[Federal Register Volume 77, Number 129 (Thursday, July 5, 2012)]
[Proposed Rules]
[Pages 39857-39881]
[FR Doc No: 2012-15944]

Vol. 77

Thursday,

No. 129

July 5, 2012

Part III

Department of Energy

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Federal Energy Regulatory Commission

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18 CFR Part 40

Revisions to Electric Reliability Organization Definition of Bulk
Electric System and Rules of Procedure; Proposed Rule

Federal Register / Vol. 77 , No. 129 / Thursday, July 5, 2012 /
Proposed Rules

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40
[Docket Nos. RM12-6-000 and RM12-7-000]

Revisions to Electric Reliability Organization Definition of Bulk
Electric System and Rules of Procedure

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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SUMMARY: Under section 215 of the Federal Power Act, the Federal Energy
Regulatory Commission (Commission) proposes to approve a modification
to the currently-effective definition of ``bulk electric system''
developed by the North American Electric Reliability Corporation
(NERC), the Commission-certified Electric Reliability Organization. The
revised definition of ``bulk electric system'' removes language
allowing for regional discretion in the currently-effective bulk
electric system definition. The revised definition establishes a
bright-line threshold that includes all facilities operated at or above
100 kV. The modified definition also identifies specific categories of
facilities and configurations as inclusions and exclusions to provide
clarity in the definition of ``bulk electric system.''
    The Commission also proposes to approve: (1) NERC's
contemporaneously filed revisions to its Rules of Procedure, which
creates an exception procedure to add elements to, or remove elements
from, the definition of ``bulk electric system'' on a case-by-case
basis; (2) NERC's proposed form entitled ``Detailed Information To
Support an Exception Request'' that entities will use to support
requests for exception from the ``bulk electric system'' definition;
and (3) NERC's proposed implementation plan for the revised ``bulk
electric system'' definition.

DATES: Comments are due September 4, 2012.

ADDRESSES: Comments, identified by docket number, may be filed in the
following ways:
     Electronic Filing: Through http://www.ferc.gov. Documents
created electronically using word processing software should be filed
in native applications or print-to-PDF format and not in a scanned
format.
     Mail/Hand Delivery: Those unable to file electronically
may mail or hand-deliver comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE.,
Washington, DC 20426.
    Instructions: For detailed instructions on submitting comments and
additional information on the rulemaking process, see the Comment
Procedures Section of this document.

FOR FURTHER INFORMATION CONTACT:
Susan Morris (Technical Information), Office of Electric Reliability,
Division of Reliability Standards, Federal Energy Regulatory
Commission, 888 First Street NE., Washington, DC 20426, Telephone:
(202) 502-6803;
Nicholas Snyder (Technical Information), Office of Electric
Reliability, Division of Logistics & Security, Federal Energy
Regulatory Commission, 888 First Street NE., Washington, DC 20426,
Telephone:<PHONE_NUMBER>;
Robert Stroh (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426, Telephone:<PHONE_NUMBER>;
William Edwards (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426, Telephone:<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

139 FERC ] 61,247

Issued June 22, 2012.
    1. Under section 215 of the Federal Power Act (FPA),\1\ the Federal
Energy Regulatory Commission (Commission) proposes to approve a
modification to the currently-effective definition of ``bulk electric
system'' contained in NERC's Glossary of Terms Used in Reliability
Standards (NERC Glossary) developed by the North American Electric
Reliability Corporation (NERC), the Commission-certified Electric
Reliability Organization. NERC submitted its petition in response to
the Commission's directive in Order No. 743 that NERC develop a revised
definition of ``bulk electric system'' using NERC's Reliability
Standards development process.\2\ The revised definition of bulk
electric system:
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    \1\ 16 U.S.C. 824o (2006).
    \2\ Revision to Electric Reliability Organization Definition of
Bulk Electric System, Order No. 743, 133 FERC ] 61,150, order on
reh'g, Order No. 743-A, 134 FERC ] 61,210 (2011).
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    (a) Removes the basis for regional discretion in the current bulk
electric system definition;
    (b) Establishes a bright-line threshold so that the ``bulk electric
system'' will be facilities operated at 100 kV or higher, if they are
Transmission Elements, or connected at 100 kV or higher, if they are
Real Power or Reactive Power resources; and
    (c) Contains specific inclusions (I1-I5) and exclusions (E1-E4) to
provide clarity in the definition that the facilities described in
these configurations are included in or excluded from the ``bulk
electric system.''
    2. The Commission also proposes to approve:
    (a) NERC's contemporaneously filed revisions to its Rules of
Procedure, which creates an exception procedure to add elements to, and
remove elements from the definition of ``bulk electric system'' on a
case-by-case basis;
    (b) NERC's proposed form entitled ``Detailed Information to Support
an Exception Request'' that entities will use to support requests for
exceptions from the ``bulk electric system'' definition; and
    (c) NERC's proposed implementation plan for the revised ``bulk
electric system'' definition.
    3. NERC's proposed revision to the definition of ``bulk electric
system'' removes regional discretion and establishes a 100 kV bright-
line threshold. Further, we believe that NERC's proposal offers
additional clarity to the definition of bulk electric system by
creating specific inclusions and exclusions within the definition,
which provide granularity with regard to common types of facilities and
facility configurations and whether they are part of the bulk electric
system.
    4. We believe that the proposed ``core'' definition, including the
inclusions and the exclusions, as well as the exception process should
produce consistency in identifying bulk electric system elements across
the reliability regions. In addition, it appears that NERC's proposed
exception process to add elements to, and remove elements from, the
definition of the bulk electric system adds transparency and uniformity
to the process.
    5. Although it is rare that the Commission would address Rules of
Procedure changes in a rulemaking docket, we will do so in this
instance because of the interplay between NERC's modified bulk electric
system definition and the newly developed case-specific exception
process set forth in NERC's proposed Rules of Procedure change. While
we propose to approve NERC's petitions, we also seek comment from NERC
and interested parties on certain aspects of NERC's petitions to
understand the application of the proposed ``core'' definition,
including the application of the inclusions and exclusions, and the
proposed exception process to ensure consistent implementation.

I. Background

A. Section 215 of the FPA

    6. Section 215 of the FPA requires a Commission-certified ERO to
develop mandatory and enforceable Reliability Standards, subject to
Commission review and approval. Once approved, the Reliability
Standards may be enforced by the ERO, subject to Commission oversight,
or by the Commission independently.\3\ The Commission established a
process to select and certify an ERO \4\ and, subsequently, certified
NERC as the ERO.\5\
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    \3\ See 16 U.S.C. 824o(e)(3) (2006).
    \4\ Rules Concerning Certification of the Electric Reliability
Organization; and Procedures for the Establishment, Approval and
Enforcement of Electric Reliability Standards, Order No. 672, FERC
Stats. & Regs. ] 31,204, order on reh'g, Order No. 672-A, FERC
Stats. & Regs. ] 31,212 (2006).
    \5\ North American Electric Reliability Corp., 116 FERC ]
61,062, order on reh'g and compliance, 117 FERC ] 61,126 (2006)
(certifying NERC as the ERO responsible for the development and
enforcement of mandatory Reliability Standards), aff'd sub nom.
Alcoa Inc. v. FERC, 564 F.3d 1342 (DC Cir. 2009).
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B. Order No. 693

    7. On March 16, 2007, in Order No. 693, pursuant to section 215(d)
of the FPA, the Commission approved 83 of 107 proposed Reliability
Standards, six of the eight proposed regional differences, and the NERC
Glossary, which includes NERC's definition of bulk electric system.\6\
That definition provides:
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    \6\ See Mandatory Reliability Standards for the Bulk-Power
System, Order No. 693, FERC Stats. & Regs. ] 31,242, order on reh'g,
Order No. 693-A, 120 FERC ] 61,053 (2007).

    As defined by the Regional Reliability Organization, the
electrical generation resources, transmission lines,
interconnections with neighboring systems, and associated equipment,
generally operated at voltages of 100 kV or higher. Radial
transmission facilities serving only load with one transmission
source are generally not included in this definition.\7\
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    \7\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 75 n. 47
(quoting NERC's definition of ``bulk electric system'').

    8. In approving NERC's definition of bulk electric system, the
Commission stated that ``at least for an initial period, the Commission
will rely on the NERC definition of bulk electric system and NERC's
registration process to provide as much certainty as possible regarding
the applicability to and the responsibility of specific entities to
comply with the Reliability Standards.'' \8\ The Commission also stated
that ``[it] remains concerned about the need to address the potential
for gaps in coverage of facilities.'' \9\
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    \8\ Id. P 75; see also Order No. 693-A, 120 FERC ] 61,053 at P
19 (``the Commission will continue to rely on NERC's definition of
bulk electric system, with the appropriate regional differences, and
the registration process until the Commission determines in future
proceedings the extent of the Bulk-Power System'').
    \9\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 77
(footnotes omitted).
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C. Order Nos. 743 and 743-A

    9. On November 18, 2010, the Commission revisited the definition of
``bulk electric system'' in Order No. 743, which directed NERC, through
NERC's Reliability Standards Development Process, to revise its
definition of the term ``bulk electric system'' to ensure that the
definition encompasses all facilities necessary for operating an
interconnected transmission network. The Commission also directed NERC
to address the Commission's technical and policy concerns. Among the
concerns were inconsistency in application of the definition and a lack
of oversight and exclusion of facilities from the bulk electric system
that are required for the operation of the interconnected transmission
network. In Order No. 743, the Commission stated that the best way to
address these concerns is to eliminate the Regional Entity discretion
to define bulk electric system without NERC or Commission review,
maintain a bright-line threshold that includes all facilities operated
at or above 100 kV except defined radial facilities, and adopt an
exemption process and criteria for removing from the bulk electric
system facilities that are not necessary for operating the
interconnected transmission network.\10\ However, Order No. 743 did not
require NERC to adopt these recommendations as the sole means to
address the Commission's concerns. Instead, the Commission allowed NERC
to ``propose a different solution that is as effective as, or superior
to, the Commission's proposed approach in addressing the Commission's
technical and other concerns so as to ensure that all necessary
facilities are included within the scope of the definition.'' \11\ The
Commission directed NERC to file the revised definition of bulk
electric system and its process to exempt facilities from inclusion in
the bulk electric system within one year following the effective date
of the final rule.\12\
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    \10\ Order No. 743, 133 FERC ] 61,150 at P 16.
    \11\ Id.
    \12\ Id. P 113.
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    10. In Order No. 743-A the Commission reaffirmed its determinations
in Order No. 743. In addition, the Commission clarified that the issue
the Commission directed NERC to rectify was the discretion the Regional
Entities have under the current definition to define the bulk electric
system in their regions without any oversight from the Commission or
NERC.\13\ The Commission also clarified that it was not the
Commission's intent through its determination regarding ``impact-based
methodologies'' to disrupt the NERC Rules of Procedure or the Statement
of Compliance Registry Criteria (Registry Criteria).\14\ Nor did the
Commission intend to rule out using any form of a material impact test
that can be shown to identify facilities needed for reliable
operation.\15\ The Commission also clarified that the 100 kV threshold
was a ``first step or proxy'' for determining which facilities should
be included in the bulk electric system.\16\
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    \13\ Order No. 743-A, 134 FERC ] 61,210 at P 11.
    \14\ Id. P 47.
    \15\ Id.
    \16\ See Order No. 743-A, 134 FERC ] 61,210 at PP 40, 67, 102-
103.
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    11. The Commission further clarified that the statement in Order
No. 743, ``determining where the line between `transmission' and `local
distribution' lies * * * should be part of the exemption process the
ERO develops'' was intended to grant discretion to NERC, as the entity
with technical expertise, to develop criteria to determine how to
differentiate between local distribution and transmission facilities in
an objective, consistent, and transparent manner.\17\ The Commission
stated that the ``seven factor test'' adopted in Order No. 888 could be
relevant and possibly is a logical starting point for determining which
facilities are local distribution for reliability purposes.\18\
However, the Commission left it to NERC in the first instance to
determine if and how the seven factor test should be considered in
differentiating between local distribution and transmission facilities
for purposes of determining whether a facility should be classified as
part of the bulk electric system.\19\ Order No. 743-A re-emphasized
that local distribution facilities are excluded from the definition of
Bulk-Power System and, therefore, must be excluded from the definition
of bulk electric system.\20\
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    \17\ Id. P 68.
    \18\ Id. P 69.
    \19\ Id. P 70.
    \20\ Id. PP 25, 58.
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D. NERC's Petitions

