., is a Regional Entity, planning authority,
balancing authority, etc) it must provide a copy of the exception
request to the owner. Therefore, if a Regional Entity submits an
exception request for an element owned by a non-registered entity, the
owner is notified.
---------------------------------------------------------------------------

    \192\ NERC Rules of Procedure, Appendix 5C, section 4.1.
---------------------------------------------------------------------------

    260. With respect to Holland's request for clarification for what
must be submitted for a claim of being local distribution, we believe
that our discussion above regarding how local distribution elements
will be determined addresses Holland's concerns.
    261. In response to ICNU's comments, the Commission notes that NERC
has identified the entities that are responsible for providing the
information necessary for an exception request. Section 3.2 of the
exception process states that ``the burden to provide a sufficient
basis for approval of an exception request in accordance with the
provisions of the exception procedure is on the submitting entity.''
Additionally, in section 4.1 of the exception process, NERC lists the
eligible submitting entities as the owner of an element, or a Regional
Entity, planning authority, reliability coordinator, transmission
operator, transmission planner, or balancing authority that has (or
will have upon inclusion in the bulk electric system) the elements
covered by an exception request within its scope of responsibility.
    262. Southern Companies state that the Commission should allow time
for NERC, Regional Entities and industry to implement the definition
and exception process and determine at a later date whether it is
sufficiently capturing the appropriate facilities. Similarly, Alameda
suggests that the Commission set forth a future date for review of the
definition seeking both an effectiveness report from NERC as well as
industry comment. First, as discussed below, the Commission is granting
NERC's request for a 24 month implementation plan. The Commission
believes that this is sufficient to implement the definition and
exception process. In addition, the Commission declines to set a future
date to determine effectiveness of the definition and the exception
process.
1. How Entities Will Review and Seek Inclusion of Necessary Elements
NOPR Proposal
    263. In Order Nos. 743 and 743-A, the Commission indicated that our
goal is that the definition of bulk electric system should include all
facilities necessary for the operation of the interconnected
transmission network, except for local distribution. Further, while the
Commission explained that one way to meet the goal was to establish a
100 kV ``bright line'' threshold, the Commission also made clear that
the ``bright line'' threshold would be a ``first step or proxy'' in
determining what facilities should be included in the bulk electric
system.\193\ The NOPR reiterated that, in Order Nos. 743 and 743-A, the
Commission held that NERC should not necessarily stop at 100 kV and
should, through the development of the exception process, ensure that
``critical facilities operated at less than 100 kV, and that the
Regional Entities determine [which facilities] are necessary for
operating the transmission network.'' \194\ The Commission clarified
that the inclusion of sub-100 kV facilities should be done in an
``appropriate and consistent'' manner.\195\ Finally, in the NOPR, the
Commission noted that the September 2011 Blackout Report reinforced
statements in Order Nos. 743 and 743-A with respect to ensuring that
sub-100 kV facilities, as appropriate, are included in the bulk
electric system.\196\ The Commission further noted that the NERC
proposals at issue in this rulemaking take steps to address the
treatment of sub-100 kV facilities, as well as other facilities,
necessary for the operation of the interconnected transmission network,
through the exception process. However, in light of the September 2011
Blackout Report, the Commission requested comment on how the relevant
entities who control and run facilities on the interconnected
transmission network will seek inclusion of sub-100 kV facilities, as
well as other facilities, to ensure that all facilities that are
necessary for the operation of the bulk power system are designated as
bulk electric system elements.\197\
---------------------------------------------------------------------------

    \193\ Order No. 743-A, 134 FERC ] 61,210 at P 40; see also NOPR,
139 FERC ] 61,247 at P 106.
    \194\ Order No. 743, 133 FERC ] 61,150 at P 121.
    \195\ Order No. 743-A, 134 FERC ] 61,210 at P 103.
    \196\ NOPR, 139 FERC ] 61,247 at P 107.
    \197\ NOPR, 139 FERC ] 61,247 at PP 109-10.
---------------------------------------------------------------------------

Comments
    264. NERC proposes that entities can identify sub-100 kV facilities
for inclusion in a variety of ways: In the course of performing
planning assessments, from day-to-day operating experience, or
assessment of system events that indicate facilities not identified by
application of the definition are necessary for reliable operation of
the interconnected transmission network. NERC further states that an
entity that requests the inclusion or exclusion of a facility must
provide certain technical and engineering support for its request. NERC
also points out that the exception process provides for the appeal of a
decision to NERC as to whether a facility is part of the bulk electric
system. NERC believes this process adequately addresses the issue of
whether certain sub-100 kV facilities are included in the bulk electric
system.
    265. ELCON states that the NOPR's suggestion that the entities
would not take cognizance of Commission or NERC findings related to any
sub-100 kV elements that have a material impact on system reliability
would call into question the efficacy of the entire construct
established by the Commission to address reliability issues.
    266. APPA believes that it will be excessively burdensome to
industry and small entities if they have to conduct a study of all
their sub-100 kV elements. APPA asserts that it would require small
registered entities to hire consultants to perform studies to assess
the impact of large numbers of non-bulk electric system facilities.

    267. Idaho Power believes that entities could periodically (e.g.
every five years) review the impact of sub-100 kV facilities and verify
if any of the inclusions would require them to be included and explain
why certain sub-100 kV facilities are excluded.
    268. ISO New England and National Grid believe that, during the
conduct of transmission planning system assessments, performed in
accordance with requirements of the NERC Transmission Planning
Reliability Standards, facilities required for inclusion in the bulk
electric system may be identified.
Commission Determination
    269. As we held in Order Nos. 743 and 743-A, the goal of revising
the definition of bulk electric system is to ensure that all necessary
facilities are included in the bulk electric system. As we noted in
Order No. 743, applying the definition of bulk electric system should
be a ``first step or proxy'' in determining which facilities should be
included in the bulk electric system.\198\ The Commission stated that
NERC should not end the inquiry at 100 kV and should, through the
development of the exception process, ensure that ``critical''
facilities operated at less than 100 kV, and that the Regional Entities
determine are necessary for operating the interconnection network are
included.\199\ We continue to expect entities to identify and include
sub-100 kV facilities, as well as other facilities, necessary for the
operation of the interconnected transmission network. In the NOPR we
asked how the entities responsible for including elements in the bulk
electric system will assure that the all facilities, including sub-100
kV elements, that are necessary for operating the interconnected
transmission network will be included in the bulk electric system. We
find NERC's response to that question reasonable: That Regional
Entities, planning authorities, reliability coordinators, transmission
operators, transmission planners, balancing authorities, and owners of
system elements will include, through the exception process, facilities
identified in the course of performing planning assessments, from day-
to-day operating experience, or assessment of system events that are
not included by application of the definition but are necessary for
reliable operation of the interconnected transmission network. We
believe that entities, having knowledge of their systems and the
concomitant planning assessments and system impact studies, will
identify an element that is necessary for reliable operation of the
integrated transmission network while conducting their day-to-day
operations and planning and performing studies. If the element does not
fall within the definition, we expect that the entity will submit the
element for inclusion through the exception process. Use of this
process should ensure that the all sub-100 kV elements, as well as
other facilities, necessary for the operation of the interconnected
transmission network are included in an ``appropriate and consistent''
manner. By identifying and seeking inclusion of sub-100 kV facilities,
and other facilities, in the bulk electric system through performance
of these routine functions, such as those identified by ISO New England
and National Grid, we do not expect that entities will have to perform
studies indiscriminately to make such determinations. Indeed, comments
indicate that the determination of which elements, including sub 100 kV
elements, should be included in the bulk electric system is a natural
part of an entities' process for assuring the reliable operation of the
grid.\200\ Thus, the Commission believes that, if a study is needed
outside the ordinary course of operations, it would be infrequent. By
adopting this approach, we believe that APPA's concerns about
burdensome tasks are alleviated.
---------------------------------------------------------------------------

    \198\ NOPR, 139 FERC ] 61,247 at P 106 (citing Order No. 743-A,
134 FERC ] 61,210 at P 40).
    \199\ Order No. 743, 133 FERC ] 61,150 at P 121.
    \200\ E.g., ELCON Comments at 8.
---------------------------------------------------------------------------

2. NERC Role in Identifying Necessary Elements
    270. In the NOPR, the Commission observed that, despite NERC's
statutory functions to develop and enforce Reliability Standards, its
continent-wide perspective, and technical understanding that can
provide valuable assistance in the identification of bulk electric
system facilities, the exception process does not provide that NERC may
initiate an exception request. Accordingly, the Commission requested
comments on the role NERC should have in initiating the designation of
or directing others to initiate the designation of sub-100 kV
facilities, or any other facilities, necessary for the operation of the
interconnected transmission network for inclusion in the bulk electric
system.\201\ The Commission also requested comment on the role NERC
should have in designating sub-100 kV facilities, and other facilities,
for inclusion in the bulk electric system, directing Regional Entities
or others to conduct such reviews, or itself nominating an element to
be included in the bulk electric system.
---------------------------------------------------------------------------

