Order No. 773

Order No. 773.pdf

FERC-725J, Definition of the Bulk Electric System

Order No. 773

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141 FERC ¶ 61,236
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
18 CFR Part 40
[Docket Nos. RM12-6-000 and RM12-7-000; Order No. 773]

Revisions to Electric Reliability Organization Definition of Bulk Electric System and
Rules of Procedure
(Issued December 20, 2012)

AGENCY: Federal Energy Regulatory Commission.
ACTION: Final Rule.
SUMMARY: In this Final Rule, pursuant to section 215 of the Federal Power Act, the
Federal Energy Regulatory Commission (Commission) approves modifications to the
currently-effective definition of “bulk electric system” developed by the North American
Electric Reliability Corporation (NERC), the Commission-certified Electric Reliability
Organization. The Commission finds that the modified definition of “bulk electric
system” removes language allowing for regional discretion in the currently-effective bulk
electric system definition and establishes a bright-line threshold that includes all facilities
operated at or above 100 kV. The modified definition also identifies specific categories
of facilities and configurations as inclusions and exclusions to provide clarity in the
definition of “bulk electric system.”
In this Final Rule, the Commission also approves: (1) NERC’s revisions to its
Rules of Procedure, which create an exception process to add elements to, or remove

Docket Nos. RM12-6-000 and RM12-7-000

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elements from, the definition of “bulk electric system” on a case-by-case basis;
(2) NERC’s form entitled “Detailed Information to Support an Exception Request” that
entities will use to support requests for exception from the “bulk electric system”
definition; and (3) NERC’s implementation plan for the revised “bulk electric system”
definition.
EFFECTIVE DATE: This Final Rule will become effective [INSERT DATE 60 days
after publication in the FEDERAL REGISTER]
FOR FURTHER INFORMATION CONTACT:
Susan Morris (Technical Information)
Office of Electric Reliability, Division of Reliability Standards
Federal Energy Regulatory Commission
888 First Street, NE
Washington, DC 20426
Telephone: (202) 502-6803
Nicholas Snyder (Technical Information)
Office of Energy Market Regulation, Division of Electric Power Regulation-Central
Federal Energy Regulatory Commission
888 First Street, NE
Washington, DC 20426
Telephone: (202) 502-6408
Robert Stroh (Legal Information)
Office of the General Counsel
Federal Energy Regulatory Commission
888 First Street, NE
Washington, DC 20426
Telephone: (202) 502-8473
SUPPLEMENTARY INFORMATION:

141 FERC ¶ 61,236
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Jon Wellinghoff, Chairman;
Philip D. Moeller, John R. Norris,
and Cheryl A. LaFleur.

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

Docket Nos. RM12-6-000
RM12-7-000

ORDER NO. 773
FINAL RULE
(Issued December 20, 2012)

TABLE OF CONTENTS
I. Background ............................................................................................................................5.
A. Section 215 of the FPA ....................................................................................................5.
B. Order No. 693 ...................................................................................................................6.
C. Order No. 743 ...................................................................................................................8.
D. NERC Petitions ................................................................................................................11.
1. Revised Definition of Bulk Electric System ................................................................12.
2. NERC Petition for Approval of Revisions to Rules of Procedure to Adopt an
Exception Process ..............................................................................................................26.
E. Commission NOPR .........................................................................................................29.
II. Discussion .............................................................................................................................31.
A. Approval of the Revised Bulk Electric System Definition .............................................32.
NOPR Proposal ..................................................................................................................32.
Comments ..........................................................................................................................33.
Commission Determination ...............................................................................................38.
B. The Core Definition of Bulk Electric System ..................................................................45.
NOPR Proposal ..................................................................................................................45.
Comments ..........................................................................................................................46.
C. Local Distribution .............................................................................................................57.
Comments ..........................................................................................................................58.
Commission Determination ...............................................................................................66.

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D. Inclusions and Exclusions in the Definition of Bulk Electric System .............................74.
1. Inclusion I1 (Transformers) ..........................................................................................75.
Commission Determination ...............................................................................................80.
2. Inclusion I2 (Generating Resources) ...........................................................................83.
3. Inclusion I3 (Blackstart Resources) ..............................................................................97.
4. Inclusion I4 (Dispersed Power Producing Resources) ................................................104.
5. Inclusion I5 (Static or Dynamic Reactive Power Devices) ..........................................116.
Exclusions ..........................................................................................................................125.
6. Exclusion E1 (Radial Systems) ....................................................................................127.
7. Exclusion E2 (Behind the Meter Generation) ..............................................................178.
8. Exclusion E3 (Local Networks) ...................................................................................185.
9. Exclusion E4 (Reactive Power Devices) ......................................................................235.
E. The NERC Rules of Procedure Exception Process, RM12-7-000 ..................................238.
NOPR Proposal ..................................................................................................................238.
1. How Entities Will Review and Seek Inclusion of Necessary Elements ......................263.
2. NERC Role in Identifying Necessary Elements ...........................................................270.
3. Commission Role in Identifying Necessary Elements .................................................279.
4. Technical Review Panel ...............................................................................................289.
NOPR Proposal ..................................................................................................................289.
5. Use of Industry Subject Matter Experts .......................................................................295.
6. NERC’s Detailed Information Form ...........................................................................298.
7. NERC’s Implementation Plan ......................................................................................302.
NOPR Proposal ......................................................................................................................302.
8. NERC List of Facilities Granted Exceptions................................................................305.
9. Declassification of Facilities .......................................................................................311.
III. Information Collection Statement .......................................................................................319.
IV. Regulatory Flexibility Act Analysis ...................................................................................333.
V. Environmental Analysis .......................................................................................................339.
VI. Document Availability ........................................................................................................340.
VII. Effective Date and Congressional Notification ................................................................343.

Docket Nos. RM12-6-000 and RM12-7-000
1.

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Pursuant to section 215(d) of the Federal Power Act (FPA), 1 the Commission

approves modifications to the currently-effective definition of “bulk electric system”
developed by the North American Electric Reliability Corporation (NERC), the
Commission-certified Electric Reliability Organization (ERO). The Commission finds
that the modified definition of “bulk electric system” improves upon the currentlyeffective definition by establishing a bright-line threshold that includes all facilities
operated at or above 100 kV and removing language that allows for broad regional
discretion. The modified definition also provides improved clarity by identifying specific
categories of facilities and configurations as inclusions and exclusions to the definition of
“bulk electric system.”
2.

We believe that the proposed “core” definition, together with the more granular

inclusions and exclusions, should produce consistency in identifying bulk electric system
elements across the reliability regions. In addition, we find that NERC’s proposed caseby-case exception process to add elements to, and remove elements from, the definition
of the bulk electric system adds transparency and uniformity to the determination of what
constitutes the bulk electric system.
3.

We recognize the substantial work invested by NERC and industry participants in

developing the modified bulk electric system definition. We also appreciate that NERC
timely submitted the revised definition within the twelve month time frame directed by

16 U.S.C. 824o(d) (2006).

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the Commission in the underlying order, Order No. 743, which tasked NERC with this
project. 2 We believe that NERC and industry’s efforts provide a technically grounded
and legally supportable foundation for identifying elements and facilities that make up
the bulk electric system. Other highlights of the Final Rule include:
• accepts NERC’s revisions to its Rules of Procedure, which creates an exception
procedure to add elements to, or remove elements from, the definition of “bulk
electric system” on a case-by-case basis;
• approves NERC’s implementation plan for the revised “bulk electric system”
definition;
• approves NERC’s form entitled “Detailed Information to Support an Exception
Request” that entities will use to support requests for exception from the “bulk
electric system” definition;
• finds that the Commission can designate sub-100 kV facilities, or other facilities,
as part of the bulk electric system, provided that the Commission provides
opportunity for notice and comment; and
• establishes a process pursuant to which an entity can seek a determination by the
Commission whether facilities are “used in local distribution” as set forth in the
Federal Power Act.

Revision to Electric Reliability Organization Definition of Bulk Electric System,
Order No. 743, 133 FERC ¶ 61,150 (2010), order on reh’g, Order No. 743-A, 134 FERC
¶ 61,210 (2011).

Docket Nos. RM12-6-000 and RM12-7-000
4.

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In the Notice of Proposed Rulemaking (NOPR), the Commission requested

comment on certain aspects of NERC’s petition to better understand the application of
the “core” definition, as well as the specific inclusions and exclusions. 3 The explanations
provided by NERC and other entities in their comments have assisted in our
understanding of the parameters of the definition, and we adopt many of these
explanations in the Final Rule. However, in two particular circumstances we believe
further action is necessary. We direct NERC to implement the bulk electric system
definition consistent with the Commission determinations below. Specifically, we direct
NERC to implement the exclusions for radial systems and local networks so that they do
not apply to tie-lines for bulk electric system generators. In addition, we direct NERC to
modify the local network exclusion to remove the 100 kV minimum operating voltage to
allow systems that include one or more looped configurations connected below 100 kV,
(as shown in figures 3 and 5 below) to be eligible for the local network exclusion.
Further explanation of these configurations and the rationale for our determinations is
provided below.

Revision to Electric Reliability Organization Definition of Bulk Electric System
and Rules of Procedure, Notice of Proposed Rulemaking, 77 FR 39857 (July 5, 2012)
139 FERC ¶ 61,247 (2012) (NOPR).

Docket Nos. RM12-6-000 and RM12-7-000
I.

Background
A.

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Section 215 of the FPA

Section 215 of the FPA requires a Commission-certified ERO to develop

mandatory and enforceable Reliability Standards, subject to Commission review and
approval. Once approved, the Reliability Standards may be enforced by the ERO, subject
to Commission oversight, or by the Commission independently. 4 The Commission
established a process to select and certify an ERO 5 and, subsequently, certified NERC as
the ERO. 6
B.
6.

Order No. 693

On March 16, 2007, in Order No. 693, pursuant to section 215(d) of the FPA, the

Commission approved 83 of 107 proposed Reliability Standards, six of the eight
proposed regional differences, and the NERC Glossary, which includes NERC’s
definition of bulk electric system. 7 That definition provides:

See 16 U.S.C. 824o(e)(3) (2006).

Rules Concerning Certification of the Electric Reliability Organization; and
Procedures for the Establishment, Approval and Enforcement of Electric Reliability
Standards, Order No. 672, FERC Stats. & Regs. ¶ 31,204, order on reh’g, Order
No. 672-A, FERC Stats. & Regs. ¶ 31,212 (2006).
6

North American Electric Reliability Corp., 116 FERC ¶ 61,062 (2006), 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).
7

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

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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. 8
7.

In approving NERC’s definition of bulk electric system, the Commission stated

that “at least for an initial period, the Commission will rely on the NERC definition of
bulk electric system and NERC’s registration process to provide as much certainty as
possible regarding the applicability to and the responsibility of specific entities to comply
with the Reliability Standards.” 9 The Commission also stated that “[it] remains
concerned about the need to address the potential for gaps in coverage of facilities.” 10
C.
8.

Order No. 743

On November 18, 2010, the Commission revisited the definition of “bulk electric

system” in Order No. 743, which directed NERC, through NERC’s Reliability Standards
Development Process, to revise its definition of the term “bulk electric system” to ensure
that the definition encompasses all facilities necessary for operating an interconnected
transmission network. 11 The Commission also directed NERC to address the
8

Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 75 n.47.

Id. P 75; see also Order No. 693-A, 120 FERC ¶ 61,053 at P 19 (“the
Commission will continue to rely on NERC’s definition of bulk electric system, with the
appropriate regional differences, and the registration process until the Commission
determines in future proceedings the extent of the Bulk-Power System”).
10

Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 77.

Order No. 743, 133 FERC ¶ 61,150 at P 16.

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Commission’s technical and policy concerns. Among the Commission’s concerns were
inconsistencies in the application of the definition and a lack of oversight and exclusion
of facilities from the bulk electric system required for the operation of the interconnected
transmission network. In Order No. 743, the Commission concluded that the best way to
address these concerns was to eliminate the Regional Entity discretion to define bulk
electric system without NERC or Commission review, maintain a bright-line threshold
that includes all facilities operated at or above 100 kV except defined radial facilities, and
adopt an exemption process and criteria for removing from the bulk electric system
facilities that are not necessary for operating the interconnected transmission network. In
Order No. 743, the Commission allowed NERC to “propose a different solution that is as
effective as, or superior to, the Commission’s proposed approach in addressing the
Commission’s technical and other concerns so as to ensure that all necessary facilities are
included within the scope of the definition.” 12 The Commission directed NERC to file
the revised definition of bulk electric system and its process to exempt facilities from
inclusion in the bulk electric system within one year of the effective date of the final
rule. 13
9.