    12. On January 25, 2012, NERC submitted two petitions pursuant to
the directives in Order No. 743: (1) NERC's proposed revision to the
definition of ``bulk electric system'' which includes provisions to
include and exclude

facilities from the ``core'' definition and (2) revisions to NERC's
Rules of Procedure to add a procedure creating an exception process to
classify or de-classify a facility as part of the ``bulk electric
system.'' In this NOPR, we address both petitions.\21\
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    \21\ ``Exclusion'' refers to configurations of elements NERC has
identified within the revised definition of bulk electric system
that should not be included in the bulk electric system. In
contrast, an ``exception'' refers to an element that falls within
the bulk electric system definition but is found not to be necessary
for the operation of the grid through the proposed exception
process, or an element that an element that falls outside of the
bulk electric system definition but is found through the exception
process should be part of the bulk electric system. Thus, an
``exception'' may result in adding elements to, or removing elements
from, the definition of bulk electric system. Also, NERC uses the
term ``exception'' rather than the term ``exemption'' used in Order
No. 743. See Order No. 743, 133 FERC ] 61,150 at P 115.
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1. Revised Definition of Bulk Electric System
    13. In Docket No. RM12-06-000, NERC filed a petition requesting
Commission approval of a revised definition of ``bulk electric system''
in the NERC Glossary (NERC BES Petition). As explained below, the
definition consists of a ``core'' definition and a list of facilities
configurations that will be included or excluded from the ``core''
definition. NERC also requests approval of the proposed ``Detailed
Information to Support an Exception Request'' form as satisfying the
requirement in Order No. 743 that NERC develop ``technical criteria''
to address exception requests.\22\ Finally, NERC requests Commission
approval of its plan for implementation of the revised definition of
``bulk electric system.''
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    \22\ The Detailed Information to Support an Exception Request is
part of the exception process even though NERC filed it as part of
the BES Petition. See NERC BES Petition at 25-26. Thus, the
Commission will address the Detailed Information in the context of
the NERC BES Petition rather than in the section of this NOPR
addressing the exception procedure petition.
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a. ``Core'' Definition of Bulk Electric System
    14. NERC proposes the following ``core'' definition of bulk
electric system:

    Unless modified by the [inclusion and exclusion] lists shown
below, all Transmission Elements operated at 100 kV or higher and
Real Power and Reactive Power resources connected at 100 kV or
higher. This does not include facilities used in the local
distribution of electric energy.\23\
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    \23\ Id. at 13.

    15. NERC states that the core definition eliminates regional
discretion and establishes a clear, bright-line based on a 100 kV
threshold. NERC states that the core definition places within the bulk
electric system ``all Transmission Elements operated at 100 kV or
above, and all Real Power and Reactive Power resources connected at 100
kV or above,'' while establishing an express exclusion for facilities
used in the local distribution of electrical energy.\24\ NERC states
that the revised definition deletes the phrase ``[a]s defined by the
Regional Reliability Organization'' that is included in the current
definition, eliminating the express basis for regional discretion.\25\
NERC explains that the core definition includes the 100 kV criterion as
a bright-line threshold, rather than as a general guideline, by
eliminating the phrase ``generally operated at'' found in the current
definition.\26\
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    \24\ Id. at 16. The current definition and Order No. 743 use the
term ``facility.'' NERC proposes to use the term ``Element'' as used
in the NERC Glossary.
    \25\ Id. at 15.
    \26\ Id. at 16.
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    16. NERC also explains that, while the current definition includes
the phrase ``associated equipment,'' and the revised definition does
not, ``associated equipment'' is included in the revised definition by
the use of the term ``Transmission Elements'' included in the revised
core definition. NERC states that the NERC Glossary defines
``Transmission'' as ``[a]n interconnected group of lines and associated
equipment for the movement or transfer of electric energy between
points of supply and points at which it is transformed for delivery to
customers or is delivered to other electric systems;'' \27\ and defines
``Elements'' as, ``[a]ny electrical device with terminals that may be
connected to other electrical devices such as a generator, transformer,
circuit breaker, bus section, or transmission line. An element may be
comprised of one or more components.'' \28\
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    \27\ Id. at 15 n. 13.
    \28\ Id.
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    17. NERC states that the revised definition satisfies the
Commission's directives and addresses the technical and policy concerns
expressed in Order Nos. 743 and 743-A. According to NERC, the explicit
basis of authority for Regional Entity discretion in the current
definition is eliminated. In addition, NERC states that the core
definition establishes specific threshold criteria rather than general
guidelines of facilities operated or connected at or above 100 kV.
Further, NERC states that the core definition in combination with the
specific inclusions and exclusions provides a detailed set of criteria
that can be applied on a uniform, consistent basis across all regions,
eliminates ambiguity, and eliminates the potential for discretion and
subjectivity in determining what facilities are part of or not part of
the bulk electric system.
b. Inclusions and Exclusions to the Definition of Bulk Electric System
    18. NERC states that, as part of the revised definition, NERC
developed inclusions and exclusions to eliminate discretion in
application of the revised ``bulk electric system'' definition. NERC
states that the inclusions address five specific facilities
configurations to provide clarity that the facilities described in
these configurations are included in the bulk electric system (unless
the facilities are excluded based on one of the specific
exclusions).\29\ The five inclusions are:
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    \29\ Id. at 16.

    Inclusions:
    I1--Transformers with the primary terminal and at least one
secondary terminal operated at 100 kV or higher unless excluded
under Exclusion E1 or E3.
    I2--Generating resource(s) with gross individual nameplate
rating greater than 20 MVA or gross plant/facility aggregate
nameplate rating greater than 75 MVA including the generator
terminals through the high-side of the step-up transformer(s)
connected at a voltage of 100 kV or above.
    I3--Blackstart Resources identified in the Transmission
Operator's restoration plan.
    I4--Dispersed power producing resources with aggregate capacity
greater than 75 MVA (gross aggregate nameplate rating) utilizing a
system designed primarily for aggregating capacity, connected at a
common point at a voltage of 100 kV or above.
    I5--Static or dynamic devices (excluding generators) dedicated
to supplying or absorbing Reactive Power that are connected at 100
kV or higher, or through a dedicated transformer with a high-side
voltage of 100 kV or higher, or through a transformer that is
designated in Inclusion I1.

    19. NERC explains that the facilities described in inclusions I1,
I2, I4, and I5 are each operated or connected at or above 100 kV. NERC
states that inclusion I3 encompasses blackstart resources identified in
a transmission operator's restoration plan, which are necessary for the
operation of the interconnection transmission system and should be
included in the bulk electric system regardless of their size (MVA) or
the voltage at which they are connected. NERC states that the
inclusions will further reduce the potential for the exercise of
discretion and subjectivity to exclude such configurations from the
bulk electric system.
    20. According to NERC, inclusion I1 includes transformers with the
primary terminal and at least one secondary terminal operated at 100 kV
or higher unless excluded under exclusion E1 or E3 (discussed later).
NERC states that

transformers operating at 100 kV or higher are part of the existing
definition, but since transformers have windings operating at different
voltages, and multiple windings in some circumstances, clarification
was required to explicitly identify which transformers are included in
the bulk electric system.
    21. Inclusion I2 addresses generating resources with a gross
individual nameplate rating greater than 20 MVA or a gross plant/
facility aggregate nameplate rating greater than 75 MVA. According to
NERC, inclusion I2 includes in the bulk electric system the generator
terminals through the high-side of the step-up transformers connected
at a voltage of 100 kV or above. NERC states that this inclusion
mirrors the text of the NERC Registry Criteria (Appendix 5B of the NERC
Rules of Procedure) for generating units.\30\ NERC states that a
``basic tenet that was followed in developing the [revised definition]
was to avoid changes to Registrations * * * if such changes are not
technically required for the [revised definition] to be complete.''
\31\
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    \30\ Id. at 17 (citing section III.c.1 and III.c.2 of Appendix
5B of the Rules of Procedure).
    \31\ Id. at 17.
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    22. As noted above, inclusion I3 includes blackstart resources
identified in the transmission operator's restoration plan in the bulk
electric system.
    23. Inclusion I4 includes dispersed power producing resources with
gross aggregate capacity nameplate rating greater than 75 MVA which
utilize a system designed primarily for aggregating capacity, connected
at a common point at a voltage of 100 kV or above. NERC states that
this inclusion was added to accommodate the effects of variable
generation on the bulk electric system.
    24. Inclusion I5 addresses static or dynamic devices (excluding
generators) dedicated to supplying or absorbing reactive power that are
connected at 100 kV or higher, or through a dedicated transformer with
a high-side voltage of 100 kV or higher, or through a transformer that
is designated in inclusion I1. NERC states that this inclusion is the
technical equivalent of inclusion I2 for reactive power devices.
    25. NERC states that the four exclusions identify facilities
configurations that should not be included in the bulk electric
system.\32\ Generally, the exclusions address radial systems, behind-
the-meter generation and local networks that distribute power to load.
The four exclusions are:
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    \32\ Id. at 18.

    Exclusions:
    E1--Radial systems: A group of contiguous transmission Elements
that emanates from a single point of connection of 100 kV or higher
and:
    (a) Only serves Load. Or,
    (b) Only includes generation resources, not identified in
Inclusion I3, with an aggregate capacity less than or equal to 75
MVA (gross nameplate rating). Or,
    (c) Where the radial system serves Load and includes generation
resources, not identified in Inclusion I3, with an aggregate
capacity of non-retail generation less than or equal to 75 MVA
(gross nameplate rating).
    Note--A normally open switching device between radial systems,
as depicted on prints or one-line diagrams for example, does not
affect this exclusion.
    E2--A generating unit or multiple generating units on the
customer's side of the retail meter that serve all or part of the
retail Load with electric energy if: (i) The net capacity provided
to the BES does not exceed 75 MVA, and (ii) standby, back-up, and
maintenance power services are provided to the generating unit or
multiple generating units or to the retail Load by a Balancing
Authority, or provided pursuant to a binding obligation with a
Generator Owner or Generator Operator, or under terms approved by
the applicable regulatory authority.
    E3--Local networks (LN): A group of contiguous transmission
Elements operated at or above 100 kV but less than 300 kV that
distribute power to Load rather than transfer bulk-power across the
interconnected system. LN's emanate from multiple points of
connection at 100 kV or higher to improve the level of service to
retail customer Load and not to accommodate bulk-power transfer
across the interconnected system. The LN is characterized by all of
the following:
    (a) Limits on connected generation: The LN and its underlying
Elements do not include generation resources identified in Inclusion
I3 and do not have an aggregate capacity of non-retail generation
greater than 75 MVA (gross nameplate rating);
    (b) Power flows only into the LN and the LN does not transfer
energy originating outside the LN for delivery through the LN; and
    (c) Not part of a Flowgate or transfer path: The LN does not
contain a monitored Facility of a permanent Flowgate in the Eastern
Interconnection, a major transfer path within the Western
Interconnection, or a comparable monitored Facility in the ERCOT or
Quebec Interconnections, and is not a monitored Facility included in
an Interconnection Reliability Operating Limit (IROL).
    E4--Reactive Power devices owned and operated by the retail
customer solely for its own use.
    Note--Elements may be included or excluded on a case-by-case
basis through the Rules of Procedure exception process.

