[Federal Register Volume 79, Number 15 (Thursday, January 23, 2014)]
[Rules and Regulations]
[Pages 3723-3738]
[FR Doc No: 2014-01218]

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Rules and Regulations
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Federal Register / Vol. 79, No. 15 / Thursday, January 23, 2014 /
Rules and Regulations

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket No. RM13-11-000; Order No. 794]

Frequency Response and Frequency Bias Setting Reliability
Standard

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule.

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SUMMARY: Pursuant to section 215(d) of the Federal Power Act, the
Federal Energy Regulatory Commission (Commission) approves Reliability
Standard BAL-003-1 (Frequency Response and Frequency Bias Setting),
submitted by the North American Electric Reliability Corporation
(NERC), the Commission-certified Electric Reliability Organization.
Reliability Standard BAL-003-1 defines the amount of frequency response
needed from balancing authorities to maintain Interconnection frequency
within predefined bounds and includes requirements for the measurement
and provision of frequency response. In addition, the Commission
directs NERC to submit certain reports to address concerns discussed in
the final rule.

DATES: Effective Date: This rule will become effective March 24, 2014.

FOR FURTHER INFORMATION CONTACT: Daniel Woldemariam (Technical
Information), Office of Electric Reliability, Division of Reliability
Standards, Federal Energy Regulatory Commission, 888 First Street NE.,
Washington, DC 20426, Telephone:<PHONE_NUMBER>,
<EMAIL_ADDRESS>
Mark Bennett (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426, Telephone:<PHONE_NUMBER><EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Order No. 794

Final Rule

Issued January 16, 2014
    1. Pursuant to section 215(d) of the Federal Power Act (FPA),\1\
the Commission approves Reliability Standard BAL-003-1 (Frequency
Response and Frequency Bias Setting), submitted by the North American
Electric Reliability Corporation (NERC), the Commission-certified
Electric Reliability Organization (ERO). Reliability Standard BAL-003-1
defines the amount of frequency response needed from balancing
authorities to maintain Interconnection frequency within defined bounds
and includes requirements for the measurement and provision of
frequency response.\2\ We find that Reliability Standard BAL-003-1
addresses an existing gap in reliability and the Commission's
directives set forth in Order No. 693.\3\ Reliability Standard BAL-003-
1 establishes a minimum Frequency Response Obligation \4\ for each
balancing authority; provides a uniform calculation of frequency
response; establishes Frequency Bias Settings that set values closer to
actual balancing authority frequency response; and encourages
coordinated automatic generation control (AGC) operation.\5\ These
matters are not addressed in any currently-effective Reliability
Standard. Therefore, pursuant to section 215(d) of the FPA, we approve
Reliability Standard BAL-003-1.\6\
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    \1\ 16 U.S.C. 824o(d).
    \2\ NERC defines ``frequency response'' in the NERC Glossary of
Terms Used in Reliability Standards (NERC Glossary) as follows:
    Equipment: The ability of a system or elements of the system to
react or respond to a change in system frequency. System: The sum of
the change in demand, plus the change in generation, divided by the
change in frequency, expressed in megawatts per 0.1 Hertz (MW/0.1
Hz).
    \3\ See Mandatory Reliability Standards for the Bulk-Power
System, Order No. 693, FERC Stats. & Regs. ] 31,242 at P 375, order
on reh'g, Order No. 693-A, 120 FERC ] 61,053 (2007).
    \4\ NERC defines Frequency Response Obligation as ``[t]he
balancing authority's share of the required Frequency Response
needed for the reliable operation of an Interconnection. This will
be calculated as MW/0.1Hz.''
    \5\ NERC revises the definition of Frequency Bias Setting as
``[a] number, either fixed or variable, usually expressed in MW/0.1
Hz, included in a balancing authority's Area Control Error equation
to account for the balancing authority's inverse Frequency Response
contribution to the Interconnection, and discourage response
withdrawal through secondary control systems.''
    \6\ In a related action, the Commission is approving regional
Reliability Standard BAL-001-TRE-01 containing provisions for
assuring frequency response in the ERCOT Interconnection. See Docket
No. RD13-12-000, North American Electric Reliability Corporation,
146 FERC ] 61,025.
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    2. The Commission also approves four new or revised definitions to
the NERC Glossary and NERC's implementation plan and, with two
exceptions, the violation risk factors and violation severity levels,
and NERC's request for retirement of currently-effective Reliability
Standard BAL-003-0.1b.
    3. While the Commission believes that the record supports approving
Reliability Standard BAL-003-1, we have concerns about certain aspects
of the Reliability Standard that warrant further consideration.
Therefore, the Commission directs NERC to submit two reports, and to
continue its ongoing annual analysis of certain aspects of BAL-003-1
\7\ to address concerns regarding specific provisions of the
Reliability Standard and to determine the effectiveness of Reliability
Standard BAL-003-1 in providing an adequate amount of frequency
response. First, no later than 15 months after implementation of the
Reliability Standard, NERC shall submit a report that addresses the
results and recommendations of a light-load case study of the Eastern
Interconnection, using actual turbine governor response data. Second,
no later than 27 months after implementation of the Reliability
Standard, NERC shall submit a report(s) addressing: (1) An evaluation
of the use of the linear regression methodology to calculate frequency
response; and (2) the availability of resources for applicable entities
to meet the Frequency Response Obligation. Depending on the results and
recommendations of these reports, which should provide insight on the
effectiveness of the Reliability Standard in assuring that the
necessary amount of Frequency Response is available in response to
system events, further

refinements to the standard may be warranted. Moreover, if data
indicate that sufficient resources are not available for applicable
entities to meet their Frequency Response Obligation, NERC should
provide that information, together with appropriate recommendations for
mitigation, as this information becomes available.
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    \7\ On December 30, 2013, NERC submitted an informational
filing, titled ``Annual Analysis of Frequency Response.'' NERC
states that the informational filing updates the statistical
analyses and calculations contained in the 2012 Frequency Response
Initiative Report, attached to NERC's Petition as Exhibit F
(Frequency Response Initiative Report).
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    4. The Commission finds NERC's December 30, 2013 ``Annual Analysis
of Frequency Response'' helpful and notes NERC's statement that it
intends to continue this work. Specifically, in its 2013 annual
analysis, NERC states that the informational filing analyzes the impact
of Remedial Action Schemes that trip more than 2,400 MW on the
calculation of the Interconnection Frequency Response Obligation (IFRO)
for the Western Interconnection, adjustment factors for calculating
IFROs and trends in primary frequency response sustainability or
withdrawal throughout frequency events. The Commission expects NERC to
continue to evaluate these aspects of frequency response and include
them in future annual analyses.

I. Background

A. Section 215 of the FPA

    5. Section 215(c) of the FPA requires a Commission-certified
Electric Reliability Organization (ERO) to develop mandatory and
enforceable Reliability Standards that are subject to Commission review
and approval. Once approved, the Reliability Standards may be enforced
by NERC, subject to Commission oversight, or by the Commission
independently.\8\
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    \8\ 16 U.S.C. 824o(e).
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B. Frequency Response and Frequency Bias Setting

    6. Sufficient frequency response is necessary to stabilize
frequency within an Interconnection immediately following the sudden
loss of generation or load. NERC explains that ``[s]ystem frequency
reflects the instantaneous balance between generation and load.
Reliable operation of a power system depends on maintaining frequency
within predetermined boundaries above and below a scheduled value,
which is 60 Hertz (Hz) in North America.'' \9\ Most frequency response
is provided by the automatic and autonomous actions of turbine-
governors, with some response being provided by changes in demand due
to changes in frequency. Failure to maintain frequency can disrupt the
operation of equipment and initiate disconnection of power plant
equipment to prevent equipment from being damaged, which could lead to
wide-spread blackouts.
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    \9\ NERC Petition at 3.
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    7. Frequency response is provided in two stages, referred to as
primary frequency response and secondary frequency response.
    8. Primary frequency response and control involves the autonomous,
automatic, and rapid action of a generator, or other resource, to
change its output (within seconds) to rapidly dampen large changes in
frequency. The ability of a power system to withstand a sudden loss of
generation or load depends on the presence and adequacy of resources
capable of providing rapid incremental power changes to counterbalance
the disturbance and arrest a frequency deviation.
    9. Secondary frequency response, also known as automatic generation
control (AGC), is produced from either manual or automated dispatch
from a centralized control system.\10\ It is intended to balance
generation, interchange and demand by managing the response of
available resources within minutes as opposed to primary frequency
response, which manages response within seconds. Frequency bias is an
input used in the calculation of a balancing authority's area control
error (ACE) to account for the power changes associated with primary
frequency response. However, frequency bias is not the same as
frequency response. Frequency Bias Setting is a secondary control
setting of the AGC system, not a primary control parameter, and changes
in the Frequency Bias Setting of a balancing authority do not change
the primary frequency response. The Frequency Bias Setting is used in
AGC to prevent premature withdrawal of generator primary frequency
response following a disturbance as long as frequency is off its
nominal value.\11\
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    \10\ NERC Petition at 11. Additional background information
about the engineering concepts that pertain to frequency response is
discussed in the Frequency Response Background Document, NERC
Petition, Exh. D.
    \11\ NERC Petition at 11.
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C. NERC Reliability Standard BAL-003-0

    10. On March 16, 2007, in Order No. 693, the Commission approved 83
of 107 Reliability Standards pursuant to FPA section 215(d), including
currently-effective Reliability Standard BAL-003-0. In addition,
pursuant to section 215(d)(5) of the FPA, the Commission directed NERC,
among other things, to develop modifications to BAL-003-0 to address
certain issues identified by the Commission. Specifically, the
Commission directed NERC to:

    develop a modification to BAL-003-0 through the Reliability
Standards development process that: (1) includes Levels of Non-
Compliance; (2) determines the appropriate periodicity of frequency
response surveys necessary to ensure that Requirement R2 and other
requirements of the Reliability Standard are being met, and to
modify Measure M1 based on that determination and (3) defines the
necessary amount of Frequency Response needed for Reliable Operation
for each balancing authority with methods of obtaining and measuring
that the frequency response is achieved.\12\
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    \12\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 375.
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II. NERC Petition and Reliability Standard BAL-003-1

A. NERC Petition

    11. On March 29, 2013, NERC submitted its petition seeking the
Commission's approval of Reliability Standard BAL-003-1, four new or
modified definitions for inclusion in the NERC Glossary, violation risk
factors and violation severity levels, an implementation plan for the
proposed standard, and retirement of currently-effective BAL-003-
0.1b.\13\
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    \13\ Reliability Standard BAL-003-1 is not attached to this
Final Rule. The complete text of Reliability Standard BAL-003-1 is
available on the Commission's eLibrary document retrieval system in
Docket No. RM13-11-000 and is posted on the ERO's Web site,
available at: http://www.nerc.com.
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    12. The petition states that in 2010 NERC began a frequency
response initiative to perform an in-depth analysis of Interconnection-
wide frequency response ``to achieve a better understanding of the
factors influencing frequency response across North America.'' \14\
According to NERC, one of the basic objectives of the frequency
response initiative included increasing coordinated communication and
outreach on the issue, including webinars, and NERC alerts.\15\ NERC
states that it developed several reports that provide the conclusions
and recommendations resulting from the frequency response initiative,
which NERC includes as exhibits to its petition.\16\ Further, NERC
states that a detailed explanation of the development, testing, and
implementation of Reliability Standard BAL-003-1 is provided in the
Frequency Response Standard Background Document, included as Exhibit D
to the petition.
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    \14\ NERC Petition at 11-12.
    \15\ Id. at 12.
    \16\ See Frequency Response Initiative Report, Exh. G (Status of
Recommendations), and Exh. H (Supplemental Report).
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    13. NERC requests approval of the implementation plan for proposed
BAL-003-1, under which: (1) Requirement R2, Requirement R3 and
Requirement