    \201\ NOPR, 139 FERC ] 61,247 at P 111.
---------------------------------------------------------------------------

Comments
    271. NERC states that inherent in its oversight of the Regional
Entities is the ability to request a Regional Entity or others to
propose inclusion of sub-100 kV facilities, and other facilities in the
bulk electric system. NERC further states that the Rules of Procedure
do not limit its ability to perform this function and such action is
fully consistent with NERC's obligations and authority as the ERO.
    272. Dominion believes that if NERC wants to nominate a sub-100 kV
facility, it could do so through the broad powers assigned to NERC
through its Rules of Procedure and/or regional delegation agreements.
TAPS maintains that if, through its investigations, risk assessments,
or analysis of events, NERC identifies facilities that should be
included in (or excluded from) the bulk electric system, it would be
appropriate for NERC to have the authority to make such a proposal
through the exception process, provided that it implements due process
safeguards such as the designation of decisional and non-decisional
staff.
    273. Several commenters state that NERC should have the ability to
nominate a facility for inclusion. SmartSenseCom believes NERC should
have authority to initiate an exception request because, even with a
bright line standard, there remains the possibility of inconsistent
interpretation and application of the definition. ISO-NE states that
NERC should have the ability to nominate a facility for inclusion, but
the Regional Entities along with planning authorities, reliability
coordinators, transmission operators, transmission planners and
balancing authorities should be provided an opportunity to review and
comment on this nomination.
    274. AEP believes that RTOs or Regional Entities ``are equipped to
facilitate the efforts to be effective with the exception process.''
\202\ AEP also suggests that NERC and the Commission could assign
review of sub-100 kV facilities to the RTOs. AEP states that the RTO
processes could be modified to address the exceptions. AEP defers to
the judgment of the Commission and NERC in regions where there are
currently no functioning RTOs.
---------------------------------------------------------------------------

    \202\ AEP Comments at page 11.
---------------------------------------------------------------------------

    275. Other commenters do not support a NERC role as contemplated in
the NOPR. SoCal Edison believes that

NERC should not initiate exception requests to include facilities
within the bulk electric system. Rather, SoCal Edison posits that
NERC's role is to communicate to the Regional Entities their obligation
to review systems in their area that operate in parallel with the bulk
electric system and to include such systems in the bulk electric
system. APPA supports consideration of a NERC role in Phase 2 of the
project to identify specific reliability gaps but objects to NERC being
able to step into the shoes of the Regional Entity.
Commission Determination
    276. NERC states that, as the ERO, and in its oversight of the
Regional Entities, it has the ability to request a Regional Entity or
others to propose inclusion of sub-100 kV facilities, and other
facilities, in the bulk electric system. NERC believes that nothing in
the proposed Rules of Procedure limits its oversight obligations and
authority as the ERO. The Commission finds NERC's approach to be
reasonable. Section 215(e)(4)(C) of the FPA authorizes the Commission
to issue regulations authorizing the ERO to enter into an agreement to
delegate authority to Regional Entities if the agreement promotes
effective and efficient administration of Bulk-Power System
reliability.\203\ Subsequently, the Commission approved delegation
agreements between NERC and the eight Regional Entities.\204\ Pursuant
to the delegation agreements, NERC may issue guidance or directions as
to the manner in which a Regional Entity performs delegated functions
and related activities.\205\ Thus, the Commission agrees with NERC
that, as the ERO, NERC has the authority to request a Regional Entity
or other eligible submitting entity to propose inclusion of sub-100 kV
facilities, or other facilities, in the bulk electric system.
---------------------------------------------------------------------------

    \203\ 16 U.S.C. 824o (2006).
    \204\ North American Electric Reliability Corp., 119 FERC ]
61,060, order on reh'g, 120 FERC ] 61,260 (2007).
    \205\ See, e.g., section 8(d) of the Amended and Restated
Delegation Agreement between NERC and Midwest Reliability
Organization (* * * the NERC Board (or a Board committee to which
the Board has delegated authority) may issue guidance or directions
as to the manner in which Midwest Reliability Organization and, if
applicable, other Regional Entities, shall perform delegated
functions and related activities.'').
---------------------------------------------------------------------------

    277. TAPS supports NERC having the ability to initiate the
designation of facilities or elements as part of the bulk electric
system, provided that NERC implements due process safeguards such as
the designation of appropriate decisional and non-decisional staff. We
agree that, to avoid actual or appearance of impropriety, NERC must
develop appropriate safeguards.
    278. In response to AEP, the Commission will not direct
modifications to provide RTOs and ISOs the authority to address
exception requests. RTOs and ISOs can submit exception requests in
their capacity as planning authorities, reliability coordinators,
transmission operators, transmission planners, and/or balancing
authorities.
3. Commission Role in Identifying Necessary Elements
NOPR Proposal
    279. In the NOPR, the Commission requested comment on the role the
Commission should have with respect to the designation of sub-100 kV
facilities, or other facilities, necessary for the operation of the
interconnected transmission network for inclusion in the bulk electric
system. The Commission observed that ``there may be circumstances (like
the September 2011 Blackout Report) where the Commission, through the
performance of its statutory functions, may conclude that certain sub-
100 kV facilities not already included in the bulk electric system are
necessary for the operation of the interconnected transmission network
and thus should be included in the bulk electric system.'' \206\ The
Commission stated that it expected that Regional Entities and others
``will take affirmative steps to review and include sub-100 kV elements
and facilities, and other facilities, necessary for the operation of
the interconnected transmission system in the bulk electric system,''
and requested comment as to how the Commission could ensure that such
facilities are considered for inclusion in the bulk electric
system.\207\ The Commission also requested comment on instances when
the Commission itself should designate or direct others to designate
sub-100 kV facilities, or other facilities, necessary for the operation
of the interconnected transmission grid for inclusion in the bulk
electric system.
---------------------------------------------------------------------------

    \206\ NOPR, 139 FERC ] 61,247 at P 112.
    \207\ NOPR, 139 FERC ] 61,247 at P 112.
---------------------------------------------------------------------------

Comments
    280. NERC notes that the Commission has authority pursuant to FPA
section 215(d)(5) to initiate a Reliability Standards development
process that ``addresses a specific matter.'' According to NERC, for
the Commission to play a more active role in the designation of such
facilities would be inconsistent with its role as the adjudicator of
disputes.
    281. Some commenters assert that the Commission has the authority
to designate a facility as part of the bulk electric system.\208\
SmartSenseCom states that, if the Commission is concerned that a
facility is necessary for the operation of the interconnected
transmission system, it possesses authority to order NERC or a Regional
Entity to address that matter. Specifically, SmartSenseCom points to
section 215(b) and section 215(d)(5) where the Commission has plenary
authority over the ERO and ``all users, owners, and operators of the
bulk-power system'' for the purposes of approving reliability standards
and enforcing compliance with those standards.\209\ SmartSenseCom
states that, pursuant to the statutory authority, the Commission could,
on its own motion, ``order [NERC] to submit * * * a modification to a
reliability standard that addresses a specific matter if the Commission
considers such * * * modified reliability standard appropriate to carry
out this section.'' \210\
---------------------------------------------------------------------------

    \208\ E.g., Dominion and SmartSenseCom.
    \209\ SmartSenseCom Comments at 14, quoting 16 U.S.C. 824o(b).
    \210\ Id. at 14, quoting 16 U.S.C. 824o(d)(5).
---------------------------------------------------------------------------