    26. Exclusion E1 provides detailed criteria for determining which
facilities are properly excluded from the bulk electric system as
radial facilities, which NERC states is intended to enhance the clarity
of the radial facilities exclusion. NERC explains that criteria ``b''
and ``c'' of exclusion E1 identify the maximum amount of generation
allowed on the radial facility while still qualifying for the radial
facilities exclusion (aggregate capacity less than or equal to 75 MVA).
NERC indicates that this exclusion addresses the circumstances of small
utilities (including municipal utilities and cooperatives). According
to NERC, ``the maximum amount of generation allowed on the radial
facility is sufficient to allow small utilities to continue to provide
service options that support reliability of the interconnected
transmission network, while not operating to exclude larger generators
from the [bulk electric system].''\33\ Further, NERC states, that the
maximum amount of generation allowed on the radial facility per
criteria ``b'' and ``c'' is consistent with the aggregate capacity
threshold presently provided in the Registry Criteria for registration
as a generator owner or generator operator (75 MVA gross nameplate
rating).
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    \33\ Id. at 19.
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    27. With respect to the ``normally open switch'' note at the end of
exclusion E1, NERC explains that this note is intended to address a
common network configuration ``in which two separate sets of facilities
that, each standing alone, would be recognized as radial systems and
not included in the bulk electric system are connected by a `normally
open switch'--i.e., a switch that is set to the open position--for
reliability purposes.'' \34\ NERC states that a switch in this
configuration is installed by entities to provide greater reliability
to their end-use customers. According to NERC, scheduled maintenance
activities on a radial line, or an unscheduled outage impacting the
single point of supply to the radial line, could cause the disruption
of power supply to the end-use customers served by the line, unless the
entity has the ability to temporarily switch to another feed.\35\ NERC
states that the entity's operating procedures dictate how and when to
operate such a normally open switch. NERC explains that an entity does
not arbitrarily close the normally open switch placed in this
configuration. Rather, the entity closes the ``normally open'' switch
to maintain reliability of service to its end-use customers served from
the affected radial line. NERC believes that facilities that otherwise
meet the criteria for the

radial system exclusion in exclusion E1 should not be included in the
bulk electric system solely because the entity maintains a switch of
this type, which is normally open, between sets of radial facilities.
NERC states that for a set of radial facilities that are connected by a
switch to qualify for the radial exclusion under exclusion E1, the
switch must be identified as ``normally open'' on ``source documents
such as, prints or one-line diagrams and must in fact be normally set
in the open position.'' \36\
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    \34\ Id.
    \35\ As explained below, the switch, though normally open, could
be closed in such circumstances to allow the affected radial line to
serve load by relying on another line through the closed switch.
    \36\ Id. at 20 n. 26. NERC provides other examples of source
documents such as diagrams displayed within an energy management
system or a SCADA system.
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    28. NERC states that subjecting two sets of radial facilities that
are normally unconnected to each other because the switch between them
is open to the Reliability Standards during the limited time periods
when the switch is closed for maintenance-related or outage-related
circumstances would be fundamentally impractical and unworkable (from
both the entity's perspective and the ERO's perspective).\37\ NERC
explains that this note will prevent numerous exception requests
because this configuration is common.
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    \37\ Id. at 20-21.
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    29. According to NERC, exclusion E2 excludes a generating unit or
units on the customer's side of the retail meter that serves all or
part of the retail load subject to two conditions. First, the net
capacity provided by the generating unit does not exceed 75 MVA.
Second, standby, back-up, and maintenance power services are provided
to the generating unit or the retail load by a balancing authority, or
pursuant to a binding obligation with a generator owner or generator
operator, or under terms approved by the applicable regulatory
authority. NERC states that these generating units are not necessary
for the operation of the interconnected transmission network and,
therefore, do not need to be included in the definition because they
serve a single retail load, provide a limited amount of capacity to the
bulk electric system, and are fully backed up by other resources.\38\
---------------------------------------------------------------------------

    \38\ Id. at 21.
---------------------------------------------------------------------------

    30. NERC explains that exclusion E3, the ``local network''
exclusion, encompasses local networks of transmission elements operated
at between 100 kV and 300 kV ``that distribute power to load rather
than transfer bulk power across the interconnected system.'' \39\ NERC
explains that ``[t]he purpose of local networks is to provide local
distribution service, not to provide transfer capacity for the
interconnected transmission network.'' \40\ According to NERC, a
network that supports distribution and does not accommodate bulk-power
transfers across the interconnected system should not be included in
the bulk electric system. NERC also states that the ``detailed
conditions established in exclusion E3 are sufficient to ensure that
such qualifying local networks are being used exclusively for local
distribution purposes.'' \41\ NERC adds that facilities used for the
local distribution of electric energy are expressly excluded from the
bulk electric system by the core definition as well as by the local
network exclusion.
---------------------------------------------------------------------------

    \39\ Id. at 22.
    \40\ Id.
    \41\ Id. at 23. See also id. at Exh. G (Technical Justification
Paper for ``Local Network Exclusion'') at 2 (LN Technical Paper).
---------------------------------------------------------------------------

    31. Exclusion E4 encompasses reactive power devices owned and
operated by a retail customer solely for its own use. NERC explains
that exclusion E4 is the technical equivalent of exclusion E2 for
reactive power devices.
c. Detailed Information To Support an Exception Request
    32. In Order No. 743, the Commission directed NERC to develop a set
of technical criteria to use in addressing requests for exceptions to
the definition of the bulk electric system.\42\ NERC states that it
would be ``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.\43\ The Detailed Information Form contains the common set of
data that entities seeking an exception must submit with every
exception request. NERC indicates that the Detailed Information Form
represents an equal and effective alternative approach to developing a
substantive set of technical criteria for granting and rejecting
exception requests required in Order No. 743.\44\ Thus, NERC asks the
Commission to approve the Detailed Information Form as satisfying the
Commission's technical concerns expressed in Order No. 743 with respect
to the need for criteria to approve or disapprove exception requests.
---------------------------------------------------------------------------

    \42\ Order No. 743, 133 FERC ] 61,150 at P 115 (stating ``NERC
should develop an exemption process that includes clear, objective,
transparent and uniformly applicable criteria for the exemption of
facilities that are not necessary for operating the grid.'').
    \43\ NERC BES Petition at 26.
    \44\ Id. at 26, 32 (citing Order No. 743, 133 FERC ] 61,150 at P
115).
---------------------------------------------------------------------------

    33. The Detailed Information Form specifies that all exception
requests include a one-line breaker diagram identifying the element for
which the exception is requested and data and studies to support the
submittal. NERC states that the studies should be based on an
Interconnection-wide base case to reflect the electrical
characteristics and system topology. The studies should clearly
document all assumptions used, address key performance measures of bulk
electric system reliability through steady state power flow, and
contain a transient stability analysis as necessary to support the
entity's request. NERC notes that the applicant remains responsible for
providing sufficient information and argument to justify the exception
request.\45\
---------------------------------------------------------------------------

    \45\ Id. at 30.
---------------------------------------------------------------------------

    34. According to NERC, the information that an applicant may submit
in support of an exception request is not limited to the Detailed
Information Form. Rather, an applicant is expected to submit all
relevant data, studies and other information that supports the
exception request. Further, the Regional Entity and NERC may ask an
applicant to provide other data and studies in addition to the Detailed
Information Form.\46\
---------------------------------------------------------------------------

    \46\ Id. at 27 n.32.
---------------------------------------------------------------------------

d. Proposed Implementation Plan for Revised Definition of ``Bulk
Electric System''
    35. NERC requests that the revised definition ``should be effective
on 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.\47\ The existing
definition would be retired at midnight of the day immediately prior to
the effective date of the revised definition in the jurisdiction in
which the revised definition is becoming effective. NERC states that
the proposed effective date is appropriate to provide a reasonable time
between the date of regulatory approval, which is not under the control
of NERC or the industry, and the effective date of the revised BES
definition.\48\
---------------------------------------------------------------------------

    \47\ Id. at 34.
    \48\ Id.
---------------------------------------------------------------------------

    36. NERC also requests that compliance obligations for all elements
newly-identified 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 notes that
the Commission stated

in Order Nos. 743 and 743-A that the transition period should not
exceed 18 months from the date of Commission approval of the revised
definition, unless the Commission approved a longer transition period
based on specific justification. NERC believes that a ``somewhat longer
transition period'' is necessary in light of the actions that will need
to be completed in connection with the revised definition. NERC notes
that in the United States, the proposed transition period will be
between a minimum of approximately twenty-seven months and a maximum of
thirty months from the date of Commission approval, depending on the
date of Commission approval.'' \49\ NERC states that sufficient time is
needed: (1) To implement transition plans to accommodate any changes
resulting from the revised definition; (2) for entities to file for
exceptions, and for the Regional Entities and NERC to process those
exceptions to a final determination, pursuant to the proposed exception
process; and (3) for owners of facilities and elements that are newly-
included in the bulk electric system based on the definition to train
their personnel on compliance with the Reliability Standards applicable
to the newly-included facilities and elements, so that these entities
can achieve compliance with applicable Reliability Standards by the end
of the transition period.
---------------------------------------------------------------------------

    \49\ Id. at 35.
---------------------------------------------------------------------------

2. NERC Petition for Approval of Revisions to Rules of Procedure To
Adopt a Bulk Electric System Exception Process
a. Changes to NERC's Rules of Procedure
    37. In Docket No. RM12-7-000, NERC filed proposed revisions to its
Rules of Procedure for the purpose of adopting a procedure for entities
to obtain an exception from the definition of bulk electric system
(NERC ROP Petition). NERC states that the proposed exception process,
which is a mechanism to add elements to, and remove elements from, the
bulk electric system, addresses the concerns raised in Order No. 743
with respect to the current processes for determining what facilities
are part of the bulk electric system and what facilities are not.\50\
NERC also states that the exception process ``provides for decisions to
approve or disapprove exception requests to be made by NERC, rather
than by the Regional Entities, thereby eliminating the potential for
inconsistency and subjectivity that the Commission was concerned
[about, which] was created by having decisions as to what facilities
are included in or excluded from the BES made at the Regional Entity
level.'' \51\ NERC proposes to add section 509 (Exceptions to the
Definition of the Bulk Electric System), section 1703 (Challenges to
NERC Determinations of BES Exception Requests) and Appendix 5C
(Procedure for Requesting and Receiving an Exception to the NERC
Definition of Bulk Electric System) to NERC's Rules of Procedure. The
NERC ROP Petition also includes proposed conforming revisions to other
Rules of Procedure, including revisions to sections 302.2, 5<IP_ADDRESS>,
804, 1102.2, and 1701 and appendices 2, 3D, 4B, 5B, 6, and 8, which
NERC states are necessary in light of the revised definition and the
exception process.
---------------------------------------------------------------------------

    \50\ NERC ROP Petition at 4.
    \51\ Id. (footnote omitted).
---------------------------------------------------------------------------

Section 509 of the Rules of Procedure
    38. NERC states that proposed section 509 establishes a procedure,
which is contained in a new Appendix 5C to the Rules of Procedure, for
an entity to request that an element that falls outside of the
definition of the bulk electric system be treated as part of the bulk
electric system and for an entity to request that an element that falls
within the definition of the bulk electric system not be treated as
part of the bulk electric system:

    An Element is considered to be (or not be) part of the Bulk
Electric System by applying the BES Definition to the Element
(including the inclusions and exclusions set forth therein).
Appendix 5C sets forth the procedures by which (i) an entity may
request a determination that an Element that falls within the
definition of Bulk Electric System should be exempted from being
considered a part of the Bulk Electric System, or (ii) an entity may
request that an Element that falls outside the definition of the
Bulk Electric System should be considered a part of the Bulk
Electric System.\52\
---------------------------------------------------------------------------

    \52\ Id. at 10.