R4 would become effective the first day of the first calendar quarter
that is twelve months following the effective date of this Final Rule;
and (2) Requirement R1 would become effective the first day of the
first calendar quarter that is twenty-four months following the
effective date of this Final Rule. NERC proposes the retirement of
existing Reliability Standard BAL-003-0.1b at midnight of the day
immediately prior to the effective date of Requirements R2, Requirement
R3 and Requirement R4 of the Reliability Standard. NERC requests
approval of three new definitions and the revised definition of
Frequency Bias Setting effective the first day of the first calendar
quarter that is twelve months following the effective date of a Final
Rule in this docket.\17\
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    \17\ NERC proposes to retire the existing definition of
Frequency Bias Setting at midnight of the day immediately prior to
the effective date of Requirement R2, Requirement R3, and
Requirement R4 of the Reliability Standard.
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B. Reliability Standard BAL-003-1 and NERC Explanation of Provisions

    14. NERC states that the purpose of the Reliability Standard is to
ensure an adequate amount of Frequency Response and also ensure that
``a Balancing Authority's Frequency Bias Setting is accurately
calculated to match its actual Frequency Response.'' The Reliability
Standard also is intended ``to provide consistent methods for measuring
Frequency Response and determining the Frequency Bias Setting.'' \18\
The Reliability Standard consists of four requirements, and is
applicable to balancing authorities and Frequency Response Sharing
Groups.\19\
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    \18\ NERC Petition at 15. See also Reliability Standard BAL-003-
1, Purpose Statement:
    To require sufficient Frequency Response from the balancing
authority (BA) to maintain Interconnection Frequency within
predefined bounds by arresting frequency deviations and supporting
frequency until the frequency is restored to its scheduled value. To
provide consistent methods for measuring Frequency Response and
determining the Frequency Bias Setting.
    \19\ NERC defines Frequency Response Sharing Group as ``[a]
group whose members consist of two or more Balancing Authorities
that collectively maintain, allocate, and supply operating resources
required to jointly meet the sum of the Frequency Response
Obligations of its members.'' NERC Petition at 13. The Reliability
Standard allows balancing authorities to cooperatively form
Frequency Response Sharing Groups as a means to jointly meet the
obligations of the standard. Id.
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    15. Requirement R1 requires that each balancing authority or
Frequency Response Sharing Group achieve an annual Frequency Response
Measure \20\ that is ``equal to or more negative than its Frequency
Response Obligation'' needed to ensure sufficient Frequency Response.
Specifically, Requirement R1 states:
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    \20\ NERC defines Frequency Response Measure as ``[t]he median
of all the frequency response observations reported annually by
Balancing Authorities or Frequency Response Sharing Groups for
frequency events specified by the ERO. This will be calculated as
MW/0.1Hz.''

    Each Frequency Response Sharing Group (FRSG) or Balancing
Authority that is not a member of a FRSG shall achieve an annual
Frequency Response Measure (FRM) (as calculated and reported in
accordance with Attachment A) that is equal to or more negative than
its Frequency Response Obligation (FRO) to ensure that sufficient
Frequency Response is provided by each FRSG or BA that is not a
member of a FRSG to maintain Interconnection Frequency Response
equal to or more negative than the Interconnection Frequency
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Response Obligation.

    NERC explains that Requirement R1 has the primary objective of
``determin[ing] whether a Balancing Authority has sufficient Frequency
Response for reliable operations.'' \21\ According to NERC, Requirement
R1 achieves this objective ``via FRS [Frequency Response Survey] Form 1
and the process in Attachment A that provides the method for
determining the Interconnections' necessary amount of Frequency
Response and allocating it to the balancing authorities.'' \22\ NERC
asserts that Requirement R1 and Attachment A satisfy the Commission's
directive in Order No. 693 to ``determine the appropriate periodicity
of frequency response surveys necessary to ensure that Requirement R2
and other requirements of the Reliability Standard are met. . . .''
\23\
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    \21\ NERC Petition at 15.
    \22\ Id. NERC explains that ``Attachment A (appended to the
proposed standard) is a supporting document for Reliability Standard
BAL-003-1 that discusses the process the ERO will follow to validate
the Balancing Authority's FRS Form 1 data and publish the official
Frequency Bias Settings. FRS Form 1 provides the guidance as to how
to account for and measure Frequency Response. FRS Form 1, and the
underlying data retained by the balancing authority, will be used
for measuring whether sufficient Frequency Response was provided.''
NERC Petition at 4.
    \23\ Id. at 16 (citing Order No. 693, FERC Stats. & Regs. ]
31,242 at P 375).
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    16. Requirement R2 states that:

    Each Balancing Authority that is a member of a multiple
Balancing Authority Interconnection and is not receiving Overlap
Regulation Service \24\ and uses a fixed Frequency Bias Setting
shall implement the Frequency Bias Setting determined in accordance
with Attachment A, as validated by the ERO, into its Area Control
Error (ACE) calculation during the implementation period specified
by the ERO and shall use this Frequency Bias Setting until directed
to change by the ERO.
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    \24\ NERC explains that overlap regulation service is a method
of providing regulation service in which a balancing authority
incorporates another balancing authority's actual interchange,
frequency responses, and schedule into the providing balancing
authority's AGC/ACE equation. NERC Petition at 21.

    NERC explains that setting the frequency bias to better approximate
the balancing authority's natural response characteristic will improve
the quality of ACE control and general AGC system control response.
NERC states that the ERO, in coordination with the regions of each
Interconnection, will annually review Frequency Bias Setting data
submitted by the balancing authorities.
    17. Requirement R3 states that:

    Each Balancing Authority that is a member of a multiple
Balancing Authority Interconnection and is not receiving Overlap
Regulation Service and is utilizing a variable Frequency Bias
Setting shall maintain a Frequency Bias Setting that is: (1.1) Less
than zero at all times, and (1.2) Equal to or more negative than its
Frequency Response Obligation when Frequency varies from 60 [Hertz]
Hz by more than +/- 0.036 Hz.

    NERC explains that, in an Interconnection with multiple balancing
authorities, the Frequency Bias Setting should be coordinated among all
balancing authorities in the Interconnection. According to NERC, when
there is a minimum Frequency Bias Setting requirement, it should apply
for all balancing authorities. However, balancing authorities using a
variable Frequency Bias Setting may have non-linearity in their actual
response for a number of reasons including the deadband settings of
their generator governors. The measurement to ensure that these
balancing authorities are conforming to the Interconnection minimum is
adjusted to remove the deadband range from the calculated average
Frequency Bias Setting actually used.\25\
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    \25\ NERC Petition at 20. NERC further states that ``For
[balancing authorities] using variable bias, FRS Form 1 has a data
entry location for the previous year's average monthly Bias. The
[balancing authority] and the ERO can compare this value to the
previous year's Frequency Bias Setting minimum to ensure Requirement
R3 has been met.'' Id.
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    18. Requirement R4 states that:

    Each Balancing Authority that is performing Overlap Regulation
Service shall modify its Frequency Bias Setting in its ACE
calculation, in order to represent the Frequency Bias Setting for
the combined Balancing Authority area, to be equivalent to either:
     the sum of the Frequency Bias Settings as shown on FRS
Form 1 and FRS Form 2 for the participating Balancing Authorities as
validated by the ERO, or
     the Frequency Bias Setting shown on FRS Form 1 and FRS
Form 2 for the entirety of the participating Balancing Authorities'
areas.

    NERC states that Requirement R4 is similar to Requirement R6 in the
currently-effective BAL-003-0.1b.

III. Notice of Proposed Rulemaking

    19. On July 18, 2013, the Commission issued a Notice of Proposed
Rulemaking (NOPR) proposing to approve Reliability Standard BAL-003-1
as just, reasonable, not unduly discriminatory or preferential, and in
the public interest.\26\ The Commission also proposed to approve three
new definitions and the revised definition of Frequency Bias Setting,
all but one of the associated violation risk factors, most violation
severity levels, the implementation plan, effective date, and the
retirement of the ``Version 0'' Standard BAL-003-0.1b. The NOPR stated
that the Reliability Standard establishes a minimum Frequency Response
Obligation and addresses other related matters that are not addressed
in any currently-effective Reliability Standard.
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    \26\ Frequency Response and Frequency Bias Setting Reliability
Standard, Notice of Proposed Rulemaking, 78 FR 45479 (July 29,
2013), 144 FERC ] 61,057 (2013) (NOPR).
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    20. While the Commission proposed to approve Reliability Standard
BAL-003-1, the Commission raised concerns regarding certain provisions
of the proposed standard, some of which NERC itself identified in the
reports included in its petition. In the NOPR, the Commission sought
comments on the following issues: (1) In Requirement R1, the use of the
median statistical method in the calculation of Frequency Response
Measure, i.e., selecting the middle value in a set of data that is
arranged in an ascending or descending order; (2) the potential for
early withdrawal of primary frequency response before secondary
frequency response is activated; (3) the need to study frequency
response during light-load conditions; (4) whether the resource
contingency criteria in the Western Interconnection is properly
identified; and (5) the need to adequately ensure that each balancing
authority has available the resources it needs to meet its frequency
response obligation.\27\
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    \27\ On July 18, 2013 the Commission issued a Notice of Request
for Comments (Docket No. AD13-8) concerning the market implications
of frequency response and frequency bias setting requirements. See
Market Implications of Frequency Response and Frequency Bias Setting
Requirements, 144 FERC ] 61,058 (2013).
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    21. In response to the NOPR, the Commission received comments from:
NERC, Midcontinent Independent System Operator (MISO), Electricity
Consumers Resource Council (ELCON), ISO/RTO Council (IRC), Arizona
Public Service Company (APS), Bonneville Power Administration (BPA),
and Trade Associations.\28\ On October 15, 2013, NERC submitted reply
comments. We address below the issues raised in the NOPR and comments.
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    \28\ The Trade Associations group consists of Edison Electric
Institute (EEI), National Rural Electric Cooperative Association
(NRECA), American Public Power Association (APPA) and Electric Power
Supply Association (EPSA).
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IV. Discussion

    22. Pursuant to FPA section 215(d), we approve Reliability Standard
BAL-003-1 as just, reasonable, not unduly discriminatory or
preferential, and in the public interest. The Reliability Standard
establishes a minimum Frequency Response Obligation for each balancing
authority; provides a uniform calculation of frequency response;
establishes Frequency Bias Settings that are closer to actual balancing
authority frequency response; and encourages coordinated automatic
generation control operation. The Reliability Standard addresses an
existing gap in reliability, as these matters are either not covered,
or not adequately addressed, in any currently-effective Reliability
Standard. Further, Reliability Standard BAL-003-1 adequately addresses
certain directives from Order No. 693. We also approve the new and
modified definitions and, with two exceptions, the proposed violation
severity levels and violation risk factors, and retirement of the
currently-effective standard and NERC's implementation plan.
    23. We discuss below the following issues raised in the NOPR and
addressed in the comments: (A) The use of the median statistical method
in determining the Frequency Response Measure; (B) the determination of
Interconnection Frequency Response Obligation; (C) methods of obtaining
frequency response; (D) withdrawal of primary frequency response before
secondary frequency response is activated; (E) development of a new
light-load case study; (F) assignment of violation risk factors and
violation severity levels; and (G) associated and supporting documents.

A. Use of the ``Median'' in Determining the Frequency Response Measure
NERC Petition

    24. As discussed above, Requirement R1 of Reliability Standard BAL-
003-1 provides that each balancing authority or Frequency Response
Sharing Group achieve an annual Frequency Response Measure that is
equal to or more negative than its Frequency Response Obligation needed
to ensure sufficient frequency response. NERC proposed to define the
Frequency Response Measure as ``the median of all the Frequency
Response observations reported annually by balancing authorities or
Frequency Response Sharing Groups for the frequency events specified by
the ERO.'' \29\ NERC defines the ``median'' as ``the numerical value
separating the higher half of a one-dimensional sample, a one-
dimensional population, or a one-dimensional probability distribution
from the lower half. The median of a finite list of numbers is found by
arranging all the observations from lowest value to highest value and
picking the middle one.'' \30\
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    \29\ NERC Petition at 13.
    \30\ Frequency Response Initiative Report at 72. NERC developed
a procedure for selecting frequency response observations. See NERC
Petition, Exh. C (Procedure for ERO Support of Frequency Response
and Frequency Bias Setting Standard). The Procedure is referenced,
but not included, in Attachment A of Reliability Standard BAL-003-1.
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    25. NERC stated in its petition that the standard drafting team
evaluated different approaches for averaging individual event
observations to compute a technically sound estimate of Frequency
Response Measure, including median and linear regression analysis.\31\
Explaining why the drafting team chose to use the median, NERC stated:
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    \31\ NERC Petition at 17-18. The Frequency Response Initiative
Report defines the linear regression method as the linear average of
a multi-dimensional sample, or a multi-dimensional population. See
id., Exh. F at 73.