In Order No. 743-A, the Commission reaffirmed its determinations in Order

No. 743. In addition, the Commission clarified that the issue the Commission directed

Id.

Id. P 113.

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NERC to rectify was the discretion the Regional Entities have under the current
definition to define the bulk electric system in their regions without any oversight from
the Commission or NERC. 14 The Commission also clarified that the 100 kV threshold
was a “first step or proxy” for determining which facilities should be included in the bulk
electric system. 15
10.

The Commission further clarified that the statement in Order No. 743,

“determining where the line between ‘transmission’ and ‘local distribution’ lies … should
be part of the exemption process the ERO develops” was intended to grant discretion to
NERC, as the entity with technical expertise, to develop criteria to determine how to
differentiate between local distribution and transmission facilities in an objective,
consistent, and transparent manner. 16 The Commission stated that the “Seven Factor
Test” adopted in Order No. 888 could be relevant and possibly a logical starting point for
determining which facilities are local distribution for reliability purposes. 17 However, the
14

Order No. 743-A, 134 FERC ¶ 61,210 at P 11.

Id. PP 40, 67, 102-103.

Id. P 68. See Promoting Wholesale Competition Through Open Access NonDiscriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by
Public Utilities and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036
at 31,783-84 (1996), order on reh’g, Order No. 888-A, FERC Stats. & Regs. ¶ 31,048,
order on reh’g, Order No. 888-B, 81 FERC ¶ 61,248 (1997), order on reh’g, Order No.
888-C, 82 FERC ¶ 61,046 (1998), aff’d in relevant part sub nom. Transmission Access
Policy Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v.
FERC, 535 U.S. 1 (2002).
17

Order No. 743-A, 134 FERC ¶ 61,210 at P 69.

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Commission left it to NERC to determine if and how the Seven Factor Test should be
considered in differentiating between local distribution and transmission facilities for
purposes of determining whether a facility should be classified as part of the bulk electric
system. 18 Order No. 743-A re-emphasized that local distribution facilities are excluded
from the definition of Bulk-Power System and, therefore, must be excluded from the
definition of bulk electric system. 19
D.
11.

NERC Petitions

On January 25, 2012, NERC submitted two petitions pursuant to the directives in

Order No. 743: (1) NERC’s proposed revision to the definition of “bulk electric system”
which includes provisions to include and exclude facilities from the “core” definition;
and (2) revisions to NERC’s Rules of Procedure to add a procedure creating an exception
process to classify or de-classify an element as part of the “bulk electric system.”
1.
12.

Revised Definition of Bulk Electric System

In Docket No. RM12-6-000, NERC filed a petition requesting Commission

approval of a revised definition of “bulk electric system” in the NERC Glossary (NERC
BES Petition). The definition consists of a “core” definition and a list of facilities
configurations that will be included or excluded from the “core” definition. NERC
proposed the following “core” definition of bulk electric system:

Id. P 70.

Id. PP 25, 58.

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Unless modified by the [inclusion and exclusion] lists shown
below, all Transmission Elements operated at 100 kV or
higher and Real Power and Reactive Power resources
connected at 100 kV or higher. This does not include
facilities used in the local distribution of electric energy.
NERC also requested approval of the proposed “Detailed Information to Support an
Exception Request” form as satisfying the requirement in Order No. 743 that NERC
develop “technical criteria” to address exception requests. Finally, NERC requested
Commission approval of its plan for implementation of the revised definition of “bulk
electric system.”
a.
13.

Inclusions and Exclusions to the Definition of Bulk
Electric System

As part of the revised definition, NERC developed inclusions and exclusions to

eliminate discretion in application of the revised “bulk electric system” definition. The
inclusions address five specific facilities configurations to provide clarity that the
facilities described in these configurations are included in the bulk electric system.
Inclusions:
I1 - Transformers with the primary terminal and at least one
secondary terminal operated at 100 kV or higher unless excluded under
Exclusion E1 or E3.
I2 - Generating resource(s) with gross individual nameplate rating
greater than 20 MVA or gross plant/facility aggregate nameplate rating
greater than 75 MVA including the generator terminals through the highside of the step-up transformer(s) connected at a voltage of 100 kV or
above.
I3 - Blackstart Resources identified in the Transmission Operator’s
restoration plan.

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I4 - Dispersed power producing resources with aggregate capacity
greater than 75 MVA (gross aggregate nameplate rating) utilizing a system
designed primarily for aggregating capacity, connected at a common point
at a voltage of 100 kV or above.
I5 - Static or dynamic devices (excluding generators) dedicated to
supplying or absorbing Reactive Power that are connected at 100 kV or
higher, or through a dedicated transformer with a high-side voltage of
100 kV or higher, or through a transformer that is designated in
Inclusion I1.
14.

NERC also explained that the facilities described in inclusions I1, I2, I4, and I5

are each operated or connected at or above 100 kV. According to NERC, inclusion I3
encompasses blackstart resources identified in a transmission operator’s restoration plan,
which are necessary for the operation of the interconnection transmission system and
should be included in the bulk electric system regardless of their size (MVA) or the
voltage at which they are connected. NERC stated that the inclusions will further reduce
the potential for the exercise of discretion and subjectivity to exclude such configurations
from the bulk electric system.
15.

NERC explained that inclusion I1 includes transformers with the primary terminal

and at least one secondary terminal operated at 100 kV or higher unless excluded under
exclusion E1 or E3. NERC stated that transformers operating at 100 kV or higher are
part of the existing definition, but since transformers have windings operating at different
voltages, and multiple windings in some circumstances, clarification was required to
explicitly identify which transformers are included in the bulk electric system.
16.

According to NERC, inclusion I2 includes in the bulk electric system the

generator terminals through the high-side of the step-up transformers connected at a

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voltage of 100 kV or above. NERC states that this inclusion mirrors the text of the
NERC Registry Criteria (Appendix 5B of the NERC Rules of Procedure) for generating
units. 20
17.

As noted above, inclusion I3 includes blackstart resources identified in the

transmission operator’s restoration plan in the bulk electric system. NERC added
inclusion I4 to accommodate the effects of variable generation on the bulk electric system
and inclusion I5 to address static or dynamic devices dedicated to supplying or absorbing
reactive power that are connected at 100 kV or higher.
18.

NERC’s modified definition of bulk electric system also provides four exclusions

regarding facilities configurations that are not included in the bulk electric system.
Generally, the exclusions address radial systems, behind-the-meter generation and local
networks that distribute power to load:
Exclusions:
E1 - Radial systems: A group of contiguous transmission Elements that
emanates from a single point of connection of 100 kV or higher and:
a)

Only serves Load. Or,

b)
Only includes generation resources, not identified in Inclusion
I3, with an aggregate capacity less than or equal to 75 MVA (gross
nameplate rating). Or,

See section III.c.1 and III.c.2 of Appendix 5B of the NERC Rules of Procedure.

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

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Note - Elements may be included or excluded on a case-by-case basis
through the Rules of Procedure exception process.
19.

NERC explained that exclusion E1 is intended to enhance the clarity of the radial

facilities exclusion and that criteria “b” and “c” of exclusion E1 identify the maximum
amount of generation allowed on the radial facility while still qualifying for the radial
facilities exclusion. NERC added the “normally open switch” note at the end of
exclusion E1 to address a common network configuration in which two separate sets of
facilities would be recognized as radial systems and not included in the bulk electric
system are connected by a “normally open switch” which is a switch is set to the open
position for reliability purposes. 21
20.

NERC explained that the normally open switch note avoids numerous exception

requests because this configuration is common and subjecting two sets of radial facilities
that are normally unconnected to each other because the switch between them is open to
the Reliability Standards during the limited time periods when the switch is closed for
maintenance-related or outage-related circumstances is impractical and unworkable.
21.

According to NERC, exclusion E2 excludes a generating unit or units on the

customer’s side of the retail meter that serves all or part of the retail load subject to
allowing a limited amount of generating capacity to be connected and that standby, backup, and maintenance power services are provided to the generating unit. NERC stated

NOPR, 139 FERC ¶ 61,247 at P 27 (citing NERC BES Petition at 19).

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that these generating units are not necessary for the operation of the interconnected
transmission network because they serve a single retail load, provide a limited amount of
capacity to the bulk electric system, and are fully backed up by other resources.
22.

With respect to the “local network” exclusion (exclusion E3), NERC explained

that it encompasses local networks of transmission elements operated at between 100 kV
and 300 kV that distribute power to load rather than transfer bulk power across the
interconnected system. NERC further explained that local networks are not intended to
provide transfer capacity for the interconnected transmission network and such networks
should not be included in the bulk electric system, and the conditions established in
exclusion E3 are sufficient to ensure that such local networks are being used exclusively
for local distribution purposes. NERC adds that facilities used for the local distribution
of electric energy are expressly excluded from the bulk electric system by the core
definition as well as by the local network exclusion. 22
b.
23.

Detailed Information to Support an Exception Request

In response to the Order No. 743 directive to develop technical criteria to use in

addressing requests for exceptions to the definition of the bulk electric system, NERC
developed an alternative approach because it would be more feasible to develop a
common set of data and information that Regional Entities and NERC could use to

See NOPR, 139 FERC ¶ 61,247 at P 30; See also NERC BES Petition at 22-23.

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evaluate exception requests rather than to develop the detailed criteria. 23 The Detailed
Information Form contains a common set of data that entities seeking an exception must
submit with every exception request. According to NERC, the information that an
applicant may submit in support of an exception request is not limited to the Detailed
Information Form. Rather, an applicant is expected to submit all relevant data, studies
and other information that support the exception request, and the Regional Entity and
NERC may ask an applicant to provide other data and studies in addition to the Detailed
Information Form.
c.
24.

Implementation Plan for Revised Definition of
“Bulk Electric System”

NERC requested that the revised definition become effective on the first day of the

second calendar quarter after receiving applicable regulatory approval, or, in those
jurisdictions where no regulatory approval is required, on the first day of the second
calendar quarter after its adoption by the NERC Board of Trustees. NERC stated that the
proposed effective date is appropriate to provide a reasonable time between the date of
regulatory approval, which is not under the control of NERC or the industry, and the
effective date of the revised definition of bulk electric system.
25.

NERC also requested that compliance obligations for all newly-identified

elements to be included in the bulk electric system should begin twenty-four months after
the applicable effective date of the revised definition. While the Commission stated in
23

NERC BES Petition at 26.

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Order Nos. 743 and 743-A that the transition period should not exceed 18 months, NERC
explained that it is requesting a longer transition period in light of the actions that entities
will need to complete in connection with the revised definition.
2.
26.

NERC Petition for Approval of Revisions to Rules of Procedure
to Adopt an Exception Process

In Docket No. RM12-7-000, NERC filed proposed revisions to its Rules of

Procedure for the purpose of adopting an “exception process” mechanism to add elements
to, and remove elements from, the bulk electric system. NERC stated that decisions to
approve or disapprove exception requests will be made by NERC, rather than by the
Regional Entities, thereby eliminating the potential for inconsistency and subjectivity.
Further NERC explained that the exception process is “not intended to be used to resolve
ambiguous situations,” i.e., the exception process is only available after an initial
determination has been made regarding whether an element is part of or not part of the
bulk electric system through the application of the definition to the element.” 24
27.

NERC stated that an owner of an element may submit a request to the applicable

Regional Entity to include the element in, or remove it from, the bulk electric system. 25
In addition, a Regional Entity, planning authority, reliability coordinator, transmission
operator, transmission planner, or balancing authority that has the elements covered by an

NOPR, 139 FERC ¶ 61,247 at P 38, quoting NERC ROP Petition at 10-11.

See NOPR, 139 FERC ¶ 61,247 at PP 39-45, detailing the three-step exception

process.

Docket Nos. RM12-6-000 and RM12-7-000

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exception request within its scope of responsibility may submit an exception request for
the inclusion of an element or elements owned by a registered entity. Upon receiving an
exception request, the applicable Regional Entity will review the exception request and
will issue a recommendation to NERC. NERC will evaluate the Regional Entity
recommendation, the accompanying technical documents, the Technical Review Panel
opinion (if any), and any comments submitted, and will issue a final determination.
Finally, NERC stated that an exception request will be subject to review to verify
continuing justification for the exception. NERC also stated that an entity must certify
every 36 months to the appropriate Regional Entity that the basis for the exception
request remains valid. Further, NERC also included a method for an entity to challenge
the NERC decision on an exception request to a NERC Compliance Committee. The
entity may also appeal the final NERC decision to the Commission within 30 days
following the date of the Compliance Committee‘s decision, or within such time period
as the Commission’s legal authority permits.
28.

