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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket No. RM09-18-000; Order No. 743]

Revision to Electric Reliability Organization Definition of Bulk Electric System

AGENCY: Federal Energy Regulatory Commission.
ACTION: Final rule.
SUMMARY: In this Final Rule, pursuant to section 215 of the Federal Power Act (FPA),1 the Federal Energy Regulatory Commission (Commission) adopts, with modifications, the proposal outlined in its March 18, 2010 Notice of Proposed Rulemaking to require the Electric Reliability Organization (ERO) to revise its definition of the term "bulk electric system."2 The Commission directs the ERO, through the ERO's Reliability Standards Development Process, to revise the definition to address the Commission's technical concerns, as discussed fully below, and ensure that the definition encompasses all facilities necessary for operating an interconnected electric transmission network. The Commission believes that the best way to accomplish these goals is to eliminate the regional discretion in the current definition, maintain a bright-line threshold that includes all facilities operated at or above 100 kV except defined radial facilities, and establish an exemption process and criteria for excluding facilities that are not necessary for operating the interconnected transmission network. However, this Final Rule allows the ERO, in accordance with Order No. 693, to develop an alternative proposal for addressing the Commission's concerns with the present definition with the understanding that any such alternative must be as effective as, or more effective than, the Commission's proposed approach in addressing the identified technical and other concerns, and may not result in a reduction in reliability.

116 U.S.C. 824o.

2 Revision to Electric Reliability Organization Definition of Bulk Electric System,Notice of Proposed Rulemaking, 75 FR 14097 (Mar. 24, 2010), FERC Stats. & Regs. P 32,654 (2010).

Issued November 18, 2010.
DATES: Effective Date:This Final Rule will become effective January 25, 2011.
FOR FURTHER INFORMATION CONTACT: Robert V. Snow (Technical Information), Office of Electric Reliability, Division of Reliability Standards, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, Telephone: (202) 502-6716. Patrick A. Boughan (Technical Information), Office of Electric Reliability, Division of Reliability and Engineering Services, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, Telephone: (202) 502-8071. Jonathan E. First (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, Telephone: (202) 502-8529. Mindi Sauter (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, Telephone: (202) 502-6830.
SUPPLEMENTARY INFORMATION: Table of Contents Paragraph No. I. Background 3 A. Section 215 of the FPA 3 B. Order No. 693 5 C. NERC's June 14, 2007 Filing 8 D. NPCC's Identification of Bulk Electric System Facilities 11 E. Notice of Proposed Rulemaking 13 II. Discussion 16 A. Overview 16 1. Definition of Bulk Electric System 17 (a) Commission Authority 17 (1) Comments 18 (i) NERC Standards Development Process and Deference to NERC and the Regional Entities 19 (ii) Bulk-Power System 24 (iii) Distribution Facilities 26 (2) Commission Determination 29 (i) Overview 29 (ii) NERC Standards Development Process and Deference to NERC and the Regional Entities 34 (iii) Bulk-Power System 36 (iv) Distribution Facilities 37 (b) Scope of the Definitional Change of “Bulk Electric System” 42 (1) NOPR Proposal 42 (2) Comments 43 (3) Commission Determination 52 (c) Technical and Historical Justification for Modification 56 (1) NOPR Proposal 56 (2) Comments 58 (3) Commission Determination 72 (i) Impact-Based Methodology and Regional Variation 76 (ii) FRCC Event 87 (iii) ReliabilityFirst Event 88 (iv) Astoria West Event 89 (v) Relevance of TLR 90 (vi) International Concerns 91 (4) Summary 96 (d) Usage and Definition of “Bulk-Power System” 97 (1) Comments 97 (2) Commission Determination 100 2. Exemption Process 101 (a) Comments 102 (b) Commission Determination 111 3. Transition Process 122 (a) Comments 123 (b) Commission Determination 131 4. Cost Recovery 133 (a) Comments 133 (b) Commission Determination 134 5. Issues Regarding the Western Interconnection 135 (a) Comments 135 (b) Commission Determination 139 6. Impact on Generation Owners and Operators 142 (a) Comments 142 (b) Commission Determination 144 7. Clarifying Terms 146 (a) Comments 146 (b) Commission Determination 149 III. Information Collection Statement 151 IV. Environmental Analysis 158 V. Regulatory Flexibility Act Analysis 161 A. NOPR Proposal 166 B. Comments 167 C. Commission Determination 169 VI. Document Availability 170 VII. Effective Date and Congressional Notification 173 Before Commissioners: Jon Wellinghoff, Chairman; Marc Spitzer, Philip D. Moeller, John R. Norris, and Cheryl A. LaFleur.

1. In this Final Rule, pursuant to section 215 of the FPA,3 the Commission adopts, with modifications described below, the proposal set forth in its March 18, 2010 Notice of Proposed Rulemaking (NOPR) requiring the Electric Reliability Organization (ERO) to revise its definition of the term “bulk electric system.”4 The Commission directs the ERO, through the ERO's Reliability Standards Development Process, to revise the definition to address the Commission's technical concerns, as discussed fully below, and ensure that the definition encompasses all facilities necessary for operating an interconnected electric transmission network. The Commission believes that the best way to accomplish these goals is to eliminate the regional discretion in the current definition, maintain a bright-line threshold that includes all facilities operated at or above 100 kV except defined radial facilities, and establish an exemption process and criteria for excluding facilities that are not necessary for operating the interconnected transmission network. However, this Final Rule allows the ERO, in accordance with Order No. 693, to develop an alternative proposal for addressing the Commission's concerns with the present definition with the understanding that any such alternative must be as effective as, or more effective than,5 the Commission's proposed approach in addressing the identified technical and other concerns, and may not result in a reduction in reliability.6

316 U.S.C. 824o.

4 Revision to Electric Reliability Organization Definition of Bulk Electric System,Notice of Proposed Rulemaking, 75 FR 14097 (Mar. 24, 2010), FERC Stats. & Regs. ¶ 32,654 (2010).