    NERC explains that the exception process is ``not intended to be
used to resolve ambiguous situations,'' i.e. the exception process is
only available after an initial determination has been made regarding
whether an element is part of or not part of the bulk electric system
through the application of the definition to the element.\53\
---------------------------------------------------------------------------

    \53\ Id. at 10-11.
---------------------------------------------------------------------------

Appendix 5C to the Rules of Procedure
    39. NERC explains that proposed Appendix 5C sets forth the detailed
procedures for obtaining an exception to include an element in, or
remove an element from, the bulk electric system.\54\ The exception
process involves three steps.\55\ First, an entity applies the bulk
electric system definition to a transmission element to determine its
status. If the entity believes that the element, contrary to its
characterization based on the definition, should either be treated, or
not be treated, as part of the bulk electric system, the entity may
submit an exception request to the Regional Entity in which the element
is located. Second, the Regional Entity screens the request to
determine whether the application meets the filing criteria and, if so,
reviews the application and makes a recommendation to NERC whether to
approve or deny the request. Third, the NERC President decides whether
to approve or deny the exception request after considering the opinion
provided by a NERC review panel.\56\ If the entity does not agree with
the NERC President's decision, it may appeal the decision to the NERC
Board of Trustees Compliance Committee (Compliance Committee) who is
the final arbiter of the request.
---------------------------------------------------------------------------

    \54\ Id. at 11. See also section D.1.c above.
    \55\ Id. at 13-14.
    \56\ The panel will have at least three members. NERC ROP
Petition at 14.
---------------------------------------------------------------------------

    40. According to NERC, if the Regional Entity denies the exception
request based on the initial screening but the applicant believes the
exception request is proper and complete, the applicant may appeal the
rejection directly to NERC.
    41. NERC explains that the proposed exception process will allow
NERC to provide consistent determinations on exception requests
submitted from different regions involving the same or similar facts
and circumstances, and will allow NERC to take into account the
aggregate impact on the bulk electric system of approving or
disapproving all of the exception requests. Finally, the exception
process includes provisions for reporting information that may alter
the status of an approved exception, verifying whether an exception
continues to be warranted, and revoking an exception that is no longer
warranted.
    42. The proposed exception process includes provisions for
obtaining exceptions both for inclusion in and exclusion from the bulk
electric system. NERC identifies the entities that are eligible to
submit exception requests. Specifically, the owner of an element may
submit a request to include the element in, or remove it from, the bulk

electric system.\57\ 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 may submit an exception request for the inclusion in
the bulk electric system of an element or elements owned by a
registered entity. NERC states that only a Regional Entity may submit
an exception request for the inclusion in the bulk electric system of
an element owned by an owner that is not a registered entity.
---------------------------------------------------------------------------

    \57\ Section 5C of NERC's Rules of Procedure defines ``owner''
as ``the owner(s) of an [e]lement or [e]lements that is or may be
determined to be part of the [bulk electric system] as a result of
either the application of the [bulk electric system] [d]efinition or
an [e]xception, or another entity, such as an operator, authorized
to act on behalf of the owner of the [e]lement or [e]lements in the
context of an [e]xception [r]equest.''
---------------------------------------------------------------------------

    43. Finally, NERC states that an exception request will be subject
to review to verify continuing justification for the exception.\58\
According to NERC, the proposed exception process requires an entity to
notify the Regional Entity and NERC within 90 days after learning of
any change of condition which would affect the basis for approving the
exception request. NERC will then review the information and determine
whether to direct the Regional Entity to perform a substantive review
to verify continuing justification and issue a recommendation to
NERC.\59\ NERC also states that an entity must certify every 36 months
to the appropriate Regional Entity that the basis for the exception
request remains valid. In addition, the proposed exception process
states that if the Regional Entity obtains information through means
other than the submitting entity that indicates an exception may no
longer be warranted, the Regional Entity must provide NERC with the
information. NERC will review the information and determine whether to
direct the Regional Entity to perform a substantive review to verify
continuing justification and issue a recommendation to NERC.\60\
---------------------------------------------------------------------------

    \58\ Id. at 34 and Att. 1 at 17.
    \59\ Id. at 34-35 and Att. 1 at 17.
    \60\ Id. at 35 and Att. 1 at 17.
---------------------------------------------------------------------------

    44. NERC states that the exception process establishes a process
that (1) Balances the need for effective and efficient administration
with due process and clarity of expectations; (2) promotes consistency
in determinations and eliminates Regional discretion by having all
decisions on Exception Requests made at NERC; (3) provides for
involvement of persons with applicable technical expertise in making
decisions on ception Requests; and (4) should alleviate concerns about
a ``one-size-fits-all'' approach.\61\
---------------------------------------------------------------------------

    \61\ Id. at 17.
---------------------------------------------------------------------------

Section 1703 of the Rules of Procedure
    45. NERC has also proposed to modify its Rules of Procedure to add
a procedure for an entity to challenge the NERC decision on an
exception request. The entity must file the challenge with the
Compliance Committee within 30 days of the date of the NERC decision.
The Compliance Committee must issue its decision within 90 days after
the submission of the challenge, which the Compliance Committee may
extend. NERC states that the Compliance Committee decision will be the
final NERC decision on the exception request. In addition, the entity
may appeal the final NERC decision to the Commission within 30 days
following the date of the Compliance Committee`s decision, or within
such time period as the Commission's legal authority permits.
b. NERC's List of Facilities Granted Exceptions
    46. In Order No. 743, the Commission stated that NERC should
maintain a list of exempted facilities that can be made available to
the Commission upon request.\62\ NERC states 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, as this is an internal administrative matter for NERC to
implement that does not need to be embedded in the Rules of
Procedure.\63\ NERC states it will develop a specific internal plan and
procedures for maintaining a list of facilities for which exceptions
have been granted.
---------------------------------------------------------------------------

    \62\ Order No. 743, 133 FERC ] 61,150 at P 117.
    \63\ NERC ROP Petition at 49.
---------------------------------------------------------------------------

    47. NERC also 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 pursuant to section 11.3 of Appendix 5C.\64\
---------------------------------------------------------------------------

    \64\ Id.
---------------------------------------------------------------------------

II. Discussion

    48. Pursuant to section 215(d) of the FPA we propose to approve
NERC's revised definition of bulk electric system, including the
specific inclusions and exclusions set forth in the definition, as
just, reasonable, not unduly discriminatory or preferential, and in the
public interest. As discussed below, we believe that NERC's proposal
satisfies the directives of Order No. 743 to develop modifications to
the currently-effective definition of bulk electric system to ensure
that the definition encompasses all facilities necessary for operating
an interconnected transmission network and remove the Regional Entity
discretion that currently allows for regional variations without review
or oversight. We also believe NERC's proposed definition satisfies the
Commission's technical concerns in Order No. 743 through the use of a
bright-line 100 kV threshold, with specific inclusions and exclusions
within the definition, for identifying bulk electric system elements
and the establishment of an exception process for facilities that are
not necessary for operating the interconnected transmission network.
Further, we believe NERC's proposed definition improves clarity and
transparency. Below, we discuss the proposed ``core'' bulk electric
system definition as well as each bright-line inclusion and exclusion
of the proposed definition.
    49. While proposing to approve NERC's modified definition, we also
seek additional explanation and comments regarding potential
applications of the ``core'' definition, as well as the inclusions and
exclusions. We believe that a common understanding of the proposed bulk
electric system definition (1) promotes consistent application of the
definition in identifying bulk electric system elements and facilities
and (2) provides up-front clarity so as to minimize the need for future
clarifications either formally through NERC's standards clarification
process or case-specific in a compliance setting. Thus, we seek comment
from NERC and other interested persons regarding the scenarios and
applications of the NERC proposal, discussed below. Although we propose
to approve the definition in this rulemaking, the responses to our
questions are also intended to guide the Commission as to whether other
action may be necessary, for example, directing NERC to develop a
further modification to the core definition, inclusions or exclusions
pursuant to section 215(d)(5) of the FPA.
    50. Further, pursuant to section 215(f) of the FPA, we propose to
approve the revisions to the NERC Rules of Procedure that establish an
exception process to determine case-specific exceptions to the bulk
electric system definition. NERC's proposal meets the section 215(f)
standard of review for changes to the Rules of Procedure. The

Detailed Information Form in the proposed rules identifies ``base-
line'' information and data that any applicant must submit. Further,
after Regional Entity input, NERC makes the final decision on whether
to grant an exception request, which better assures consistency of
decisions across all regions.
    51. In Order No. 743, the Commission stated that NERC should
maintain a list of facilities included or excluded from the bulk
electric system pursuant to the exception process.\65\ NERC indicates
that, while it plans to maintain such a list, maintaining the list is
an internal NERC function and, thus, not included in NERC's proposed
Rules of Procedure. To understand how NERC intends to comply with the
directive from Order No. 743, we propose to require that NERC submit a
compliance filing detailing its internal process for tracking exception
requests.
---------------------------------------------------------------------------

    \65\ Order No. 743, 133 FERC ] 61,150 at P 117.
---------------------------------------------------------------------------

    52. Below, the Commission discusses (A) the ``core'' bulk electric
system definition; (B) proposed inclusions and exclusions in the
definition; (C) the case-specific exception process; (D) the Detailed
Information Form; and (E) NERC's implementation plan.

A. The Commission Proposes To Approve the Core Definition of Bulk
Electric System

    53. The bulk electric system ``core'' definition developed by NERC
states as follows:

    Unless modified by the lists shown below, all Transmission
Elements operated at 100 kV or higher and Real Power and Reactive
Power resources connected at 100 kV or higher. This does not include
facilities used in the local distribution of electric energy.

    54. In Order No. 743, the Commission found that ``the current
definition of bulk electric system is insufficient to ensure that all
facilities necessary for operating an interconnected electric energy
transmission network are included under the `bulk electric system'
rubric.'' \66\ The Commission also stated that the ``aim'' of the final
rule was to ``eliminate inconsistencies across regions, eliminate the
ambiguity created by the current discretion in NERC's definition of
bulk electric system, provide a backstop review to ensure that any
variations do not compromise reliability, and ensure that facilities
that could significantly affect reliability are subject to mandatory
rules.'' \67\ The Commission stated that the one way to accomplish
these goals is to eliminate the regional discretion in the current
definition, and maintain the bright-line threshold that includes all
facilities operated at or above 100 kV and establish an exception
process and criteria for excluding facilities that are not necessary
for the operation of the interconnected transmission network.\68\
---------------------------------------------------------------------------

    \66\ Order No. 743, 133 FERC ] 61,150 at P 30.
    \67\ Id. P 2.
    \68\ Id.
---------------------------------------------------------------------------

    55. It appears that NERC's proposal satisfies the objectives set
forth in Order No. 743. The ``core'' definition, quoted above,
establishes the fundamental threshold for inclusion of facilities in
the bulk electric system as those that are operated at 100 kV or
higher, if they are transmission elements, or are connected at 100 kV
or higher, if they are real power or reactive power resources. The core
definition also establishes a 100 kV criterion as a bright-line
threshold, rather than as a general guideline as in the current
definition, i.e., the phrase ``generally operated at'' in the current
definition is eliminated. As NERC explains, the core definition also
continues to capture equipment associated with the facilities included
in the bulk electric system.\69\
---------------------------------------------------------------------------

    \69\ The core definition includes all ``Transmission Elements
operated at or above 100 kV.'' As NERC explains in its petition, the
NERC-defined term ``Transmission'' includes the phrase ``associated
equipment.'' The NERC Glossary defines ``Transmission'' as ``[a]n
interconnected group of lines and associated equipment for the
movement or transfer of electric energy between points of supply and
points at which it is transformed for delivery to customers or is
delivered to other electric systems.'' Additionally, the Glossary
defines ``Elements'' as ``[a]ny electrical device with terminals
that may be connected to other electrical devices such as a
generator, transformer, circuit breaker, bus section, or
transmission line. An element may be comprised of one or more
components.'' We agree with NERC that while the new definition does
not use the term ``associated equipment,'' the phrase is included in
the definition through the defined term ``Transmission Elements.''
---------------------------------------------------------------------------