    In general, statisticians use the median as the best measure of
a central tendency when a population has outliers. Based on the
analyses performed thus far, the standard drafting team believes
that the median's superior resiliency to this type of data quality
problem makes it the best aggregation technique at the time.
However, the standard drafting team sees merit and promise in future
research with sample filtering combined with a technique such as
linear regression. When compared with the mean, linear regression
shows superior performance with respect to the elimination of noise
because the measured data is weighted by the size of the frequency
changes associated with the event. The standard drafting team
acknowledges that linear regression should be re-evaluated for use
in the BAL-003 Reliability Standard once more experience is gained
with data collected.\32\
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    \32\ Id. at 17-18 (footnote omitted). See also id., Exh. F at
72-78. NERC explained that the ``noise'' refers to factors that can
influence data and produce outliers. Id. at 18, n.34.
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NOPR
    26. In the NOPR, the Commission stated that NERC provided adequate
rationale for using the median to determine the required Frequency
Response Measure.\33\ The NOPR also

noted NERC's explanation that application of the median is supported by
the analyses performed to date.\34\ Therefore, the Commission proposed
to approve BAL-003-1 on that basis.
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    \33\ NOPR, 144 FERC ] 61,057 at P 26.
    \34\ Id. P 25 (citing NERC Petition at 17-18).
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    27. However, in the NOPR, the Commission expressed concern
``whether use of the median adequately represents actual data that
could, on occasions, be significantly higher or lower than the
median.'' \35\ Further, the Commission noted the standard drafting
team's support for re-evaluating the use of linear regression when more
experience is gained with Reliability Standard BAL-003-1. Accordingly,
the Commission proposed to direct NERC to develop a modification to
Reliability Standard BAL-003-1 to replace use of the median with a
``more appropriate methodology,'' suggesting that ``based on the record
in this docket, it appears that the linear regression method is
superior to the median when determining the Frequency Response
Measure.'' \36\
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    \35\ Id. P 27.
    \36\ Id.
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Comments

    28. NERC, IRC and Trade Associations disagree with the NOPR
proposal, and support use of the median statistical measure. NERC
states that the Commission's proposed directive to develop a
modification to the methodology for determining the Frequency Response
Measure is premature. NERC asserts that the standard drafting team
evaluated different approaches for averaging individual event
observations to compute a technically sound estimate of Frequency
Response Measure, including the median and linear regression analysis.
NERC also notes that, in the NOPR, the Commission indicated that NERC
provided adequate rationale for using the median to determine the
required Frequency Response Measure, and that use of the median is
supported by the analyses performed to date.\37\
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    \37\ NERC Comments at 5.
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    29. Trade Associations and IRC also disagree with the Commission's
proposal to direct NERC to develop a modification to the proposed
standard and assert that the standard drafting team selected the most
appropriate methodology. Trade Associations assert that the standard
drafting team's reasoning was ``well thought out and balanced
considering the advantages and disadvantages of both approaches (i.e.,
`median' and `linear regression').'' \38\ Trade Associations understand
that the standard drafting team evaluated both methods and found that
the median approach consistently produced a more conservative Frequency
Response Measure value, and was significantly less likely to result in
calculation errors. Thus, Trade Associations support the median
methodology because ``it is far better to err on the side of having
slightly more available reserves than not having enough.'' \39\
Finally, Trade Associations and IRC comment that that the median
methodology is less complicated and will minimize the compliance risks
and resource burdens of applicable entities. IRC notes that the
frequency response measurement process is easily susceptible to
distortion due to a very large noise to signal ratio, and that use of
the median discards such ``outliers,'' while results from linear
regression may be skewed by such ``noise.''
---------------------------------------------------------------------------

    \38\ Trade Associations Comments at 5; see also IRC Comments at
4.
    \39\ Trade Associations Comments at 5.
---------------------------------------------------------------------------

    30. BPA raises a concern that use of the median method for
determining the Frequency Response Measure ``gives equal weight to
large and small disturbances.'' \40\ In particular, BPA expresses
concern with NERC's proposal to use 20 to 30 events per year for
calculating the Frequency Response Measure because targeting a fixed
number of events per year may lead to using relatively small (less than
400 MW) events in frequency response calculations. BPA asserts that
extrapolating from these small events to large events could lead to
misleading indications of the Interconnection and balancing authority's
performance during large events and ``undermine the intent'' of the
Reliability Standard.\41\ BPA recommends the following specific
revisions to the frequency response measurement proposal: (1) Use
resource loss events equal to or greater than 1,000 MW or events with
frequency deviations below 59.9 Hz for calculating frequency response,
rather than a fixed number of events per year; and (2) use the smallest
of actual maximum design frequency or the maximum design delta from
NERC Table 1 Interconnection Frequency Response Obligation.
---------------------------------------------------------------------------

    \40\ BPA Comments at 2.
    \41\ Id.
---------------------------------------------------------------------------

    31. In reply comments, NERC responds to BPA's proposed revisions,
stating that the values in Table 1 are not static and are revised on an
annual basis pursuant to a written process for identifying candidate
frequency events and an annual review of the calculations. Further,
NERC explains that the methodology set forth in Table 1 of Attachment A
to Reliability Standard BAL-003-1 is based on frequency and not the
size of events, as suggested by BPA.
Commission Determination
    32. The Commission does not adopt the NOPR proposal that NERC
develop a modification to replace the use of the median with a more
appropriate methodology and, instead, approves the use of the median
methodology to determine the required Frequency Response Measure as set
forth in Reliability Standard BAL-003-1. As indicated by NERC, the
standard drafting team considered various approaches for averaging
individual event observations to compute a technically sound estimate
of Frequency Response Measure and determined that ``the median's
superior resiliency to this type of data quality problem [i.e., a data
set with outliers] makes it the best aggregation technique at the
time.'' \42\ We also see merit at this time in IRC's explanation that
the frequency response measurement process is susceptible to distortion
due to a large noise to signal ratio, and that use of the median
discards such ``outliers.'' Accordingly, we are persuaded that, based
on this record, there is sufficient justification for NERC's use of the
median method for determining the required Frequency Response Measure
in the initial implementation of Reliability Standard BAL-003-1.
---------------------------------------------------------------------------

    \42\ NERC Petition at 17-18.
---------------------------------------------------------------------------

    33. Further, with respect to BPA's concerns regarding NERC's
process for determining the appropriate Frequency Response Measure, we
agree with NERC's explanation that NERC has developed an acceptable
methodology for identifying candidate frequency events and an annual
review of the calculations.\43\ The methodology developed by NERC is
based on frequency and not the size of events. Therefore, if any
revisions are necessary, as BPA suggests, they can be implemented via
this established review process.\44\
---------------------------------------------------------------------------

    \43\ NERC Reply Comments at 3-4.
    \44\ Id.
---------------------------------------------------------------------------

    34. In addition, while the use of the median provides an adequate
initial means to achieve the objectives of Reliability Standard BAL-
003-1, we continue to believe that over the long term the Reliability
Standard can be improved by adopting the linear method.\45\ However, we
are persuaded

by the comments of NERC and others that adopting the linear regression
method will insert an additional level of complexity to the process,
and a directive to that effect would be premature. Accordingly, as
stated above, we do not adopt our NOPR proposal to direct that NERC
immediately develop a modification to Reliability Standard BAL-003-1 to
calculate the Frequency Response Measure using linear regression.
Rather, the Commission acknowledges NERC's commitment to studying the
use of linear regression \46\ and the analysis contained in the
Frequency Response Initiative Report,\47\ and directs NERC to continue
its evaluation of the use of the linear regression methodology based
upon experience and data collected following the implementation of BAL-
003-1 and to submit a report to the Commission within three months
after two years of operating experience once Requirement R1 of BAL-003-
1 becomes effective (i.e., 27 months from the effective date of
Requirement R1). The report should assess the accuracy of the linear
regression methodology compared to the median methodology for purposes
of determining Frequency Response Measure. Based on this report and
actual experience, the Commission may revisit this issue.
---------------------------------------------------------------------------

    \45\ See NOPR, 144 FERC ] 61,057 at P 27. One of the
recommendations contained in NERC's Frequency Response Initiative
Report states that ``[l]inear regression is the method that should
be used for calculating Balancing Authority Frequency Response
Measure (FRM) for compliance with Standard BAL-003-1-Frequency
Response.''
    \46\ NERC Comments at 6 and NERC Petition at 18, fn. 35.
    \47\ See NERC Petition at 17-18; see also id., Exh. F at 72-78.
---------------------------------------------------------------------------

B. Determination of Interconnection Frequency Response Obligation NERC
Petition

    35. Reliability Standard BAL-003-1 establishes an Interconnection
Frequency Response Obligation designed to require sufficient frequency
response for each Interconnection to arrest frequency decline even for
severe, but possible, contingencies. The methodology for determining
each Interconnection's obligation for obtaining the necessary amount of
frequency response is set forth in Attachment A of the Reliability
Standard. The Interconnection Frequency Response Obligation is based on
the ``resource contingency criteria,'' which is the largest ``Category
C'' event for the Interconnection,\48\ except for the Eastern
Interconnection, which uses the largest event and maximum actual change
in frequency in the last ten years.\49\ The maximum change in frequency
is calculated by adjusting the starting frequency for each
Interconnection by the ``prevailing UFLS first step,'' i.e., under-
frequency load shedding for the Interconnection as adjusted by specific
information on the frequency deviations for the observed events which
make up the data-set used to calculate the Frequency Response
Measure.\50\ For multiple balancing authority Interconnections, the
Frequency Response Obligation is allocated to balancing authorities
based on the formula set forth in Attachment A. FRS Form 1 and the
underlying data retained by the balancing authorities are used for
measuring whether frequency response was provided.
---------------------------------------------------------------------------

    \48\ See Reliability Standard BAL-003-1, Attachment A at 1.
Category C events are defined in Reliability Standard TPL-003-0
(System Performance Following Loss of Two or More Bulk Electric
System Elements), Table 1.
    \49\ For the Eastern Interconnection, the largest event in the
last ten years is the loss of 4,500 MW of generation, which occurred
on August 4, 2007. See Reliability Standard BAL-003-1, Attachment A
at 1; Frequency Response Initiative Report at 34-37, 54.
    \50\ Id. Under-frequency load shedding is intended to be a
safety net to prevent against system collapse from severe
contingencies. The resource contingency criterion is selected to
avoid violating the under-frequency load shedding settings. See NERC
Petition, Exh. D at 36 (``in general, the goal is to avoid
triggering the first step of under[hyphen]frequency load shedding
(UFLS) in the given Interconnection for reasonable contingencies
expected'').
---------------------------------------------------------------------------

NOPR
    36. In the NOPR, with respect to the determination of the
Interconnection Frequency Response Obligation, the Commission discussed
two matters: (1) Eastern Interconnection--prevailing first step of
under-frequency load shedding and (2) Western Interconnection--
identifying the largest N-2 contingency.
1. Eastern Interconnection--Prevailing UFLS First Step
    37. For the Eastern Interconnection, Attachment A to the
Reliability Standard identifies 59.5 Hz as the ``first step'' of under-
frequency load shedding in the calculation of the default
Interconnection Frequency Response Obligation. Attachment A notes that
this set point is ``a compromise value set midway between the stable
frequency minimum established in Reliability Standard PRC-006-1 (59.3
Hz) and the local protection under frequency load shedding setting of
59.7 Hz used in Florida and Manitoba.'' \51\ The NERC Frequency
Response Initiative Report notes that the Florida Reliability
Coordinating Council (FRCC) concluded that the Interconnection
Frequency Response Obligation starting frequency of the prevalent 59.5
Hz for the Eastern Interconnection is acceptable because it imposes no
greater risk of triggering under-frequency load shedding operation for
contingencies internal to FRCC than for contingencies external to
FRCC.\52\
---------------------------------------------------------------------------