5 Mandatory Reliability Standards for the Bulk-Power System,Order No. 693, FERC Stats. & Regs. ¶ 31,242, at P 31 (2007),order on reh'g,Order No. 693-A, 120 FERC ¶ 61,053 (2007).

6 See, e.g., Version One Regional Reliability Standard for Resource and Demand Balancing,133 FERC ¶ 61,063, at P 14 (2010) (Noting the Commission's concern that approving a proposed Reliability Standard may result in reduced reliability). In addition, as a general matter, any proposed regional difference must be: (1) More stringent than the continent-wide definition, including a regional difference that addresses matters that the continent-wide Reliability Standard does not, or (2) necessitated by a physical difference in the Bulk-Power System.See Rules Concerning Certification of the Electric Reliability Organization; and Procedures for the Establishment, Approval, and Enforcement of Electric ReliabilityStandards, Order No. 672, FERC Stats. & Regs. ¶ 31,204, at P 291 (2006),order on reh'g,Order No. 672-A, FERC Stats. & Regs. ¶ 31,212 (2006).

2. In Order No. 693, the Commission noted its concern that the current “bulk electric system” definition has the potential for gaps in coverage of facilities, and indicated that it would revisit the issue. This Final Rule is the next step towards addressing the Commission's concerns. The approved changes will help ensure reliability and consistency in the bulk electric system classification throughout the interconnected United States. The Commission takes this action as a continuation of Order No. 693's efforts to ensure that the mandatory Reliability Standards fulfill the intent of Congress in enacting section 215 of the FPA to protect reliability of the nation's Bulk-Power System. The aim of the Final Rule is to eliminate inconsistencies across regions, eliminate the ambiguity created by the current discretion in NERC's definition of bulk electric system, provide a backstop review to ensure that any variations do not compromise reliability, and ensure that facilities that could significantly affect reliability are subject to mandatory rules. The Commission is not adding any new or modified text to its regulations.

I. Background A. Section 215 of the FPA

3. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005) was enacted into law. Title XII of EPAct 2005 added a new section 215 to the FPA,7 which requires a Commission-certified ERO to develop mandatory and enforceable Reliability Standards, subject to Commission review and approval. Once approved, the Reliability Standards may be enforced by the ERO, subject to Commission oversight, or by the Commission independently.8

7Public Law 109-58, Title XII, Subtitle A, 119 Stat. 594, 941 (2005) (codified at 16 U.S.C. 824o).

8 See16 U.S.C. 824o(e)(3).

4. In February 2006, the Commission issued Order No. 6729 in which the Commission certified one organization, the North American Electric Reliability Corporation (NERC), as the ERO.10

9Order No. 672, FERC Stats. & Regs. ¶ 31,204,order on reh'g,Order No. 672-A, FERC Stats. & Regs. ¶ 31,212.

10 North American Electric Reliability Corp.,116 FERC ¶ 61,062,order on reh'g and compliance,117 FERC ¶ 61,126 (2006) (certifying NERC as the ERO responsible for the development and enforcement of mandatory Reliability Standards),aff'd sub nom. Alcoa Inc.v.FERC,564 F.3d 1342 (D.C. Cir. 2009).

B. Order No. 693

5. On March 16, 2007, in Order No. 693, pursuant to section 215(d) of the FPA,11 the Commission approved 83 of 107 proposed Reliability Standards, six of the eight proposed regional differences, and the Glossary of Terms Used in Reliability Standards developed by NERC, the Commission-certified ERO. In addition, Order No. 693 addressed the applicability of mandatory Reliability Standards to the statutorily defined Bulk-Power System.

11 SeeOrder No. 693, FERC Stats. & Regs. ¶ 31,242 (directing improvements to 56 of the 83 approved Reliability Standards and leaving 24 Reliability Standards as pending until further information is provided),order on reh'g,Order No. 693-A, 120 FERC ¶ 61,053 (2007).

6. In Order No. 693, the Commission explained that section 215(a) of the FPA broadly defines the Bulk-Power System as:

Facilities and control systems necessary for operating an interconnected electric energy transmission network (or any portion thereof) [and] electric energy from generating facilities needed to maintain transmission system reliability.12

12Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 76.

The Commission also approved NERC's definition of “bulk electric system,” which is an integral part of the NERC Reliability Standards and is included in the NERC Glossary of Terms Used in Reliability Standards (NERC Glossary):

As defined by the Regional Reliability Organization, the electrical generation resources, transmission lines, interconnections with neighboring systems, and associated equipment, generally operated at voltages of 100 kV or higher. Radial transmission facilities serving only load with one transmission source are generally not included in this definition.13

13Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 75 n.47 (quoting NERC's definition of “bulk electric system”).