    56. Further, consistent with Order No. 743, NERC's proposed ``bulk
electric system'' definition eliminates the phrase ``as defined by the
Regional Reliability Organization * * *.'' As a result, NERC's proposed
definition will apply nation-wide. Thus, we believe NERC's proposal
adequately addresses the concerns articulated in Order No. 743
regarding unfettered regional discretion and the need for a consistent
approach satisfies the concerns regarding the elimination of
inconsistencies across regions. The Commission seeks comment on whether
the revised definition adequately eliminates subjectivity and regional
variation as required in Order No. 743.\70\
---------------------------------------------------------------------------

    \70\ Id. PP 11-12, 57. The Commission notes that nothing in the
immediate rulemaking proceeding should impact the application of
available transmission capability (ATC) calculations as set for in
Order No. 890. See Preventing Undue Discrimination and Preference in
Transmission Service, Order No. 890, FERC Stats. & Regs. ] 31,241,
at P 196, order on reh'g, Order No. 890-A, FERC Stats. & Regs. ]
31,261 (2007), order on reh'g, Order No. 890-B, 123 FERC ] 61,299
(2008), order on reh'g, Order No. 890-C, 126 FERC ] 61,228 (2009),
order on clarification, Order No. 890-D, 129 FERC ] 61,126 (2009).
Public utility transmission service providers (or their designate)
have the obligation to comply in all respects with their Commission
approved tariff. This requires that they must continue to use the
applicable Reliability Standards to plan and operate both their bulk
electric system and non-bulk electric system facilities included in
their tariffs.
---------------------------------------------------------------------------

    57. Below, we seek comment regarding the exclusion of facilities
used in local distribution.
Local Distribution
    58. In Order No. 743, the Commission acknowledged that ``Congress
has specifically exempted `facilities used in the local distribution of
electric energy' '' from the Bulk-Power System definition and that,
because such facilities are exempted from the Bulk-Power System, they
also are excluded from the bulk electric system.\71\ The Commission
also stated that, although local distribution facilities are excluded
from the definition, it still is necessary to determine which
facilities are local distribution, and which are transmission.\72\ As
the Commission stated in order No. 743-A, ``[w]hether facilities are
used in local distribution will in certain instances raise a question
of fact, which the Commission has jurisdiction to determine.'' In Order
No. 743, the Commission also recognized that NERC would need to
establish whether a particular facility is local distribution or
transmission, and directed NERC to develop a means, subject to
Commission approval, to make such a determination.\73\ In Order No.
743-A the Commission clarified that
---------------------------------------------------------------------------

    \71\ Order No. 743, 133 FERC ] 61,150 at P 37.
    \72\ Order No. 743-A, 134 FERC ] 61,210 at P 67.
    \73\ Order No. 743, 133 FERC ] 61,150 at P 37.

the statement in Order No. 743, ``determining where the line between
`transmission' and `local distribution' lies * * * should be part of
the exemption process the ERO develops'' was intended to grant
discretion to the ERO, as the entity with technical expertise, to
develop criteria to determine how to differentiate between local
distribution and transmission facilities in an objective,
consistent, and transparent manner. * * * Once NERC develops and
submits its proposal to the Commission, the Commission will, as part
of its evaluation of the proposal, determine whether the process
developed adequately differentiates between local distribution and
transmission.
    We agree * * * that the Seven Factor Test could be relevant and
possibly is a logical starting point for determining which
facilities are local distribution for reliability purposes, while
also allowing NERC flexibility in

applying the test or developing an alternative approach as it deems
necessary.\74\
---------------------------------------------------------------------------

    \74\ Order No. 743-A, 134 FERC ] 61,210 at PP 68-69 (footnotes
omitted).

    59. In addressing what constitutes local distribution, NERC
explains that the second sentence in the core definition, which
excludes ``facilities used in the local distribution of electric
energy,'' is consistent with section 215(a)(1)(B) of the FPA and the
Commission's regulations at 18 CFR 39.1 and as recognized in Order No.
743-A.'' \75\ NERC states that ``the core definition * * *
establish[es] an express carve out for facilities used in the local
distribution of electrical energy.'' \76\ NERC also states that
facilities for the local distribution of electric energy are expressly
excluded from the bulk electric system by the core definition as well
as by the local network exclusion, exclusion E3.\77\ NERC adds that,
while some stakeholders suggested that the Commission's seven-factor
test should be employed to determine distribution facilities, the NERC
drafting team ``rejected this approach as the sole determination of
distribution facilities, * * * [but] pointed out that such a test could
be utilized by a Submitting Entity making an Exception Request but that
other information should be supplied to support the request.'' \78\
---------------------------------------------------------------------------

    \75\ NERC BES Petition at 16.
    \76\ Id. at 22-23.
    \77\ NERC's LN Technical Paper, Exhibit G of NERC's Petition,
provides:
    In Order 743a, the Commission made it clear that facilities that
are used in the local distribution of electric energy will be
excluded from the Bulk Electric System. * * * In response to this
facet of the Order, in developing the BES definition, the SDT has
followed this guidance. Exclusion E3 was specifically designed to
capture for exclusion those high voltage non-radial facilities being
used for the local distribution of energy.
    The exclusion characteristics in items a, b, and c * * * serve
to ensure that facilities excluded under the local network exclusion
(E3) are not necessary for the reliable operation of the
interconnected electric transmission network and are instead used in
the local distribution of energy.
    Id., Ex. G, at 2.
    \78\ NERC BES Petition at 49.
---------------------------------------------------------------------------

    60. The Commission seeks comment from NERC and the public regarding
how the proposed definition is responsive to the Commission's
directives in Order Nos. 743 and 743-A. Specifically, the Commission
seeks comment on how NERC's proposal adequately differentiates between
local distribution and transmission facilities in an objective,
consistent, and transparent manner.\79\
---------------------------------------------------------------------------

    \79\ We note that an element that falls outside of the
definition of bulk electric system is not necessarily local
distribution.
---------------------------------------------------------------------------

B. The Commission Proposes To Approve the List of Inclusions and
Exclusions in the Definition of Bulk Electric System

    61. Along with the core definition, NERC's proposal provides
specific inclusions and exclusions. The inclusions and exclusions
provide added clarity regarding which elements are part of the bulk
electric system as compared to the existing definition. For example,
the inclusion of generating resources, blackstart resources and
dispersed power producing resources provide additional information and
granularity that assist in the identification of bulk electric system
facilities or elements. However, we also have questions about how some
of the inclusions and exclusions will be applied by NERC, Regional
Entities and users, owners and operators of the Bulk-Power System.
Through the responses to these questions we seek to better understand
potential applications of the inclusions and exclusions, their effect
on identifying the facilities or elements for bulk electric system
reliability, and whether possible gaps exist.
1. Inclusions
a. Inclusion I1 (Transformers)
    62. Inclusion I1 provides ``[t]ransformers with the primary
terminal and at least one secondary terminal operated at 100 kV or
higher unless excluded under [the radial system or local network
exclusion].'' NERC explains that:

    Transformers operating at 100 kV or higher are part of the
existing definition, but since transformers have windings operating
at different voltages, and multiple windings in some circumstances,
clarification was required to explicitly identify which transformers
are included in the BES. Inclusion I1 includes in the BES those
transformers operating at 100 kV or higher on the primary winding
and at least one secondary winding, so as to be in concert with the
core definition.\80\
---------------------------------------------------------------------------

    \80\ NERC BES Petition at 17.

    63. We believe that inclusion I1, with NERC's explanation, is a
reasonable approach to identifying transformers that are appropriately
included as part of the bulk electric system. However, circumstances
may warrant inclusion of a particular transformer--through the proposed
case-specific exception process--where a transformer is operated at 100
kV or higher on the primary winding but all secondary terminals are
operated below 100 kV. The joint NERC and Commission staff report on
the September 8, 2011, Arizona-Southern California blackout discusses
how a 92 kV networked system experienced parallel flows from bulk
electric system elements through two 230/92 kV transformers.\81\ The
report explains that the reliability coordinator, transmission
operators and balancing authorities did not consider certain sub-100 kV
facilities, including two 230/92 kV transformers as bulk electric
system elements. Consequently, when contingencies occurred on the bulk
electric system on September 8, 2011, the reliability coordinator,
transmission operators and balancing authorities were unaware that the
contingencies adversely impacted the 230/92 kV transformers or how the
loss of the transformers impacted system reliability.\82\ The
Commission seeks comment on whether these types of transformers, i.e.,
those that have a terminal operated at 100 kV or above on the high side
and below 100 kV on the low side should be designated as part of the
bulk electric system. If answered in the affirmative, the Commission
seeks further comment whether the case-by-case exception process
suffices, or a generic inclusion is appropriate to address the concerns
identified in Order No. 743.
---------------------------------------------------------------------------

    \81\ Arizona-Southern California Outages on September 8, 2011--
Causes and Recommendations at 96 (September 2011 Blackout Report),
available at http://www.ferc.gov/legal/staff-reports/04-27-2012-ferc-nerc-report.pdf.
    \82\ Id. at 96-97.
---------------------------------------------------------------------------

b. Inclusion I2 (Generating Resources)
    64. Inclusion I2 provides:

    Generating resource(s) with gross individual nameplate rating
greater than 20 MVA or gross plant/facility aggregate nameplate
rating greater than 75 MVA including the generator terminals through
the high-side of the step-up transformer(s) connected at a voltage
of 100 kV or above.

According to NERC, this inclusion ``mirrors'' the text of the NERC
Registry Criteria for generating units. NERC explains that the drafting
team ``found no technical rationale for changing at this time from the
thresholds for generating resources presently specified in the * * *
Registry Criteria.'' \83\ Further, NERC states that, to provide
clarity, the revised definition specifies that the bulk electric system
``includes the generator terminals through the high-side of the step-up
transformer connected at a voltage of 100 kV or above.'' \84\
---------------------------------------------------------------------------

    \83\ NERC BES Petition at 17. NERC states ``A basic tenet that
was followed in developing the revised BES Definition was to avoid
changes to Registrations due to the revised BES Definition if such
changes are not technically required for the BES Definition to be
complete.'' Id. (citing Order No. 743-A, 134 FERC ] 61,210 at P
102).
    \84\ NERC BES Petition at 17.