    \51\ Reliability Standard BAL-003-1, Attachment A at 2.
    \52\ See Frequency Response Initiative Report at 4, n.3.
---------------------------------------------------------------------------

    38. Noting that the actual first-step of under-frequency load
shedding for the Eastern Interconnection is 59.7 Hz, the NOPR sought
comment on the technical source or support for NERC's statement that
the first-step value of 59.5 Hz in the calculation of the
Interconnection Frequency Response Obligation imposes no greater risk
of under-frequency load shedding operation in FRCC for an external
resource loss than for an internal FRCC event. Also, the NOPR sought
clarification of whether the intent of the proposal is that FRCC will
start shedding load automatically before an event meets the value of
59.5 Hz used in the Reliability Standard to determine the
Interconnection Frequency Response Obligation.
Comments
    39. NERC, Trade Associations, and MISO submitted comments in
support of using the prevailing under-frequency load shedding first
step for the Eastern Interconnection of 59.5 Hz. Trade Associations
state that they understand that FRCC has evaluated the impact of the
proposed standard and has determined that the probability of a load
shedding event caused by a generation loss within the Eastern
Interconnection is comparable with an event internal to the FRCC
region.\53\
---------------------------------------------------------------------------

    \53\ Trade Association Comments at 6.
---------------------------------------------------------------------------

    40. NERC comments that FRCC's 59.7 Hz under-frequency load shedding
setting is designed to arrest dynamic transients for system events
occurring on the Florida peninsula to avoid separation from the rest of
the Eastern Interconnection. NERC states that further analysis by NERC
showed that the under-frequency load shedding settings on the Florida
peninsula are not susceptible to activation even by very large resource
losses within the main body of the Eastern Interconnection. NERC
explains that ``[u]sing the `generic' dynamics case available, a
follow-on analysis was performed by NERC staff to determine the general
order of magnitude of a frequency event that could be sustained by the
Eastern Interconnection without violating the 59.7 Hz first step under-
frequency load shedding in FRCC. A simulation was run that tripped
about 8,500 MW of generation in the southeast United

States (north of Florida).'' \54\ NERC further states that the
simulation showed that the lowest frequency resulting from that event
would be about 59.76 Hz in southern Florida.
---------------------------------------------------------------------------

    \54\ NERC Comments at 13.
---------------------------------------------------------------------------

    41. NERC further states that the initial nadir of 59.78 Hz in
southern Florida from the simulation is lower than the nadir in
northern Florida due to the wave properties of the disturbance.\55\
Finally, NERC asserts that because the simulation was conducted with
nearly twice the 4,500 MW resource loss used to determine the
Interconnection Frequency Response Obligation for the Eastern
Interconnection, it is prudent to conclude that the smaller resource
loss could not generate a transient or momentary system disturbance
that would trip the FRCC 59.7 Hz under-frequency load shedding. For
these reasons, NERC concludes that the proposed first-step value of
59.5 Hz is adequately supported by technical considerations.\56\
---------------------------------------------------------------------------

    \55\ The ``nadir'' is the lowest point at which frequency
excursion is arrested. Frequency Response Initiative Report at 13.
    \56\ NERC Comments at 14.
---------------------------------------------------------------------------

    42. MISO also supports the proposed first-step value of 59.5 Hz for
the Eastern Interconnection and asserts that NERC has provided
sufficient support for using the 59.5 Hz value. According to MISO, the
FRCC 59.7 Hz frequency value reflects local concerns specific to
Florida, based on the observation that an event in Florida causes a
wider frequency swing locally than what propagates out to the rest of
the Eastern Interconnection. MISO asserts that there has been no
recorded case of frequency in the Eastern Interconnection declining to
59.7 Hz.\57\ MISO further submits that, given the localized nature of
the concerns supporting the first-step value in Florida, and the
extreme nature of the event that would be required to drive
Interconnection-wide impact, NERC has sufficient justification for
establishing 59.5 Hz as the first-step value for the Eastern
Interconnection.
---------------------------------------------------------------------------

    \57\ MISO Comments at 5.
---------------------------------------------------------------------------

Commission Determination
    43. The Commission accepts NERC's and MISO's explanation of the
technical support for using 59.5 Hz as the ``first step'' of under-
frequency load shedding in the calculation of the default
Interconnection Frequency Response Obligation. The Commission also
agrees with Trade Associations' assertion that FRCC has evaluated the
impact of the proposed standard and has determined that the probability
of a load shedding event caused by a generation loss within the Eastern
Interconnection is comparable with an event within the FRCC region.
Accordingly, the Commission is satisfied with the NOPR responses and
takes no further action on this matter.

2. Western Interconnection--Largest N-2 Event NERC Petition

    44. The Interconnection Frequency Response Obligation is based on
the largest Category C event, or N-2 (loss of two or more bulk electric
system elements) for the Interconnection. The default Interconnection
Frequency Response Obligation for the Western Interconnection is based
on the loss of two Palo Verde generating station units, which results
in a resource contingency criterion of 2,740 MW.\58\ NERC indicated in
its petition that the default Interconnection Frequency Response
Obligation calculation scenarios and the calculation of the Frequency
Response Measure for the Western Interconnection do not take into
account the intentional tripping of generation that will occur during
the operation of specific remedial action schemes. According to the
Frequency Response Initiative Report, operation of the Pacific
Northwest Remedial Action Scheme trips up to 3,200 MW of generation in
the Pacific Northwest due to the loss of the Pacific DC Intertie.\59\
The Frequency Response Initiative Report recommends that NERC and the
Western Interconnection analyze the Frequency Response Obligation
allocation implications of the activation of the Pacific Northwest
Remedial Action Scheme that trips 3,200 MW of generation for a single
contingency.\60\
---------------------------------------------------------------------------

    \58\ See Frequency Response Initiative Report at 53.
    \59\ The Pacific Northwest Remedial Action Scheme, among other
things, blocks frequency response from a number of generators and
Balancing authorities to avoid overloading the Pacific AC ties. See
Frequency Response Initiative Report at 62.
    \60\ See id. NERC noted that the maximum value of the Pacific
Northwest Remedial Action Scheme has been updated to be 2,850 MW.
See NERC Petition, Exh. G (Status of Recommendations of the
Frequency Response Initiative Report).
---------------------------------------------------------------------------

NOPR
    45. In the NOPR, the Commission expressed concern regarding whether
the N-2 contingency identified as an input to the Attachment A
methodology for calculating the Interconnection Frequency Response
Obligation accurately identifies the largest N-2 event in the Western
Interconnection. The NOPR referenced the Frequency Response Initiative
Report, which indicates that the Pacific Northwest Remedial Action
Scheme could result in a larger contingency that, if included as an
input to the Attachment A calculation, would produce more accurate
results.\61\ Accordingly, the Commission proposed in the NOPR to direct
NERC to submit a report that analyzes, with supporting documentation,
the implications of the Pacific Northwest Remedial Action Scheme or any
other Remedial Action Scheme which involves intentional tripping of
greater than 2,400 MW of generation, and whether such a contingency
would provide a more accurate basis for the determination of the
Western Interconnection default Interconnection Frequency Response
Obligation.
---------------------------------------------------------------------------

    \61\ See NOPR, 144 FERC ] 61,057 at P 32.
---------------------------------------------------------------------------

Comments
    46. Trade Associations comment that they recognize the Commission's
issue and have no concerns with a directive mandating the ERO to study
the implications of the Pacific Northwest Remedial Action Scheme and
other similar arrangements that intentionally involve the tripping of
greater than 2,400 MW of generation.
    47. BPA comments that ``[Remedial Action Scheme] events should not
determine the Resource Contingency Criteria in the Western
Interconnection'' because, inter alia, simulation of Remedial Action
Scheme events and two Palo Verde events show similar system frequency
performance and ``RAS events off-load the system stress . . . while an
unplanned 2 Palo Verde unit outage would increase the system stress.''
\62\
---------------------------------------------------------------------------

    \62\ See BPA Comments at 7 (providing additional rationale for
not considering Remedial Action Scheme events).
---------------------------------------------------------------------------

Commission Determination
    48. In light of NERC's December 30, 2013 annual analysis
informational filing, we will not adopt our NOPR proposal. In its 2013
annual analysis NERC explains that ``[Remedial Action Schemes] in the
Western Interconnection that trip generation resources in excess of
2,400 MW for transmission system contingencies should not be used for
the resource contingency protection criteria for the Western
Interconnection. Because of the location of the resources tripped and
the fact that [Remedial Action Schemes] would not be armed to trip
those levels of generation under peak conditions, the loss of two Palo
Verde units is a larger hazard to the interconnection.'' \63\
Accordingly, the Commission will not direct NERC to submit a report
concerning the implications of the Pacific Northwest Remedial Action
Scheme or any other Remedial Action

Scheme which involves intentional tripping of greater than 2,400 MW of
generation, and whether such a contingency would provide a more
accurate basis for determining the Western Interconnection default
Interconnection Frequency Response Obligation. We expect, however, that
NERC will continue to study any modified or new Remedial Action Schemes
that may have an impact greater than the tripping of 2,400 MW in its
annual frequency response analysis, including an assessment of the
adequacy of the resource contingency protection criteria for the
Western Interconnection.
---------------------------------------------------------------------------

    \63\ NERC's 2013 Annual Analysis at 2.
---------------------------------------------------------------------------

    49. While BPA advocates that Remedial Action Schemes should not be
considered in determining the Interconnection Frequency Response
Obligation, BPA did not provide support in the record for its claim
that activation of Remedial Action Schemes will reduce system stress
while the loss of two Palo Verde units will increase it. Contrary to
BPA's argument, we believe that it is appropriate to study this matter,
as NERC has done, and take possible future action depending on study
results because if the obligation is set too low, the Western
Interconnection may not have sufficient frequency response to arrest
frequency decline.

C. Method of Obtaining Frequency Response

    50. In Order No. 693, the Commission directed NERC to develop a
modification to BAL-003-0 that includes methods for obtaining frequency
response.\64\ While the Reliability Standard establishes an
Interconnection Frequency Response Obligation and allocates this
obligation to the balancing authorities within the Interconnection, the
Reliability Standard imposes no obligation on resources that are
capable of providing frequency response.
---------------------------------------------------------------------------

    \64\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 375. The
Commission directed NERC to develop a modification to BAL-003-0 that
``defines the necessary amount of Frequency Response needed for
Reliable Operation for each balancing authority with methods of
obtaining and measuring that the frequency response is achieved.''
Id. (emphasis added).
---------------------------------------------------------------------------

NOPR
    51. In the NOPR, the Commission stated that Reliability Standard
BAL-003-1 imposes an obligation, subject to compliance and enforcement,
on each balancing authority to obtain frequency response. The
Commission recognized, however, that balancing authorities must obtain
frequency response from other entities with available resources, and
Reliability Standard BAL-003-1 imposes no obligation on those entities
to provide frequency response.
    52. In the NOPR, the Commission proposed to direct NERC to submit a
report 15 months after implementation of BAL-003-1 that provides an
analysis of the availability of resources for each balancing authority
to meet its Frequency Response Obligation during the first year of
implementation.\65\ The Commission also proposed that the report
provide data indicating whether actual frequency response was
sufficient to meet each balancing authority's Frequency Response
Obligation. Further, the NOPR proposed that, if NERC's findings
indicate that the Frequency Response Obligation was not met, NERC
should provide appropriate recommendations to ensure that frequency
response can be maintained at all times within each balancing
authority's footprint.
---------------------------------------------------------------------------