7. The Commission approved NERC's definition of “bulk electric system” with reservations. The Commission stated in Order No. 693 that, “at least for an initial period, the Commission will rely on the NERC definition of `bulk electric system' and NERC's registration process to provide as much certainty as possible regarding the applicability to and the responsibility of specific entities to comply with the Reliability Standards.”14 In approving the use of NERC's definition of “bulk electric system,” the Commission stated that “[it] remains concerned about the need to address the potential for gaps in coverage of facilities.”15

14 Id.P 75;see alsoOrder No. 693-A, 120 FERC ¶ 61,053 at P 19 (“the Commission will continue to rely on NERC's definition of bulk electric system, with the appropriate regional differences, and the registration process until the Commission determines in future proceedings the extent of the Bulk-Power System”).

15Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 77 (footnotes omitted). For example, the Commission noted that some regional definitions of bulk electric system exclude facilities below 230 kV and transmission lines that serve Washington, DC and New York City and the Commission stated its intent to address this matter in a future proceeding.Id.

C. NERC's June 14, 2007 Filing

8. In a June 14, 2007 filing, NERC submitted the regional definitions of “bulk electric system.”16 NERC represented that “[e]ach Regional Entity utilizes the definition of bulk electric system in the [NERC Glossary of Terms Used in Reliability Standards]; however, as permitted by that definition * * * several Regional Entities define specific characteristics or criteria that the Regional Entity uses to identify the bulk electric system facilities for its members.[17 ] In addition, the Reliability Standards apply to load shedding and special protection relay facilities below 100 kV, which are monitored by Regional Entities, in compliance with NERC's Reliability Standards.”18

16NERC Informational Filing in Response to Paragraph 77 of Order No. 693, Docket No. RM06-16-000 (Jun. 14, 2007) (June 2007 Filing).

17 Id.at 7. NERC also noted that the Texas Regional Entity, Florida Reliability Coordinating Council (FRCC), Midwest Reliability Organization, and SERC Reliability Corporation use the NERC definition of bulk electric system without modification. In a supplemental filing, NERC informed the Commission that Western Electricity Coordinating Council (WECC) uses the NERC definition alone in its implementation of Regional Entity activities.SeeNERC Supplemental Informational Compliance Filing, Docket No. RM06-16-000 (Mar. 6, 2009). Three other Regional Entities, ReliabilityFirstCorporation (ReliabilityFirst), Southwest Power Pool (SPP Regional Entity), and Northeast Power Coordinating Council, Inc. (NPCC), stated that they use the NERC definition supplemented with additional criteria. For example, SPP Regional Entity indicated that it uses the criteria specified in the NERC Statement of Registry Criteria (with one exception). ReliabilityFirst supplemented the NERC definition with specific voltage-based inclusions and exclusions. For example, ReliabilityFirst includes “lines operated at voltage of 100 kV or higher.” June 2007 Filing at 10. ReliabilityFirst excludes certain radial facilities, balance of generating plant control and operation functions, and “all other facilities operated at voltages below 100 kV.”

18June 2007 Filing at 7.

9. As noted in the NOPR, NERC's June 2007 Filing indicated that NPCC uses the NERC definition of “bulk electric system” supplemented by additional criteria. Unlike the supplemental criteria of other Regional Entities, however, NPCC utilizes a significantly different approach to identifying bulk electric system elements. According to NERC, NPCC identifies elements of the bulk electric system using an impact-based methodology, as opposed to a voltage-based methodology. Further, as part of its approach to defining the “bulk electric system,” NPCC includes its own definition of “bulk power system.”19

19“The interconnected electrical systems within northeastern North America comprised of system elements on which faults or disturbances can have a significant adverse impact outside of the local area.”Id.,Attachment 1 (NPCC Document A-10, Classification of Bulk Power System Elements (Apr. 28, 2007)).

10. According to NERC, NPCC analyzes all system elements within its footprint regardless of size (voltage) to determine their impact based on its “bulk electric system” definition. NPCC also utilizes a guidance document, which provides further information on the NPCC definition of “bulk power system” and how it is applied.20

20 Id.

D. NPCC's Identification of Bulk Electric System Facilities

11. In a December 2008 Order, the Commission directed NERC and NPCC to submit to the Commission a comprehensive list of bulk electric system facilities located within the United States portion of the NPCC region.21 The Commission explained that there appeared to be conflicting lists of bulk electric system elements developed by one of the balancing authorities in the United States portion of the NPCC region and it was not clear which, if any, of the lists were submitted to NPCC or approved by NPCC's Task Force on System Studies. In a compliance filing, NERC and NPCC indicated that the “NPCC Approved Bulk Electric System List” of June 2007 was the only listing of bulk electric system facilities approved by NPCC and is the current list of facilities within the U.S. portion of NPCC to which the NERC Reliability Standards apply.22 The filing indicated that a majority of the 115 kV and 138 kV transmission facilities in the NYISO Balancing Authority Area of the NPCC region are excluded from the NPCC list of bulk electric system facilities, including those associated with nuclear power plants, and thus are excluded from compliance with mandatory Reliability Standards.23 The information provided by NPCC also indicated that numerous transmission lines at 100 kV or above that interconnect with registered generation facilities are excluded from NPCC's list of bulk electric system facilities.

21 North American Electric Reliability Corp.,125 FERC ¶ 61,295 (2008) (December 2008 Order).

22NERC and NPCC Compliance Filing at 5, Docket No. RC09-3-000 (Feb. 20, 2009). The February 20 Compliance Filing also indicated that the NPCC approved list of bulk electric system elements was not developed pursuant to NPCC's Document A-10,Classification of Bulk Power System Elements,identified in the June 2007 Filing.Rather, the approved NPCC list was developed pursuant to an earlier version of the NPCC impact-based methodology.