    282. Furthermore, SmartSenseCom states that the Commission should
be able to review NERC exceptions decisions. SmartSenseCom asserts that
NERC decisions should be subject to the discretionary review of the
Commission and the Commission should retain the ability to remand or
reject an exception determination, pursuant to the Commission's FPA
section 215 statutory authority to approve, disapprove, or remand NERC-
proposed Reliability Standards. While the Commission should give NERC's
exception decision ``due weight'' as required by section 215,
SmartSenseCom asserts that the availability of review would ensure
reliable operation of existing and future Bulk-Power System facilities.
SmartSenseCom also suggests that Commission review of exception
decisions would provide industry stakeholders with valuable precedent
and clarity on the treatment of certain facilities.
    283. Other commenters claim that the Commission does not possess
the authority to designate elements as part of the bulk electric
system. ISO New England contends that the Commission, as the ultimate
decision making authority, should not have a role in nominating
facilities for inclusion in the bulk electric system. APPA does not
believe that the FPA gives the Commission authority to designate
specific elements for inclusion in the

bulk electric system. Rather, according to APPA, the Commission's role
is to review NERC decisions. APPA states that policy considerations and
Congressional intent also ``militate against direct [Commission]
identification of specific facilities or classes of facilities to be
included in the [bulk electric system] definition.'' \211\ APPA asserts
that, during the course of a Part 1b investigation or other inquiry,
the Commission may identify facts that indicate that a registered
entity has not properly applied the definition. APPA points to FPA
section 215(e)(3) which provides that, after notice and opportunity for
hearing, the Commission may enforce compliance by a particular user,
owner or operator of the Bulk-Power System with a Reliability Standard,
which could include application of the definition within the context of
a specific reliability standard. APPA argues, that section 215
contemplates a standard development and enforcement framework in which
rules of general applicability, i.e., Reliability Standards, are
developed by the ERO on a continent-wide, and are subject to Commission
approval prior to the enforcement of such Reliability Standards. In
contrast, APPA argues that section 215 contemplates the delegation of
enforcement authority by the ERO to Regional Entities that are
organized to accomplish this specific purpose. APPA concludes that the
Commission, like NERC, should focus its resources on ensuring that
Regional Entities enforce compliance with the definition and the Rules
of Procedure.
---------------------------------------------------------------------------

    \211\ APPA Comments at 20.
---------------------------------------------------------------------------

    284. SoCal Edison does not support active Commission involvement in
designating facilities for inclusion in the bulk electric system.
According to SoCal Edison, because the Commission has the authority to
review NERC's decisions in the exceptions procedure, the Commission's
role should be limited to providing to NERC information that the
Commission develops on facility categories that should potentially be
included in the bulk electric system. Further, SoCal Edison states that
NERC should be responsible for communicating that information to
Regional Entities for further action and ensuring that those Regional
Entities take the appropriate action with respect to such information,
and the Commission should ensure that NERC and the regional authorities
act upon the information provided by the Commission with respect to
such facilities.
Commission Determination
    285. For the reasons discussed below, we conclude that the
Commission has the authority to designate an element as part of the
bulk electric system pursuant to our authority set forth in sections
215(a)(1) and (b)(1) of the FPA. We are cognizant of the concerns
stated by SoCal Edison and other commenters regarding the appellate
role of the Commission, and the desire to allow registered entities and
Regional Entities to take the lead in identifying sub-100 kV elements,
and other elements, that should be included in the bulk electric
system. As explained above, we expect entities to identify and include
sub-100 kV elements, and other elements, that are necessary for
operating the interconnected transmission network in the bulk electric
system. Nonetheless, we believe that in appropriate circumstances, for
example, where an event analysis of a system disturbance indicates the
operational importance of sub-100 kV elements, and other elements, to
bulk electric system reliability, the Commission may find it necessary
for the reliable operation of the interconnected transmission network
to designate facilities to be included in the bulk electric system. We
anticipate that such circumstances will be rare. Consistent with the
approach discussed in the NOPR, the Commission would provide public
notice and opportunity for public comment before designating facilities
as part of the bulk electric system.\212\
---------------------------------------------------------------------------

    \212\ NOPR, 139 FERC ] 61,247 at P 112, n.127.
---------------------------------------------------------------------------

    286. Commenters are mistaken in characterizing the Commission's
designation of facilities as bulk electric system as a modification to
the bulk electric system definition or other Reliability Standard.
Rather, our authority to designate facilities is based on the statutory
definition of Bulk-Power System and the jurisdictional authority vested
in the Commission pursuant to section 215 of the FPA. Specifically,
section 215(b)(1) of the FPA provides that ``the Commission shall have
jurisdiction, within the United States, over * * * all users, owners
and operators of the bulk-power system * * * for purposes of approving
Reliability Standards established under this section and enforcing
compliance with this section.'' \213\ Section 215(a)(1) of the FPA, in
turn, defines ``Bulk-Power System'' to mean ``facilities and control
systems necessary for operating an interconnected electric energy
transmission network (or any portion thereof); and electric energy from
generation facilities needed to maintain transmission system
reliability.'' \214\ If an entity owns or operates sub-100 kV elements,
or other elements, ``necessary for operating an interconnected electric
energy transmission network,'' the Commission has jurisdiction pursuant
to FPA section 215(b)(1) to ``enforc[e] compliance with this section,''
and to ensure that the approved definition is being implemented
properly.
---------------------------------------------------------------------------

    \213\ 16 U.S.C. 824o(b)(1).
    \214\ 16 U.S.C. 824o(a)(1).
---------------------------------------------------------------------------

    287. For example, an entity may operate sub-100 kV elements, or
other elements, that are, pursuant to the modified definition approved
in this Final Rule, not treated as part of the bulk electric system.
However, an event analysis may reveal that such facilities are
``necessary for operating an interconnected electric energy
transmission network.'' As an appropriate prospective remedy, pursuant
to the FPA section 215(b)(1) authority to ``enforc[e] compliance with
this section,'' the Commission could designate the facilities as part
of the bulk electric system. This approach is consistent with
Commission precedent regarding unregistered entities whose facilities
are involved in a violation of Reliability Standards. The Commission
determined that, in such situations, the appropriate remedy is to
register the entity so that, prospectively, the entity must comply with
the relevant Reliability Standards based on the functions performed by
that entity.\215\
---------------------------------------------------------------------------

    \215\ See Reliability Standard Compliance and Enforcement in
Regions with Regional Transmission Organizations or Independent
System Operators, 122 FERC ] 61,247, at P 19 (2008).
---------------------------------------------------------------------------

    288. The Commission would not modify the language of the definition
of bulk electric system or the specific inclusions and exclusions.
Rather, the Commission would initiate the designation of elements to
ensure that the definition is properly applied. To be clear, when, for
example, a system disturbance or other event demonstrates the necessity
of sub-100 kV elements, or other elements, for reliable operations, we
expect in the normal course that registered entities, Regional Entities
and NERC will proactively identify and include sub-100 kV elements, or
other elements, in the bulk electric system. The Commission's strong
preference is that registered entities review their facilities to
determine which are needed for operating the interconnected
transmission network and include them in the bulk electric system.
However, when it is recognized that an element is necessary for the
operation of the interconnected transmission network and no other
entity steps forward to

designate the element as included in the bulk electric system for
purposes of section 215, the Commission has the authority to do so. We
anticipate that such instances will be rare. Should the Commission find
it necessary and appropriate to exercise this authority, we anticipate
that the Commission would, for example, issue either a notice or order
proposing to designate a specific element or elements as part of the
bulk electric system, and explain the rationale for the proposal. The
Commission would make a final determination after providing notice and
opportunity for comment by interested parties.
4. Technical Review Panel
NOPR Proposal
    289. NERC's exception process provides that the Regional Entity
shall not recommend disapproval of the exception request without review
by a technical review panel. The Regional Entity is not bound by the
opinion of the panel, but the panel's evaluation becomes part of the
record associated with the exception request and provided to NERC. In
the NOPR, the Commission stated that it saw value in the Regional
Entity receiving the opinion of a qualified technical review panel. The
Commission observed that NERC did not explain why the proposed
exception process only requires a technical review panel to provide an
opinion where the Regional Entity recommends disapproval of an
exception request. Accordingly, the Commission requested comment from
NERC explaining why the review is only required when a Regional Entity
disapproves a request and whether NERC should modify the exception
process to require Regional Entities to submit all proposed
determinations to a technical review panel regardless of the
recommendation and receive the panel's opinion on each request.
Comments
    290. NERC stated that it considered obtaining the opinion of a
technical panel for all Regional Entity recommendations; however, NERC
concluded that a review should only be required when a Regional Entity
disapproves a request due to concerns regarding administrative
efficiency. NERC determined that negative technical reviews would be
sufficient to promote consistency and that the additional costs and
work of a review of all proposed determinations would outweigh the
benefits. NERC further states the record of every request is reviewed
by a panel of experts at the NERC level as part of the decision making
process.
    291. Several entities support NERC's explanation.\216\ ELCON
believes NERC's approach will avoid the burden, inefficiency and delay
inherent in unnecessary referrals to a technical review panel. ELCON
notes that the exception process already calls for submission of in-
depth technical information through the Detailed Information Form,
initial review by the Regional Entity, and subsequent review and final
decision by NERC. ELCON believes that considerable technical expertise
will, therefore, be available to both the Regional Entity and to NERC
as they assess exception requests.
---------------------------------------------------------------------------

    \216\ E.g., Idaho Power, ELCON, and G&T Cooperatives.
---------------------------------------------------------------------------