    \65\ NOPR, 144 FERC ] 61,057 at P 34.
---------------------------------------------------------------------------

Comments
    53. NERC, Trade Associations, IRC, APS, and ELCON generally support
the Commission's proposal that NERC submit a report regarding the
availability of resources for frequency response. Trade Associations
comment that they ``recognize the potential benefit of such a study,''
but suggest that 20 to 24 months is a more reasonable time frame for a
directive. Trade Associations also ask the Commission to exercise care
when directing NERC to conduct studies to ensure that scarce resources
are not expended unnecessarily.
    54. NERC commits to submitting an analysis of resource availability
as proposed in the NOPR. However, NERC provides a detailed timeline for
implementation and indicates that it will not receive the necessary
information from responsible entities until March 24 of the year
following the implementation of Requirement R1 of BAL-003-1, beyond the
15 month time frame proposed in the NOPR. Thus, NERC proposes to submit
the report ``within six months of the validation by the ERO of the
Frequency Bias Setting values and computation of the sum of all
Frequency Bias Setting values for each Interconnection and
determination of the L 10 values for the CPS 2 criterion for each
Balancing Authority or, if applicable, confirmation of the Frequency
Bias Setting to be used for the calculation of the Balancing Authority
ACE limit.'' \66\ NERC also seeks clarification that the study should
analyze the availability of resources for both balancing authorities
and Frequency Response Sharing Groups, since the latter was not
specifically mentioned in the NOPR proposal. NERC states that, upon
completion of the analysis, ``should the findings indicate that the
Frequency Response Obligation was not met, NERC will provide
appropriate recommendations.'' \67\
---------------------------------------------------------------------------

    \66\ NERC Comments at 16 (footnote omitted).
    \67\ Id. at 17.
---------------------------------------------------------------------------

    55. Several commenters, including IRC, APS and BPA, raise concerns
regarding the compliance responsibilities of balancing authorities to
meet a Frequency Response Obligation. IRC asserts that BAL-003-1
creates an inequitable alignment of compliance responsibility and
generator performance capability. IRC states that while the obligation
to meet the frequency response requirements lies with the balancing
authority, the ability to provide the resources necessary to meet those
obligations lies primarily with generators. Therefore, while IRC
supports the analysis proposed in the NOPR, IRC also requests that the
Commission direct prospective revisions to the Reliability Standard to
assign responsibilities based on performance capability. IRC contends
that this approach is appropriate because balancing authorities have no
control over generators' performance in supporting the Frequency
Response Obligation assigned to balancing authorities.
    56. BPA agrees with the Commission that Reliability Standard BAL-
003-1 does not address the ability of each balancing authority to
ensure adequacy of resources to meet its frequency response
obligations. According to BPA, there is a proposal in WECC to develop a
regional Reliability Standard complementary to NERC BAL-003-1 to
address this gap. BPA comments that, until such a standard is
developed, each balancing authority must determine how to meet its own
frequency response obligation. BPA states that this frequency response,
measured by balancing authority interchange, includes not only the
response of balancing authority generation but also incremental
transmission losses and natural load response to voltage and
frequency.\68\ Finally, BPA asserts that balancing authorities that
have to acquire resources will also need to develop monitoring
capabilities to ensure that the contracted resources provide frequency
response and that such monitoring will further increase the cost of
compliance with Reliability Standard BAL-003-1.
---------------------------------------------------------------------------

    \68\ BPA Comments at 20.

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

    57. APS believes it is appropriate for NERC to study and report on
the availability of resources. However, APS asserts it is neither just
nor reasonable for a balancing authority to be held to this requirement
when frequency response services are simply not available. APS states
that until such time that NERC has completed the studies, the results
are reviewed, and appropriate solutions are developed to assure that
affected entities have the resources available to comply under all
conditions, either the implementation of the requirements should be
delayed, or in the alternative, those balancing authorities who cannot
obtain the required frequency response should be exempt from the
proposed requirements.
    58. APS also proposes that the Commission take a phased-in approach
to compliance obligations to allow adequate time for necessary
activities such as testing generation units for ramp-up capability,
tuning generation and retesting, as well as time to allow a frequency
response market to develop. APS comments that the types of resources a
balancing authority has in its portfolio may significantly impact its
ability to comply with BAL-003-1 because some resources, such as
hydroelectric generation, are more effective in responding to frequency
declines. APS asserts that it does not have sufficient fast-ramping
resources to provide the required frequency response should the Western
Interconnection experience an event that results in significant
frequency response deviation. To address its concern, APS suggests a
revision to the definition of a Balancing Authority's ``annual
generation'' to exclude non-responsive units and apply a higher
weighting factor for responsive units. According to APS, this revision
would align the allocation of Frequency Response Obligation with a
generator's physical ability to provide it.
    59. In its reply comments, NERC responds to APS, stating that the
standard drafting team determined technical evidence indicates that
sufficient frequency response resources would be available for
balancing authorities to comply with the requirements of Reliability
Standard BAL-003-1.\69\ Therefore, NERC contends that there is no need
to adjust the implementation plan for Reliability Standard BAL-003-1 on
the basis of availability.\70\ Further, NERC disagrees with APS's
suggestion to revise the definition of balancing authority ``annual
generation,'' contending that such a change would create a ``perverse
incentive'' for entities to install generating units that are not
capable of providing Frequency Response. Further, NERC explains in
response to APS that the Reliability Standard is appropriately
technology- neutral, does not require every generator to respond and
provide Frequency Response, and allows for flexibility since Frequency
Response is measured on a balancing authority and an Interconnection-
wide basis and permits the formation of Frequency Response Sharing
Groups.
---------------------------------------------------------------------------

    \69\ NERC Reply Comments at 4 (citing NERC Report: State of
Reliability 2013 Report (May 2013), Key Finding 3, Page 12).
    \70\ NERC Reply Comments at 4.
---------------------------------------------------------------------------

Commission Determination
    60. The Commission adopts the NOPR proposal and directs NERC to
submit a report that provides an analysis of the availability of
resources for each balancing authority and Frequency Response Sharing
Group to meet its Frequency Response Obligation during the first year
of implementation. However, NERC indicates in its comments that it
needs more than the proposed 15 months to prepare the report based on
the time frame for NERC to receive relevant data from applicable
entities.\71\ Accordingly, we direct NERC to submit this report within
27 months of implementation of Requirement R1. The Commission believes
that the need for the report is well justified based on the record in
the proceeding, including the support of most commenters. While we
conclude that BAL-003-1 is reasonable and should be approved, it
includes a new methodology for determining the Frequency Response
Obligation and the results when applied are not yet known. Further, as
discussed above, the ability of balancing authorities and Frequency
Response Sharing Groups to meet the obligation is untested. Thus, we
believe the required report is an appropriate means to inform us as to
whether additional steps are needed on the Frequency Response
Obligation and what those might be. The required report should provide
data indicating whether actual frequency response was sufficient to
meet each balancing authority's Frequency Response Obligation. Further,
consistent with NERC's representation in its comments, the Commission
directs that, upon completion of the required analysis, should the
findings indicate that the Frequency Response Obligation was not met,
NERC shall provide appropriate recommendations to ensure that frequency
response can be maintained at all times within each balancing
authority's footprint.\72\
---------------------------------------------------------------------------

    \71\ See NERC Comments at 16.
    \72\ See NERC Comments at 17.
---------------------------------------------------------------------------

    61. In response to the concerns expressed by the IRC, BPA and APS
that balancing authorities may not have control over adequate resources
necessary to support the Frequency Response Obligations assigned to the
balancing authorities, we will not forego compliance or delay
implementation. Certainly, a balancing authority's ability or inability
to draw on the necessary resources to meet the compliance obligations
of BAL-003-1 might be a potential mitigating factor in a compliance
action, depending on the efforts made to obtain resource commitments.
Moreover, NERC and its stakeholders had, and still have, the option to
propose a Reliability Standard imposing obligations directly on
resources, if they find it appropriate. (Similarly, we may consider a
directive for such a Standard or other options such as market or tariff
mechanisms, if appropriate.) However, we are not persuaded that a
blanket waiver or delay in compliance is warranted.
    62. While we share concerns regarding the ability of balancing
authorities and Frequency Response Sharing Groups to meet the Frequency
Response Obligation pursuant to BAL-003-1, we do not believe that such
changes are warranted based on the current record in the proceeding.
Rather, a recent NERC study indicates that sufficient frequency
response resources would be available for balancing authorities to
comply with the requirements of Reliability Standard BAL-003-1.\73\
Further, as noted by NERC, Reliability Standard BAL-003-1 provides
flexibility, for example by allowing entities to form Frequency
Response Sharing Groups to meet the Frequency Response Obligation.
Likewise, we are not persuaded by APS that a change to the definition
of balancing authority annual generation is warranted at this time, and
we are concerned that APS's suggestion would change the resource-
neutral approach of the standard.
---------------------------------------------------------------------------

    \73\ See NERC Reply Comments at 4 (citing NERC Report: State of
Reliability 2013 Report (May 2013), Key Finding 3, Page 12). See
also APS Comments at 8 (``[a]s NERC Reported in its recent State of
Reliability 2013 Report, from 2009 to 2012 interconnection frequency
response performance, and expected frequency response . . . has been
higher than the recommended interconnection frequency response
obligation'').
---------------------------------------------------------------------------

    63. We do not discount the concerns of APS and others regarding
resource availability. However, we believe that the prudent course is
to have NERC complete the directed report. The

Commission will review NERC's report, any related recommendations from
NERC, and the record developed in Docket No. AD13-8 regarding the
market implications of frequency response requirements,\74\ to
determine whether additional action is warranted. However, if prior to
the deadline for the report NERC learns that a lack of resource
availability could prevent achieving the purpose of Reliability
Standard BAL-003-1, (e.g., balancing authorities are experiencing
problems procuring sufficient resources to satisfy their frequency
response obligations), NERC should immediately report that to the
Commission together with appropriate recommendations for
mitigation.\75\
---------------------------------------------------------------------------

    \74\ See Market Implications of Frequency Response and Frequency
Bias Setting Requirements, 144 FERC ] 61,058 (2013).
    \75\ For example, in such circumstances, NERC could look to
regional Reliability Standard BAL-001-TRE-01, approved concurrently
with this Final Rule, which contains provisions for assuring
frequency response in the ERCOT Interconnection.
---------------------------------------------------------------------------

D. Premature Withdrawal of Primary Frequency Response NERC Petition

    64. In its petition, NERC indicated that, while the standards
drafting team addressed the early withdrawal of primary frequency
response, there are no requirements that address this issue and it
remains a concern.\76\ Specifically, during the initial recovery from
the loss of a generator, a gap can occur if a significant amount of
primary frequency response is withdrawn before the secondary response
is fully activated. As previously noted, the Interconnection Frequency
Response Obligation for each Interconnection is a function of the
resource contingency criteria and the maximum change in frequency.\77\
---------------------------------------------------------------------------

    \76\ See NERC Petition, Exh. D (Frequency Response Standard
Background Document) at 19 (``the intentional withdrawal of response
before frequency has been restored to schedule can cause a decline
in frequency beyond that which would be otherwise expected. This
intentional withdrawal of response is highly detrimental to
reliability. Therefore, it can be concluded in general that
sustained response has a higher reliability value than
un[hyphen]sustained response.'').
    \77\ The maximum change in frequency is an amount of frequency
deviation based on the loss of the identified resource contingency
that will not trigger under-frequency load shedding.
---------------------------------------------------------------------------

    65. NERC's Frequency Response Initiative Report states that
``[w]ithdrawal of primary frequency response is an undesirable
characteristic associated most often with digital turbine-generator
control systems using set point output targets for generator output.
These are typically outer-loop control systems that defeat the primary
frequency response of the governors after a short time to return the
unit to operating at a requested MW output.'' \78\ The Frequency
Response Initiative Report recommends measuring and tracking frequency
response sustainability trends.\79\ The Frequency Response Initiative
Report also recommends that ``NERC should include guidance on methods
to reduce or eliminate the effects of primary frequency response
withdrawal by outer-loop unit or plant control systems.'' \80\
---------------------------------------------------------------------------

    \78\ NERC Petition, Exh. F (Frequency Response Initiative
Report) at 31.
    \79\ Id. at 35. The Frequency Response Initiative Report also
recognizes unit characteristics and operating philosophies as
typical causes.
    \80\ Id. at 41-42.
---------------------------------------------------------------------------

NOPR
    66. In the NOPR, the Commission explained that ``following the
sudden loss of generation, the automatic and immediate increase in
power output by resources providing primary frequency control seeks to
quickly arrest and stabilize the frequency of the interconnection,
usually within 30 seconds or less. After this rapid primary frequency
response, AGC provides secondary frequency response to return frequency
to the scheduled value in time frames of several minutes after the loss
of generation.'' \81\ However, the withdrawal of a significant amount
of primary frequency response before the secondary frequency response
is activated can cause a further drop in frequency response. This drop
in frequency is illustrated by the following diagram: \82\
---------------------------------------------------------------------------