23In addition, NPCC excludes approximately seven higher voltage (e.g.,230 kV, 345 kV and 500 kV) transmission facilities, some connecting to nuclear power plants.

12. In September 2009, NERC and NPCC submitted a compliance filing in which NPCC evaluated the impact and usefulness of a 100 kV “bright-line” “bulk electric system” definition as well as another optional method, which utilizes Transmission Distribution Factor calculations to determine reliability impacts. The NPCC definition would exclude radial network portions of the transmission system, as opposed to radial lines.24 However, NPCC stated that it continues to believe that its current impact-based approach provides an adequate level of reliability and, therefore, intends to continue to apply the impact-based approach in classifying its bulk electric system elements.25

24NERC and NPCC Compliance Filing and Assessment of Bulk Electric System Report, Docket No. RC09-3-000 (Sep. 21, 2009). NPCC would define “radial portions of the transmission system to include (1) an area serving load that is connected to the rest of the network at a single transmission substation at a single transmission voltage by one or more transmission circuits; (2) tap lines and associated facilities which are required to serve local load only; (3) transmission lines that are operated open for normal operation; or (4) additionally as an option, those portions of the NPCC transmission system operated at 100 kV or higher not explicitly designated as a bulk electric system path for generation which have a one percent or less participation in area, regional or inter regional power transfers.Id.at 11.

25 Id.at 7-8;see also id.at 14 (“If directed by the Commission to adopt the developed [bulk electric system] definition for U.S. Registered Entities within the NPCC footprint, NPCC would need additional time to carefully consider and develop a more extensive and detailed implementation plan.”).

E. Notice of Proposed Rulemaking

13. On March 18, 2010, the Commission issued a NOPR proposing to direct NERC to revise the definition of “bulk electric system” in the NERC Glossary. The current “bulk electric system” definition provides Regional Entities discretion to define “bulk electric system,” including the ability to exclude facilities 100 kV or above, without ERO or Commission oversight. The Commission's proposed revised definition would continue to include all facilities rated above 100 kV and eliminate regional variations, providing a consistent identification of bulk electric system facilities across the nation's reliability regions. The proposal called for Commission and NERC approval for exempting facilities that would otherwise qualify as part of the bulk electric system on a facility-by-facility basis.

14. The NOPR identified inconsistencies between regions that resulted from the existing definition, such as NPCC not including two 115 kV transmission lines as part of the bulk electric system in its region even though the sections of these same lines that connect to PJM's balancing authority area are considered bulk electric system elements within the ReliabilityFirst footprint. As an additional example, seven higher voltage (e.g.,230 kV, 345 kV, and 500 kV) transmission facilities (some connecting to nuclear power plants) excluded from the list of bulk electric system facilities in NPCC would be included in other regions. Further, the NOPR provided several examples of disturbances that either began on or were propagated by 100-200 kV facilities including a February 26, 2008 event in FRCC originating at a 138 kV facility that resulted in the loss of 24 transmission lines and 4,300 MW of generation.

15. The Commission issued the NOPR on March 18, 2010, and required that comments be filed within 45 days after publication in theFederal Register.26 More than eighty comments and reply comments to the NOPR proposal were submitted to the Commission.27 Upon consideration of the comments, the Commission modifies certain proposals from the NOPR in this Final Rule, as described below.

26 See75 FR 14097 (Mar. 24, 2010).

27A list of commenters appears in Appendix A.

II. Discussion A. Overview

16. After consideration of the comments submitted, the Commission adopts the NOPR's proposal with some modifications. The Commission directs the ERO to revise the definition of “bulk electric system” through the NERC Standards Development Process to address the Commission's concerns discussed herein. The Commission believes the best way to address these concerns is to eliminate the Regional Entities' discretion to define “bulk electric system” without ERO or Commission review, maintain a bright-line threshold that includes all facilities operated at or above 100 kV except defined radial facilities, and adopt an exemption process and criteria for excluding facilities that are not necessary to operate an interconnected electric transmission network. However, NERC may propose a different solution that is as effective as, or superior to, the Commission's proposed approach in addressing the Commission's technical and other concerns so as to ensure that all necessary facilities are included within the scope of the definition.

1. Definition of Bulk Electric System (a) Commission Authority

17. In the NOPR, the Commission proposed, pursuant to section 215(d)(5) of the FPA and § 39.5(f) of our regulations, to require NERC to submit a revised NERC definition of “bulk electric system” that provides a 100 kV threshold for facilities that are included in the bulk electric system and eliminates the currently-allowed discretion of a Regional Entity to define “bulk electric system” within its system without NERC or Commission oversight.

(1) Comments

18. Several commenters argue that the Commission's proposal exceeds its statutory authority.28 Other commenters contend that the Commission's proposal is inconsistent with the statutory regime envisioned in section 215 of the FPA, requiring the Commission to defer to the ERO on technical issues and for the ERO to have primary responsibility for developing specific Reliability Standards.

28 See, e.g.,APPA/NRECA, NYPSC, NYSRC, EEI, Joint Western Commenters, NERC, Snohomish, Tacoma Power, and PGE. Note that although the parties we have identified as the “Joint Western Commenters” submitted separate comments, the comments were virtually identical. Consequently, we cite their comments as a single group.