    292. In contrast, some entities believe that a technical panel be
convened for either approval or denial of all exceptions.\217\ They
believe that using a panel for all requests will ensure that the
requests receive adequate consideration and vetting before a final
decision is rendered. WPPC requests that the Commission obtain
additional information from NERC with respect to why the Technical
Review Panels are not required to review all exception requests that
are rejected on procedural grounds.
---------------------------------------------------------------------------

    \217\ E.g., ISO New England and BPA.
---------------------------------------------------------------------------

Commission Determination
    293. The Commission accepts NERC's explanation that requiring a
technical panel review of all Regional Entity recommendations will
likely cause an additional administrative burden on Regional Entities,
delaying final recommendations to NERC. While the Commission sees
benefits in utilizing a technical review panel for all requests, we are
not persuaded that these benefits will outweigh the costs associated
with the increased administrative burden likely to be imposed.
Additionally, if the Technical Review Panel does not provide an opinion
on all exception requests, the exception process is not without other
levels of technical review. On the contrary, the exceptions process
provides multiple levels of technical review before a final
determination is made by NERC, including a substantive review by the
Regional Entity and a subsequent review by a panel of technical experts
at the NERC level. For these reasons, the Commission approves the
Technical Review Panel as proposed by NERC.
    294. In response to WPPC's request, the Commission declines to seek
further information from NERC with respect to why the Technical Review
Panels are not required to review all exception requests that are
rejected on procedural grounds. Section 5.1.5(a) of Appendix 5C to the
Rules of Procedure requires a Regional Entity to reject an exception
request if it is not from an eligible submitting entity and/or it does
not contain all the required information specified in section 4.0. The
Commission does not believe a Technical Review Panel needs to determine
if an exception request was properly submitted by an eligible entity
and/or contains all the required information. Additionally, as WPPC
states in its comments, submitting entities may appeal Regional Entity
rejections of exception requests to NERC through the procedure provided
in section 7.0 of the exception process. Requiring Technical Review
Panel review of all rejections of exception requests, as well as all
recommendations of disapprovals, would unnecessarily impose
administrative burdens as if the Technical Review Panel was required to
review all exception request recommendations. For these reasons, the
Commission declines WPPC's request to obtain further information from
NERC on this matter.
5. Use of Industry Subject Matter Experts
NOPR Proposal
    295. Section 8 of the proposed exception process sets forth the
procedures for NERC's review of a Regional Entity's recommendation. The
NERC President will appoint a team of at least three persons with the
relevant technical background to evaluate an exception request. NERC
contemplated that its review teams would be drawn from NERC staff
resources, supplemented by contractors as necessary, but situations may
arise in which NERC may need to call on industry subject matter experts
to participate as members of review teams. In the NOPR the Commission
supported NERC's proposal to use staff resources, supplemented by
contractors as necessary, to make up the exception request review
teams. We stated that consistent appointment of the same NERC staff and
contractor resources, based on subject matter expertise, will promote a
more uniform and consistent review of the Regional Entities' exception
request recommendations.
Comments
    296. No comments were received on this issue.

Commission Determination
    297. The Commission agrees with NERC's proposal to use staff
resources, supplemented by contractors as necessary, and potentially
industry subject matter experts to make up the exception request review
teams. The Commission believes that ensuring that members of the NERC
review teams have the required technical background necessary to
evaluate exception requests, review supporting technical documents, and
assess technical recommendations, is essential to providing consistent
technically sound determinations on exception requests. The Commission
believes that consistent appointment of the same NERC staff, contractor
resources and industry subject matter experts, based on subject matter
expertise, will promote a more uniform and consistent review of the
Regional Entities' exception request recommendations.
6. NERC's Detailed Information Form
NOPR Proposal
    298. NERC developed the Detailed Information Form that the Regional
Entity and NERC can use in evaluating whether or not the elements that
are the subject of an exception request are necessary for operating the
interconnected transmission network. In the NOPR, the Commission stated
that this information will provide consistency with respect to the
technical information provided with all exception requests and is an
equally efficient and effective approach to developing a substantive
set of technical criteria for granting and rejecting exception requests
and proposed to approve the Detailed Information Form.
Comments
    299. ELCON supports the Detailed Information Form and agrees that
it is ``more feasible to develop a common set of data and information
that could be used by the Regional Entities and NERC to evaluate
exception requests'' than to develop the detailed criteria and that the
information specified in the form is relevant and appropriate for
exception requests.
    300. Holland and Alameda state that there should be some basic
guidelines to evaluate an exception request. Alameda states that having
no technical criteria provides entities with no guidance considering a
request for exception. Alameda submits that parties should have a
reasonable basis for determining the outcome of a potential exception
request in advance of taking the time and effort to make the request.
Alameda suggests that the Commission direct NERC to develop appropriate
technical exception criteria, recognizing that each criterion may not
apply to all requests and that the criterion may even change over time
as specific requests are evaluated in detail. Alameda also seeks
clarification that parties may seek exceptions for proposed facilities,
and not just for existing facilities as allowing exceptions to be
requested for proposed facilities would provide an opportunity for
entities to make reasoned decisions about planned system improvements.
Commission Determination
    301. We approve the Detailed Information Form and find that it will
provide consistency with respect to the technical information provided
with all exception requests and is an equally efficient and effective
approach to developing a substantive set of technical criteria for
granting and rejecting exception requests. We decline to adopt
Alameda's suggestion that the Commission direct NERC to develop
appropriate technical exception criteria. We accept NERC's conclusion
that it was more feasible to develop a common set of data and
information that could be used by the Regional Entities and NERC to
evaluate exception requests than to develop the detailed criteria.
NERC's proposal provides the needed flexibility to allow Regional
Entities to make a recommendation of whether or not an element is
necessary for the reliable operation of the interconnected transmission
network. Thus, the detailed criteria that NERC requires, plus other
information that an entity is free to include in its submission will
provide applicants a reasonable basis for determining whether an
element is necessary for the reliable operation of the interconnected
transmission network. We also decline to direct NERC to determine how
to treat exceptions for proposed facilities.
7. NERC's Implementation Plan
NOPR Proposal
    302. NERC requests that the effective date for revised definition
should be the first day of the second calendar quarter after receiving
applicable regulatory approval, or, in those jurisdictions where no
regulatory approval is required, the revised bulk electric system
definition should go into effect on the first day of the second
calendar quarter after its adoption by the NERC Board. NERC also
requested that compliance obligations for all newly-identified elements
to be included in the bulk electric system based on the revised
definition should begin twenty-four months after the applicable
effective date of the revised definition. NERC stated that sufficient
time is needed to implement transition plans, for exceptions to be
filed and processed, for owners of newly-included elements to train
their personnel on compliance with the Reliability Standards. In the
NOPR, the Commission supported NERC's justification for its
implementation and proposed to approve NERC's implementation plan.
Comments
    303. A number of commenters support the NOPR proposal.\218\ ELCON
states that the twenty-four month time period gives sufficient time to
accommodate planning for and changes resulting from the new definition,
including any exception requests and compliance obligations, without
causing undue delay. Consumers believes the twenty-four month period
should be sufficient in most cases but believes that the Commission
should make specific provision for longer periods to be allowed on a
case-by-case basis under special circumstances. Barrick and IUU also
support the implementation plan but believe further clarification is
necessary with respect to an entity's status during the exception
process.
---------------------------------------------------------------------------

    \218\ E.g., Consumers Energy, ELCON, and NYISO.
---------------------------------------------------------------------------

Commission Determination
    304. We agree with commenters that the twenty-four month time
period gives sufficient time to accommodate planning for and changes
resulting from the new definition, including any exception requests and
compliance obligations. Therefore, we approve NERC's proposal to
implement a twenty-four month implementation plan. In response to
Consumers' comment regarding the need for additional time for special
circumstances, an entity or NERC may petition for an extension of time.
In response to the comments raised by Barrick and IUU, we clarify that
the status of an element remains unchanged during the exception
process.
8. NERC List of Facilities Granted Exceptions
NOPR Proposal
    305. In the NOPR, the Commission noted that the proposed exception
process does not include provisions for NERC to maintain a list of
facilities that have received exceptions, as requested in Order No.
743. In its petition, NERC indicated that this is an internal
administrative matter for NERC to implement that does not need to be
embedded in the Rules of Procedure. NERC stated it will develop a
specific

internal plan and procedures for maintaining a list of facilities for
which exceptions have been granted and notes that Regional Entities
will maintain lists of elements within their regions for which
exceptions have been granted, in order to monitor compliance with the
requirement to submit periodic certifications.
    306. In the NOPR, the Commission proposed that NERC make an
informational filing within 90 days of the effective date of a final
rule, detailing its plans to maintain a list and how it will make this
information available to the Commission, Regional Entities, and
potentially to other interested persons.\219\ The Commission also
requested comment on whether NERC's proposal should be modified to
include an obligation for the registered entity to inform NERC or the
Regional Entity of the entity's self-determination through application
of the definition and specific exclusions E1 through E4 that an element
is no longer part of the bulk electric system.
---------------------------------------------------------------------------