In response to the Order No. 743 Commission statement that NERC should

maintain a list of exempted facilities that can be made available to the Commission upon
request, NERC maintained that the proposed exception process does not include
provisions for such a list, adding that this is an internal administrative matter for NERC
to implement that does not need to be embedded in the Rules of Procedure. 26 NERC

NERC ROP Petition at 49.

Docket Nos. RM12-6-000 and RM12-7-000

- 20 -

stated it will develop a specific internal plan and procedures for maintaining a list of
facilities for which exceptions have been granted.
E.
29.

Commission NOPR

The Commission issued the NOPR on June 22, 2012, and required that comments

be filed within 60 days after publication in the Federal Register, or September 4, 2012.
While seeking comment on various provisions of NERC’s petitions, the NOPR proposed
to approve NERC’s modification to the currently-effective definition of bulk electric
system and changes to the Rules of Procedure to add the exception process. The NOPR
also requested comment on the appropriate role for NERC and the Commission in the
identification of bulk electric system facilities and elements.
30.

The Commission received more than sixty comments on the proposed rulemaking.

NERC and other commenters, inter alia, respond to the Commissions questions regarding
the application of the proposed bulk electric system definition. These comments have
assisted us in developing this Final Rule. A list of commenters appears in Appendix A to
this Final Rule. 27
II.

Discussion

31.

For the reasons discussed below, the Commission adopts the NOPR proposal and

approves NERC’s revised definition of bulk electric system and the specific inclusions
27

Further, NERC, MISO, Consumers, MISO Transmission Owners, Barrick, ITC
Companies, and AMP filed reply comments. Although the NOPR did not allow for reply
comments, we will accept these pleadings because they have assisted our understanding
of NERC’s proposal in this Final Rule.

Docket Nos. RM12-6-000 and RM12-7-000

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and exclusions set forth in the definition, as just, reasonable, not unduly discriminatory or
preferential, and in the public interest. Likewise, the Commission approves NERC’s
revised Rules of Procedure that set forth an exceptions process for determining whether
elements and facilities are included in the bulk electric system on a case-by-case basis.
While we discuss below specific provisions of the NERC proposal, provisions of the
modified bulk electric system definition and related Rules of Procedures not specifically
mentioned are approved in this Final Rule. Below, we address the following matters:
(A) approval of the NERC definition; (B) issues concerning the “core” bulk electric
system definition; (C) local distribution; (D) exclusions and inclusions in the bulk electric
system definition; and (E) NERC’s Rules of Procedures exceptions process.
A.

Approval of the Revised Bulk Electric System Definition

NOPR Proposal
32.

In the NOPR, the Commission proposed to approve a modification to the

currently-effective definition of “bulk electric system” because it removes language
allowing for regional discretion in the currently-effective bulk electric system definition,
establishes a bright-line threshold that includes all facilities operated at or above 100 kV
and identifies specific categories of facilities and configurations as inclusions and
exclusions to provide clarity in the definition of bulk electric system. 28

NOPR, 139 FERC ¶ 61,247 at P 18.

Docket Nos. RM12-6-000 and RM12-7-000

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Comments
33.

NERC, Regional Entities, trade organizations and a majority of commenters from

various industry segments support the Commission’s proposal to approve NERC’s
proposals. APPA “strongly support[s]” NERC’s proposed definition. 29 EEI supports
NERC’s proposals and states that any changes to the definition should be made through
the standard development process, not through directives. LPPC, NRECA, and WPPC
also support approval of the definition and urge the Commission to adopt the NERC
proposal and to refrain from pursuing additional regulatory mandates. Snohomish and
WPPC agree that NERC has developed a “clear and workable definition” of the bulk
electric system that markedly improves the existing definition. They also opine that the
definition creates a foundation for reliability that focuses on core elements of the
interconnected bulk transmission system, and provides a means for lower-voltage or
peripheral elements of the electric system to be excluded from the bulk electric system.
Other commenters state that the definition is consistent, repeatable and verifiable and will
provide clarity that will assist NERC and affected entities in implementing Reliability
Standards.
34.

Other commenters, while noting that the NOPR represents a “positive

development,” believe additional modifications are necessary “to achieve consistency

APPA Comments at 7.

Docket Nos. RM12-6-000 and RM12-7-000

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within the limitations” of section 215 of the FPA and the Commission’s directives in
Order Nos. 743 and 743-A. 30
35.

Some commenters oppose approval on various grounds. For example, NARUC is

concerned that, even though the definition appears to honor the exclusion of local
distribution from the bulk electric system, the definition does not go far enough to ensure
“that a costly analysis . . . is not required to be performed with regard to local distribution
elements that are by law excluded.” 31 NARUC is also concerned that exclusion E3 (local
networks) will exclude some, but not all, local distribution elements. According to
NARUC, this could cause confusion as to the status of local distribution elements that are
not also described in exclusion E3. Consequently, NARUC believes that the definition
does not appropriately reflect the statutory limits of the Commission’s authority under
FPA section 215 and its implementation could unnecessarily overreach into state
jurisdictional local distribution facilities.
36.

NYPSC believes that the proposed definition will likely result in classifying

certain facilities as part of the bulk electric system despite their being unnecessary for
operating an interconnected transmission network. NYPSC states that the majority of the
138 kV lines within New York City serve as direct feeders to the networked distribution
system serving load. NYPSC also states that there is no technical justification for a

Holland Comments at 2.

NARUC Comments at 4.

Docket Nos. RM12-6-000 and RM12-7-000

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100 kV bright-line definition. 32 NYPSC contends that, even with the exclusions and the
exception process, it is uncertain whether an exclusion or exception would apply to the
138 kV lines noted above. NYPSC believes that this approach presumes the Commission
has jurisdiction over all facilities operated at 100 kV or above, unless proven otherwise,
which inappropriately shifts the legal and technical burdens to the states.
37.

NYPSC, NARUC, and the Massachusetts DPU argue that the revised definition

does not include a cost impact analysis that weighs costs related to the modified
definition against the reliability benefits that the new definition would achieve. They
contend that the lack of a cost-benefit analysis accompanying the revised definition
represents an additional gap in the process for developing this Reliability Standard.
NYPSC and the Massachusetts DPU contend that the costs of compliance with the
definition will be excessive. NYPSC states that, according to NERC and the Northeast
Power Coordinating Council, Inc. (NPCC), it would exceed $280 million. Thus, they
advocate that, given the significant costs that the revised definition could impose on
consumers, the Commission should reject NERC’s proposed modifications until they are
supported by a cost-benefit analysis.
Commission Determination
38.

Pursuant to section 215(d)(2) of the FPA, we approve NERC’s revised definition

of bulk electric system and the specific inclusions and exclusions set forth in the

NYPSC Comments at 3. See also Massachusetts DPU Comments at 6-7.

Docket Nos. RM12-6-000 and RM12-7-000

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definition, as just, reasonable, not unduly discriminatory or preferential, and in the public
interest. NERC’s proposal provides additional clarity and granularity that will allow for
greater transparency and consistency in the identification of elements and facilities that
make up the bulk electric system and is responsive to the technical and policy concerns
discussed in Order No. 743.
39.

NERC’s proposal adequately ensures that all facilities necessary for operating an

interconnected electric energy transmission network are included under the bulk electric
system. As we observed in Order No. 743,
“[U]niform Reliability Standards, and uniform
implementation, should be the goal and the practice, the rule
rather than the exception, absent a showing that a regional
variation is superior or necessary due to regional differences.
Consistency is important as it sets a common bar for
transmission planning, operation, and maintenance necessary
to achieve reliable operation. . . . [W]e have found several
reliability issues with allowing Regional Entities broad
discretion without ERO or Commission oversight. 33
The core definition eliminates the provision that allows broad regional discretion, and
establishes a 100 kV bright-line threshold for determining, in the first instance, those
elements and facilities that are included in the bulk electric system. The definition also
includes specific inclusions and exclusions that address typical system facilities and
configurations such as generation and radial systems, providing additional granularity
that improves consistency and provides a practical means to determine the status of

Order No. 743, 133 FERC ¶ 61,150 at P 82 (footnote omitted).

Docket Nos. RM12-6-000 and RM12-7-000

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common system configurations. Thus, we agree with commenters that the modified
definition is consistent, repeatable and verifiable and will provide clarity that will assist
NERC and affected entities in implementing Reliability Standards.
40.

Accordingly, the Commission finds that NERC’s proposal satisfies the directives

of Order No. 743 to develop modifications to the currently-effective definition of bulk
electric system to ensure that the definition encompasses all facilities necessary for
operating an interconnected transmission network and remove the Regional Entity
discretion that currently allows for regional variations without review or oversight. We
also find that NERC’s definition satisfies the Commission’s technical concerns in Order
No. 743 through the use of a bright-line 100 kV threshold, with specific inclusions and
exclusions within the definition, for identifying bulk electric system elements and the
establishment of an exception process for facilities that are not necessary for operating
the interconnected transmission network.
41.

Moreover, we are not persuaded by the rationale of the commenters who advocate

that we remand the NERC proposal. We disagree with NYPSC that the proposed
definition will likely result in classifying certain facilities as part of the bulk electric
system despite their being unnecessary for operating an interconnected transmission
network. An entity that believes its facility is improperly classified as part of the bulk
electric system by application of the definition may avail itself of the exception process to
have the facility removed from inclusion in the definition. With regard to NYPSC’s
claim that there is no technical justification for the 100 kV threshold, in Order No. 743,
the Commission found “that many facilities operated at 100 kV and above have a

Docket Nos. RM12-6-000 and RM12-7-000

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significant effect on the overall functioning of the grid and that the majority of 100 kV
and above facilities in the United States operate in parallel with other high voltage and
extra high voltage facilities, interconnect significant amounts of generation sources and
operate as part of a defined flowgate.” The Commission explained that this “illustrates
their parallel nature and therefore their necessity to the reliable operation of the
interconnected transmission system” and that “[p]arallel facilities operated at 100-200 kV
will experience similar loading as higher voltage parallel facilities at any given time and
the lower voltage facilities will be relied upon during contingency scenarios.” 34 In
addition, in Order No. 743 the Commission identified the reliability concerns created by
the current definition and a method to ensure that certain facilities needed for the reliable
operation of the nation’s bulk electric system are subject to mandatory and enforceable
Reliability Standards. The Commission noted that the material impact assessments
implemented, for example, by NPCC “are subjective in nature, and results from such tests
are inconsistent in application, as shown through the exclusion of facilities that clearly
are needed for reliable operation.” 35 The Commission also found that the vast majority of
100 kV and above facilities are part of parallel networks with high voltage and extra high
voltage facilities and are necessary for reliable operation. 36 Thus, the Commission found

Order No. 743, 133 FERC ¶ 61,150 at P 73.

Order No. 743, 133 FERC ¶ 61,150 at P 96.

Id.

Docket Nos. RM12-6-000 and RM12-7-000

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that NERC should “establish a uniform definition that eliminates subjectivity and
regional variation in order to ensure reliable operation of the bulk electric system” and
that “the existing NPCC impact test is not a consistent, repeatable, and comprehensive
alternative to the bright-line, 100kV definition we prefer.” 37
42.

NERC already applies a general 100 kV threshold, and today all regions, with the

exception of NPCC, also apply a 100 kV threshold. We also note NYPSC cites to the
same methodology that the Commission found dubious in Order No. 743-A where the
Commission explained that it had:
serious concerns about NPCC’s [] methodology. The
Commission stated that, as a threshold matter, the material
impact tests proffered by commenters did not measure
whether specific system elements were necessary for
operating the system, but, rather, measure the impact of
losing the element. The Commission’s extensive discussion
of the NPCC test further noted that the NPCC methodology is
unduly subjective, and results in an inconsistent process that
excludes facilities necessary for operating the bulk electric
system from the definition. 38
43.

We also disagree with NYPSC’s contention that this approach presumes the

Commission has jurisdiction over all facilities operated at 100 kV or above, unless
proven otherwise, which inappropriately shifts the legal and technical burdens to the
states. As noted above and in Order No. 743-A, the suggested solution of a 100 kV

37
38

Id.

Order No. 743-A, 134 FERC ¶ 61,210 at P 47 (footnotes omitted) (citing Order
No. 743, 133 FERC ¶ 61,150 at PP 74, 76 and 85).