(i) NERC Standards Development Process and Deference to NERC and the Regional Entities

19. NERC supports the Commission's objectives of ensuring a common understanding and consistent application of “bulk electric system” across the regions, while allowing variations to the definition based on reliability. However, NERC objects to the Commission making unilateral decisions with respect to the definition, as it did in the NOPR, rather than allowing this issue to be addressed through the NERC Reliability StandardsDevelopment Process.29 NERC states that the NERC Glossary of Terms is part-and-parcel of the Reliability Standards and therefore falls under the same section 215 process. NERC argues that the Commission may order the ERO, pursuant to section 215(d)(5) of the FPA, to submit a proposed Reliability Standard or modification to a Reliability Standard to the Commission. Following this submission, NERC continues, the Commission may then approve the proposal or remand it to the NERC Reliability Standards Development Process for further consideration.

29NERC at 8-11.

20. NERC states that by directing this change, the Commission is bypassing the NERC Reliability Standards Development Process, and the Commission will not have the opportunity to consider NERC's guidance in developing an equally effective and perhaps superior alternative. NERC states that the approach in the Commission's NOPR would accomplish indirectly that which it is prohibited from doing directly, in contravention of well-established judicial precedent. NERC notes that the Commission refrained from taking similar unilateral action in Order No. 693. NERC requests the Commission clarify in the Final Rule that any modification to the definition of bulk electric system be accomplished through the NERC Reliability Standards Development Process.

21. Similarly, EEI, Duke Energy, APPA/NRECA, and other commenters assert that the Commission should defer to the NERC Reliability Standards Development Process, and allege that the proposal unreasonably departs from the Commission's precedent in Order No. 693.

22. Snohomish also asserts that the proposed rule fails to defer to the technical expertise of the regional reliability organizations and inappropriately interferes in the local work of Snohomish's Board regarding decisions on levels of service.

23. TAPS states that Congress did not intend for the Commission to undertake a facility-by-facility review of all facilities above 100 kV, and that the proposed rule is contrary to section 215's apportionment of primary responsibility for reliability administration to the ERO.30 Additionally, TAPS states that the Commission's proposed facility-by facility review would not satisfy section 215's goal of effective and efficient reliability administration.

30TAPS at 4;see alsoSnohomish at 22-28.

(ii) Bulk-Power System

24. NYSRC argues that section 215 does not provide a “bright-line” test for Bulk-Power System facilities and states that the statutory intent of section 215 limits the Commission's jurisdiction to facilities that are necessary for the reliable operation of the Bulk-Power System.31 Several commenters state that the Commission's proposal exceeds its statutory authority as described in the definition of “Bulk-Power System” because the proposed definition of bulk electric system would likely encompass facilities not necessary for operating the interconnected network,32 and that the statutory definitions of “Reliability Standard” and “Reliable Operation” refer to protecting the system from instability, uncontrolled separation, or cascading failures, not local-area outages.33 The commenters contend that a functional test, such as NPCC's current material impact assessment would be more appropriate since it is tailored to include facilities that are necessary for operation of an interconnected electric energy transmission network.

31NYSRC at 7-8.

32 See, e.g.,NYPSC, NYSRC, Duke Energy, Indicated New York Transmission Owners, Snohomish and Joint Western Commenters.

33NYSRC at 7.

25. GTC/GSOC add that the proposed change would make the definition of “bulk electric system” broader than the statutory definition of “Bulk-Power System,” and therefore would exceed the Commission's authority.

(iii) Distribution Facilities

26. Several other parties assert that the proposed rule will inappropriately include distribution facilities as part of the bulk electric system, and argue that the Commission's proposal is contrary to Congress's definition of “Bulk-Power System” and the Commission's own precedent regarding transmission versus local distribution.34 Several parties state that FPA section 215 specifically excludes distribution facilities and that they therefore should be excluded from the definition of “bulk electric system.” Constellation/CENG argues that the Commission's proposal to exclude from the definition of “bulk electric system” “[r]adial transmission facilities serving only load with one transmission source” is too limiting. Constellation/CENG believes that this approach will include local distribution facilities in a manner contrary to section 215 of the FPA.

34 See, e.g.,Constellation/CENG, Dow, Duke Energy, GTC/GSOC, Hydro-Québec, Indicated New York Transmission Owners, Joint Western Commenters, NARUC, NV Energy, NYSRC, PGE, Public Power Council, Snohomish Tacoma Power, TIEC.

27. The NYPSC contends that the Commission's proposal exceeds its jurisdiction by encompassing local distribution facilities that are not necessary for operating the interconnected transmission network. It states that 138 kV facilities in New York City operate above 100 kV but do not serve a bulk system function due to the high concentration of load served by these lines. It asserts that transmission facilities such as these that move power between Bulk-Power System and distribution facilities do not affect the reliable operation of the bulk system. The New York Transmission Owners contend that the Long Island Power Authority's (LIPA) system east of the Northport system is composed of 138 kV lines with limited connections to other areas that is not affected by other regional flows, but instead mirrors a radial system feeding local load.

28. Snohomish, Consumers Energy, PGE, Tacoma Power and other commenters argue that the Commission's proposal, unless clarified to exclude distribution facilities, is contrary to statute because section 215 directs that distribution facilities should be excluded on a functional basis regardless of voltage.35 Snohomish argues that the Commission's proposal departs from its previous determinations in Order No. 693 regarding the difference between transmission and distribution systems.36 Further, it states that section 215 emphasizes how facilities are used rather than their voltage level, and asserts that the NOPR's definition runs counter to the statutory definition.