    \219\ NOPR, 139 FERC ] 61,247 at P 123.
---------------------------------------------------------------------------

Comments
    307. NERC confirms that it is continuing to develop details
regarding how the list of facilities that have received exceptions will
be maintained. According to NERC, a 90-day window of time in which to
submit an informational filing is reasonable.
    308. Other entities support NERC's plan.\220\ AEP cautions that the
process of submitting a filing must not overstep the confidentiality
provisions of Critical Energy Infrastructure Information as part of the
gathering and dissemination of list(s).
---------------------------------------------------------------------------

    \220\ ELCON and NRECA.
---------------------------------------------------------------------------

    309. The Massachusetts DPU supports NERC's keeping a list of
exceptions and requests that the Commission requires that state
regulatory authorities have appropriate access to the list. ISO New
England proposes that NERC submit a compliance filing detailing its
internal process for tracking exception requests. ISO New England also
believes that NERC and/or the Regional Entities should be required to
maintain a database that lists the bulk electric system elements within
their respective footprints and should make this data available for
affected entities.
Commission Determination
    310. We adopt the NOPR proposal and direct NERC to make an
informational filing within 90 days of the effective date of this Final
Rule detailing its plans to maintain a list and how it will make this
information available to the Commission, Regional Entities, and
potentially to other interested persons. We find that the suggestions
of the Massachusetts DPU and ISO New England are premature as these
comments are more appropriate for consideration after NERC makes its
compliance filing.
9. Declassification of Facilities
NOPR Proposal
    311. In the NOPR, the Commission observed that, while NERC will
maintain a list of facilities that have received an exception pursuant
to the case-specific exception process, NERC does indicate whether it
will track an entity's ``declassification'' of current bulk electric
system facilities based on the entity's self-application of the bulk
electric system definition.\221\ The Commission expressed concern
particularly when an entity self-determines that an element is no
longer part of the bulk electric system but the entity is large enough
to otherwise remain on the NERC Compliance Registry. Accordingly, the
Commission requested comment on whether NERC's proposal should be
modified to include an obligation for the registered entity to inform
NERC or the Regional Entity of the entity's self-determination through
application of the definition and specific exclusions E1 through E4
that an element is no longer part of the bulk electric system.
---------------------------------------------------------------------------

    \221\ NOPR, 139 FERC ] 61,247 at P 123.
---------------------------------------------------------------------------

Comments
    312. NERC asserts that registered entities are obligated to inform
the Regional Entity of any self-determination that an element is no
longer part of the bulk electric system. NERC points to section 501 of
the currently-effective Rules of Procedure, which provides that each
registered entity must notify its Regional Entity of any matters that
affect the registered entities' responsibilities with respect to
Reliability Standards. NERC contends that a determination that an
element is no longer part of the bulk electric system would necessarily
affect an entity's responsibilities with respect to the Reliability
Standards. Further, NERC states that an entity's failure to notify
would not relieve it of any obligations it may have associated with
such failure.
    313. Idaho Power and National Grid support that registered entities
should inform NERC or the Regional Entity of elements that have been
declassified. National Grid supports an obligation for each registered
entity to inform the respective reliability coordinators and Regional
Entity of the entity's self-determination through application of the
definition and specific exclusions that an element is no longer part of
the bulk electric system.
    314. PSEG Companies do not support requiring self reporting. PSEG
Companies point out that when the NERC Functional Model was first put
in place, registered entities made determinations of which facilities
should be included and excluded from the bulk electric system without
any reporting requirements for those decisions. PSEG Companies assert
that a registered entity should only be contacting its Regional Entity
regarding status changes if those changes impact the registered
entity's registration (e.g., if a registered Transmission Owner
disposes of all its 100 kV or higher assets or a generation owner
acquires its first BES generator). According to PSEG Companies,
facility changes that impact a facility's bulk electric system status
do not presently require reporting. The proposed reporting self-
determined exclusions could lead to extensive facility-by-facility
tracking and reporting of all status changes which would be overly
burdensome to Registered Entities.
    315. AEP believes that it is imperative to keep the process simple
in the beginning, and thus advocates that no specific information
submission requirements be implemented at this time. If NERC or the
Regional Entities determine this approach is problematic in the future,
AEP states that any issues can be addressed through a change in the
NERC Rules of Procedure.
    316. ICNU states that if NERC requires an end-use retail customer
to provide notice of declassification, such notice should not involve
extensive or burdensome reporting requirements because, as noted above,
end-use customers do not have the required resources or expertise. On
the other hand, ICNU believes that non-registered end-use retail
customers who, based on the new BES definition, determine that they
remain excluded from the BES should not be listed or required to report
such determination to NERC or the appropriate Regional Entity.
Commission Determination
    317. We agree with NERC that registered entities are obligated to
inform the Regional Entity of any self-determination that an element is
no longer part of the bulk electric system. PSEG Companies claim that
there is currently no requirement to report the change in status of
facilities. NERC, however, cites section 501 of the currently-effective
Rules of Procedure,

which provides that each registered entity must notify its Regional
Entity of any matters that affect the registered entities'
responsibilities with respect to Reliability Standards. Section 501
also requires entities to inform the Regional Entity of any self-
determination that an element is no longer part of the bulk electric
system. Section 501, Part 1.3.5 provides:

    Each Registered Entity identified on the NCR shall notify its
corresponding Regional Entity(s) of any corrections, revisions,
deletions, changes in ownership, corporate structure, or similar
matters that affect the Registered Entity's responsibilities with
respect to the Reliability Standards. Failure to notify will not
relieve the Registered Entity from any responsibility to comply with
the Reliability Standards or shield it from any Penalties or
sanctions associated with failing to comply with the Reliability
Standards applicable to its associated Registration.

Thus, a registered entity that concludes that an element is no longer
part of the bulk electric system must notify the Regional Entity of
such change. Further, we disagree with PSEG Companies that such
notification is unnecessary. PSEG Companies point out that NERC did not
require such notification when the Functional Model was first put into
place. Regardless of past practice, we find that such notification is a
necessary feature of the changes being implemented by NERC. As
explained in the NOPR:

    A large utility with hundreds or thousands of transmission lines
may initially determine that a configuration on its system does not
qualify for the exclusion E3 local network exclusion, but
subsequently determines that the configuration can be excluded.
NERC's petition does not indicate whether an entity in such
circumstance is obligated to inform NERC or the appropriate Regional
Entity of that self-determination. It appears that NERC and the
Regional Entities would need this information for their compliance
programs, for audit purposes, and to understand the contours of the
bulk electric system within a particular region.

Further, the revised definition allows entities the discretion to
``declassify'' certain facilities as part of the bulk electric system,
and NERC, Regional Entities and the Commission need notification of
such instances to assure that the entities are appropriately
implementing the revised definition.
    318. We affirm ICNU's assertion that this task does not involve
new, extensive or burdensome reporting requirements. We view this as an
identification and notification task so that a Regional Entity and NERC
will know what elements are or not part of the bulk electric system.
This will provide the entities tasked with overseeing the reliable
operation of the interconnected transmission network with having an
adequate level of information and transparency to fulfill those
obligations. We disagree with PSEG Companies that this is an overly
burdensome requirement. First, such information sharing is already
contemplated by the Rules of Procedure. Second, as noted above, we do
not view this requirement as one that involves anything more than
notification. It does not require a justification of why the element is
being excluded.

III. Information Collection Statement

    319. The Office of Management and Budget (OMB) requires that OMB
approve certain information collection and data retention requirements
imposed by agency rules.\222\ 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.
---------------------------------------------------------------------------

    \222\ 5 CFR 1320.11 (2011).
---------------------------------------------------------------------------

Public Reporting Burden and Information Collection Costs

    320. In the NOPR, the Commission solicited comment on the need for
collecting the information that is required to be prepared, maintained
and/or submitted pursuant to this Final Rule, whether the information
will have practical utility, the accuracy of the burden estimates, ways
to enhance the quality, utility, and clarity of the information to be
collected or retained, and any suggested methods for minimizing
respondents' burden, including the use of automated information
techniques. The NOPR also included a chart that identified the
estimated public reporting burdens for the proposed reporting
requirements, as well as a projection of the costs of compliance for
the reporting requirements. The Commission asked that any revised
burden estimates submitted by commenters be supported by sufficient
detail to understand how the estimates are generated. The Commission
based its burden estimate on the revised definition of bulk electric
system developed by NERC.
    321. In the NOPR, the Commission stated that the proposal would
result in entities reviewing systems and creating qualified asset
lists, submitting exception requests where appropriate, and certain
responsible entities having to comply with requirements to collect and
maintain information in mandatory Reliability Standards with respect to
certain facilities for the first time. The Commission requested comment
on the estimated number of entities that will have an increased
reporting burden associated with the identification of new bulk
electric system elements as a result of the modified definition. In
developing an estimate of the reporting burden associated with the
inclusion of additional elements, like NERC, the Commission assumed
that entities in the NPCC Region will be most affected, with a lesser
affect in other regions.

