Press Release

FEDERAL ENERGY
REGULATORY COMMISSION
WASHINGTON, D.C. 20426

NEWS RELEASE
NEWS MEDIA CONTACT:
Bryan Lee
(202) 502-8680

FOR IMMEDIATE RELEASE
October 19, 2006
Docket Nos. RM06-16 & RR06-3

PROPOSED RULE WOULD APPROVE 83 NERC RELIABILITY STANDARDS;
FUNDING FOR STATUTORY ACTIVITIES THROUGH ERO APPROVED
The Federal Energy Regulatory Commission today proposed in a rulemaking to
approve 83 of 107 reliability standards for the Nation’s bulk-power system, including six
of eight regional differences, and the Glossary of Terms submitted earlier this year by the
North American Electric Reliability Corp. (NERC).
In July 2006, the Commission designated NERC as the Nation’s Electric
Reliability Organization (ERO) pursuant to section 215 of the Federal Power Act, a new
provision added by the Energy Policy Act of 2005 to provide for a system of mandatory,
enforceable reliability standards under the Commission’s oversight.
Also today, in a separate order, the Commission conditionally accepted the
proposed fiscal-year 2007 business plan and budget for NERC as well as the budgets for
the Regional Entity candidates. This action will allow NERC to fund its first fiscal year
as the ERO.
Chairman Joseph T. Kelliher said: “Today we take another important step toward
establishing a system of mandatory, enforceable reliability standards, as directed by
Congress. This past summer’s record-breaking electricity demand represented the most
serious test of our Nation’s electric system since the August 2003 blackout. Our
objective will be to press forward deliberately, but with some sense of urgency, to assure
that the ERO is prepared to enforce these standards in time for next summer.”
In today’s notice of proposed rulemaking, the Commission describes NERC’s
filing as “comprehensive” and representing “a significant effort” by NERC, the industry
and others involved in the standards development process. “The Commission believes
that these standards will form a solid foundation on which to develop and maintain the
reliability of the North American Bulk-Power System,” the proposal states. However, the
Commission notes, “much work remains to be done.”

However, many of the 83 reliability standards the Commission proposes to
approve require additional work or clarification. The Commission proposes to order
NERC to make significant necessary modifications pursuant to section 215(d)(5) of the
Federal Power Act.
“The reliability standards we propose to approve today meet the statutory test. At
the same time, the Commission is committed to steady improvement in reliability
standards in order to enhance bulk power system reliability,” Chairman Kelliher said.
As for the remaining 24 of the 107 reliability standards filed for Commission
review, many are so-called “fill-in-the-blank” standards that require regional reliability
organizations to develop regional procedures and submit particular criteria that would
apply to a given region. Today’s proposal would have these 24 standards remain pending
at the Commission until further information is provided that will enable the Commission
to evaluate the standard.
Once the standards are approved by the Commission in accordance with the
pending final rule, they become mandatory and there can be financial penalties for users,
owners or operators of the bulk-power transmission grid who fail to comply with the
standards.
The Commission is not proposing to remand any standards. “[T]he Commission
recognizes that the reliability standards are in a state of transition and that NERC has
ongoing plans to improve them,” the Commission said in today’s proposed rule.
“Thus, at this juncture, we will approve a proposed reliability standard that needs
clarification, improvement, or strengthening, provided that we are confident that it
satisfies the statutory requirement that a reliability standard must be ‘just, reasonable, not
unduly discriminatory or preferential, and in the public interest.’ Rather than remanding
an imperfect reliability standard, the [Commission] generally proposes to approve such a
reliability standard,” the proposed rule states. “In addition, as a distinct action under the
statute, the Commission proposes to direct that the ERO modify such a reliability
standard, pursuant to section 215(d)(5) of the [Federal Power Act], to address the
identified issues or concerns. This approach would allow the proposed reliability
standard to be enforceable while the ERO develops any required modifications.”
The Commission said this course of action is appropriate for this period of
transition from a voluntary to a mandatory system of reliability standards for the bulkpower system, and provides the benefit that mandatory and enforceable standards will be
in effect prior to the summer of 2007.
By giving due weight to the technical expertise of the ERO, with the expectation
that the reliability standards will accomplish their stated purpose, “they will improve the

reliability of the bulk-power system by proactively preventing situations that can lead to
blackouts,” the Commission said. “By taking this approach, we believe the responsibility
for the technical adequacy of the proposed reliability standards falls squarely on the ERO,
and we expect the ERO to monitor the effectiveness of the proposed reliability standards
and inform us if any reliability standard proves, in practice, to be inadequate in protecting
and improving bulk-power system reliability.”
The Commission’s proposal would amend the text of its regulations to require that
each reliability standard identify the subset of users, owners and operators to which each
particular reliability standard applies. Further, the Commission proposed to amend its
regulations to require that each reliability standard approved by the Commission is
maintained in the Commission’s public reference room and on the Electric Reliability
Organization’s website for public inspection.
Comments on the notice of proposed rulemaking, “Mandatory Standards for the
Bulk-Power System,” are due 60 days following publication in the Federal Register.
In the separate order addressing NERC’s business plans and budgets, the
Commission, subject to a compliance filing, approved NERC’s funding request for itself
and the Regional Entities of approximately $59 million for the fiscal year beginning
January 1, 2007, and authorized NERC to issue billing invoices as planned by December
1, 2006. The Commission also approved the funding request of $402,839 in funding for
the Western Interconnection Regional Advisory Body.
The Commission found that the proposed activities to be performed by the
Regional Entities, as amended by NERC, are statutory activities entitled to funding
through the ERO. However, the Commission reserved judgment on the Regional Entity
business plans, as Regional Entity delegation agreements have yet to be executed or filed
with the Commission for its approval.
The Commission denied the requested $6.9 million to fund reliability coordinator
functions by the Western Electricity Coordinating Council (WECC). The Commission
said it was not persuaded that WECC’s reliability coordinator function should be treated
as a statutory activity. “Unless there is a strong separation between oversight and realtime operations, the same entity should not oversee its own compliance with reliability
standards,” the Commission said in excluding the WECC funding request.
R-06-64
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