Docket Nos. RM12-6-000 and RM12-7-000

- 29 -

threshold paired with an exemption process, in essence, “merely clarifies the current
NERC definition, which classifies facilities operating at 100 kV or above as part of the
bulk electric system.” 39 Thus, we are not persuaded that NERC’s proposal
inappropriately shifts legal or technical burdens. In addition, the Commission has
maintained that the bright-line threshold would be a “first step or proxy” in determining
which facilities should be included in the bulk electric system. The definition, coupled
with the exception process will ensure that facilities not necessary for the operation of the
interconnected transmission network will be properly categorized. Further, the
Commission’s approach for determining whether elements are used for local distribution
on a case-by-case basis, as discussed more fully below, addresses NARUC’s concerns as
to the status of local distribution elements that are not also described in exclusion E3 and
that the definition does not appropriately reflect the statutory limits of the Commission’s
authority under FPA section 215 as well as NYPSC’s concern about the Commission
having jurisdiction over all facilities operated at 100 kV or above. With regard to the
specific examples cited by NYPSC, we find that such determinations are more
appropriate for the exception process and beyond the scope of this proceeding.
44.

We also disagree with NYPSC and Massachusetts DPU that NERC’s proposal is

flawed because NERC’s petition did not include a formal cost analysis. Order No. 743
did not require such an analysis. Rather, Order No. 743 tasked NERC with certain

Order No. 743-A, 134 FERC ¶ 61,210 at P 36.

Docket Nos. RM12-6-000 and RM12-7-000

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directives and NERC’s petitions are intended to comply with those directives. In
addition, while cost of implementation can be relevant in Commission review of a
proposed Reliability Standard, the foremost concern is the reliability of the
interconnected transmission network. 40 Therefore, we find that NERC’s petition
adequately addresses the Commission’s Order No. 743 directives.
B.

The Core Definition of Bulk Electric System

NOPR Proposal
45.

In the NOPR, the Commission proposed to approve the bulk electric system

“core” definition developed by NERC which states as follows:
Unless modified by the lists shown below, all Transmission
Elements operated at 100 kV or higher and Real Power and
Reactive Power resources connected at 100 kV or higher.
This does not include facilities used in the local distribution
of electric energy.
In the NOPR, the Commission noted that NERC’s proposal appears to satisfy the
objectives set forth in Order No. 743. The Commission also stated that NERC’s “core”
definition establishes the fundamental threshold for inclusion of facilities in the bulk
electric system as those that are operated at 100 kV or higher, if they are transmission
elements, or are connected at 100 kV or higher, if they are real power or reactive power
resources. In addition, the Commission stated that the core definition also establishes a
100 kV criterion as a bright-line threshold, rather than as a general guideline as in the

See Order No. 672, FERC Stats. & Regs. ¶ 31,204 at P 330.

Docket Nos. RM12-6-000 and RM12-7-000

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current definition, i.e., the phrase “generally operated at” in the current definition is
eliminated.
Comments
46.

NERC and a majority of commenters including most trade organizations believe

that the core definition satisfies the Order No. 743 directives. By eliminating the
language “as defined by the Regional Reliability Organization” and “generally operated
at,” they state that the revised definition eliminates the subjectivity and regional
variations that are possible under the current definition. 41 WPPC supports the NERC
proposals but is concerned that the NOPR could be read as attempting to impose
nationally uniform standards without allowing regional variation. WPPC believes that
FPA section 215 requires deference to Regional Entities in developing Reliability
Standards and is concerned that the NOPR’s references to uniformity of the definition of
bulk electric system must be limited by the deference accorded to Regional Entities in the
statute.
47.

Other commenters seek modification of the core definition. For example, PSEG

Companies believe that the core definition will introduce subjectivity because it omits
facilities and systems necessary to operate the facilities above 100 kV, such as protection

See e.g., NERC, APPA, EEI, NRECA, ELCON, the Regional Entities,
NV Energy, National Grid, Southern Companies, Duke Energy, International
Transmission Company, TAPS, BPA, Hydro One and IESO, and Snohomish.

Docket Nos. RM12-6-000 and RM12-7-000

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systems, underfrequency load shedding systems and control centers. 42 PSEG Companies
suggest the addition of demand response above 75 MW within a balancing authority into
the definition. In the same vein, ISO New England suggests including capacity resources
connected below 100 kV and identifies protection systems, under-frequency and undervoltage load shedding systems, inclusion of non-bulk electric system facilities into
transmission and operational planning, and control rooms as items that are important to
operating the bulk electric system but not in the definition. ISO New England, therefore,
believes that NERC should make the determination whether or not these facilities and
control systems must comply with Reliability Standards independent of their designation.
Valero seeks clarification that the core definition excludes elements “that are owned and
used by an industrial end-user to serve its load.” 43
48.

Similarly, IUU and Barrick state that industrial generators are intrastate facilities

that serve only the owner’s load and believe that they are excluded from the jurisdiction
of the Commission. 44 IUU and Barrick believe that some of the Reliability Standards
appear to reach beyond the limits imposed by Congress and into these intrastate industrial
generator facilities. According to IUU and Barrick, the definition needs an additional
exclusion that excludes these intrastate facilities.

PSEG Comments at 4-6.

Valero Comments at 3.

See also Barrick Reply Comments at 2-3.

Docket Nos. RM12-6-000 and RM12-7-000
49.

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Several commenters that support the NERC proposal also comment on matters not

specifically raised in the NOPR. APPA recommends that the Commission state that it
expects NERC will continue to treat the Phase 2 bulk electric system definition project as
a priority in the 2013 budget year. APPA also requests that the Commission direct
NERC to expedite the deregistration process for those entities or facilities that are no
longer designated as part of the bulk electric system under the new definition or through
application of the Rules of Procedure exception process. APPA believes that an
expedited deregistration process would reduce the associated burden on entities that are
no longer required to document compliance due to the revisions in the bulk electric
system definition and the exception process.
50.

Redding requests that, due to the connection between the definition and the NERC

Functional Model, the Commission should direct revisions to the NERC Functional
Model to accommodate entities that own or operate facilities that technically qualify as
transmission but that have a limited, if any, impact on reliability.
Commission Determination
51.

We find that the “core” definition satisfies the Order No. 743 directives to remove

the subjectivity and regional variations that are possible under the current definition by
eliminating the language “as defined by the Regional Reliability Organization” and
“generally operated at,” in the revised definition. The “core” definition, quoted above,
establishes the fundamental threshold for inclusion of facilities in the bulk electric system
as those that are operated at 100 kV or higher, if they are transmission elements, or are
connected at 100 kV or higher, if they are real power or reactive power resources. The

Docket Nos. RM12-6-000 and RM12-7-000

- 34 -

core definition also establishes a 100 kV criterion as a bright-line threshold, rather than as
a general guideline as in the current definition, i.e., the phrase “generally operated at” in
the current definition is eliminated. The core definition also continues to capture
equipment associated with the facilities included in the bulk electric system.
52.

Other than the directive to modify exclusion E3 as discussed below, the

Commission declines to direct NERC to further modify the definition or the specified
inclusions and exclusions. Specifically, we will not direct further revisions to address
demand response, protection systems and other facilities or equipment as separate
inclusions or exclusions as advocated by ISO New England, PSEG Companies, IUU or
Barrick. 45 Rather, NERC has indicated that it has initiated a Phase 2 of the development
project for the definition of bulk electric system, and interested stakeholders have the
opportunity in the first instance to raise their ideas in that forum regarding possible
additions, inclusions and exclusion set forth in the bulk electric system definition. 46

We note that, in Order No. 693, the Commission recognized demand side
management as a type of resource for contingency reserve that should be treated on a
comparable basis with other resources; and must meet similar technical requirements as
other resources providing this service. Order No. 693, FERC Stats. & Regs. ¶ 31,242 at
PP 330-335.
46

According to NERC, due to time constraints in meeting the compliance deadline
set in Order No. 743, NERC separated the development of the revised definition into two
phases. See NERC Petition at 46. NERC stated that Phase 1 culminated in the language
of the proposed modified definition that is the primary subject of this Final Rule. Phase 2,
which is ongoing, intends to focus on other industry concerns raised during Phase 1.

Docket Nos. RM12-6-000 and RM12-7-000
53.

- 35 -

Moreover, in the NOPR we acknowledged NERC’s statement that the core

definition also continues to capture equipment associated with the facilities included in
the bulk electric system. 47 In the NOPR we agreed with NERC that while the new
definition does not use the term “associated equipment,” the phrase is included in the
definition through the defined term “Transmission Elements.” 48 We adopt the NOPR
proposal that the term “associated equipment,” is included in the definition through the
defined term “Transmission Elements” which could include the facilities identified by
PSEG Companies.
54.

With regard to Valero’s clarification, that the core definition excludes elements

“that are owned and used by an industrial end-user to serve its load,” Valero can either
seek to have this matter addressed generically, if appropriate, in NERC’s Phase 2, or seek
to have this addressed on a case-by-case basis in the exception process that we approve in
this Final Rule.
55.

We decline, as APPA requests, to direct NERC to expedite the deregistration

process for those entities who own or operate facilities that are no longer designated as
part of the bulk electric system. We do not expect there to be significant numbers of
entities either needing to register or deregister due to the change in definition. 49 To the

NOPR, 139 FERC ¶ 61,247 at PP 16, 55.

NOPR, 139 FERC ¶ 61,247 at P 55 n.69.

See NOPR, 139 FERC ¶ 61,247 at P 132.

Docket Nos. RM12-6-000 and RM12-7-000

- 36 -

extent entities seek to deregister, NERC, as the ERO, can determine the appropriate
timeframe for making such a determination. We also decline to order NERC to modify
the Functional Model as Redding requests as the issues Redding raises are outside the
scope of this proceeding. In response to WPPC’s concern, this Final Rule adopts the
revised definition which eliminates regional discretion for determining whether an
element is part of the bulk electric system. It does not address or subsume the ability of
Regional Entities to develop Reliability Standards for their regions that meet criteria for
regional Reliability Standards.
56.

In summary, the Commission finds that NERC’s proposal adequately addresses

the concerns articulated in Order No. 743 regarding regional discretion and the need for a
consistent approach and satisfies the concerns regarding the elimination of
inconsistencies across regions.
C.

Local Distribution

NOPR Proposal
57.

The NOPR noted that, although Order No. 743 acknowledged that “Congress has

specifically exempted ‘facilities used in the local distribution of electric energy’” it still is
necessary to determine which facilities are local distribution, and which are
transmission. 50 The NOPR observed that Order No. 743-A stated that “[w]hether
facilities are used in local distribution will in certain instances raise a question of fact,

Order No. 743-A, 134 FERC ¶ 61,210 at P 67.

Docket Nos. RM12-6-000 and RM12-7-000

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which the Commission has jurisdiction to determine.” 51 In addressing what constitutes
local distribution, NERC stated in its petition that facilities used for the local distribution
of electric energy are expressly excluded from the bulk electric system by the core
definition as well as by the local network exclusion, exclusion E3. 52 In the NOPR, the
Commission requested comment regarding how NERC’s proposed definition is
responsive to the Commission’s directives in Order Nos. 743 and 743-A. Specifically,
the Commission requested comment on how NERC’s proposal adequately differentiates
between local distribution and transmission facilities in an objective, consistent, and
transparent manner.
Comments
58.

NERC and numerous commenters state that the definition adequately

differentiates between local distribution and transmission. 53 NERC states that the revised
definition distinguishes between bulk electric system facilities and non-bulk electric
system facilities and local distribution facilities fall into the latter category. 54 NERC adds
that, by applying the definition, facilities used for local distribution will not be included

NOPR, 139 FERC ¶ 61,247 at P 58, quoting Order No. 743-A, 134 FERC
¶ 61,210 at P 67.
52

NOPR, 139 FERC ¶ 61,247 at P 59, (citing NERC BES Petition at 16).

See e.g., APPA Comments at 8-9, EEI Comments at 4, NRECA Comments at 7,
Hydro One Comments at 3, NV Energy Comments at 3-4, PHI Companies Comments
at 3, TAPS Comments at 3, BPA Comments at 3, WPPC Comments at 27-30.
54

NERC Comments at 6.

Docket Nos. RM12-6-000 and RM12-7-000

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due to their specific exclusion in the core definition. NERC and others also state that the
exception process can be used to determine whether facilities are used for local
distribution when an entity believes such facilities have been improperly included. 55
59.