35 See, e.g.,Snohomish at 20-22; PGE at 3-6; Tacoma Power at 2-3.

36Snohomish at 20-21 (citing Order No. 693, FERC Stats. and Regs. ¶ 31,242 at P 23 n.20).

(2) Commission Determination (i) Overview

29. We disagree that the Commission exceeded its statutory authority by directing the ERO to revise the definition of bulk electric system in its Glossary of Terms. We agree with NERC that the NERC Glossary is part of the Reliability Standards and therefore falls under the same section 215 process. Pursuant to section 215(d)(5), the Commission may order the ERO to submit a proposed Reliability Standard or a modification to a Reliability Standard that addresses a specific matter. Here, by directing a revision to the definition of bulk electric system, the Commission orders a modification to a definition of a term contained in anumber of Commission-approved Reliability Standards.37 Because this term is contained within Commission-approved Reliability Standards, the Commission has the authority to direct the ERO to develop a modification of the definition of a defined term contained in the Reliability Standards under the process delineated in section 215 of the FPA.

37 See, e.g.,CIP-002-2, COM-001-1.1, EOP-004-1, EOP-005-1, FAC-008-1, FAC-009-1, FAC-010-2, FAC-011-2, FAC-013-1, FAC-014-2, IRO-001-1.1, IRO-002-1, IRO-003-2, IRO-004-1, IRO-005-2, IRO-006-4.1, NUC-001-2, PER-001-0.1, PER-002-0, PER-003-0, PRC-004-1, PRC-005-1, PRC-021-1, PRC-022-1, PRC-023-1, TOP-001-1, TOP-002-2, TOP-008-1, TPL-002-0, TPL-003-0, TPL-004-0.

30. For the reasons discussed more fully below, the Commission finds that the current definition of bulk electric system is insufficient to ensure that all facilities necessary for operating an interconnected electric energy transmission network are included under the “bulk electric system” rubric. Therefore, pursuant to section 215(d)(5) of the FPA,38 the Commission directs the ERO to modify, through the Standards Development Process, the definition of “bulk electric system” to address the Commission's technical and policy concerns described more fully herein. The Commission believes the best way to address these concerns is to eliminate the regional discretion in the ERO's current definition, maintain the bright-line threshold that includes all facilities operated at or above 100 kV except defined radial facilities, and establish an exemption process and criteria for excluding facilities the ERO determines are not necessary for operating the interconnected transmission network. It is important to note that the Commission is not proposing to change the threshold value already contained in the definition, but rather seeks to eliminate the ambiguity created by the current characterization of that threshold as a general guideline.39

3816 U.S.C. 824o(d)(5).

39We note that all regions except NPCC currently utilize 100 kV as a general threshold.

31. In accordance with Order No. 693, the ERO may develop an alternative proposal for addressing the Commission's concerns with the present definition with the understanding that any such alternative must be as effective as, or more effective than, the Commission's proposed approach in addressing the identified technical and other concerns,40 and may not result in a reduction in reliability.41 If the ERO decides to propose an alternative approach, it must explain in detail, and with a technical record sufficient enough for the Commission to make an informed decision, how its alternative addresses each of the Commission's concerns in a manner that is as effective as, or more effective than, the Commission's identified solution.42 Additionally, the ERO would need to address the factors the Commission will consider in determining whether a proposed Reliability Standard is just and reasonable, as outlined in Order No. 672. In particular, Order No. 672 states that proposed Reliability Standards “should be clear and unambiguous regarding what is required and who is required to comply.”43 Another factor indicates that a “proposed Reliability Standard should be designed to apply throughout the interconnected North American Bulk-Power System, to the maximum extent this is achievable with a single Reliability Standard.”44 As Order No. 672 further requires, any proposed regional difference must be: (1) More stringent than the continent-wide definition, including a regional difference that addresses matters that the continent-wide definition does not; or (2) necessitated by a physical difference in the Bulk-Power System.45

40Order No. 693, FERC Stats. & Regs. 31,242 at P 31.

41 See, e.g., Version One Regional Reliability Standard for Resource and Demand Balancing,133 FERC ¶ 61,063, at P 14 (2010);North American Electric Reliability Corporation Reliability Standards Development and NERC and Regional Entity Enforcement,132 FERC ¶ 61,217, at P 112 (2010).

42Order No. 693 FERC Stats. & Regs. 31,242 at P 31.

43 SeeOrder No. 672, FERC Stats. & Regs. 31,204 at P 325.

44 See id.P 331.

45 Id.P 291.

32. The Commission further finds that revising the definition to address the identified concerns is a significant step toward improving the reliability of the Bulk-Power System in North America because it protects the reliability of the bulk electric system and provides clarity and consistency across the nation's reliability regions in identifying bulk electric system facilities.

33. The Commission directs the ERO to submit these modifications no later than one year from the effective date of this Final Rule. We will address each proposal and the specific comments received on each proposal in the remainder of this Final Rule.