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

    65. We believe that Inclusion I2 provides useful granularity
regarding the inclusion of generation resources as part of the bulk
electric system. However, we seek comment regarding several aspects of
inclusion I2. NERC's Registry Criteria thresholds for generators
provides for the registration of ``[i]ndividual generating unit > 20
MVA (gross nameplate rating) and is directly connected to the Bulk
Power System'' or ``[g]enerating plant/facility > 75 MVA (gross
aggregate nameplate rating) or when the entity has responsibility for
any facility consisting of one or more units that are connected to the
Bulk Power System at a common bus with total generation above 75 MVA
gross nameplate rating.'' \85\ We agree that proposed inclusion I2 is
consistent with the individual and aggregate nameplate rating
thresholds set forth in the Registry Criteria. We note, however, that
the Registry Criteria and the proposed definition differ regarding the
description of the connection point of the generating units and plants.
While inclusion I2 specifies ``generator terminals through the high-
side of the step-up transformer(s) connected at a voltage of 100 kV or
above,'' the Registry Criteria specifies a ``direct connection'' to the
Bulk-Power System. We seek comment whether inclusion I2 will result in
a material change to registration of existing generating units due to
the difference in the language regarding the connection point. In
addition, we seek comment if, pursuant to inclusion I2, the following
circumstances are included in the bulk electric system: A generating
unit, with a gross individual nameplate rating greater than 20 MVA
connected through the high-side of the step-up transformer connected at
a voltage of 100 kV or above when the low side of the transformer is
less than 100 kV. How does this result differ for a generation resource
with two or more step-up transformers where the last transformer in the
series operates at 100 kV or above, for example, a 50 MVA generator
first steps up through a 23 kV transformer on the low side and 69 kV on
the high side and then immediately steps up through a second
transformer at the same site with less than 100 kV on the low side and
above 100 kV on the high side?
---------------------------------------------------------------------------

    \85\ Registry Criteria, III.c.1 and c.2 (Generator Owner/
Operator).
---------------------------------------------------------------------------

c. Inclusion I3 (Blackstart Resources Identified in the Transmission
Operator's Restoration Plan)
    66. Inclusion I3 identifies as part of the bulk electric system
``Blackstart Resources identified in a Transmission Operator's
restoration plan.'' NERC explains that blackstart resources are
``vital'' for the reliable operation of the bulk electric system and
are included ``regardless of their size (MVA) or the voltage at which
they are connected.'' \86\ NERC further states that including
blackstart resources is consistent with the Registry Criteria, which
provide that ``any generator, regardless of size, that is a blackstart
unit material to and designated as part of a transmission operator
entity's restoration plan'' is eligible for registration.\87\
---------------------------------------------------------------------------

    \86\ NERC BES Petition at 18.
    \87\ Id. (emphasis added).
---------------------------------------------------------------------------

    67. We agree with NERC that inclusion of blackstart resources in
the definition is vital to reliability and is an improvement to the
definition. We seek clarification whether the term ``restoration plan''
refers to the system restoration plans required in the Emergency
Preparedness and Operations (EOP) Reliability Standards or included in
a Commission approved tariff.\88\
---------------------------------------------------------------------------

    \88\ Reliability Standard EOP-005-1, System Restoration Plans,
requires a transmission operator to create ``a restoration plan to
reestablish its electric system in a stable and orderly manner in
the event of a partial or total shutdown of its system.''
---------------------------------------------------------------------------

    68. NERC states that first posting of the revised definition
included ``cranking paths'' for blackstart resources due to a concern
about ``the possibility of having Blackstart Resources without a
`guaranteed' path'' to the [bulk electric system].'' \89\ NERC explains
that ``a number of commenters complained that this was improperly
bringing distribution level Elements into the [bulk electric system],
as many Cranking Paths are at the distribution level'' and ``also
pointed out that this was an illusory proposition as intended Cranking
Paths are not always the ones used in actual restoration.'' \90\ As a
result of the industry feedback, NERC deleted cranking paths from the
revised definition with the understanding that the issue would be
revisited in Phase 2 of the BES project. According to NERC, ``this
approach would maintain status quo on this topic, consistent with Order
Nos. 743 and 743-A, while providing for a full discussion and
consideration of the issue in a less time constrained
environment''.91 92 Subsequently, however, the topic of
cranking paths was deleted from the scope of the Phase 2 BES
project.\93\ In light of the decision not to further pursue a possible
revision to the bulk electric system definition pertaining to cranking
paths, the Commission is concerned whether a reliability gap exists
with regard to cranking paths. Cranking paths constitute a basic
element of system restoration, and it is unclear whether reliability
can be adequately maintained when blackstart generators are defined as
part of the bulk electric system but not the transmission paths that
are used to deliver the energy from blackstart generators to the
integrated transmission system. We also recognize that cranking paths
may implicate facilities used in local distribution. Accordingly, we
seek comment on whether a reliability gap may exist with regard to
cranking paths and, if so, what potential approaches are appropriate to
remove the gap. We also seek comment on the appropriate role, if any,
of state regulators in ensuring that energy from blackstart generation
is reliably delivered through cranking paths to restart the system
after an event.
---------------------------------------------------------------------------

    \89\ NERC BES Petition at 47. The NERC Glossary defines
``Cranking Path'' as ``[a] portion of the electric system that can
be isolated and then energized to deliver electric power from a
generation source to enable the startup of one or more other
generating units.'' See also the Regional Bulk Electric System
Definition Coordination Group concept paper that recommends
including the designated cranking paths for the blackstart resources
available at http://www.nerc.com/docs/standards/sar/Project_2010-17_Concept_Paper.pdf.
    \90\ Id.
    \91\ Id. NERC's Project 2010-17, the ``Phase 2 BES Project.''
    \92\ Id. NERC's Project 2010-17, the ``Phase 2 BES Project.''
    \93\ The February 21-23, 2012 meeting notes from the Project
2010-17 Definition of Bulk Electric System Phase 2 Standard Drafting
Team states that ``the SDT decided to delete the Cranking Path
reference in the [Phase 2] SAR.'' The reasons for the deletion
included ``that Cranking Paths reach down into distribution and thus
shouldn't be included in the definition,'' and ``that this issue was
debated in Phase 1 and resolution was obtained,'' and ``that
Cranking Paths were only needed when an entity was in restoration
mode so it wasn't needed in the definition.'' However, the same
document states some commenters believe ``that Cranking Paths were
only needed when an entity was in restoration * * * and * * * that
this was a reason to have it in the definition.'' See Meeting Notes
from the Project 2010-17 Definition of Bulk Electric System Phase 2
Standard Drafting Team, February 21-23, 2012, at Page 5, available
at http://www.nerc.com/docs/standards/dt/Meeting_Notes-Project_2010-17_DBES-February_21-23,_2012.pdf.
---------------------------------------------------------------------------

d. Inclusion I4 (Dispersed Power Producing Resources)
    69. Inclusion I4 identifies as part of the bulk electric system:

    Dispersed power producing resources with aggregate capacity
greater than 75 MVA (gross aggregate nameplate rating) utilizing a
system designed primarily for aggregating capacity, connected at a
common point at a voltage of 100 kV or above.

    70. NERC explains that this inclusion is intended ``to accommodate
the effects of variable generation'' on the bulk

electric system.\94\ NERC further states that even though inclusion I4
could be considered subsumed in inclusion I2 (generating resources),
NERC believes it is appropriate ``to expressly cover dispersed power
producing resources utilizing a system designed primarily for
aggregating capacity.'' \95\
---------------------------------------------------------------------------

    \94\ NERC BES Petition at 18.
    \95\ Id.
---------------------------------------------------------------------------

    71. We believe that inclusion I4 provides useful granularity in the
bulk electric system definition. To better understand the application
of inclusion I4, we seek comment whether this provision includes as
part of the bulk electric system the individual elements (from each
energy-producing resource at the site through the collector system to
the common point at a voltage of 100 kV or above) used to aggregate the
capacity and any step-up transformers used to connect the system to a
common point at a voltage of 100 kV or above.
e. Inclusion I5 (Static or Dynamic Reactive Power Devices)
    72. Inclusion I5 identifies as part of the bulk electric system:

    Static or dynamic devices (excluding generators) dedicated to
supplying or absorbing Reactive Power that are connected at 100 kV
or higher, or through a dedicated transformer with a high-side
voltage of 100 kV or higher, or through a transformer that is
designated in Inclusion I1.

NERC explains that this inclusion is the technical equivalent of
inclusion I2 (generating resources), for reactive power devices and
points out that the existing definition is unclear as to how these
devices are treated.\96\ NERC states inclusion I5 provides clarity by
``providing specific criteria for Reactive Power devices, thereby
further limiting subjectivity and the potential for discretion'' in the
application of the revised definition.\97\
---------------------------------------------------------------------------

    \96\ Id.
    \97\ Id.
---------------------------------------------------------------------------

    73. The Commission agrees with NERC that this inclusion adds
clarity to the application of the bulk electric system definition by
providing specific criteria for reactive power devices. For cases where
the reactive power device is connected through a transformer designated
in inclusion I1, we seek comment on whether both the reactive power
device and the transmission elements connecting the reactive power
device to the transformer are included as part of the bulk electric
system pursuant to inclusion I5.
2. Exclusions
    74. NERC states that the proposed definition identifies four
facilities configurations that should not be included in the bulk
electric system: (1) Radial systems, (2) behind-the-meter generating
units, (3) local networks, and (4) retail customer reactive power
devices.
    75. We agree that the proposed definition's exclusions provide
clarity and granularity. For example, the exclusion of generating units
on the customer's side of the retail meter that serves all or part of
the retail load (exclusion E2) and the exclusion for reactive power
devices owned and operated by a retail customer for its own use
(exclusion E4) provide reasonable limitations on bulk electric system
elements. While we believe that the exclusions provide added clarity,
we also seek comment on certain aspects of exclusions E1 and E3 to
ensure a more complete understanding of their application.
a. Exclusion E1 (Radial Systems)
    76. Exclusion E1 provides as follows:

    Radial systems: A group of contiguous transmission Elements that
emanates from a single point of connection of 100 kV or higher and:
    (a) Only serves Load. Or,
    (b) Only includes generation resources, not identified in
Inclusion I3, with an aggregate capacity less than or equal to 75
MVA (gross nameplate rating). Or,
    (c) Where the radial system serves Load and includes generation
resources, not identified in Inclusion I3, with an aggregate
capacity of non-retail generation less than or equal to 75 MVA
(gross nameplate rating).
    Note--A normally open switching device between radial systems,
as depicted on prints or one-line diagrams for example, does not
affect this exclusion.

NERC states that radial facilities are excluded under the currently
effective bulk electric system definition, and the detailed criteria in
the revised definition provide enhanced clarity.\98\ We seek comment on
our understanding and NERC's explanation of exclusion E1 in order for
the Commission to ensure application of exclusion E1 is consistent.
Also, we seek comment to determine if the configurations covered by
Conditions (a), (b), or (c) of exclusion E1 remove from the bulk
electric system generation connected to a radial system that otherwise
satisfies inclusion I2. The Commission would like to ensure that the
conditions in exclusion E1 will not lead to conflicting results when
applying inclusion I2 and exclusion E1.
---------------------------------------------------------------------------

    \98\ Id.
---------------------------------------------------------------------------

    77. As stated above, the radial exclusion applies to ``a group of
contiguous transmission Elements that emanates from a single point of
connection of 100 kV or higher. * * *'' While the term ``Elements''
includes the term generator,\99\ the use of the term ``transmission''
before ``Elements'' indicates that exclusion E1 applies only to
transmission elements. The phrase ``transmission Elements'' in this
provision does not apply to generating resources that are bulk electric
system resources pursuant to inclusion I2 (generating resources),
connected to a radial line operated at 100 kV above.\100\
---------------------------------------------------------------------------

    \99\ ``Element'' is defined in the NERC Glossary as ``[a]ny
electrical device with terminals that may be connected to other
electrical devices such as a generator, transformer, circuit
breaker, bus section, or transmission line. An element may be
comprised of one or more components.'' (emphasis added).
    \100\ Our understanding comports with the NERC standard drafting
team's explanation in response to industry comments that generation
resources connected within the radial system are not excluded
pursuant to exclusion E1. See NERC BES Petition, Exh. D,
Consideration of Comments Report, at 223 (stating that ``Exclusion
E1 is an exclusion for the contiguous transmission Elements
connected at or above 100 kV. Generation resources connected within
the radial system are qualifiers for this exclusion.'').
---------------------------------------------------------------------------

i. Definition of `Radial Systems' and Condition (a)--Radials Only
Serving Load
    78. NERC stated that it developed exclusion E1 to provide enhanced
clarity as compared to the existing definition.\101\ Exclusion E1
defines the term `radial systems' as ``a group of contiguous
transmission Elements that emanates from a single point of connection
of 100 kV or higher.'' The Commission seeks comment on how NERC's
proposal would be applied in the three scenarios described below.
---------------------------------------------------------------------------

    \101\ NERC BES Petition at 18.
---------------------------------------------------------------------------

    79. Figure 1 below depicts facilities configurations in which all
of the 230 kV and 69 kV transmission elements emanate from a single
point of connection of 100 kV or higher. The Commission seeks comment
on whether each of the radial systems shown in figure 1, the 230 kV
elements above each transformer to the point of connection to each 230
kV line, respectively, are excluded from the bulk electric system
pursuant to exclusion E1.