Comments

    322. NRECA and APPA do not take a position on the estimates but
observe that modifications to the proposed definition or directives to
NERC may result in substantial changes to the burden estimates and the
assessment of whether the which would require the Commission to re-
assess its burden and small business impact determinations. Similarly,
APPA and WPPC believe that any changes to the proposed definition in
the Final Rule that would include additional facilities would cause a
significant increase in the reporting burden on the industry. APPA
believes that if the Commission were to direct NERC to make revisions
to the specific inclusions or exclusions without technical
justification, the exception process would quickly become overloaded,
with burdens on those seeking exceptions and those ruling on them.
    323. A number of commenters state that the NOPR underestimated the
burden of the rulemaking in terms of hours required to comply. APPA
believes that the Commission underestimates the information collection
costs and the costs of compliance for small utilities. For example, the
Commission's assumption that utility staff would be used to conduct an
analysis is not merited in the case of many small entities. APPA states
that many of its smaller members do not have the in-house employees and
resources to conduct such reliability analyses and would have to rely
on outside consultants and legal firms. Therefore, APPA estimates that
the fees small utilities would pay for each of the services, based on
information and belief, as follows: Consulting Engineer, $225/hour;
Record Keeping, $75/hour; and Legal, $500/hour.
    324. Idaho Power contemplates five local network exclusions which
contain sixty 100 kV and above lines, and its estimates for the time
involved to document these exceptions leads it to believe the
Commission is underestimating the number of engineer

hours per entity's responses. According to Idaho Power, based on an
initial review of potential exceptions, Idaho Power may seek
approximately 9-12 exceptions. Idaho Power agrees with the estimate
that transmission owners, generator owners, and distribution providers
will experience more significant reporting burdens than other
categories of registered entities.
    325. ISO New England believes that there could be a significant
burden on planning coordinators and transmission planners which is not
addressed in the table shown in the NOPR. ISO New England states that,
while it has not performed a similar analysis, it appears that the
``Year 1'' estimates in the table in the NOPR are significantly
understated in view of the resources that it believes will be necessary
to establish the initial list. According to ISO New England, the
estimate of approximately $13 million expended over the entire system
seems overly optimistic. BPA anticipates, based on customer feedback,
that the BPA footprint alone will experience several hundred exception
requests in the first two years. BPA estimates the additional workload
from evaluating the exception requests will be approximately five to
six full time equivalents which includes one full time coordinator, a
customer service engineer for system verification, a planner to run
studies, an operations engineer, and dispatch personnel for real-time
system impacts. NYPSC and the Massachusetts DPU contend that the costs
of compliance with the definition will be excessive. NYPSC cites to a
2009 report from NERC and NPCC, that the compliance costs would exceed
$280 million.

Commission Determination

    326. Commenters raise concerns that modifications to the proposed
definition or directives to NERC may result in substantial changes to
the burden estimates. While the Commission is requiring one
modification to the language in the NERC proposal, the Commission finds
that it does not need to reassess the burden estimates because the
change is intended to simply make more explicit what NERC and other
commenters indicate is the expected application of the proposed
definition to a low-voltage, looped system as depicted in figures 3 and
5 above. Therefore, we do not anticipate the one modification to result
in a significant change to what elements are considered part of the
bulk electric system or applications for case-by-case exceptions. The
burden estimates in this Final Rule represent the incremental burden
changes related only to increased reporting burden associated with the
identification of new bulk electric system elements as a result of the
modified definition. Furthermore, we acknowledge that NPCC may be
subject to additional reporting requirements, however, the burden
estimates are averages for all of the filers. Idaho Power's observation
that the Commission is underestimating the number of engineering hours
is not supported by analysis. Similarly, we are not persuaded by ISO
New England's position that there may be a significant burden on
planning coordinators and transmission planners associated with
proposed definition because it does not offer any analysis to support
this assertion. The Commission expects any burden for planning
coordinators and transmission planners to be de minimis or incorporated
under their existing responsibilities. In any event, Idaho Power and
ISO New England did not provide any estimates of the number of hours
that it would take to determine exceptions, nor suggest alternative
estimates. In response to APPA's hourly estimates that are higher than
the estimates in the NOPR the Commission notes that its hourly rate
estimates for the burden estimates are averages for all of the filers
and are based on national wage data for utilities obtained from the
Bureau of Labor Statistics (for engineers and legal) and NPCC's
assessment of Bulk Electric System Definition (for completing
implementation plans and compliance), and Commission staff outreach
(recordkeeping). Thus, the Commission adopts the burden estimates that
it set forth in the NOPR.
    327. The Commission disagrees with BPA that there may be a large
number of exception requests generated from entities within its
footprint that may have to be processed and the significant addition of
FTEs. First, BPA has not provided any analysis or evidence to support
its claim. Nevertheless, the Commission's expectation, like NERC's, is
that application of the definition with its inclusions and exclusions
should not materially change what is considered part of the bulk
electric system today. Thus, the number of exception requests should
not be excessive.
    328. Some comments address the potential impact the requirements
would have on small entities but did not provide specific estimates on
this impact. Because these comments are also the subject of the
analysis performed under the Regulatory Flexibility Act, the Commission
has provided a response under that section of this rulemaking.
    329. We are not persuaded by NYPSC and Massachusetts DPU that the
costs for compliance will be $280 million. First, NYPSC nor
Massachusetts do not dispute or address the specific information
collection cost estimates in the NOPR. In addition, the vast majority
(approximately $234 million) of the costs included in the report to
which the commenters cite appear to be capital costs which are not
applicable to an information collection estimate. Further, the report
does not account for the revised language in the definition of bulk
electric system and the specific inclusions and exclusions that we are
approving in this Final Rule.
    330. After consideration of comments, the Commission adopts the
NOPR proposal for the Public Reporting Burden and the information
collection costs as follows.

----------------------------------------------------------------------------------------------------------------
                                                           Number of       Average number of
           Requirement            Number and type of    responses  per    hours per response  Total burden hours
                                    entity \223\ (1)      entity (2)              (3)             (1)*(2)*(3)
----------------------------------------------------------------------------------------------------------------
System Review and List Creation   333 Transmission    1 response........  80 (engineer        26,640 Yr 1.
 \224\.                            Owners.                                 hours).
                                  843 Generator                           16 (engineer        13,488 Yr 1.
                                   Owners.                                 hours).
                                  554 Distribution                        24 (engineer        13,296 Yr 1.
                                   Providers.                              hours).
Exception Requests \225\........  1,730 total         .260 responses      94 (60 engineer     24,393 hrs in Yrs
                                   Transmission        each in Yrs 1 and   hrs, 32             1 and 2.
                                   Owners, Generator   2.                  recordkeeping      1,880 hrs in Yr 3
                                   Owners and         20 responses in Yr   hrs, 2 legal hrs).  and ongoing.
                                   Distribution        3 and ongoing.
                                   Providers.
Regional and ERO Handling of      NERC and 8          1 response........  1,386.67 hrs......  12,480 hrs in Yrs
 Exception Requests \226\.         Regional Entities.                                          1 and 2.
Implementation Plans and          111 NPCC Region     1 response........  700 hrs in Yrs 1    77,700 hrs in Yrs
 Compliance \227\.                 Registered                              and 2.              1 and 2.
                                   Entities \228\.                        350 hrs in Yr 3     38,850 hrs in Yr 3
                                                                           and ongoing.        and ongoing.
                                  75 Registered       1 response........  700 hrs in Yrs 1    52,500 hrs in Yrs
                                   Entities from 7                         and 2.              1 and 2.
                                   other Regions.                         350 hrs in Yr 3     26,250 hrs in Yr 3
                                                                           and ongoing.        and ongoing.
                                                                                -------------------
    Totals......................  ..................  ..................  ..................  220,497 hrs in Yr
                                                                                1.
                                                                                167,073 hrs in Yr
                                                                                2.
                                                                                66,980 hrs in Yr 3
                                                                                and ongoing.
----------------------------------------------------------------------------------------------------------------