While ELCON generally agrees with NERC’s position, ELCON comments that

NERC’s proposal does not fully respond to the Commission’s directive in Order Nos. 743
and 743-A. ELCON maintains that a definition of “local distribution” is necessary to
avoid including assets that are clearly used for the local distribution as part of the bulk
electric system. ELCON expresses concern that industrial consumers’ equipment that is
rated 100 kV or above will be designated as a component of the bulk electric system,
irrespective of whether such elements are material for the reliable operation of the
interconnected Bulk-Power System. ELCON recommends that the Commission address
this issue by establishing a joint working group with NARUC to draft a proposed
definition of local distribution to exclude certain facilities from the scope of the definition
of bulk electric system.
60.

Some entities that generally agree with NERC also suggest clarifications to

improve the distinction between local distribution and transmission. MISO suggests that,
to identify local distribution facilities, the Commission direct NERC to clarify the last
sentence of the core definition by “cross-referencing” the exclusion criteria in the

See e.g. WPPC Comments at 28.

Docket Nos. RM12-6-000 and RM12-7-000

- 39 -

definition. 56 Snohomish requests that the Commission clarify that the Seven Factor Test
established in Order No. 888 is one element that can be used to evaluate an exception
request in addition to other engineering and technical considerations. 57
61.

Other commenters contend that NERC’s proposal does not adequately

differentiate between local distribution and transmission facilities or reflect the statutory
limits of the Commission’s authority under FPA section 215. 58 As noted above, NARUC
states that the NERC definition does not appropriately reflect the statutory limits of the
Commission’s authority under Federal Power Act Section 215 and its implementation
could unnecessarily overreach into state jurisdictional local distribution facilities.
NARUC maintains that, while the definition of bulk electric system appears to exclude
local distribution by restating the law, the definition does not go far enough to ensure that
a costly analysis applying for an “exception” is not required to be performed with regard
to local distribution elements that are by law “excluded.” NARUC contends that the
mere fact that a subset of local distribution elements expressly excluded from the bulk
electric system by the core definition are specifically identified in exclusion E3 could
cause confusion as to the status of local distribution elements that are not also described
in E3. Similarly, the Steel Manufacturers Association states that the Commission cannot

MISO Comments at 4.

Snohomish Comments at 3.

E.g., NARUC, Holland, NYPSC, and SmartSenseCom.

Docket Nos. RM12-6-000 and RM12-7-000

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allow NERC’s exception process to determine the boundaries of the Commission’s
jurisdiction.
62.

Consumers Energy believes that the definition does not differentiate between

transmission and local distribution because “Transmission Elements” and “local
distribution” are undefined. Consumers Energy states that the Commission should clarify
that any facilities that have been found by the Commission to be local distribution
pursuant to the Seven Factor Test are also local distribution under FPA section 215 and
therefore outside the bulk electric system. 59 Consumers references a prior Commission
declaratory order accepting the Michigan Public Service Commission’s determination of
transmission and local distribution facilities. 60 Consumers notes that it sold all of its
“bulk electric system elements” to Michigan Electric Transmission Company, who is the
registered transmission owner. ITC Companies and MISO filed reply comments
requesting that the Commission reject the coordination and continuity aspect of
Consumers’ proposal to automatically exclude from the definition those facilities that are
“in series” with transmission facilities that are included in the bulk electric system
definition. 61 In addition, they state that this is not the proper proceeding to address

Consumers Comments at 3-8.

Consumers Comments at 4 (citing July 29, 1998 letter order in Docket
No. EL98-21-000).
61

ITC Reply Comments at 6-7.

Docket Nos. RM12-6-000 and RM12-7-000

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whether specific facilities may or may not be part of the bulk electric system. Consumers
filed a motion to strike the MISO reply comments.
63.

Portland is concerned that the Commission is assessing its reliability jurisdiction

without addressing “the inconsistency between its reliability jurisdiction and its
traditional ‘transmission’ jurisdiction under FPA section 201(b).” Portland states that the
Commission could clarify that for entities who apply the local distribution exception in
good faith, any future regulatory determination that such distribution facilities are to be
treated as part of the bulk electric system within the scope of FPA section 215 regulation
will be prospective only. 62
64.

Holland argues that, aside from the exclusions in the core definition, there are no

criteria or guidelines that exclude local distribution facilities from the bulk electric
system. Holland also argues that if an entity challenges a registration, there is no
guidance as to what information NERC will consider whether to recognize the facilities
in question as local distribution and exclude them from the bulk electric system. Holland
contends that the proposed Rules of Procedure fail to provide any distinction between
those facilities that must be excluded because they are local distribution versus those that
should be excluded because, although they meet the [bulk electric system] bright-line
criteria, they are not necessary for the reliable operation of the interconnected
transmission system. Holland claims that the exception process does not make “any

Portland Comments at 4.

Docket Nos. RM12-6-000 and RM12-7-000

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distinction between criteria necessary for determining those facilities that must be
excluded because they are local distribution versus those that should be excluded because
they [] meet the [bulk electric system] criteria, but are not material.” 63 Holland adds that
“because the exclusions are not comprehensive, and because the ‘exceptions’ process
provides no further guidance on the proper exclusion of these facilities, there would be no
basis to support a conclusion that the NOPR has effectively and transparently identified,
let alone justified, a second class or test for identifying local distribution for purposes of
Section 215 of the FPA.” 64 Similarly, Massachusetts DPU comments that exception
requests will inevitably involve difficult questions regarding whether a facility is “used in
the local distribution of electric energy,” an area over which states have exclusive
authority under the FPA. 65
65.

Valero requests that the Commission direct NERC to develop criteria based on a

“primary function test” to exclude facilities used in local distribution. In addition, Valero
states that the Commission should “provide guidance to NERC by [] stating that, to
constitute distribution, a facility need not be used exclusively for distribution purposes. 66
Further, Valero contends that NERC’s “distribution use only” position contradicts the
63

Holland Comments at 6.

Holland Comments at 9. See also Barrick Reply Comments at 2.

Massachusetts DPU Comments at 10.

Valero Comments at 8-12 (emphasis in original) (citing Detroit Edison v.
FERC, 334 F.3d 48, 54 (D.C. Cir. 2003)).

Docket Nos. RM12-6-000 and RM12-7-000

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plain language of sections 201 and 215 of the FPA. Valero states that its “discrete on-site
electrical equipment” is designed only to serve load at its refineries. While the facilities
may enhance the reliability of electric service, Valero asserts they are only used by an
industrial end-user of electricity for “the local distribution of electric energy” and must be
excluded from the bulk electric system. The Power Agencies ask for clarification of
footnote 79 in the NOPR and assume that the Commission is clarifying that certain
facilities may not satisfy the revised definition, but may constitute transmission facilities
for purposes other than applying FPA section 215. 67
Commission Determination
66.

For the reasons discussed below, we find that NERC’s “core” definition of bulk

electric system definition, together with exclusion E3 (local networks), is consistent with
the section 215 exclusion of local distribution facilities. We also find that, while NERC’s
case-by-case exceptions process is appropriate to determine the technical issue of
whether facilities are part of the bulk electric system, the jurisdictional question of
whether facilities are used in local distribution should be decided by the Commission.
67.

NERC’s “core” definition provides a 100 kV threshold for determining whether

elements or facilities are included in the bulk electric system. As we indicated in Order
No. 743, the 100 kV threshold is a reasonable “first step or proxy” for determining which
facilities should be included in the bulk electric system. Indeed, it is reasonable to
67

See NOPR, 139 FERC ¶ 61,247 at P 60 n.79 stating that “an element that falls
outside of the definition of bulk electric system is not necessarily local distribution.”

Docket Nos. RM12-6-000 and RM12-7-000

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anticipate that this threshold will remove from the bulk electric system the vast majority
of facilities that are used in local distribution, which tend to be operated at lower, sub-100
kV voltages. Moreover, applying the four exclusions in NERC’s proposed definition
should serve to further exclude facilities used in local distribution from the bulk electric
system. In particular, as NERC indicates, exclusion E3 (local networks) – although
not synonymous with local distribution - should serve to reasonably exclude many above100 kV facilities that are used in local distribution. Based on the information provided in
NERC’s petition, as well as the supporting comments of EEI and others, we anticipate
that the “core” definition together with exclusion E3 should provide a reasonable means
to accurately and consistently determine on a generic basis whether facilities are part of
the bulk electric system. In other words, most local distribution facilities will be
excluded by the 100 kV threshold or exclusion E3 without needing to seek a Commission
jurisdictional determination. Accordingly, we find this aspect of NERC’s petition
reasonable.
68.

In addition to the definition, NERC also submitted revisions to the Rules of

Procedure (discussed below in greater detail) that allow for a case-by-case exception
process. Included in this process is an opportunity for entities to seek to exclude facilities
from the bulk electric system because they are used in local distribution. NERC’s
petition does not provide criteria or guidance that it would apply in the case-by-case
exception process to determine whether an element above 100 kV should be excluded as

Docket Nos. RM12-6-000 and RM12-7-000

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local distribution, as directed in Order No. 743. 68 Thus, we cannot conclude that the
case-by-case exception process will “adequately differentiate[] between local distribution
and transmission facilities in an objective, consistent, and transparent manner.” 69
69.

In Order No. 743, the Commission stated that determining the line between

transmission and local distribution should be part of the exception process and left it to
NERC in the first instance to determine how to make such a determination. 70
After further review of NERC’s proposal in this proceeding, and upon consideration of
the comments submitted, we believe that it is more appropriate that the Commission
make such case-by-case jurisdictional determinations when necessary, and to apply the
Seven Factor Test set forth in Order No. 888 to make such determinations. The
determination whether an element or facility is “used in local distribution,” as the phrase
is used in the FPA, requires a jurisdictional analysis that is more appropriately performed

The Commission, in Order No. 743-A, explained that “the Seven Factor Test
could be relevant and possibly is a logical starting point for determining which facilities
are local distribution for reliability purposes, while also allowing NERC flexibility in
applying the test or developing an alternative approach as it deems necessary.” Order
No. 743-A, 134 FERC ¶ 61,210 at P 69. NERC, in its petition, did not adopt a specific
test or criteria for determining whether a facility is local distribution, but indicated that an
entity seeking an exception for local distribution facilities could provide a “seven factor”
analysis as one means to support the petition. NERC BES Petition at 49.
69

See NOPR, 139 FERC 61,247 at P 59.

Order No. 743, 133 FERC ¶ 61,150 at P 38.

Docket Nos. RM12-6-000 and RM12-7-000

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by the Commission. 71 Further, Commission review of whether a facility is used in
local distribution comports with relevant legal precedent. As we explained in Order
No. 743-A, “[w]hether facilities are used in local distribution will in certain instances
raise a question of fact, which the Commission has jurisdiction to determine.” 72
70.

As noted above, application of the “core” definition and the four exclusions should

serve to exclude most facilities used in local distribution from the bulk electric system.
However, there may be certain circumstances that present a factual question as to whether
a facility that remains in the bulk electric system after applying the “core” definition and
the four exclusions should nonetheless be excluded because it is used in local
distribution. In such circumstances, which we expect will be infrequent, an entity must
petition the Commission seeking a determination that the facility is used in local

Standardization of Generator Interconnection Agreements and Procedures,
Order No. 2003, FERC Stats. & Regs. ¶ 31,146, at P 803 (2003), order on reh’g, Order
No. 2003-A, FERC Stats. & Regs. ¶ 31,160, order on reh’g, Order No. 2003-B, FERC
Stats. & Regs. ¶ 31,171 (2004), order on reh’g, Order No. 2003-C, FERC Stats. & Regs.
¶ 31,190 (2005), aff'd sub nom. Nat’l Ass’n of Regulatory Util. Comm’rs v. FERC, 475
F.3d 1277 (D.C. Cir. 2007), cert. denied, 552 U.S. 1230 (2008)(“‘Local distribution’ is a
legal term; under FPA Section 201(b)(1), the Commission lacks jurisdiction over local
distribution facilities.”).
72

Order No. 743-A, 134 FERC ¶ 61,210 at P 67 and n.78, (citing California
Pacific Electric Co., LLC, 133 FERC ¶ 61,018 at n.59 (2010) (citing FPC v. Southern
California Edison Co., 376 U.S. 205, 210 n.6 (1964) (asserting that “the Supreme Court
has determined that whether facilities are used in local distribution involves a question of
fact to be decided by the [Commission] as an original matter.”))). See also Connecticut
Light & Power Co. v. Federal Power Commission, 324 U.S. 515, 534-35 (1945).