[GRAPHIC] [TIFF OMITTED] TP05JY12.001

    80. Another scenario shown in figure 2 below depicts a
configuration containing a 115 kV loop, with the configuration
emanating from two points of connection of 100 kV or higher. We seek
comment whether, in this configuration, the 115 kV and 230 kV elements
above Transformers 1 and 2 to the points of connection to the two 230
kV lines would be excluded from the bulk electric system pursuant to
exclusion E1. Is the configuration shown in figure 2 more appropriately
analyzed pursuant to the ``local network'' exclusion E3 and, if so,
what if any elements operated at or above 100 kV would be excluded
pursuant to exclusion E3?

[GRAPHIC] [TIFF OMITTED] TP05JY12.002

    81. The Commission agrees with NERC that `radial systems' only
serving load and emanating from a single point of connection of 100 kV
or higher should be excluded from the bulk electric system. The
Commission is concerned that the exclusion could allow elements
operating at 100 kV or higher in a configuration that emanates from two
or more points of connection to be deemed ``radial'' even though the
configuration remains contiguous through elements that are operated
below 100 kV. For example, figure 3 below depicts a configuration with
two points of connection of 100 kV or higher that are contiguous
through a 69 kV loop. We seek comment on how to evaluate the
configuration in figure 3 vis-[agrave]-vis the radial system definition
and whether it is appropriate to examine the elements below 100 kV to
determine if the configuration meets the exclusion E1 definition for
radial systems. In other words, does figure 3 depict a system emanating
from two points of connection at 230 kV and, therefore, the 230 kV
elements above the transformers to the points of connection to the two
230 kV lines would not be eligible for the exclusion E1 notwithstanding
the connection below 100 kV?

[GRAPHIC] [TIFF OMITTED] TP05JY12.003

ii. Condition (b)--Radials With Limited Generation and Condition (c)--
Radials With Limited Generation and Load
    Condition (b) of exclusion E1 provides that a radial system is
excluded if it ``[o]nly includes generation resources, not identified
in Inclusion I3, with an aggregate capacity less than or equal to 75
MVA (gross nameplate rating).'' Proposed Condition (c) of exclusion E1,
excludes radial systems ``[w]here the radial system serves Load and
includes generation resources, not identified in Inclusion I3, with an
aggregate capacity of non-retail generation less than or equal to 75
MVA (gross nameplate rating).''
    82. NERC states that Conditions (b) and (c) are ``intended to
address the circumstances of small utilities (including municipal
utilities and cooperatives).'' \102\ The NERC BES Petition, including
the Exhibit E record of development, does not further explain the need
for, or the impact of, these proposed provisions. Accordingly, we seek
comment regarding the specific circumstances that Conditions (b) and
(c) are intended to address.
---------------------------------------------------------------------------

    \102\ NERC BES Petition at 19.
---------------------------------------------------------------------------

    83. Because Condition (b) describes generation connected to a
radial system with no load and Condition (c) describes generation
connected to a radial system with generation and load, it appears that
the power generated on these radial systems would, by design, be
delivered or injected to the bulk electric system and transported to
other markets. In this circumstance, it appears that a line 100 kV or
above connected to a generator with a capacity 75 MVA or below would
not be included in the bulk electric system. The Commission seeks
comment on the appropriateness of excluding such radials.
iii. Normally Open Switches
    84. Proposed exclusion E1 includes a ``note'' stating that a
``normally open switching device between radial systems, as depicted on
prints or one-line diagrams for example, does not affect this
exclusion.'' NERC states that this note is intended to address a common
network configuration in which two separate sets of facilities that,
each standing alone, would be recognized as radial systems but are
connected by a switch that is set to the open position for reliability
purposes.\103\
---------------------------------------------------------------------------

    \103\ NERC BES Petition at 19-20.
---------------------------------------------------------------------------

    85. NERC explains that these switches are installed by entities to
provide greater reliability to their end-use customers. For example,
when the entity schedules maintenance activities on a radial line or an
unscheduled outage occurs that impacts a single point of supply to the
radial line which could cause the disruption of power supply to the
end-use customers served by the line, the switch allows the entity to
use another feed on the connected radial line.
    86. Figure 4 below illustrates a configuration with a normally open
switch.

[GRAPHIC] [TIFF OMITTED] TP05JY12.004

    NERC states that ``[t]he concept that two sets of radial facilities
that are normally unconnected to each other should be subject to * * *
applicable Reliability Standards during the limited time periods when
they are connected by the closing of the normally open switch in the
maintenance-related or outage-related circumstances described above
would be fundamentally impractical and unworkable (from both the
entity's perspective and the ERO's perspective), and would misapprehend
this very common, reliability-driven facilities configuration.'' \104\
---------------------------------------------------------------------------

    \104\ Id. at 20-21.
---------------------------------------------------------------------------

    87. NERC states that ``a normally open switch'' will be identified
in documents such as prints or one-line diagrams and that ``[t]he
concept and usage of the `normally open switch' in such configuration
is well understood in the electric utility industry.'' \105\ We seek
comment on NERC's characterization and whether the phrase ``normally
open'' is subject to interpretation or misunderstanding, or whether a
``normally open'' configuration is potentially difficult to oversee.
Further, we seek comment on the need of transmission operators or other
functional entities to study the system impacts of the closing of a
``normally open'' switch, or to take other steps to ensure awareness of
the impacts of the loop that is created by the closing of the switch if
the closed loop is not included as part of the bulk electric system.
---------------------------------------------------------------------------

    \105\ Id. at 19.
---------------------------------------------------------------------------

b. Exclusion E2 (Behind the Meter Generation)
    88. Exclusion E2 excludes ``[a] generating unit or multiple
generating units on the customer's side of the retail meter * * *.''
The Commission believes that this is an appropriate exclusion that
provides additional clarity and granularity to the definition of bulk
electric system.
c. Exclusion E3 (Local Networks)
    89. As noted above, we believe that a common understanding of the
exclusions promotes consistent application of the definition in
identifying bulk electric system elements. In particular, as discussed
in greater detail below, we seek comment on the following issues with
respect to the application of exclusion E3: (1) Whether generation
resources are excluded by this exclusion; (2) how the exclusion applies
to a looped lower voltage system; (3) whether the 300 kV ceiling is
appropriate for the application of the exclusion; (4) whether the
prohibition for generation produced inside a local network is not
transporting power to other markets outside the local network applies
in both normal and emergency operating conditions.
    90. Exclusion E3 defines the term local networks as:

    A group of contiguous transmission Elements operated at or above
100 kV but less than 300 kV that distribute power to Load rather
than transfer bulk-power across the interconnected system. LN's
emanate from multiple points of connection at 100 kV or higher to
improve the level of service to retail customer Load and not to
accommodate bulk-power transfer across the interconnected system.

Exclusion E3 also identifies three conditions that must be satisfied
for the exclusion to apply: (a) Limit on connected generation to 75 MVA
aggregate capacity of non-retail generation (gross nameplate rating);
(b) power flows only into the local network and does not transfer
through the `local network'; and (c) the local network is not part of a
flowgate or transfer path.
    91. NERC states the design and operation of local networks is such
that at the point of connection with the interconnected transmission
network is similar to that of a radial facility, in particular that
power always flows in a direction from the interconnected transmission
network into the local network.\106\ Further, according to NERC,
``[l]ocal networks provide local electrical distribution service and
are not planned, designed or operated to benefit or support the balance
of the interconnected transmission network.'' \107\
---------------------------------------------------------------------------

    \106\ NERC BES Petition at 22.
    \107\ Id.
---------------------------------------------------------------------------

    92. Similar to our discussion of the definition of `radial systems'
in

exclusion E1, the exclusion E3 local network exclusion applies to
transmission Elements, but does not apply to generation resources
connected to a local network that otherwise satisfy inclusion I2.
    93. NERC states in the LN Technical Paper, that ``Exclusion E3 was
specifically designed to capture for exclusion those high voltage non-
radial facilities being used for the local distribution of energy.''
\108\ The paper further provides:
---------------------------------------------------------------------------

    \108\ NERC BES Petition, Exhibit G at 2.

    Their [local network] design and operation is such that at the
point of connection with the interconnected electric transmission
network, their effect on that network is similar to that of a radial
facility, particularly in that flow always moves in a direction that
is from the BES into the facility. Any distribution of parallel
flows into the local network from the BES, as governed by the
fundamentals of parallel electric circuits, is negligible, and, more
importantly, is overcome by the Load served by the local network,
thereby ensuring that the net actual power flow direction will
always be into the local network at all interface points. The
presence of a local network is not for the operability of the
interconnected electric transmission network; neither will the local
network's separation or retirement diminish the reliability of the
interconnected electric transmission network.'' \109\
---------------------------------------------------------------------------

    \109\ Id.

    94. We seek further explanation and comment on the statement above
that ``neither will the local network's separation or retirement
diminish the reliability of the interconnected electric transmission
network.'' While a radial facility emanates from one point of
connection to the interconnected transmission network, a local network
by definition has multiple points of connection to the interconnected
transmission network. Thus, regarding a local network, a contingency
situation may arise where one of the multiple connections to the
interconnected transmission network separates, while other local
network connections maintain connectivity with the bulk electric
system. We seek comments to better understand how an entity with a
candidate local network would analyze such contingencies to determine
potential impacts to the reliable operation of the interconnected
transmission network.
i. Contiguous Transmission Elements and the 100 kV Lower Limit/300 kV
Cap
    95. As stated above, exclusion E3 defines local networks as ``[a]
group of contiguous transmission Elements operated at or above 100 kV
but less than 300 kV that distribute power to Load rather than transfer
bulk-power across the interconnected system.'' While the local network
exclusion applies to contiguous transmission elements operating at a
minimum of 100 kV, it is unclear how the exclusion applies to a looped
lower voltage system. For example, figure 5 depicts a 69 kV looped
system emanating from two points of connection at 100 kV or higher.
[GRAPHIC] [TIFF OMITTED] TP05JY12.005

    The configuration in figure 5 depicts a group of elements that are
contiguous through a 69 kV loop. We seek comment whether the
configuration in figure 5 qualifies as a local network and, in
particular, whether the configuration satisfies the condition that a
local network consists of ``a group of contiguous transmission Elements
operated at or above 100 kV * * *.''
    96. NERC states the selection of a 300 kV cap for the applicability
of an

exclusion for a local network was based upon recent NERC standards
development work in Project 2006-02 ``Assess Transmission Future Needs
and Develop Transmission Plans'' which sets a voltage level of 300 kV
to differentiate extra high voltage (EHV) facilities from high voltage
facilities acting as a threshold to distinguish between expected system
performance criteria.\110\ NERC states that it seeks to establish
consistency in the limitations placed on the exclusion applicability
for local network facilities, and has therefore adopted this 300 kV
level to ensure that EHV facilities are not subject to this
exclusion.\111\ NERC provides a ``realistic example of the electrical
interaction between a typical local network and the [bulk electric
system]'' in the LN Technical Paper.\112\ The example depicted in
Appendix 1 of the Technical Paper shows a local network operating at
115 kV. The NERC Technical Paper does not provide examples of a local
network operating within the 200 to 300 kV range, for example showing
230 kV facilities operating in a local network. We are concerned
whether the 300 kV ceiling is appropriate and reflects actual system
configurations that serve local distribution, the stated purpose of the
local network exclusion.\113\ Accordingly, we seek comment whether (and
why or why not) the 300 kV ceiling is appropriate for the application
of exclusion E3 and requests examples of systems between 200 and 300 kV
that would qualify for this exclusion.\114\
---------------------------------------------------------------------------