Costs to Comply

     Year 1: $13,641,200.
     Year 2: $10,435,760.
---------------------------------------------------------------------------

    \223\ The ``entities'' listed in this table are describing a
role a company is registered for in the NERC registry. For example,
a single company may be registered as a transmission owner and
generator owner. The total number of companies applicable to this
rule is 1,522, based on the NERC registry. The total number of
estimated roles is 1,730.
    \224\ This requirement corresponds to Step 1 of NERC's proposed
transition plan, which requires each U.S. asset owner to apply the
revised bulk electric system definition to all elements to determine
if those elements are included in the bulk electric system pursuant
to the revised definition. See NERC BES Petition at 38.
    \225\ We recognize that not all 1,730 transmission owners,
generator owners, and distribution providers will submit an
exception request. Rather, from the total 1,730 entities, we
estimate an average of 260 requests per year in the first two years,
based on a low to high range of 87 to 433 requests per year.
Therefore, the estimated total number of hours per year for years 1
and 2, using an average of 260 requests per year, is 24,393 hours.
We estimate 20 requests per year in year 3 and ongoing.
---------------------------------------------------------------------------

     Year 3 and ongoing: $4,343,520.

For the first two burden categories above, the loaded (salary plus
benefits) costs are: $60/hour for an engineer; $27/hour for
recordkeeping; and $106/hour for legal. The breakdown of cost by item
and year follows:
---------------------------------------------------------------------------

    \226\ Based on the assumption of two full-time equivalent
employees added to NERC staff and 0.5 full-time equivalent employees
added to each region's staff, each full-time equivalent at $120,000/
year (salary + benefits).
    \227\ The Commission does not expect a significant number of
registered entities outside of the NPCC region to identify new
elements under the revised bulk electric system definition. NERC
also states that the other Regional Entities do not expect an
extensive amount of newly-included facilities. See NERC BES Petition
at 38. ``Compliance'' refers to entities with new elements under the
new bulk electric system definition required to comply with the data
collection and retention requirements in certain Reliability
Standards that they did not previously have to comply with.
    \228\ The estimated range of affected NPCC Region Registered
Entities is from 66 to 155 entities.
---------------------------------------------------------------------------

     System Review and List Creation (year 1 only): (26,640 hrs
+ 13,488 hrs + 13,296 hrs) =53,424 hrs * 60/hr = $3,205,440.
     Exception Requests (years 1 and 2): (sum of hourly expense
per request * number of exception requests) = ((60 hrs * $60/hr) + (32
hrs * $27/hr) + (2hrs * $106/hr)) * 260 requests) = $1,215,760.
     Exception Requests (year 3): (sum of hourly expense per
request * number of exception requests) = ((60 hrs * $60/hr) + (32 hrs
* $27/hr) + (2 hrs * $106/hr)) * 20 requests) = $93,520.
     Regional and ERO handling of Exception Requests: Between
NERC and Regional Entities we estimate 6 full time equivalent (FTE)
engineers will be added at an annual cost of $120,000/FTE ($120,000/FTE
* 6 FTE = $720,000). This cost is only expected in years 1 and 2.
     Implementation Plans and Compliance \229\ (years 1 and 2):
(hourly expense per entity * hours per response * sum of NPCC and non-
NPCC entities) = ($64/hour * 700 hours per response * 186 responses) =
$8,332,800.
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    \229\ The cost and hourly burden calculations for this category
are based on a past assessment (NPCC Assessment of Bulk Electric
System Definition, September 14, 2009.). In that assessment NPCC
indicated $8.9 million annually for operations, maintenance and
additional costs. We estimated that roughly half of that cost
actually relates to information collection burden. Using the
resulting figure, we used a composite wage and benefit figure of
$64/hour to estimate the hourly burden figures presented in the
burden table.
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     Implementation Plans and Compliance (year 3 and beyond):
We estimate the ongoing cost for year 3 and beyond, at 50% of the year
1 and 2 costs, to be $4,166,400.
    Title: FERC-725-J ``Definition of the Bulk Electric System''.\230\
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    \230\ All of the information collection requirements for years
1-3 in the proposed rule are being accounted for under the new
collection FERC-725J.
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    Action: Proposed Collection of Information.
    OMB Control No: 1902-0259.
    Respondents: Business or other for profit, and not for profit
institutions.
    Frequency of Responses: On Occasion.
    Necessity of the Information: The revision to NERC's definition of
the term bulk electric system implements the Congressional mandate of
the Energy Policy Act of 2005 to develop mandatory and enforceable
Reliability Standards to better ensure the reliability of the nation's
Bulk-Power System. Specifically, the revised definition ensures that
certain facilities needed for the operation of the nation's bulk
electric system are subject to mandatory and enforceable Reliability
Standards.
    Internal review: The Commission has reviewed the proposed
definition and made a determination that its action is necessary to
implement section 215 of the FPA. The Commission has assured itself, by
means of its internal review, that there is specific, objective support
for the burden estimate associated with the information requirements.
    331. Interested persons may obtain information on the reporting
requirements by contacting the Federal Energy Regulatory Commission,
Office

of the Executive Director, 888 First Street NE., Washington, DC 20426
[Attention: Ellen Brown, email<EMAIL_ADDRESS>phone: (202)
502-8663, fax:<PHONE_NUMBER>].
    332. For submitting comments concerning the collection of
information and the associated burden estimate, please send your
comments to the Office of Management and Budget, Office of Information
and Regulatory Affairs, Washington, DC 20503 [Attention: Desk Officer
for the Federal Energy Regulatory Commission, phone:<PHONE_NUMBER>,
fax:<PHONE_NUMBER>]. For security reasons, comments to OMB should be
submitted by email to<EMAIL_ADDRESS>Comments submitted
to OMB should include Docket Number RM12-6 and OMB Control Number 1902-
0259.

IV. Regulatory Flexibility Act Analysis

    333. The Regulatory Flexibility Act of 1980 (RFA) \231\ generally
requires a description and analysis of Proposed Rules that will have a
significant economic impact on a substantial number of small entities.
The RFA mandates consideration of regulatory alternatives that
accomplish the stated objectives of a proposed rule and that minimize
any significant economic impact on a substantial number of small
entities. The Small Business Administration's (SBA) Office of Size
Standards develops the numerical definition of a small business.\232\
The SBA has established a size standard for electric utilities, stating
that a firm is small if, including its affiliates, it is primarily
engaged in the transmission, generation and/or distribution of electric
energy for sale and its total electric output for the preceding twelve
months did not exceed four million megawatt hours.\233\
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    \231\ 5 U.S.C. 601-612 (2006).
    \232\ 13 CFR 121.101.
    \233\ 13 CFR 121.201, Sector 22, Utilities & n.1.
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NOPR Proposal

    334. In the NOPR, the Commission estimated that approximately 418
of the 1,730 registered transmission owners, generator owners and
distribution service providers may fall within the definition of small
entities. Further, the Commission estimated that of the 418 small
entities affected there are 50 within the NPCC region that would have
to comply with the rulemaking. The Commission contemplated that the
rulemaking would affect more small entities in the NPCC Region than
those outside NPCC because there are more elements in the NPCC region
that would be added to the bulk electric system based on the new
definition than elsewhere. The Commission estimated the first year
affect on small entities within the NPCC region to be $39,414.\234\
This figure is based on information collection costs plus additional
costs for compliance.\235\ The Commission estimated the average annual
affect per small entity outside of NPCC will be less than for the
entities within NPCC. In the NOPR, the Commission stated that it did
not consider this to be a significant economic impact for either class
of entities because it should not represent a significant percentage of
the operating budget.
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    \234\ For companies registered as more than one entity in the
NERC compliance registry this figure will increase accordingly. That
is, if a company is registered as a transmission owner and generator
owner then the cost burden would be $78,828 ($39,414 * 2 = $78,828).
    \235\ We use fifty percent of the first year ``number of hours
per response'' figure in the information collection statement for
calculation under the assumption that smaller entities do not have
complicated systems or will not have as many new elements on average
as larger entities do.
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Comments