    \81\ NOPR, 144 FERC ] 61,057 at P 35.
    \82\ Id. P 35 (citing Frequency Response Initiative Report at
35, fig. 21).
[GRAPHIC] [TIFF OMITTED] TR23JA14.062

    67. In the NOPR, the Commission expressed concern that Reliability
Standard BAL-003-1 does not adequately address the reliability issue
created by the withdrawal of primary frequency response prior to
activation of secondary frequency response. The withdrawal of primary
frequency response before the activation of resources providing
secondary frequency response may lead to under-frequency load shedding
and possible cascading outages. Accordingly, the Commission proposed to
direct NERC to develop a modification to BAL-003-1 to address the
concern of premature withdrawal of primary frequency response prior to
the activation of secondary frequency response.
Comments
    68. NERC disagrees with the need for the proposed directive. First,
NERC asserts that Form 1 of the Reliability Standard addresses
premature withdrawal of frequency response and suggests that experience
with the actual implementation of the Reliability Standard will better
indicate whether premature withdrawal is an issue that requires
revisions to the Reliability Standard and, if necessary, definitions of
the scope and parameters of the potential issue. Second, NERC notes
that the premature withdrawal issue could be impacted by the
Commission's ongoing effort to determine whether action is necessary to
coordinate the requirements of the Reliability Standard with tariffs
and market rules.\83\ Third, NERC asserts the issue of premature
withdrawal can be addressed with other mechanisms rather than a
revision to the Reliability Standard. Finally, NERC states that it
``commits to monitoring the issue of premature withdrawal on a going-
forward basis and will submit an informational filing two years after
Requirement R1 of Reliability Standard BAL-003-1 becomes effective.''
\84\
---------------------------------------------------------------------------

    \83\ See Market Implications of Frequency Response and Frequency
Bias Setting Requirements, 144 FERC ] 61,058 (2013).
    \84\ NERC Comments at 7.
---------------------------------------------------------------------------

    69. NERC maintains that the standard drafting team accounted for
the issue of premature withdrawal of frequency response in the
calculation of the B-value averaging period within the Frequency
Response Measure. NERC states that ``[t]he team recognized that there
would be more AGC response in the 20 to 52 second period, but the team
also recognized that the 20 to 52 second period would provide a better
measure of squelched response from outer loop control action. The 20 to
52 second period was selected because it would indicate squelched
response from outer-loop control and provide incentive to reduce
response withdrawal.'' \85\ NERC further explains that if there is
withdrawal of primary frequency response during the 20 to 52 second
interval, the metric will have a lower value, which will then lower an
entity's median score thereby impacting compliance with Requirement R1
of Reliability Standard BAL-003-1.
---------------------------------------------------------------------------

    \85\ NERC Comments at 9 (citing NERC Petition, Exh. D at 13).
---------------------------------------------------------------------------

    70. NERC also maintains that, while Reliability Standard BAL-003-1
applies to balancing authorities and Frequency Response Sharing Groups,
the premature withdrawal issue applies to generators. Therefore, NERC
asserts, the withdrawal issue could be addressed with alternative
mechanisms, including other Reliability Standards or guidelines. NERC
further asserts that there are emerging technologies that can and will
affect withdrawal, including energy storage devices. NERC notes that
the premature withdrawal issue could be affected by whatever tariff or
market solutions the Commission may adopt in related Docket AD13-8. For
these reasons, NERC believes the Commission's proposed directive
requiring a specific solution, i.e., a modification to BAL-003-1
Reliability Standard, is premature. NERC states that, consistent with
the recommendations in the Frequency Response Initiative Report, it
will evaluate whether a modification to Reliability Standard BAL-003-1
is necessary to address premature withdrawal and will submit an
informational filing to the Commission two years after Requirement R1
of Reliability Standard BAL-003-1 becomes effective.\86\
---------------------------------------------------------------------------

    \86\ Id. at 10.
---------------------------------------------------------------------------

    71. Trade Associations disagree with the Commission's concern over
premature withdrawal of frequency response. Trade Associations state
that Reliability Standard BAL-003-1, along with other Reliability
Standards awaiting implementation, such as BAL-001-2, sufficiently
addresses this concern. Trade Associations assert that the Eastern
Interconnection has significant inertia which buffers the initial drop
in frequency in major events making premature primary frequency
response withdrawal more apparent. Trade Associations state that the
exemplary post-contingent recovery of all Interconnections' frequency
as demonstrated over time supports their view that premature withdrawal
is not a significant factor at this time. Finally, Trade Associations
state that the desired outcome of automatic generation control for a
balancing authority should result in a dispatch of resources to meet
the secondary control requirements of NERC BAL-001. Based upon the
overall balance of resources and demand, Trade Associations assert that
automatic generation control may at times, guide individual regulating
resources within a balancing authority, where a positive ACE exists, to
withdraw energy (i.e., to reduce ACE) to meet the secondary control
requirements of CPS2 under Reliability Standard BAL-001-1. Trade
Associations assert that the response of such a unit would be to
withdraw support, thereby resulting in an outcome contrary to the
desire to sustain frequency response.\87\
---------------------------------------------------------------------------

    \87\ Trade Associations Comments at 8-9.
---------------------------------------------------------------------------

    72. IRC states that the Commission's concern about premature
withdrawal of frequency response is unwarranted. IRC maintains that the
Commission should adopt a more comprehensive perspective, taking into
account frequency response and withdrawal patterns over an extended
period of time and across Interconnections to understand the potential
impact of premature withdrawal. IRC states that data collected and
analyzed during the standard drafting team's field trial indicated how
quickly and steadily frequency is, on average, brought back to a stable
level over a five minute response window in all three Interconnections.
IRC explains that the standard drafting team considered data regarding
the mean frequency recovery rate (mHz/Sec) for all frequency-related
events in each of the major Interconnections from 2010 to 2013. IRC
states that early withdrawal of primary frequency response has not been
a significant problem because ``most responses are incomplete at the
time that frequency has been initially arrested and the additional
response has generally been sufficient to make up for more than these
unpreventable reductions in response.'' \88\
---------------------------------------------------------------------------

    \88\ IRC Comments at 10.
---------------------------------------------------------------------------

    73. ELCON states that secondary frequency response (Regulation) is
primarily delivered through automatic generation control, which is
governed by Reliability Standard BAL-005-0.2b. That Reliability
Standard contains requirements applicable to balancing authorities
which therefore, ELCON states, have ``the responsibility to ensure its
operability.'' \89\ ELCON further states that Reliability Standard TOP-
003-1 calls for generator operators to coordinate planned outages with
transmission operators, who are

required to share that information with balancing authorities.
Therefore, ELCON asserts that ``[t]his means that the [balancing
authority] is aware of all AGC capacity that will be unavailable due to
planned maintenance well ahead of time--and can plan mitigating actions
accordingly.'' \90\ ELCON also asserts that Reliability Standard PRC-
024-1 has requirements intended to ensure that generator operators can
ride through specifically defined frequency deviations, ``which can
best assure their availability when needed for secondary frequency
response support.'' \91\ ELCON suggests that generator concerns with
possible violations of Reliability Standard PRC-024-1, such as dropping
off-line during a frequency transient within the standard's ``no-trip
zones,'' could provide incentives against premature withdrawal.
---------------------------------------------------------------------------

    \89\ ELCON Comments at 8.
    \90\ Id.
    \91\ Id.
---------------------------------------------------------------------------

    74. BPA states that it shares the Commission's concerns on early
withdrawal of frequency response and provides a recorded frequency
response withdrawal by a combined cycle plant.\92\ BPA states that the
withdrawal was caused by load controllers implemented at many power
plants and suggests that load controllers include a frequency bias
term, similar to automatic generation control, to allow plants to
sustain their frequency response. BPA asserts that the sustainability
of frequency response is essential not only for Interconnection system
frequency support, but also for voltage stability when the response
withdrawal causes excessive loading on stability-limited transmission
paths.\93\
---------------------------------------------------------------------------

    \92\ BPA Comments at 14-15.
    \93\ Id. at 15.
---------------------------------------------------------------------------

Commission Determination
    75. The Commission is persuaded not to adopt the NOPR proposal to
require NERC to develop a modification to Reliability Standard BAL-003-
1 to address premature withdrawal of frequency response. The Commission
believes that the nature and extent of the problems that could result
from the premature withdrawal of primary frequency response, and how
best to address it if necessary, will be better understood after NERC
and balancing authorities have more experience with Reliability
Standard BAL-003-1. Accordingly, in light of NERC's December 30, 2013
annual analysis informational filing, the Commission expects NERC to
continue to evaluate the impact of the withdrawal of primary frequency
response before secondary frequency response is activated in its annual
analyses.
    76. The Commission recognizes BPA's concerns about the early
withdrawal of frequency response, particularly the possibility that
load controllers may prematurely over-ride primary frequency response.
However, we agree with NERC that the need to take action, including
requiring load controllers to include a frequency bias term similar to
AGC to sustain frequency response or otherwise modifying Reliability
Standard BAL-003-1, should be decided after we have actual experience
with the Reliability Standard.

E. Light Load Case Study

NOPR
    77. In the NOPR, the Commission highlighted NERC's conclusion in
its Frequency Response Initiative Report that ``[s]ustainability of
primary frequency response becomes more important during light-load
conditions when there are generally fewer frequency-responsive
generators online.'' \94\ Light load conditions require special
consideration because inertia, i.e., the resistance to a change in the
motion of an object, plays a crucial role in how fast frequency
declines following the sudden loss of generation.\95\ In the NOPR, the
Commission further explained that ``[W]hen the inertia on the system is
low (i.e. fewer generators on line), the loss of generation creates a
steeper frequency excursion and thus the need for faster frequency
response.'' \96\
---------------------------------------------------------------------------

    \94\ NOPR, 144 FERC ] 61,057 at P 39 (quoting Frequency Response
Initiative Report at 32).
    \95\ Id. Inertia is provided from the stored energy in the
rotating mass of the turbine-generators and synchronous motors on
the Interconnection. See NERC Petition, Exh. D at 16-17.
    \96\ Id. (quoting Frequency Response Initiative Report at 40).
The reduction in inertia also drives a need for higher speed
response to frequency excursions.
---------------------------------------------------------------------------

    78. In the NOPR, the Commission focused on the resource contingency
criterion in Reliability Standard BAL-003-1 for calculating the
Interconnection Frequency Response Obligation for the Eastern
Interconnection, and the potential concerns with the use of an event
that took place during heavy system load conditions. The use of a
generic governor stability case in the stability simulation testing for
the Eastern Interconnection resource contingency criteria used in the
determination of the Interconnection Frequency Response Obligation
represented conditions far different than light-load conditions. This
raises questions regarding whether, and by what amount, light load
conditions would lower system inertia and load response. The Frequency
Response Initiative Report recommended the development of a new light-
load case study, and the re-simulation of the resource contingency
criterion for the Eastern Interconnection Frequency Response
Obligation.\97\ According to NERC, the Eastern Interconnection
Reliability Assessment Group is preparing an updated generic governor
2013 summer light-load case (from the 2012 case series), and NERC will
be evaluating the Eastern Interconnection Frequency Response Obligation
during the expected light-load conditions.\98\
---------------------------------------------------------------------------

    \97\ NERC Petition, Exh. F, Frequency Response Initiative Report
at 99.
    \98\ NERC Petition, Exh. G. A study conducted by the National
Renewable Energy Laboratory explored the relationship between system
disturbance and grid frequency perturbation. See National Renewable
Energy Laboratory, Eastern Frequency Response Study (May 2013). A
key finding is that the dynamic model of the Eastern Interconnection
can be adjusted to more closely capture the observed behavior. In
particular, the assumed amount of generation with governor controls
activated was increased to model the contingency used in calculating
the Eastern Interconnection Frequency Response Obligation. In
addition, a light load power flow case was selected with the
expectation that it would represent one of the more challenging
conditions for the Eastern Interconnection with respect to frequency
response. See http://www.nrel.gov/docs/fy13osti/58077.pdf.
---------------------------------------------------------------------------