(ii) NERC Standards Development Process and Deference to NERC and the Regional Entities

34. With regard to the concerns raised by some commenters about the prescriptive nature of the Commission's proposed modifications, we agree that, consistent with Order No. 693, a direction for modification should not be so overly prescriptive as to preclude the consideration of viable alternatives that may produce an equally effective or efficient solution. However, some guidance is necessary, as the Commission explained in Order No. 693:

[I]n identifying a specific matter to be addressed in a modification * * * it is important that the Commission provide sufficient guidance so that the ERO has an understanding of the Commission's concerns and an appropriate, but not necessarily exclusive, outcome to address those concerns. Without such direction and guidance, a Commission proposal to modify a Reliability Standard might be so vague that the ERO would not know how to adequately respond.46

46Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 185.

35. Thus, due to the importance of the bulk electric system definition to our overall ability to carry out the mandates of section 215, and the problems we have identified with the current definition, we provide specific details regarding the Commission's expectations. We intend by doing so to provide useful direction to assist in the Reliability Standards Development Process, not to impede it. As we explained in Order No. 693, we find that this is consistent with statutory language that authorizes the Commission to direct the ERO to submit a modification “that addresses a specific matter” if the Commission considers it appropriate to carry out section 215 of the FPA.47 Although some commenters' contend that we should “defer to regional expertise,” we note that the statute specifies that we should “give due weight” to the ERO's technical expertise.48 The Commission's action here does not conflict with that statutory requirement. In this Final Rule, we have considered commenters' concerns and, although we have identified a proposed approach, the Commission provides flexibility by directing the ERO to address the underlying issue through the Reliability Standards Development Process.49 Consequently, consistent with Order No. 693, we clarify that where the FinalRule identifies a concern and offers a specific approach to address that concern, we will consider an equivalent alternative approach provided that the ERO demonstrates that the alternative will adequately address the Commission's underlying concern or goal as efficiently and effectively as the Commission's proposal.50

47 Id.P 186 (citing 16 U.S.C. 824o(d)(5)).

4816 U.S.C. 824o(d)(2);see alsoOrder No. 672, FERC Stats. & Regs. ¶ 31,204 at P 345 (“We do not agree that giving due weight means a rebuttable presumption that the Reliability Standard meets the statutory requirement of being just, reasonable, not unduly discriminatory or preferential, and in the public interest.”).

49Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 186.

50 Id.

(iii) Bulk-Power System

36. With regard to the alleged conflict between “bulk electric system” and “Bulk-Power System,” the Commission noted in Order No. 693 that Congress chose to create a new term, “Bulk-Power System,” with a definition that is distinct from the term of art (“bulk electric system”) used by industry, and thus there is an intentional distinction between the Bulk-Power System and the bulk electric system.51 The Commission further noted that the statutory term “Bulk-Power System” has not been definitively defined but does not establish a voltage threshold limit of applicability or configuration as does the NERC definition of “bulk electric system,” and therefore may reach more facilities than NERC's definition of “bulk electric system.”52

51 Id.P 76.

52 See id.P 76; Order No. 693-A, 120 FERC ¶ 61,053 at P 17-18.

(iv) Distribution Facilities

37. The Commission has stated that the statutory term “Bulk-Power System” defines the jurisdiction of the Commission.53 The Commission noted that it has not defined the extent of the facilities covered by the Bulk-Power System, but that Congress specifically exempted “facilities used in the local distribution of electric energy” from the definition. FPA section 215 defines the term “Bulk-Power System” as encompassing the “facilities and control systems necessary for operating an interconnected electric energy transmission network (or any portion thereof).”54 In ascertaining the extent of the facilities included in the “Bulk-Power System” definition, the Commission's prior discussion regarding the inclusion of generation facilities as part of the Bulk-Power System is instructive. In the discussion, the Commission stated that, “if electric energy from a generating facility is needed to maintain a reliable transmission system, that facility is part of the Bulk-Power System with respect to the energy it generates that is needed to maintain reliability.”55 Similarly, several 115 and 138 kV facilities that some entities term as “distribution” may be needed to reliably operate the interconnected transmission system. Determining where the line between “transmission” and “local distribution” lies, which includes an inquiry into which lower voltage “transmission” facilities are necessary to operate the interconnected transmission system, should be part of the exemption process the ERO develops.

53Order No. 693-A, 120 FERC ¶ 61,053 at P 19.

5416 U.S.C. 824o(a)(1).

55Order No. 672, FERC Stats. & Regs. ¶ 31,204 at P 71.

38. The Commission disagrees with comments that appear to assert that the Commission's jurisdiction extends only to facilities that could, if improperly operated, singularly cause cascading outages, uncontrolled separation or instability. By this narrow metric, the facilities that caused the 2003 Blackout would not be viewed as critical since not one of the individual facilities caused the outage. In defining jurisdictional facilities, section 215(a)(1) focuses on whether facilities are necessary to operate the interconnected transmission system, not solely on the consequences of unreliable operation of those facilities. Lower voltage facilities needed to reliably operate the grid tend to operate in parallel with other high voltage and extra high voltage facilities, interconnect significant amounts of generation sources and may operate as part of a defined flow gate. These parallel facilities operated at 100-200 kV will experience similar loading as higher voltage facilities at any given time. Additionally, the lower voltage facilities will be relied upon during contingency scenarios.