    \110\ NERC BES Petition at 23.
    \111\ Id. at 23 and Exh. G at 4.
    \112\ Id., Exh. G at 5.
    \113\ The Commission notes additional differentiations may
directly address this concern, such as applying a load limit, which
was raised by the NERC System Analysis and Modeling Subcommittee
(SAMS) in its effort to support Phase 2 of the bulk electric system
definition project as a criterion to limit the exclusion of large
cities and regions.
    \114\ To the extent the information requested is confidential,
commenters may provide the information pursuant to 18 CFR 388.112 of
the Commission's regulations.
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ii. Criterion (a)--Limits on Connected Generation
    97. Exclusion E3 criterion (a) provides that the local network and
its underlying elements do not include the blackstart resources
identified in inclusion I3 and do not have an aggregate capacity of
non-retail generation greater than 75 MVA gross nameplate rating. In
addition, criterion (a) does not limit the amount of generation besides
``non-retail generation'' connected to the local network. The
Commission agrees with NERC that ``local networks'' do not include
blackstart resources and agrees with the limits on the connected
generation imposed by this exclusion.
iii. Criterion (b)--Power Flows Only Into the Local Network
    98. Exclusion E3 criterion (b) specifies that to be eligible for
the exclusion, power can only flow into the local network and the local
network does not transfer energy originating outside the local network
for delivery through the local network. Thus, it appears that, pursuant
to criterion (b), generation produced inside a local network is not
transporting power to other markets outside the local network. The
Commission understands that criterion (b) applies in both normal and
emergency operating conditions.\115\
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    \115\ See NERC BES Petition, Exh. E at 59 (``The Commission
directed NERC to revise its BES definition to ensure that the
definition encompasses all Facilities necessary for operating an
interconnected electric Transmission network. The SDT interprets
this to include operation under both normal and Emergency conditions
* * *.'').
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iv. Criterion (c)--Not Part of a Flowgate or Transfer Path
    99. Exclusion E3 criterion (c) specifies a ``local network'' does
not contain a monitored facility of a permanent flowgate in the Eastern
Interconnection, a major transfer path within the Western
Interconnection, or a comparable monitored facility in the ERCOT or
Quebec Interconnections, and is not a monitored facility included in an
interconnection reliability operating limit. The Commission believes
that this is an appropriate criterion.
d. Exclusion E4 (Reactive Power Devices)
    100. Exclusion E4 excludes from the bulk electric system ``Reactive
Power devices owned and operated by the retail customer solely for its
own use.'' NERC explains that exclusion E4 is the technical equivalent
of Exclusion E2 for reactive power devices and that the currently
effective bulk electric system definition is unclear as to how these
devices are to be treated. We believe that this is an appropriate
exclusion that provides additional clarity and granularity to the
definition of bulk electric system.
Summary
    101. In sum, we propose to approve NERC's revised definition of the
term bulk electric system, including the specific inclusions and
exclusions. We believe that NERC's proposal provides a reasonable basis
for the identification of bulk electric system elements and appears to
improve upon the currently effective definition by: (1) Removing the
language that provides for regional discretion, (2) removing the
language ``generally operated at * * *'' so as to create a clear 100 kV
threshold; and (3) providing additional clarity and granularity. Above,
we have asked for comment on a series of questions regarding the
applicability of the ``core'' definition and specific inclusions and
exclusions. We believe that comments on these questions will assist in
providing further clarity and understanding of the NERC proposal. We
further note that although we propose to approve the definition in this
rulemaking, the responses to our questions are intended to guide the
Commission as to whether other action is necessary, for example, by
directing NERC to develop a further modification to the definition or
inclusions/exclusions pursuant to section 215(d)(5) of the FPA.

C. The Commission Proposes To Approve the NERC Rules of Procedure That
Provide a Case-Specific Exception Process

    102. As described above, in Docket No. RM12-7-000, NERC submitted
proposed revisions to its Rules of Procedure that provide procedures
for requesting and receiving case-specific exception from the
definition of bulk electric system.\116\
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    \116\ See Section I.D.2 above for further description of NERC's
proposed revisions to the NERC Rules of Procedure.
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    103. Pursuant to FPA section 215(f), we propose to find that the
exception process is just, reasonable, not unduly discriminatory or
preferential, and in the public interest and satisfies the requirements
of section 215(c). Further, we believe that the proposal satisfies the
statement in Order No. 743 that NERC establish an exception process for
excluding facilities that are not necessary for the reliable operation
of the interconnected transmission network from the definition of the
bulk electric system.\117\
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    \117\ See Order No. 743, 133 FERC ] 61,150 at P 16.
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    104. NERC explains that it was not feasible to develop a single set
of technical criteria that would be applicable to all exception
requests so it developed the Detailed Information Form to ensure that a
consistent baseline of technical information is provided for NERC to
make a decision on all exception requests. This information and the
proposed exception process allows NERC to provide consistent
determinations on exception requests submitted from different

regions involving the same or similar facts and circumstances, and
allows NERC to take into account the aggregate impact on the bulk
electric system of approving or denying all the exception requests.
Finally, the exception process includes provisions for reporting
information that may alter the status of an approved exception,
verifying whether an exception continues to be warranted, and revoking
an exception that is no longer warranted.\118\ Thus, we believe that
this process is equally efficient and effective as the Order No. 743
directive to establish an exception process for excluding facilities
that are not necessary for the reliable operation of the interconnected
transmission network. In addition, we believe that NERC's proposal
appears to be clear, transparent, and uniformly applicable.
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    \118\ NERC ROP Petition at 16.
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    105. NERC and the industry should be commended for the development
of the 100 kV threshold, the identified inclusions and exclusions, and
the exception process. Together, this package of important reforms will
bring valuable improvements to the process of identifying those
facilities that are necessary for the operation of the interconnected
transmission network, and thus should be included in the definition of
bulk electric system. For these reasons, we propose to approve NERC's
proposals, as discussed above.
    106. The Commission seeks input from NERC and the industry,
however, as to additional reforms that may be needed to the definition
or to the Rules of Procedure to ensure that, over the long term, the
facilities necessary to the reliability of the interconnected
transmission network are captured in its definition. In particular, we
note that while establishing a ``bright-line'' threshold of 100 kV has
significant advantages, it may not capture all facilities that are
necessary for the operation of the interconnected transmission network
that fall below that threshold. As the Commission indicated in Order
No. 743 and Order No. 743-A, its 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. Although the Commission indicated that one way to meet
this 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 which facilities should be
included in the bulk electric system.\119\ Indeed, the Commission,
agreeing with commenters, 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 are necessary for operating the
interconnection network.\120\ The Commission clarified that including
sub-100 kV facilities should be done in an ``appropriate and
consistent'' manner.\121\
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    \119\ Order No. 743-A, 134 FERC ] 61,210 at P 40.
    \120\ Order No. 743, 133 FERC ] 61,150 at P 121.
    \121\ Order No. 743-A, 134 FERC ] 61,210 at P 103.
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    107. Recent events reinforce the Commission's 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. The September
2011 Blackout Report concluded that certain sub-100 kV facilities,
which were not designated as bulk electric system facilities,
contributed to the cascading blackout affecting San Diego,
California.\122\ The September 2011 Blackout Report makes clear that,
while certain sub-100 kV facilities can affect bulk electric system
reliability, entities may not study or communicate their impacts and
take appropriate action unless they are properly designated as part of
the bulk electric system.\123\ Thus, the September 2011 Blackout Report
recommended that ``WECC, as the [Regional Entity], should lead other
entities, including [transmission operators] and [balancing
authorities], to ensure that all facilities that can adversely impact
[Bulk-Power System] reliability are either designated as part of the
[bulk electric system] or otherwise incorporated into planning and
operations studies and actively monitored and alarmed in [real-time
contingency analysis] systems.'' \124\ Although the Blackout Report
addressed an event in WECC, the recommendations in the Blackout Report
should not be limited only to the Western interconnection. Indeed, as
explained above, the recommendation in the September 2011 Blackout
Report that sub-100 kV facilities be reviewed for inclusion in the bulk
electric system is consistent with the Commission's findings in Order
Nos. 743 and 743-A.
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    \122\ See September 2011 Blackout Report at 96-97.
    \123\ Id. at 7-8.
    \124\ Id. at 96, Recommendation 17.
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    108. The NERC proposals at issue in this NOPR 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, which provides an avenue for Regional
Entities, planning authorities, reliability coordinators, transmission
operators, transmission planners, balancing authorities, and owners of
system elements to submit a request to include a facility in the bulk
electric system. We believe that regional entities, reliability
coordinators, transmission owners, transmission operators, balancing
authorities and other registered entities need to evaluate their sub-
100 kV facilities, as well as other facilities, that are necessary to
operate the interconnected transmission network in an ``appropriate and
consistent'' manner to determine their potential impacts on bulk
electric system reliability and, based on that review, seek to include
those facilities in the bulk electric system through this proposed
exception process.\125\ These entities have the in-depth, ``on the
ground'' knowledge and expertise of what facilities are critical to
reliable operations in their local or regional area. As a result, we
believe they bear primary responsibility to analyze the elements within
their purview to ensure that the right facilities are included in the
bulk electric system. We seek comment on how the relevant entities will
conduct the review and seek inclusion of facilities.
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    \125\ NERC's performance of a final review of exception requests
under the Rules of Procedure should ensure national consistency
under that procedure.
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    109. The Commission expects that these entities will use the
exception process as contemplated to include sub-100 kV facilities, and
other facilities, necessary for the operation of the interconnected
transmission network in the bulk electric system. Nonetheless, we note
that relying on these entities alone may, in certain limited
circumstances, have the potential to leave out sub-100 kV facilities
necessary for the operation of the interconnected transmission network.
For example, NERC or the Commission may, in the performance of their
statutory functions and general oversight of reliability matters,
discover additional sub-100 kV facilities that should be included. The
joint NERC-FERC September 2011 Blackout Report, as noted above, is a
prime example of this possibility. In addition, while we recognize that
the owners and operators of the power grid take their reliability
obligations seriously, there may be instances when not all of the
facilities necessary for the operation of the interconnected
transmission network are included in the bulk electric system.
    110. Thus, while we propose to approve the package of reforms
submitted by NERC, we seek comment

on how the relevant entities will seek inclusion of sub-100 kV elements
to ensure that all facilities that are necessary for the operation of
the bulk power system are designated as bulk electric system elements
consistent with the discussion above. These comments also should aid
NERC, industry, and the Commission in further efforts, already underway
in Phase 2, to refine the bulk electric system definition, the
inclusions and exclusions, and the exception process.
    111. In addition to general comments on the discussion above, we
seek 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. The exception process as proposed does not
provide that NERC may initiate an exception request. Given its
statutory functions to develop and enforce Reliability Standards and
its continent-wide perspective, NERC has technical understanding that
may provide valuable assistance in the identification of bulk electric
system facilities and elements. For example, NERC conducts disturbance
assessments, oversees compliance monitoring and conducts seasonal
assessments, all of which provide information and understanding
regarding the operations of the bulk electric system. The Commission
seeks 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.\126\
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    \126\ Since NERC makes the final determination pursuant to the
proposed process, a modified process may need to be created if NERC
has a role in submitting requests. For example, a different entity
would likely need to make the final determination.
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    112. We also seek 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. As
noted above, 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. While, as noted above, we expect
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, we seek comment as to how the Commission,
if necessary, could ensure that such facilities are considered for
inclusion in the bulk electric system. We also seek 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.\127\
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    \127\ The Commission contemplates that, if it were to take such
a step, it would provide an opportunity for notice and comment.
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1. Technical Review Panel
    113. NERC's proposed exception process provides that ``[t]he
Regional Entity shall not recommend Disapproval of the Exception
Request in whole or in part without first submitting the Exception