    335. APPA asserts that the Commission underestimates the costs of
compliance for small utilities. According to APPA, the Commission's
assumption that utility staff would conduct an analysis is not merited
in the case of many small entities. APPA states that many of its
smaller members do not have the in-house employees and resources to
conduct such reliability analyses and would have to rely on outside
consultants and legal firms. Therefore, APPA estimates that the fees
small utilities would pay for each of the services as follows, based on
information and belief: Consulting Engineer, $225/hour; Record Keeping,
$75/hour; and Legal, $500/hour. According to APPA, these increased
dollar estimates alone substantially increase the burden estimates on
smaller utilities to comply with the Commission's proposals. WPPC
believes that the cost to satisfy transmission owner/transmission
operator certification alone would be $80,000. WPPC points to one small
municipally-owned utility paid $40,000 for third party expertise and
review of the utility's required compliance. WPPC adds that the
municipality had two staff members spend a week reviewing a modifying
city policies to ensure compliance with reliability standards. WPPC
points out that these costs only represent the initial subject matter
review and do not include subsequent implementation, training or
material purchase costs. WPPC also states that small entities have to
divert employees from other tasks to compliance tasks which represents
a significant burden on staffing.
    336. ISO New England does not believe that the NOPR cost estimate
captures the cost of physical upgrades that might be necessary on the
system. The cost estimates do not reflect the true financial burden
that might be borne by these smaller entities.
    337. BPA is concerned that the Commission is underestimating the
costs and resources associated with reliability compliance. BPA
disagrees with the Commission's estimated annual costs of $39,414 for
entities that are required to newly comply with Reliability Standards
as a result of adopting the definition. BPA believes that the
Commission's figure vastly underestimates the actual effort and costs
associated with compliance. In BPA's experience with its customers, the
smallest customer impact is equivalent to at least one FTE, and larger
customers have indicated they have an even higher burden. BPA asserts
that the Commission's estimates also overlook indirect compliance costs
and their impact on small and large entities alike. BPA disagrees with
the Commission's conclusion that the compliance burden is not ``a
significant economic impact * * * because it should not represent a
significant percentage of the operating budget.'' It is BPA's
experience that implementing a fully functioning compliance program
requires committed personnel, budget, and resources, which is never
insignificant.

Commission Determination

    338. The Commission disagrees with commenters that challenge the
Commission's conclusion that the rule will not have a significant
economic impact on a substantial number of small entities. We are not
persuaded by APPA, BPA and ISO New England's assertions regarding how
the Commission's analysis is erroneous or in what ways the Final Rule
will have a significant economic impact on a substantial number of
small entities. As the Commission stated in its NOPR, most transmission
owners, transmission operators and transmission service providers do
not fall within the definition of small entities. In addition, the
requirement to comply with the definition of bulk electric system is
not new. The reason for revising the definition of bulk electric system
is to comply with the Commission's directives and address the technical
and policy concerns expressed in Order Nos. 743 and 743-A, which NERC

accomplished by eliminating the explicit basis of authority for
Regional Entity discretion in the current definition, and establishing
specific threshold criteria rather than general guidelines of
facilities operated or connected at or above 100 kV. Thus, while the
Commission recognizes that some small entities within the NPCC
territory may have an increased burden due to multiple registration
classifications or increased compliance with the Reliability Standards
due to the elimination of the regional discretion, the average annual
affect per small entity outside of NPCC will be less than for the
entities within NPCC and should not materially change. The Commission
also does not consider this to be a significant economic impact for
either class of entities because our estimated costs for complying with
the revised definition should not represent a significant percentage of
the operating budget. Further, while NYPSC and Massachusetts DPU assert
that the costs for compliance will be $280 million they make no
specific reference to the cost for small businesses and, as noted
above, their estimate does not account for the revised language in the
definition of bulk electric system and the specific inclusions and
exclusions that we are approving in this Final Rule. Accordingly, the
Commission certifies that this Final Rule will not have a significant
economic impact on a substantial number of small entities.

V. Environmental Analysis

    339. 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.\236\ The
Commission has categorically excluded certain actions from this
requirement as not having a significant effect on the human
environment. The actions in this rule fall within the categorical
exclusion in the Commission's regulations for rules that are
clarifying, corrective or procedural, for information gathering,
analysis, and dissemination.\237\ Accordingly, neither an environmental
impact statement nor environmental assessment is required.
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    \236\ Regulations Implementing the National Environmental Policy
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs.
Regulations Preambles 1986-1990 ] 30,783 (1987).
    \237\ 18 CFR 380.4(a)(5).
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VI. Document Availability

    340. 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 5:00
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC
20426.
    341. 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.
    342. 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 email at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. Email the Public Reference Room at
<EMAIL_ADDRESS>
VII. Effective Date and Congressional Notification

    343. These regulations are effective March 5, 2013. The Commission
has determined, with the concurrence of the Administrator of the Office
of Information and Regulatory Affairs of OMB, that this rule is not a
``major rule as defined in section 351 of the Small Business Regulatory
Enforcement Fairness Act of 1996.

    By the Commission. Commissioner Clark is not participating.

Nathaniel J. Davis, Sr.,
Deputy Secretary.

    Note: Appendix A will not be published in the Code of Federal
Regulations.

Appendix A--List of Commenters

American Electric Power Service Corporation (AEP)
American Municipal Power, Inc. (AMP)
American Public Power Association (APPA)
American Wind Energy Association (AWEA)
Arizona Public Service Company (Arizona Public Service)
Barrick Goldstrike Mines Inc. (Barrick)
Associated Electric Cooperative, Inc., Basin Electric Power
Cooperative, Tri-State Generation and Transmission Association, Inc.
(the G&T Cooperatives)
Bonneville Power Administration (BPA)
City of Alameda, California (Alameda)
City of Anaheim, California (Anaheim)
City of Redding, California (Redding)
City of Riverside, California (Riverside)
Cogeneration Association of California and the Energy Producers and
Users Coalition
Consumers Energy Company (Consumers)
Dominion Resources Services, Inc. (Dominion)
Dow Chemical Company (Dow)
Duke Energy Corporation (Duke Energy)
Edison Electric Institute (EEI)
Electricity Consumers Resource Council (ELCON)
Exelon Corporation (Exelon)
Florida Reliability Coordinating Council, Midwest Reliability
Organization, Northeast Power Coordinating Council, Inc.,
ReliabilityFirst Corporation, Southwest Power Pool Regional Entity,
SERC Reliability Corporation, Texas Reliability Entity, Inc.,
Western Electricity Coordinating Council (the Regional Entities)
City of Holland, Michigan Board of Public Works (Holland)
Hydro One Networks Inc. and the Independent Electricity System
Operator (Hydro One)
Hydro Quebec Transenergie (Hydro Quebec)
Idaho Power Company (Idaho Power)
Imperial Irrigation District (IID)
Industrial Customers of Northwest Utilities (ICNU)
Industrial Users of Utah (IUU)
International Transmission Company d/b/a ITC Transmission, Michigan
Electric Transmission Company, LLC, ITC Midwest LLC and ITC Great
Plains LLC (ITC)
ISO New England Inc. (ISO New England)
Kansas City Power & Light Company and KCP&L Greater Missouri (KCP&L)
Large Public Power Council (LPPC)
Massachusetts Department of Public Utilities (Massachusetts DPU)
Midwest Independent Transmission System Operator, Inc. (MISO)
MISO Transmission Owners
National Association of Regulatory Utility Commissioners (NARUC)
National Grid USA (National Grid)
National Rural Electric Cooperative Association (NRECA)
Nevada Power Company and Sierra Pacific Power Company (NV Energy)
New England States Committee on Electricity (NESCOE)
New York Independent System Operator, Inc. (NYISO)
New York State Public Service Commission (NYPSC)
North American Electric Reliability Corporation (NERC)
North Carolina Eastern Municipal Power Agency (``NCEMPA'') and North
Carolina Municipal Power Agency Number 1 (``NCMPA1'') (together
``Power Agencies'')
Oglethorpe Power Corporation, Georgia Transmission Corporation and
Georgia System Operations Corporation
Old Dominion Electric Cooperative (ODEC)
Occidental Energy Ventures Corp
Pennsylvania Public Utility Commission
Pepco Holdings, Inc., Potomac Electric Power Company, Delmarva Power
& Light Company, Atlantic City Electric Company (PHI Companies)
Portland General Electric Company (Portland)
Public Service Electric and Gas Company, PSEG Power LLC, and PSEG
Energy Resources & Trade LLC (PSEG Companies)
SmartSenseCom, Inc. (SmartSenseCom)
Snohomish County PUD No. 1 (Snohomish)
Southern California Edison Company (SoCal Edison)

Southern Company Services, Inc. (Southern Companies)
Springfield Utility Board (Springfield)
Steel Manufacturers Association
Transmission Access Policy Study Group (TAPS)
Utility Services, Inc.
Valero Services, Inc (Valero)
Western Public Power Coalition (WPPC)
White River Electric Association, Inc. (WREA)

[FR Doc. 2012-31142 Filed 1-3-13; 8:45 am]
BILLING CODE 6717-01-P