Docket Nos. RM12-6-000 and RM12-7-000

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distribution. 73 Such petitions should include information that will assist the Commission
in making such determination, and notice of the petition must be provided to NERC and
relevant Regional Entities.
71.

In addressing such petitions, the Commission will apply the Seven Factor Test set

forth in Order No. 888. In Order No. 888, the Commission articulated the Seven Factor
Test to determine, on a case-by-case basis, whether a facility is a local distribution
facility or a transmission facility. 74 However, the Commission has found that the factors
identified in the Seven Factor Test are not exclusive when determining whether an
element is used for local distribution. Specifically, the Commission recognized that the
Seven Factor Test does not resolve all possible issues and that “there may be other factors
that should be taken into account in particular situations.” 75 The Commission will apply
a similar analysis in determining in the context of FPA section 215 whether a facility is
used in local distribution. In other words, while the starting point for the Commission’s
analysis will be an analysis based on the Seven Factor Test, the Commission will
consider other factors that should be taken into account in particular situations.

Such petitions will be assigned an “RC” docket prefix. The determinations
would be public proceedings subject to notice and comment requirements which will
allow NERC and interested parties (including state regulators) to provide input on a
petition.
74

Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,771, 31,783-84,
Appendix G.
75

Order No. 888-A, FERC Stats. & Regs. ¶ 31,048 at 30,242.

Docket Nos. RM12-6-000 and RM12-7-000
72.

- 48 -

To reiterate, we expect that the 100 kV threshold as a “first step or proxy” for

determining which facilities should be included in the bulk electric system, plus the four
exclusions (in particular the local network exclusion E3), will exclude many facilities
that are used in local distribution and thus should be excluded from the bulk electric
system. This approach recognizes that, although local distribution facilities are
excluded from the definition, it still may be necessary to determine which facilities are
local distribution, and which are transmission. Whether facilities are used in local
distribution will in certain instances raise a question of fact, which the Commission has
jurisdiction to determine. We decline to clarify, as Portland requests, that for entities
who apply the local distribution exception in good faith, any future regulatory
determination that such distribution facilities are to be treated as part of the bulk electric
system within the scope of FPA section 215 regulation will be prospective only. As
explained above, in circumstances where a factual question remains after applying the
“core” definition and the exclusions, entities must apply to the Commission for a
determination of whether an element is used in local distribution. We believe this
approach provides a means to maintain consistency and transparency across the various
reliability regions but still have the necessary flexibility to make case-by-case
determinations appropriate for reliability.
73.

To the extent the various reply comments by ITC Companies, MISO and

Consumers raise questions about the status of specific facilities, we decline to address
them in this Final Rule as this rulemaking proceeding is not the proper forum to decide
such matters.

Docket Nos. RM12-6-000 and RM12-7-000
D.

- 49 -

Inclusions and Exclusions in the Definition of Bulk Electric System

NOPR Proposal
74.

In the NOPR, the Commission proposed to approve, in addition to the core

definition, specific inclusions and exclusions because the inclusions and exclusions
provide added clarity regarding which elements are part of the bulk electric system as
compared to the existing definition. In the NOPR, the Commission also posed questions
about how some of the inclusions and exclusions will be applied to better understand
potential applications of the inclusions and exclusions, their effect on identifying the
facilities or elements for bulk electric system reliability, and whether possible gaps exist.
We address these questions below.
1.

Inclusion I1 (Transformers)

NOPR Proposal
75.

Inclusion I1 includes as part of the bulk electric system “[t]ransformers with the

primary terminal and at least one secondary terminal operated at 100 kV or higher unless
excluded under [the radial system or local network exclusion].” In its petition, NERC
explained that, due to transformers having multiple windings operating at differing
voltages, the intent of inclusion I1 includes transformers operating at 100 kV or higher on
the primary winding and at least one secondary winding. 76

NERC BES Petition at 17.

Docket Nos. RM12-6-000 and RM12-7-000
76.

- 50 -

In the NOPR, the Commission stated that NERC’s approach to inclusion I1 “is a

reasonable approach to identifying transformers that are appropriately included as part of
the bulk electric system.” 77 However, the Commission expressed concern whether a
particular transformer – operated at 100 kV or higher on the primary winding but all
secondary terminals are operated below 100 kV – should be part of the bulk electric
system or whether the exception process would be sufficient to include these
transformers. 78 The Commission also requested comment on whether transformers that
have a terminal operated at 100 kV or above on the high side and below 100 kV on the
low side should be designated as part of the bulk electric system.
Comments
77.

NERC supports allowing the exception process to include the transformers

described by the Commission. NERC states that the “vast majority” of transformers with
low side voltages step down to a voltage class that is designed for distribution to load.
NERC adds that the 100 kV threshold for secondary windings provides a “clear
demarcation” between facilities used to transfer power as opposed to those that serve
load. According to NERC, while there are instances where transformers with secondary
windings below 100 kV are connected in parallel with high voltage transmission lines, it
77
78

NOPR, 139 FERC ¶ 61,247 at P 63.

In the NOPR the Commission noted that the joint NERC and Commission staff
report on the September 8, 2011, Arizona-Southern California blackout explains how
transformers of this type were not monitored or analyzed by the reliability coordinator,
transmission operators and balancing authorities. NOPR, 139 FERC ¶ 61,247 at P 63.

Docket Nos. RM12-6-000 and RM12-7-000

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is not possible to craft a bright-line inclusion of such transformers because the distinction
may hinge on function as opposed to the physical characteristics of the transformer.
NERC states that the exception process can evaluate whether such transformers should be
included in the bulk electric system. A majority of commenters share NERC’s position
and believe that most transformers with the configuration described by the Commission
in the NOPR do not impact the bulk electric system and those that do can be classified as
part of the bulk electric system through the exception process. 79
78.

SoCal Edison agrees with NERC, but identifies transformers operated in parallel

with the bulk electric system as those that should be designated as part of the bulk electric
system irrespective of the operational voltage of the transformer. SoCal Edison argues
that information regarding such transformers should be provided to the impacted entities,
e.g., reliability coordinators and neighboring regional entities. SoCal Edison contends
that including these types of transformers in the bulk electric system would have made
the Regional Entities, reliability coordinators, transmission operators and balancing
authorities aware of the contingencies of the transformers and their impact on the bulk
electric system in the September 2011 blackout.
79.

SmartSenseCom states that transformers that operate at 100 kV or above with any

secondary windings below 100 kV should be included. On the other hand, Consumers
does not support inclusion I1 because it goes beyond the Commission’s jurisdiction and
79

E.g. APPA, EEI, ELCON, WREA, Anaheim, Riverside, Imperial Irrigation
District, G&T Cooperatives, NV Energy, NESCOE, and TAPS.

Docket Nos. RM12-6-000 and RM12-7-000

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would confuse the distinction between the bulk electric system and local distribution.
Consumers argues that inclusion I1 may create a “moving registration target” if related
facilities are added to the bulk electric system. 80
Commission Determination
80.

We find that inclusion I1 is a reasonable approach to identifying transformers that

are appropriately included as part of the bulk electric system. We agree with NERC that
inclusion I1 includes transformers operating at 100 kV or higher on the primary winding
and at 100 kV or higher on at least one secondary winding. With regard to the
Commission’s concern in the NOPR about inclusion of a transformer that is operated at
100 kV or higher on the primary winding but all secondary terminals are operated below
100 kV, we agree with NERC that it is appropriate for such transformers to be considered
for inclusion through the exception process. We are persuaded that transformers with
low side voltages stepped down to a voltage class that is designed to distribute power to
load and, therefore, the 100 kV threshold for secondary windings provides an initial
screening between facilities used to transfer power as opposed to those that serve load.
We agree with NERC’s assessment that crafting an inclusion for transformers described
by the Commission is difficult because the distinction may hinge on function as opposed
to the physical characteristics of the transformer. Therefore, we decline to include such
transformers in inclusion I1.

Consumers Comments at 9-10.

Docket Nos. RM12-6-000 and RM12-7-000
81.

- 53 -

With regard to the specific configurations identified by SoCal Edison

(transformers that operate in parallel with the bulk electric system irrespective of the
operational voltage of the transformer), we will not make a determination of general
application. Rather, such matters should be addressed in the case-by-case exception
process.
82.

We do not agree with Consumers that inclusion I1 would be ineffective because it

would include lower voltage distribution facilities that were not designed to provide
reliability to the bulk electric system or prevent cascading outages. The 100 kV threshold
for secondary windings provides a bright line between facilities used to transfer power as
opposed to those that serve load, and if a transformer is included pursuant to inclusion I1,
but an entity believes it is not necessary for operation of the interconnected transmission
network, it may be considered for exclusion through the exception process.
2.

Inclusion I2 (Generating Resources)

NOPR Proposal
83.

Inclusion I2 of the bulk electric system definition provides for specific inclusion of

generating resources with gross individual nameplate rating greater than 20 MVA or
gross plant/facility aggregate nameplate rating greater than 75 MVA. NERC developed
this inclusion based on the text of the Registry Criteria for generating units while

Docket Nos. RM12-6-000 and RM12-7-000

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providing clarity by including “the generator terminals through the high-side of the stepup transformer connected at a voltage of 100 kV or above.” 81
84.

In the NOPR, the Commission agreed that inclusion I2 is consistent with the

individual and aggregate nameplate rating thresholds set forth in the Registry Criteria but
noted the differing descriptions of the connection point of the generating resources. 82
Inclusion I2 specifies “generator terminals through the high-side of the step-up
transformer(s) connected at a voltage of 100 kV or above,” and the Registry Criteria
specifies a “direct connection” to the Bulk-Power System. Accordingly, the Commission
requested comment whether inclusion I2 will result in a material change to registration of
existing generating units due to the difference in the language regarding the connection
point. The Commission also requested comment if a generating unit, with a gross
individual nameplate rating greater than 20 MVA connected through the high-side of the
step-up transformer connected at a voltage of 100 kV or above when the low side of the
transformer is less than 100 kV, is included in the bulk electric system pursuant to
inclusion I2. Further, the Commission asked how this result differs for a generation
resource with two or more step-up transformers where the last transformer in the series
operates at 100 kV or above.

NERC BES Petition at 17.

NOPR, 139 FERC ¶ 61,247 at P 65.

Docket Nos. RM12-6-000 and RM12-7-000

- 55 -

Comments
85.

Most commenters do not believe that inclusion I2 will materially change

registration of generating resources. NERC states that inclusion I2 connection point
language merely clarifies the “directly connected” language in the Registry Criteria.
NERC explains that while most generation is connected through a unit transformer on the
high voltage bus within a facility, there are instances where generators are connected to
lower voltages within a facility. NERC adds that most of these types of configurations
are in older facilities where the higher voltage bus was added after the original
generators. NERC confirms that the specific scenario described by the Commission
would result in the generator being included in the bulk electric system provided that the
transformers reside within a single site boundary and are used only to step-up the output
voltage of the generator. 83 APPA and others agree with NERC’s view. APPA adds that,
if the transformers in question are also used to deliver power to serve local load, the
generation resources and transformers should be excluded from the bulk electric
system. 84 PSEG Companies believe that inclusion I2 addresses the issue regarding two
step-up transformers in series. PSEG Companies explain that both step-up transformers
are part of the generator per inclusion I2 if the purpose of the transformers is to solely
step-up the output voltage.
83
84

NERC Comments at 9-10. See also comments of EEI.

APPA Comments at 14-15. See also comments of National Grid, TAPS,
NESCOE, and G&T Cooperatives.

Docket Nos. RM12-6-000 and RM12-7-000
86.

- 56 -

Arizona Public Service requests that the Commission clarify whether the voltage

connection language in inclusion I2 applies only to the aggregated 75 MVA threshold or
also to the 20 MVA threshold for individual generating units. Southern Companies
believe that there are instances where generators may be connected to lower voltages that
may fit under inclusion I2 but would not necessarily fit in the Registry Criteria.
87.

Some commenters do not support inclusion I2 for varying reasons. Dominion

opposes inclusion of elements such as those provided for in inclusion I2 that are already
subject to reliability standards because the element meets the criteria in the NERC
Compliance Registry. ISO New England states that the connection language in inclusion
I2 should be eliminated. ISO New England maintains that interpreting inclusion I2 to be
based on generator plant size, independent of the voltage connection, is important from a
generator stability modeling view point. This is because generators connected at voltages
less than 100 kV can have a significant impact on system stability. 85 ISO New England
supports adding generators connected at lower voltages but not the system to which the
generators are connected. ISO New England believes that adding generators, regardless
of their connection voltage levels, would increase the universe of registered generators
and would enhance reliability.
88.