    79. The Commission agreed with NERC that the study of light-load
scenarios is useful in determining an appropriate Interconnection
Frequency Response Obligation, especially for the Eastern
Interconnection.\99\ Accordingly, the Commission proposed to direct
NERC to submit the results of the light-load case, together with NERC's
recommendations on whether further actions are warranted.
---------------------------------------------------------------------------

    \99\ According to NERC, ``[m]odeling of frequency response
characteristics has been a known problem since at least 2008, when
forensic modeling of the Eastern Interconnection required a `de-
tuning' of the existing [Multiregional Modeling Working Group]
dynamics governor to 20% of modeled (80% error) to approach the
measured frequency response values from the [August 4, 2007]
event.'' See NERC Petition, Exh. F, Frequency Response Initiative
Report at 35.
---------------------------------------------------------------------------

Comments
    80. BPA, Trade Associations, and IRC submitted comments agreeing
with the Commission that the study of light-load scenarios is useful in
determining an appropriate Interconnection Frequency Response
Obligation, especially for the Eastern Interconnection.
    81. IRC states that it does not oppose the development of a new
light-load case study, but believes that better modeling data needs to
be collected before an accurate study can be conducted. IRC states that
``[i]n

particular, inaccurate modeling of governor deadbands and adjustments
to model governor performance based on observed performance for
frequency excursions will lead to inaccurate assumptions of performance
for extreme events during light-load.'' \100\ IRC encourages the
Commission to direct that NERC partner with industry to compile the
appropriate information needed to ensure an accurate case study, and to
review that study through an industry stakeholder process. Finally, the
IRC states that while it agrees that a new light-load case study would
be useful, the study should also look at tools to estimate frequency
response in real time.
---------------------------------------------------------------------------

    \100\ IRC Comments at 11.
---------------------------------------------------------------------------

    82. BPA states that while frequency response is expected to be
lower during off-peak light load conditions, there have not been a
sufficient number of events under light load conditions to confirm the
severity of the problem. BPA states that currently all WECC regions are
exceeding their frequency response obligations.
    83. The Trade Associations support the Commission's proposal to
direct NERC to submit their light-load case study and recommendations.
Commission Determination
    84. The Commission adopts the proposal in the NOPR and directs NERC
to submit the results of the Eastern Interconnection Reliability
Assessment Group's light-load case, using actual turbine governor
response data. Additionally, the Commission directs NERC to submit a
recommendation on whether further actions are warranted no later than
15 months after implementation of the Final Rule. Further, the report
should discuss any appropriate changes to the Interconnection Frequency
Response Obligation warranted by the study.

F. Assignment of Violation Risk Factors and Violation Severity Levels

1. Violation Risk Factor for Requirement R1

NOPR
    85. In the NOPR, the Commission proposed to approve each violation
risk factor assignment NERC proposed for a requirement of the proposed
Reliability Standard, with one exception. The Commission indicated that
NERC did not adequately justify assignment of a medium violation risk
factor to Requirement R1, which establishes the Frequency Response
Measure that a balancing authority must achieve to arrest a decline in
system frequency. While NERC asserted that a violation of this
requirement will not cause bulk electric system instability, separation
or cascading failures because ``a balancing authority's previous year's
Frequency Bias setting is included within its ACE equation and would
provide support for the contingency,'' the Commission indicated that
this explanation does not apply to Requirement R1. The Commission noted
that the ACE equation provides input to secondary frequency control,
which differs from the primary control needed to arrest a frequency
decline, as established by Requirement R1. The Commission proposed to
direct NERC to assign a high violation risk factor to Requirement R1
because (1) NERC described frequency response as a critical component
to the reliable operation of the Bulk-Power System, indicating that
Requirement R1 does not impose merely an administrative burden, and (2)
the medium violation risk factor that the Commission approved for each
BAL-003-0.1b requirement does not apply to Requirement R1 because it
has no equivalent in that standard.\101\ The Commission sought comments
on this proposal.
---------------------------------------------------------------------------

    \101\ NOPR, 144 FERC ] 61,057 at P 42.
---------------------------------------------------------------------------

Comments
    86. Trade Associations state that while Requirement R1 may merit a
high violation risk factor, responsible entities must achieve an annual
Frequency Response Measure as calculated in accordance with Attachment
A to Reliability Standard BAL-003-1. The Trade Associations therefore
observe that it would be inappropriate to apply the violation risk
factor for Requirement R1 to a single event rather than to an annual
Frequency Response Measure.\102\
---------------------------------------------------------------------------

    \102\ Trade Associations Comment at 10-11.
---------------------------------------------------------------------------

    87. Commenting that the standard drafting team took a rational
approach to its violation risk factor assignments, and that each such
assignment appears appropriate and well-reasoned to approximate the
impact of a violation on reliability, IRC requests that the Commission
accept the medium violation risk factor for Requirement R1 as developed
by the standard drafting team and agreed to by industry.\103\
---------------------------------------------------------------------------

    \103\ IRC Comments at 12.
---------------------------------------------------------------------------

    88. APS disagrees with the Commission's proposal to assign a high
violation risk factor to Requirement R1. APS agrees with NERC that a
violation of this requirement will not cause Bulk Electric System
instability, separation or cascading failures. APS maintains that
frequency response in the Western Interconnection is and has been
stable. APS states that there are almost forty balancing authorities in
the Western Interconnection, and even if individual balancing
authorities should fall short of their obligation, there is no
measurable risk to the Interconnection.\104\
---------------------------------------------------------------------------

    \104\ APS Comments at 9.
---------------------------------------------------------------------------

    89. APS also states that the worst case scenario from a violation
of Requirement R1 is some loss of load due to under-frequency load
shedding. APS contends that over the last fifteen years in the Western
Interconnection, frequency has not declined below 59.7 Hertz for a
generation loss of 3,000 megawatts or less. APS states that the first
under-frequency load shedding in the Western Interconnection occurs at
59.5 Hertz, and hence, there has not been a significant impact to the
bulk electric system for loss of generation. APS submits that a medium
violation risk factor is appropriate.\105\
---------------------------------------------------------------------------

    \105\ APS Comments at 9.
---------------------------------------------------------------------------

Commission Determination
    90. We direct NERC to change the violation risk factor for
Requirement R1 to ``high,'' as proposed in the NOPR. No commenter
disagreed with the Commission's observation that Requirement R1
addresses primary frequency control that is necessary to arrest
frequency decline within seconds after it begins. Without sufficient
primary frequency control, a frequency decline may not be arrested in
sufficient time to prevent instability, uncontrolled separation or
cascading failures. While APS maintains that frequency in the Western
Interconnection is and has been stable, that stability depends on
compliance with Requirement R1 by balancing authorities that have
sufficient resources to meet Requirement R1. The fact that one entity's
violation of Requirement R1 may be offset by the efforts of others is
not a basis for ignoring or downplaying the substantial risk posed by
inadequate frequency response. Accordingly, we conclude that a ``high''
violation risk factor for Requirement R1 is appropriate. We agree with
Trade Associations that Requirement R1 mandates achievement of an
annual Frequency Response Measure, and that compliance with that
requirement cannot be determined by a single event.

2. Violation Severity Levels for Requirement R1

NOPR
    91. In the NOPR, the Commission proposed changes to NERC's proposed
violation severity level assignments for Requirement R1. NERC proposed
two violation severity levels depending

upon whether a balancing authority or a Frequency Response Sharing
Group has an annual Frequency Response Measure ``less negative than its
Frequency Response Obligation by more than 1 percent but by at most 30
percent or 15 MW/0.1Hz, whichever one is the greater deviation from its
[Frequency Response Obligation].'' This violation would have a
``lower'' severity level if ``[t]he summation of the Balancing
authorities' [Frequency Response Measure] within an Interconnection was
equal to or more negative than the Interconnection's [Interconnection
Frequency Response Obligation],'' and a ``high'' severity level if this
summation ``did not meet its [Interconnection Frequency Response
Obligation].'' Based on these two possibilities for this summation,
NERC proposed either a ``medium'' severity level and a ``severe''
severity level for a balancing authority or Frequency Response Sharing
Group with an Frequency Response Measure that is ``less negative than
its [Frequency Response Obligation] by more than 30% or by more than 15
MW/0.1 Hz, whichever is the greater deviation from its [Frequency
Response Obligation].'' \106\
---------------------------------------------------------------------------

    \106\ NOPR, 144 FERC ] 61,057 at P 43.
---------------------------------------------------------------------------

    92. The Commission proposed that NERC modify its severity level
assignments for Requirement R1 to remove references to performance by
other entities or otherwise so as to address a concern that NERC
assigned these severity levels partly on performance of Requirement R1
by all other responsible entities in the Interconnection in which a
violator is located. The Commission concluded that it would be unfair
to base a penalty on a responsible entity in part upon the collective
compliance or lack of compliance by independent entities, because: (1)
NERC's sanction guidelines focus violation severity levels on a
violator's deviation from required performance, not the risk the
violation is expected to pose to reliability or performance by other
entities; and (2) a balancing authority or Frequency Response Sharing
Group subject to Requirement R1 does not control any other responsible
entity's compliance with this requirement.\107\ The Commission sought
comments on its proposal.
---------------------------------------------------------------------------

    \107\ Id. P 44.
---------------------------------------------------------------------------

Comments
    93. APS agrees with the Commission's proposal that NERC change
Requirement R1 violation severity level assignments that are in part
based on the performance of other entities in the Interconnection.
However, APS contends that there is no justification for a ``severe''
violation severity level applicable to this requirement. APS comments
that the violation severity level should be ``low'' for a responsible
entity missing its annual Frequency Response Obligation by small
amounts (less than 20 percent) and ``medium'' for missing by a larger
amount (greater than 20 percent).\108\
---------------------------------------------------------------------------

    \108\ APS Comments at 9-10.
---------------------------------------------------------------------------

    94. IRC states that the standard drafting team took an appropriate,
rational approach to its violation severity level proposal, taking into
account that frequency response is an interconnection-wide service, not
balancing authority specific. IRC contends that a single balancing
authority should not be penalized for a 10 percent decrease in
response, where frequency response is otherwise sufficient amongst its
surrounding balancing authorities and the reliability of the
Interconnection as a whole is not in jeopardy. IRC asserts that, in
contrast, a 10 percent decrease in frequency response within the
Interconnection as a whole clearly would signal a reliability issue.
IRC contends that, by suggesting that the VSLs for Requirement R1 be
modified to remove references to performance by other entities, the
Commission essentially suggested that a small deficiency within a
single balancing authority is equivalent to deficient frequency
response within an Interconnection, and should be equivalently
penalized as such.\109\
---------------------------------------------------------------------------

    \109\ IRC Comments at 12-13.
---------------------------------------------------------------------------

Commission Determination
    95. As proposed in the NOPR, we direct NERC to remove from its
violation severity level assignments for Requirement R1 any references
to performance of that requirement by other entities. No commenter has
questioned the Commission's analysis in the NOPR that NERC's Sanction
Guidelines define violation severity levels as a violator's deviation
from required performance, not as the risk the violation is expected to
pose to reliability or performance by other entities, and that a
particular responsible entity's compliance with Requirement R1 is not
controlled by performance of the requirement by other responsible
entities in an Interconnection. Nor has any commenter suggested any
rationale sufficient to support a departure from the Sanction
Guidelines in this regard. While we agree with IRC that frequency
response is an Interconnection-wide service, a failure by each
responsible entity in an Interconnection to comply with Requirement R1
will result in a failure to meet the Interconnection-wide annual
Frequency Response Measure, to the detriment of reliability across the
Interconnection. We believe that violation severity levels for this
requirement should be set so as to discourage particular responsible
entities from ``leaning on'' other entities to provide sufficient
frequency response collectively to meet the relevant Interconnection
Frequency Response Obligation.
    96. We leave it to NERC to consider how its violation severity
level assignments for Requirement R1 should be changed in response to
our concerns, including consideration of APS's suggestions. However, we
note that APS did not provide in its comments any rationale for its
suggested severity level assignments.