39. For example, we are not persuaded by the NYPSC's argument that the 138 kV system in New York, and specifically the 138 kV system including those facilities in the Astoria area, are all distribution facilities. We do not believe that most of these facilities are local distribution because: the facilities are not primarily radial in character, as they are connected to the 345 kV network in the Astoria area at over six different points; the 138 kV system is networked amongst itself; power flows both in and out of the system into both NYISO and PJM facilities depending on time of day and loading; and the system is not constrained to a comparatively restricted geographical area due to multiple interconnections. The 138 kV system in the Astoria area includes six major substations that are interconnected at 345 kV to both NYISO and PJM facilities that are integral parts of the Eastern Interconnection. There are ten 138 kV phase angle regulators connecting the 345 kV stations to the 138 kV network, which are necessary to control the appropriate distribution of power flows between the 345 kV and 138 kV systems to accommodate power transfers from upstate New York and PJM into southeastern New York. In addition, there are approximately 9,000 MW of capacity resources directly connected to the 138 kV network in the New York City area at different points, 2,000 MW of which is connected in the Astoria area. Similarly over 10,000 MW of customer firm demand in the area is supplied from the 138 kV to lower voltage levels via step-down transformers. None of these characteristics is consistent with any reasonable definition of local distribution.56 To the extent that any individual line would be considered to be local distribution, that line would not be considered part of the bulk electric system.

56This example illustrates one of the deficiencies of the NPCC impact-based approach for identifying bulk electric system facilities, discussed more fully below.

40. Nor are we persuaded by the Indicated New York Transmission Owners' statement that LIPA's service territory—which includes a majority of Long Island, identified as Zone K by NYISO and, as reported in the NYISO “Load & Capacity Data,” had a 2010 summer peak load of 5,300 MW—“mirrors a radial system feeding local load.” As with the 138 kV network in New York City discussed above, the LIPA system contains significant capacity resources (5,700 MW), is interconnected with other portions of NYISO, ISO-NE, and PJM, and its operations affect and depend on operations in other portions of New York, as well as New Jersey and Connecticut.57

57 See http://www.nyiso.com/public/webdocs/services/planning/reliability_assessments/AppxE.pdfandhttp://www.nyiso.com/public/webdocs/services/planning/planning_data_reference_documents/2010_GoldBook_Public_Final_033110.pdf.

41. Some commenters allege that the proposal is an unexpected departure from the Commission's previous actions regarding the bulk electric system in Order No. 693. To the contrary, the Commission was very clear about its reservations in accepting the NERC bulk electric system definition in Order No. 693 and expressly accepted the definition for an “initial period”58 subject to subsequent review.59 TheCommission's action here will ensure that all facilities necessary to maintain a reliable transmission system are included as part of the bulk electric system and thus will be subject to ERO and Commission oversight.60

58Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 75.

59In accepting NERC's definition of “bulk electric system,” the Commission explained: “Although we are accepting the NERC definition of bulk electric system and NERC's registration process for now, theCommission remains concerned about the need to address the potential for gaps in coverage of facilities. For example, some current regional definitions of bulk electric system exclude facilities below 230 kV and transmission lines that serve major load centers such as Washington, DC and New York City. The Commission intends to address this matter in a future proceeding.”

Id.P 77 (footnotes omitted).

60While the Commission seeks to ensure that the definition of “bulk electric system” includes all facilities 100 kV or above that are necessary for reliable operation, our action here is not intended to determine the extent of the facilities included in the Bulk-Power System. As stated in Order No. 693-A, the Commission believes that the Bulk-Power System reaches farther than those facilities that are included in NERC's definition of the bulk electric system, but we have not definitively defined the extent of the facilities covered by the Bulk-Power System, and we are not doing so here.SeeOrder No. 693-A at P 17-18.

(b) Scope of the Definitional Change of “Bulk Electric System” (1) NOPR Proposal

42. In the NOPR, the Commission proposed to direct the ERO to revise its definition of the term “bulk electric system” to include all electric transmission facilities with a rating of 100 kV or above.61 The Commission's proposal further states that a Regional Entity must seek ERO and Commission approval before exempting any facility rated at 100 kV or above from compliance with mandatory Reliability Standards.

61NOPR, FERC Stats. & Regs. ¶ 32,654 at P 1.

(2) Comments

43. NERC argues that the proposed definitional change would have a much broader impact than acknowledged by the Commission. Among other things, NERC states that the proposed change to “rated at” from the current “operated at” will dramatically expand the scope of facilities and entities affected by the change. NERC states that the proposal will unnecessarily include some facilities that entities built at higher voltage levels (i.e., 138 kV) to accommodate future load growth while presently operating the facilities at lower voltages (i.e., 69 kV).

44. Several commenters seek clarification that the definition of “bulk electric system” is not intended to supersede voltage thresholds specified in specific Reliability Standards.62 For example, Reliability Standard FAC-003 generally applies to transmission lines 200 kV and above.

62 See, e.g.,EEI, Dominion Power, National Grid, and Southern Company.

45. Joint Western Commenters and Bay Area Municipal argue that the definition of “bulk electric system” that the Commission ultimately accepts should clarify that if an element is determined to be part of the bulk electric system, such an element is not necessarily a transmission asset.

46. Joint Western Commenters state that an entity should be able to de-register as a Distribution Provider and Load-Serving Entity if it does not own any bulk electric system elements.63 They state that an entity with no elements in the bulk electric system cannot be considered an owner or operator of the bulk electric system, and because operation of that entity's distribution assets has no material impact on the bulk electric system, it should be exempt from regulation as transmission and the need to register and participate in the regulatory framework for transmission facilities. These commenters also state that requiring an entity with no bulk electric system elements to comply with the mandatory Reliability Standards would be an unnecessary burden on the entity, and a diversion of resources by the Regional Entity, NERC, and the Commission.64

63Joint Western Commenters at section IV.B.