MISO recommends that the Commission clarify that operators of generating

resources included through inclusion I2 will only be subject to Reliability Standards for

ISO New England Comments at 4.

Docket Nos. RM12-6-000 and RM12-7-000

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generators unless a specific determination is made that other standards should apply to a
particular piece of equipment. MISO believes that, without this clarification, inclusion I2
could increase the number of transmission operators by including generation equipment.
89.

Barrick believes that the term “gross plant/facility” in inclusion I2 needs to be

clarified. Barrick states that it is not clear whether the terms are based on geographic
proximity or structural definition. Barrick is also concerned that inclusion I2 is based on
“gross” rating while exclusion E2 is based on net capacity and exclusion E3(a) is based
on a non-retail basis, and that read together inclusion I2 and exclusions E2 and E3(a)
appear to be in conflict. 86 In reply comments, Barrick suggests that, instead of focusing
on nameplate ratings, the focus should be on the normal configuration and operation of
generation.
90.

SmartSenseCom states that the Commission should direct NERC to modify

inclusion I2 to include generating units that are stepped up to 100 kV or above containing
a transformer with a low side below 100 kV because, at these levels, generating resources
should be presumed to impact reliability. SmartSenseCom contends that Reliability
Standards should apply to such facilities “in light of their potential impact to system
reliability, especially given the increasing levels of distributed generation penetration that
is expected in the near future.” 87 Springfield questions whether multiple individual units

Barrick Comments at 10.

SmartSenseCom Comments at 12.

Docket Nos. RM12-6-000 and RM12-7-000

- 58 -

are considered one unit if they have a shared bus. Springfield believes that such instances
should not be considered individually.
Commission Determination
91.

The Commission approves inclusion I2. Based on the language of inclusion I2, its

derivation from the Registry Criteria and the statements from NERC and commenters, the
Commission concludes that application of inclusion I2 will not materially change
registration of generating resources. The Commission accepts NERC’s explanation that
the inclusion I2 connection point language merely clarifies the “directly connected”
language in the NERC Registry Criteria, section III.c.1. Further, the Commission agrees
with NERC and other commenters that multiple step-up transformers that are solely used
to deliver the generation to the bulk electric system at 100 kV or above qualify the
generator and the step-up transformers pursuant to inclusion I2.
92.

APPA and commenters claim that, if a transformer is also used to deliver power to

serve local load, through, for example a 69 kV network, the generation resources and
transformers should be excluded from the bulk electric system. The Commission agrees
with the specific example. In such cases, local load refers to end-user load and not
generator-specific station service load. This example depicts a generator whose step-up
transformer delivers the generation to a voltage level of 69 kV and thus does not meet the
criteria in inclusion I2. A second transformer in this example that connects the 69 kV
network to the bulk electric system is not solely delivering the generation to the bulk
electric system but also delivers power from the bulk electric system to the 69 kV
network.

Docket Nos. RM12-6-000 and RM12-7-000
93.

- 59 -

Regarding Arizona Public Service’s request for clarification, the Commission

finds that the voltage connection language in inclusion I2 applies to both the aggregated
75 MVA threshold for a plant/facility and the 20 MVA threshold for individual units.
94.

The Commission disagrees with Dominion’s contention that inclusion I2 is not

needed because the elements identified in inclusion I2 already meet the Registry Criteria.
The NERC registration process uses element criteria to identify and register functional
entities, not the actual equipment. In contrast, the focus of the bright-line definition is the
facilities, not the owners or operators of the facilities. Similarly, with regard to Southern
Companies’ belief that there are instances where generators may be connected to lower
voltages that may fit under inclusion I2 but would not necessarily fit in the Registry
Criteria, the Commission agrees that the Registry Criteria allows the Regional Entities
and NERC to consider other factors regarding entity registration which may result in
cases where the bulk electric system status and registry status differs for certain
equipment owners and operators.
95.

Regarding ISO New England’s assertion that generators that connect to the bulk

electric system via transmission facilities with voltages below 100 kV are needed for
reliability, the Commission believes these generators can be added to the bulk electric
system through the exception process, and if registration is warranted for the owners and
operators of these generators, the Registry Criteria provides NERC and the Regional
Entities the option of registering “[a]ny generator, regardless of size, that is material to

Docket Nos. RM12-6-000 and RM12-7-000

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the reliability of the Bulk Power System.” 88 Aggregate stability impacts of generation
below 100 kV could fall into this category of “material to the reliability of the Bulk
Power System.”
96.

With respect to the suggestions and requests for clarification submitted by MISO,

Barrick, SmartSenseCom and Springfield, commenters may raise these suggestions in
NERC’s Phase 2 development effort.
3.

Inclusion I3 (Blackstart Resources)

NOPR Proposal
97.

NERC included as part of the bulk electric system definition “Blackstart

Resources identified in a Transmission Operator’s restoration plan.” In the NOPR, the
Commission agreed with NERC that inclusion of blackstart resources in the definition is
vital to reliability and is an improvement to the definition. The Commission requested
clarification whether the term “restoration plan” refers to the system restoration plans
required in the Emergency Preparedness and Operations (EOP) Reliability Standards or
included in a Commission approved tariff. 89 The Commission also expressed concern
whether a reliability gap exists with regard to cranking paths. The Commission explained
that cranking paths are an important element of system restoration, and questioned
88
89

NERC Statement of Compliance Registry Criteria, section III.c.4.

NOPR, 139 FERC ¶ 61,247 at P 67. Reliability Standard EOP-005-1, System
Restoration Plans, requires a transmission operator to create “a restoration plan to
reestablish its electric system in a stable and orderly manner in the event of a partial or
total shutdown of its system.”

Docket Nos. RM12-6-000 and RM12-7-000

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“whether reliability can be adequately maintained when blackstart generators are defined
as part of the bulk electric system but not the transmission paths that are used to deliver
the energy from blackstart generators to the integrated transmission system.” 90
Accordingly, the Commission requested comment on whether a reliability gap exists and
also requested comment on the appropriate role, if any, of state regulators in ensuring that
energy from blackstart generation is reliably delivered through cranking paths to restart
the system after an event.
Comments
98.

NERC confirms that the “restoration plan” in inclusion I3 refers to the restoration

plans in the EOP Reliability Standards. Other commenters support NERC’s
explanation. 91 With regard to cranking paths, NERC explains that cranking paths above
100 kV are included in the bulk electric system by the core definition. NERC states that
some cranking paths identified in a restoration plan “are composed of distribution system
elements.” 92 NERC adds that certain Reliability Standards, such as Reliability Standards
CIP-002-4 and EOP-005-2, address reliability of cranking paths without regard to voltage
which demonstrates there are other ways to ensure reliable operation of the bulk electric
system without including non-bulk electric system cranking paths within the definition.
90

NOPR, 139 FERC ¶ 61,247 at P 68.

E.g. EEI, APPA, Southern Companies, SoCal Edison, PSEG Companies, and
NV Energy.
92

NERC Comments at 11.

Docket Nos. RM12-6-000 and RM12-7-000

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In contrast, PSEG Companies request that, if the Commission supports NERC’s
exclusion of cranking paths below 100 kV, the Commission confirm that below 100 kV
cranking paths would be excluded from being enforced in Reliability Standards that
address cranking paths unless they are added to the bulk electric system by the exception
process. 93
99.

Other commenters agree that no reliability gap exists and that the Commission

correctly noted that including cranking paths may improperly bring distribution level
elements into the bulk electric system. Southern Companies and others contend that if a
cranking path that does not fall within the definition of bulk electric system but is needed
for reliability, the exception process would be the place to make that determination. 94
NESCOE states that cranking paths are generally part of the distribution system and state
regulators have the responsibility to ensure the reliability of these lower voltage facilities
and are acutely aware of the importance of effective blackstart capability. NESCOE adds
that these facilities are needed for restoration not for continuous operation. 95 ODEC is
concerned that including cranking paths will create an incentive for generators not
making their units available for blackstart services. Alameda suggests that “any potential
gap can be closed by requiring [t]ransmission [o]perators (“TOPs”) that identify

PSEG Comments at 10.

Southern Companies Comments at 7. See also TAPS Comments at 5.

NESCOE Comments at 10.

Docket Nos. RM12-6-000 and RM12-7-000

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blackstart generation and a related cranking path or paths in their system restoration plans
to analyze and enter into an operating agreement with the owner of identified cranking
path facilities not owned by the [transmission operator].” 96
100.

While other commenters agree that the term “restoration plan” refers to the EOP

Reliability Standards, they assert that cranking paths should be included in the bulk
electric system. Idaho Power, ITC Companies and BPA assert that cranking paths are
crucial to system restoration and implicate reliability even if they are local distribution or
below 100 kV facilities. 97 ITC Companies state that not including cranking paths will
cause regional differences and inconsistent application resulting in some owners electing
to exclude such assets. Without cranking paths included in the definition, ITC
Companies state that they will be “required to ensure its blackstart plan does not include
blackstart generators connected to transmission facilities at voltages below 100 kV since
[they] could not be assured that the proper standards are being followed for these
blackstart cranking paths.” 98
101.

MISO recommends that the Commission clarify that the term “restoration plan”

refers to the EOP Reliability Standards but not include all blackstart resources in a
Commission-approved tariff. MISO is concerned that including blackstart resources
96

Alameda Comments at 6.

Idaho Power Comments at 4, ITC Companies at 3-4. See also BPA Comments

ITC Comments at 5.

at 3-4.

Docket Nos. RM12-6-000 and RM12-7-000

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from sources other than the EOP Reliability Standards is not necessary for reliability and
could encourage generators to remove blackstart resources in order to avoid being subject
to “unduly complex requirements.” 99
Commission Determination
102.

We find that NERC’s inclusion of blackstart resources in the definition is an

improvement to the definition. We also agree with NERC’s statement that the
“restoration plan” in inclusion I3 refers to the restoration plans in the EOP Reliability
Standards. With regard to cranking paths, the Commission declines to include all
cranking paths regardless of voltage level. The Commission finds that cranking paths
operating at or above 100 kV are included in the bulk electric system by the core
definition, and if a cranking path that does not fall within the definition of bulk electric
system, (i.e. operating at or above 100 kV) but is needed for reliability, such elements can
be included in the bulk electric system through the exception process. We also disagree
that not including cranking paths will cause regional differences and inconsistent
application resulting in some owners electing to exclude such assets. The revised
definition includes all Transmission Elements at or above 100 kV. Thus, to the extent a
cranking path is operating at or above 100 kV and a “Transmission Element,” it would be
included in the bulk electric system. If a cranking path is below 100 kV and is necessary
for operation of the interconnected transmission network or operates at or above 100 kV

MISO Comments at 6.

Docket Nos. RM12-6-000 and RM12-7-000

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and is not necessary for the operation of the interconnected transmission network, the
status of the cranking path may be determined in the exception process. These steps will
ensure consistent treatment across the regions. In response to ITC Companies’ concern
that, without cranking paths included in the definition it will be required to ensure its
blackstart plan does not include blackstart generators connected to transmission facilities
at voltages below 100 kV, we note that such elements can be considered for inclusion
through the exception process. Similarly, with regard to NESCOE’s statement that lower
voltage cranking paths are generally part of the distribution system, we note that facilities
operating below 100 kV would be excluded as part of applying of the core definition. In
addition, as we discuss above, in certain instances the Commission will make
determinations as to which facilities are used in local distribution and thus should be
excluded from the bulk electric system. 100
103.

With regard to PSEG Companies’ request that the Commission confirm that

Reliability Standards do not apply to below 100 kV cranking paths unless they are added
to the bulk electric system by the exception process, we find that PSEG Companies’
request is outside the scope of this proceeding but note that Reliability Standard EOP005-2 addresses cranking paths with no voltage limits. 101

100

See supra PP 66-73.

101

Reliability Standard EOP-005-2, Requirement R6 states “[e]ach [t]ransmission
[o]perator shall verify through analysis of actual events, steady state and dynamic
simulations, or testing that its restoration plan accomplishes its intended function. This
shall be completed every five years at a minimum.” Requirement R6.1 states that the
(continued…)

Docket Nos. RM12-6-000 and RM12-7-000
4.

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Inclusion I4 (Dispersed Power Producing Resources)

NOPR Proposal
104.

NERC asserts inclusion I4, dispersed power producing resources with aggregate

capacity greater than 75 MVA (gross aggregate nameplate rating), is needed “to
accommodate the effects of variable generation” on the bulk electric system. 102 NERC
further stated that even though inclusion I4 could be considered subsumed in inclusion I2
(generating resources), NERC believes it is appropriate “to expressly cover dispersed
power producing resources utilizing a system designed primarily for aggregating
capacity.” 103
105.