G. Supporting/Associated Documents

    97. In the NOPR, the Commission explained that Reliability Standard
BAL-003-1 has several supporting or associated documents. For example,
Attachment A, appended to the Reliability Standard, is explicitly
referenced in Requirements R1 and R2.\110\ Further, NERC's Procedure
for ERO Support of Frequency Response and Frequency Bias Setting
Standard (Procedure), is included as an ``associated document'' in the
Reliability Standard, and is referenced in Attachment A.\111\ Likewise,
Requirement 4 of proposed BAL-003-1 references FRS Forms 1 and 2,
stating that ``each balancing authority that provides Overlap
Regulation Service shall modify its Frequency Bias Setting in its ACE
calculation . . . to be equivalent to `the sum of Frequency Bias
Settings as shown on FRS Form 1 and Form 2 . . . as validated by the
ERO.' '' \112\
---------------------------------------------------------------------------

    \110\ See NOPR, 144 FERC ] 61,057 at P 45.
    \111\ Id. The Procedure is provided as Exh. C to the NERC
petition. NERC stated that it included the Procedure in the petition
for informational purposes. NERC Petition at 4.
    \112\ NOPR, 144 FERC ] 61,057 at P 45. Reliability Standard BAL-
003-1 identifies FRS Form 1 and FRS Form 2 as ``associated
documents.''
---------------------------------------------------------------------------

    98. In the NOPR, the Commission stated that ``[t]hese associated
and supporting documents are explicitly referenced in the Requirements
of the Reliability Standard. Thus, failure of a Balancing Authority to
comply with such associated and supporting documents could result in
non-compliance with the underlying Requirement.'' \113\
---------------------------------------------------------------------------

    \113\ Id. P 46 (footnote omitted).

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

Commission Determination
    99. No entity submitted comments on this matter. Accordingly, the
Commission affirms its NOPR statement that the failure of a balancing
authority to comply with the associated and supporting documents that
are referenced in the Requirements of BAL-003-1 could result in non-
compliance with the underlying Requirement.\114\
---------------------------------------------------------------------------

    \114\ Attachment A and the Procedures also require NERC to take
certain actions pertaining to the calculation of frequency response
measure and allocation among balancing authorities. The ERO is not
an applicable entity pursuant to Reliability Standard BAL-003-1. The
ERO, however, has an independent obligation to ``ensure compliance
with a reliability standard or any Commission order affecting the
ERO or a regional entity'' and the Commission can take ``such action
as is necessary or appropriate'' to ensure that the ERO fulfills
this responsibility under Attachment A and the Procedures. See id. P
46, n.73 (citing 16 U.S.C. 824o(e)(5)).
---------------------------------------------------------------------------

    100. NERC, in its Reply Comments, states that ``the values in Table
1 of Attachment A are not static. As explained in Attachment A to the
proposed Reliability Standard and the Procedure for ERO Support of
Frequency Response and Frequency Bias Setting Standard, the values in
Table 1 are determined and revised on an annual basis.'' \115\ While
the Procedure sets forth a mechanical and objective formula for
calculating the IFRO value in Table 1 of Attachment A, we believe that
any changes to the inputs or IFRO value in Table 1 should occur in a
transparent manner. Accordingly, should NERC make changes to Table 1
based upon NERC's Procedure document, the Commission directs NERC to
submit an informational notice describing the basis for the changes at
least 30 days in advance of the effective date of any such
changes.\116\

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    \115\ NERC Reply Comments at 3-4.
    \116\ Cf. Version One Regional Reliability Standard for
Transmission Operations, Order No. 752, 135 FERC ] 61,062, at P 43
(2011) (requiring WECC to notify the Commission of changes to the
WECC Transfer Path Table). See also NERC Petition, Exh. C at 1
(changes to the Procedure for ERO Support of Frequency Response must
be posted for comment by NERC, approved by the NERC Board of
Trustees, and filed with the Commission ``for informational
purposes'').
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V. Information Collection Statement

    101. The following collection of information contained in this
Final Rule is subject to review by the Office of Management and Budget
(OMB) under section 3507(d) of the Paperwork Reduction Act of 1995
(PRA).\117\ OMB's regulations require approval of certain information
collection requirements imposed by agency rules.\118\ Upon approval of
a collection(s) of information, OMB will assign an OMB control number
and an expiration date. Respondents subject to the filing requirements
of a rule will not be penalized for failing to respond to these
collections of information unless the collections of information
display a valid OMB control number. The Commission solicited comments
on the need for this information, whether the information will have
practical utility, the accuracy of the provided burden estimate, ways
to enhance the quality, utility, and clarity of the information to be
collected, and any suggested methods for minimizing the respondent's
burden, including the use of automated information techniques. The
Commission received comments on specific requirements in the
Reliability Standard, which we address in this Final Rule. However, the
Commission did not receive any comments on our reporting burden
estimates.
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    \117\ 44 U.S.C. 3507(d).
    \118\ 5 CFR 1320.11.
---------------------------------------------------------------------------

    102. Public Reporting Burden: The burden and cost estimates below
are based on the collection of certain information to establish the
Interconnection Frequency Response Obligation and the Frequency Bias
Setting for each balancing authority. Each balancing authority reports
its previous year Frequency Response Measure and Frequency Bias Setting
to NERC, and revised Frequency Bias Settings are based on data from
events the balancing authorities report on the proposed FRS Form 1. The
information provided on the FRS Form 1 is based on events which qualify
for analyses,\119\ and NERC states that it will identify between 20 to
35 events in each Interconnection for calculating the Frequency
Response Measure and Frequency Bias Setting.\120\ Allotting eight hours
for balancing authorities to compile the information on candidate
events,\121\ multiplied by 28 events per balancing authority per year
yields 224 hours per year per balancing authority as the regulatory
burden for compliance.\122\ Our estimates are based on the NERC
Compliance Registry as of May 31, 2013, which indicates that there are
about 132 registered balancing authorities.\123\ Accordingly, the
Commission estimates the annual regulatory burden for compliance with
the Reliability Standard to be $13,560 per balancing authority,\124\
with an estimated total annual cost for all balancing authorities to be
$1,789,920.\125\
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    \119\ NERC stated that it will provide quarterly posting of
candidate events to assist the balancing authorities with
compliance, and lessen the burden of the annual submission of FRS
Form 1 data. NERC Petition, Exh. C at 3-4.
    \120\ Id. at 1. The Frequency Response Initiative Report states
that between 20 and 25 events are necessary for statistical
analysis. Frequency Response Initiative Report at 72.
    \121\ The information is automatically generated from computer
data bases. However, time is allotted to compile, verify, and review
the information.
    \122\ Assuming an average of between 20 and 35 events per year.
    \123\ NERC Compliance Registry List, May 31, 2013, available at:
http://www.nerc.com.
    \124\ The estimated hourly loaded cost (salary plus benefits)
for an engineer is assumed to be $60/hour, based on salaries as
reported by the Bureau of Labor Statistics (BLS) (http://bls.gov/oes/current/naics2_22.htm). Loaded costs are BLS rates divided by
0.703 and rounded to the nearest dollar. (http://www.bls.gov/news.release/ecec.nr0.htm.)
    \125\ The estimated total annual cost includes an annual data
retention burden of $15,840 for all balancing authorities.

----------------------------------------------------------------------------------------------------------------
                                     Number of
  BAL-003-1 (frequency response      balancing       Number of    Average burden   Total annual      Estimated
   and frequency bias setting)       authority     responses per     hours per     burden hours    total annual
                                    respondents     respondent       response                        cost ($)
                                             (1)             (2)             (3)     (1) x (2) x   Total hours x
                                                                                (3)             $60
----------------------------------------------------------------------------------------------------------------
Annual Reporting................             132              28               8          29,568      $1,774,080
Data Retention..................             132               1               2             264          15,840
                                 -------------------------------------------------------------------------------
    Total.......................  ..............  ..............  ..............          29,832       1,789,920
----------------------------------------------------------------------------------------------------------------

    Title: FERC-725R, Mandatory Reliability Standards: Reliability
Standard BAL-003-1.
    Action: Proposed Collection of Information.
    OMB Control No: To be determined.
    Respondents: Business or other for-profit, and not-for-profit
institutions.
    Frequency of Responses: Annual.
    Necessity of the Information: The revision of NERC Reliability
Standard BAL-003-1 is part of the implementation of the Congressional
mandate of the Energy Policy Act of 2005 to develop mandatory and
enforceable Reliability Standards to better ensure the reliability of
the nation's Bulk Power System. Specifically, Reliability Standard BAL-
003-1 is intended to ensure sufficient Frequency Response from
balancing authorities to maintain Interconnection Frequency within
predefined bounds.
    Internal Review: The Commission has reviewed the revisions to the
Reliability Standard and determined that its action is necessary to
implement section 215 of the FPA. The Commission has assured itself, by
means of its internal review, that there is specific, objective support
for the burden estimate associated with the information requirements.
    103. Interested persons may obtain information on the reporting
requirements by contacting the following: Federal Energy Regulatory
Commission, 888 First Street NE., Washington, DC 20426 [Attention:
Ellen Brown, Office of the Executive Director, email:
<EMAIL_ADDRESS>phone:<PHONE_NUMBER>, fax:<PHONE_NUMBER>].

VI. Environmental Analysis

    104. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\126\ The
Commission has categorically excluded certain actions from this
requirement as not having a significant effect on the human
environment. Included in the exclusion are rules that are clarifying,
corrective, or procedural or that do not substantially change the
effect of the regulations being amended.\127\ The actions directed
herein fall within this categorical exclusion in the Commission's
regulations.
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    \126\ Regulations Implementing the National Environmental Policy
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. &
Regs., Regulations Preambles 1986-1990 ] 30,783 (1987).
    \127\ 18 CFR 380.4(a)(2)(ii).
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VII. Regulatory Flexibility Act

    105. The Regulatory Flexibility Act of 1980 (RFA) \128\ generally
requires a description and analysis of proposed rules that will have
significant economic impact on a substantial number of small entities.
The NERC registry includes about 132 individual balancing authorities.
Comparison of the NERC Compliance Registry with data submitted to the
Energy Information Administration on Form EIA-861 indicates that, of
these entities, 15 may qualify as small entities.\129\
---------------------------------------------------------------------------

    \128\ 5 U.S.C. 601-612.
    \129\ The RFA definition of ``small entity'' refers to the
definition provided in the Small Business Act (SBA), which defines a
``small business concern'' as a business that is independently owned
and operated and that is not dominant in its field of operation. See
15 U.S.C. 632 (2006). According to the Small Business
Administration, an electric utility is defined as ``small'' if,
including its affiliates, it is primarily engaged in the generation,
transmission, and/or distribution of electric energy for sale and
its total electric output for the preceding fiscal year did not
exceed 4 million megawatt hours.
---------------------------------------------------------------------------

    106. As noted above, the Commission estimates the annual regulatory
burden for compliance with the Reliability Standard to be $13,560 per
balancing authority. This estimate for all balancing authorities was
established using 28 events per year, but smaller entities may have
fewer events which qualify for analysis,\130\ and the costs for these
smaller entities may be reduced. Further, while the Reliability
Standard establishes a balancing authority's Frequency Response
Obligation, because balancing authorities are currently providing
frequency response, we do not anticipate additional compliance costs.
Accordingly, we do not consider the cost of compliance with the
Reliability Standard to be a significant economic impact for small
entities because it should not represent a significant percentage of an
affected small entity's operating budget. Accordingly, no regulatory
flexibility analysis is required.
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    \130\ The Procedures establish a minimum of 20 events for
analysis, and a process for identifying when fewer than 20 events
are available for analysis.
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VIII. Document Availability

    107. In addition to publishing the full text of this document in
the Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through the Commission's Home Page (http://www.ferc.gov) and
in the Commission's Public Reference Room during normal business hours
(8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street NE., Room 2A,
Washington, DC 20426.
    108. From the Commission's Home Page on the Internet, this
information is available on eLibrary. The full text of this document is
available on eLibrary in PDF and Microsoft Word format for viewing,
printing, and/or downloading. To access this document in eLibrary, type
the docket number excluding the last three digits of this document in
the docket number field.
    109. User assistance is available for eLibrary and the Commission's
Web site during normal business hours from the Commission's Online
Support at<PHONE_NUMBER> (toll free at 1-866-208-3676) or email at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. Email the Public Reference Room at