In the NOPR the Commission stated that inclusion I4 provides “useful

granularity” in the bulk electric system definition, but requested comment whether
inclusion I4 includes “the individual elements (from each energy-producing resource at
the site through the collector system to the common point at a voltage of 100 kV or
above) used to aggregate the capacity and any step-up transformers used to connect the
system to a common point at a voltage of 100 kV or above.” 104

transmission operator shall verify “[t]he capability of [b]lackstart [r]esources to meet the
[r]eal and [r]eactive [p]ower requirements of the [c]ranking [p]aths and the dynamic
capability to supply initial [l]oads.”
102

NERC BES Petition at 18.

103

Id.

104

NOPR, 139 FERC ¶ 61,247 at P 71.

Docket Nos. RM12-6-000 and RM12-7-000

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Comments
106.

NERC states that the inclusion is meant to address the dispersed power producing

resources themselves, not the individual elements of the collector systems operated below
100 kV. With regard to energy delivery elements in collector systems and
interconnection facilities, NERC states these items were specifically not included in
inclusion I4. According to NERC, this decision was intended to avoid categorically
including as part of the bulk electric system assets that may include local distribution
facilities. EEI believes that inclusion I4 applies to generating resources meeting the
threshold in the aggregate, not the individual generating units. EEI agrees with NERC
that the inclusion does not include individual elements of the collector systems operated
below 100 kV. LPPC believes that generating units aggregating to 75 MVA are often
very small and non-dispatchable, and the reliability implications of these units will be
negligible but the compliance burden would be quite high.
107.

Several commenters urge the Commission to not interpret inclusion I4 as

including wind turbines and electrical collector systems within a wind plant and only
include the electrical equipment at the point of interconnection with the bulk electric
system. 105 AWEA believes that including all this equipment will potentially burden the
owners with NERC compliance processes that were intended for large scale generators.
AWEA argues that the “main transformer’s high-side terminal and the generator lead/tie
105

See, e.g., AWEA, Southern Companies, Consumer Energy, BPA. Hydro One,
G&T Cooperatives, and ISO New England.

Docket Nos. RM12-6-000 and RM12-7-000

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line” should also be excluded unless another generator connects to the initial generator’s
facilities. 106 AWEA asserts that no one has demonstrated that there is any material
reliability benefit from including resources envisioned by inclusion I4. AWEA and
others state that if the Commission believes such resources should be included, such
inclusion should be done on a case-by-case basis rather than generically. 107
108.

Along the same lines, NESCOE believes that, absent a reliability risk a generic

inclusion could adversely impact state policies to encourage renewable generation
development by imposing additional costs. NESCOE states that setting the line for
inclusion at 75 MVA is not supported by technical analysis since intermittent sources of
power deliver only a fraction of their nameplate rating. NESCOE believes 300 MVA is a
better threshold.
109.

ISO New England contends that the term “common point” is unclear and notes

that the inclusion could be interpreted to mean that if the individual generating units
are “all collected at 34.5 kV, the ‘common point’ is at 34.5 kV and the entire group
of resources should be found to be [not part of the bulk electric system].” 108
ISO New England believes this is not an appropriate interpretation because it would
defeat the intent of the inclusion which is to classify large aggregated generating stations

106

AWEA Comments at 2.

107

E.g., Idaho Power.

108

ISO New England Comments at 7.

Docket Nos. RM12-6-000 and RM12-7-000

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as part of the bulk electric system. Similarly, Springfield questions the meaning of
“collector system” and proposes language to define it. 109
110.

SmartSenseCom states that facilities over a certain significant nameplate rating

that are stepped up to over 100 kV should be subject to Reliability Standards in light of
their potential impact to system reliability. SmartSenseCom suggests that the
Commission direct NERC to modify inclusions I2 and I4 in order to ensure that
generating units that are stepped up to 100 kV or above by the use of a transformer with a
low side of less than 100 kV (or multiple contiguous transformers of less than 100 kV on
the low side) are also included within this definition. 110
111.

MISO recommends that the Commission withdraw its proposal to approve

inclusion I4. MISO believes inclusion I4 is unnecessary given the criteria in inclusion I2.
MISO states that elements meeting the criteria in inclusion I2 would be considered part of
the bulk electric system, irrespective of whether it is considered a dispersed power
producing resource. MISO adds that a specific inclusion for dispersed power producing
resources could subject the collector systems to unnecessary monitoring by the reliability
coordinator or other registered entities as collector systems at dispersed power producing
facilities generally do not affect the reliability of the bulk electric system.
109

Springfield proposes to add the following sentence at the end of inclusion I4:
“For purposes of this inclusion, a Collector System is any infrastructure not connected to
load – where parasitic load associated with a generation unit or units is not considered
load.”
110

SmartSenseCom Comments at 12.

Docket Nos. RM12-6-000 and RM12-7-000

- 70 -

Commission Determination
112.

The Commission finds that inclusion I4 provides useful granularity in the bulk

electric system definition. The clarifying language in inclusion I4 regarding the collector
system language is consistent with language in the Registry Criteria, section III.c.2. The
Commission agrees that it is appropriate “to expressly cover dispersed power producing
resources utilizing a system designed primarily for aggregating capacity.” 111
113.

As the Commission previously stated in the inclusion I2 discussion, multiple step-

up transformers that are solely used to deliver the generation to the bulk electric system at
100 kV or above qualify the generator or plant/facility and the step-up transformers for
inclusion in the bulk electric system.
114.

Similarly, the collector system in inclusion I4, described by NERC and others as

being designed for aggregating capacity and solely used to deliver the aggregated
capacity to the bulk electric system at 100 kV and above, falls into the category of
multiple step-up transformers through the high side of the main transformer that connects
to 100 kV or above. NERC reasons that proposed inclusion I4 was intended to avoid
categorically including assets that may include local distribution facilities. While we
believe most collector systems operate below 100 kV, the Commission disagrees that
collector systems described in inclusion I4 that solely deliver aggregated generation to
the bulk electric system contain local distribution facilities because power is delivered

111

NERC BES Petition at 18.

Docket Nos. RM12-6-000 and RM12-7-000

- 71 -

from the collector system to the bulk electric system. However, the Commission will not
direct NERC to categorically include collector systems pursuant to inclusion I4.
115.

We disagree with AWEA and other commenters that contend that inclusion I4

should be interpreted to not include the dispersed power producing resources within a
wind plant in the bulk electric system. We agree with NERC’s statement that the purpose
of this inclusion is to include such variable generation (e.g., wind and solar resources).
NERC noted that, while such generation could be considered subsumed in inclusion I2
(because the gross aggregate nameplate rating of the power producing resources must be
greater than 75 MVA), NERC considered it appropriate for clarity to add this separatelystated inclusion to expressly cover dispersed power producing resources using a system
designed primarily for aggregating capacity. In addition, although dispersed power
producing resources (wind, solar, etc.) are typically variable suppliers of electrical
generation to the interconnected transmission network, there are geographical areas that
depend on these types of generation resources for the reliable operation of the
interconnected transmission network. The Commission believes that owners and
operators of these resources that meet the 75 MVA gross aggregate nameplate rating
threshold are, in some cases, already registered and have compliance responsibilities as
generator owners and generator operators. Regarding AWEA’s request that a
transformer’s high-side terminal and the generator lead line should also be excluded, such
determinations may be made on a case-by-case basis in the exception process. With
regard to commenters who believe that dispersed power producing resources should be
included on a case-by-case basis rather than generically, this would be inconsistent with

Docket Nos. RM12-6-000 and RM12-7-000

- 72 -

the bright-line concept that NERC developed to have consistent application of the
definition across the country. If such generating resources are included through
inclusion I4, they are eligible for exclusion through use of the exception process. With
respect

to the concern raised by ISO New England regarding the term “common

point,”

ISO New England may raise this concern in NERC’s Phase 2 development

effort.
5.

Inclusion I5 (Static or Dynamic Reactive Power Devices)

NOPR Proposal
116.

Inclusion I5 identifies as part of the bulk electric system “[s]tatic or dynamic

devices (excluding generators) dedicated to supplying or absorbing Reactive Power that
are connected at 100 kV or higher, or through a dedicated transformer with a high-side
voltage of 100 kV or higher, or through a transformer that is designated in Inclusion I1.”
In its petition, NERC explained that this inclusion is the technical equivalent of inclusion
I2 (generating resources), for reactive power devices and points out that the existing
definition is unclear as to how these devices are treated. 112 NERC stated inclusion I5
provides clarity by “providing specific criteria for Reactive Power devices, thereby
further limiting subjectivity and the potential for discretion” in the application of the
revised definition. 113

112

NERC BES Petition at 18.

113

Id.

Docket Nos. RM12-6-000 and RM12-7-000
117.

- 73 -

In the NOPR, the Commission agreed with NERC that inclusion I5 adds clarity to

the application of the bulk electric system definition by providing specific criteria for
reactive power devices. For cases where the reactive power device is connected through
a transformer designated in inclusion I1, the Commission requested comment whether
both the reactive power device and the transmission elements connecting the reactive
power device to the transformer are included as part of the bulk electric system pursuant
to inclusion I5. 114
Comments
118.

NERC and other commenters note that inclusion I5 is intended to include the

reactive resource itself and the other portions of the definition are intended to designate
whether the remaining electrical components are part of the bulk electric system. 115
NERC, EEI, National Grid, Utility Services and G&T Cooperatives refer to inclusion I1
as the proper place to determine whether transformers connected to reactive devices are
included as part of the bulk electric system.
119.

BPA and WPPC support excluding both the reactive device and the transformer

from the bulk electric system if the device supports local distribution. Conversely, if the
facilities provide reactive and voltage support to the bulk electric system, the reactive

114

NOPR, 139 FERC ¶ 61,247 at P 73.

115

E.g., EEI.

Docket Nos. RM12-6-000 and RM12-7-000

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device and associated equipment, such as the transformer, should be classified as a bulk
electric system facility.
120.

AEP considers the transmission elements connecting the reactive power device to

the transformer to be included in the bulk electric system definition and should be
deemed part of inclusion I5. 116 Idaho Power contends that both the reactive device and
the transformer should be included in the bulk electric system. Idaho Power states that if
the transformer is included as part of inclusion I1, then it should be included. 117
121.

PSEG Companies view the issue as one of “bulk electric system contiguity” and

therefore should be addressed during Phase 2. MISO recommends that the Commission
require NERC to include a size threshold or an impact test. According to MISO, this will
avoid creating incentives to owners of small reactive devices to disconnect them to avoid
being classified as transmission owners or operators. With regard to transformers, MISO
states that both the reactive power device and the transmission elements are included, but
because these facilities have a generally localized impact on reliability, MISO
recommends that the Commission clarify that they are not transmission equipment that
subjects their owners and operators to the requirements applicable to registered
transmission operators under the NERC Reliability Standards.

116

AEP Comments at 4.

117

Idaho Power Comments at 5.

Docket Nos. RM12-6-000 and RM12-7-000
122.

- 75 -

G&T Cooperatives suggest two clarifications. First, inclusion I5 should not apply

to reactive power devices that are connected to the bulk electric system by a radial line
excluded by exclusion E1 or a local network excluded by exclusion E3. G&T
Cooperatives view this exclusion as implicit in inclusion I5, which references devices
“connected at 100 kV or higher, or through a dedicated transformer with a high-side
voltage of 100 kV or higher, or through a transformer that is designated in [i]nclusion
I1.” Second, G&T Cooperatives believe that inclusion I5 should be clarified to include a
minimum size threshold similar to the size threshold for generating resources under
Inclusion I2. According to G&T Cooperatives because inclusion I2 does not apply to all
generating resources and inclusion I5 is the “technical equivalent” of inclusion I2, a size
threshold comparable to that found in inclusion I2 is implicit for reactive power devices.
Commission Determination
123.

The Commission approves inclusion I5 and finds that the inclusion adds clarity to

the application of the bulk electric system definition by providing specific criteria for
reactive power devices. The Commission also accepts NERC’s response for cases where
the reactive power device is connected through a transformer designated in inclusion I1 –
that the reactive resource itself is included in the bulk electric system pursuant to
inclusion I5 and the transmission elements connecting the reactive power device to the
transformer are addressed in other portions of the definition. The Commission notes that
this interpretation is different from inclusion I2 because inclusion I2 specifies including
the equipment (step-up transformers) that connects generators to the bulk electric system.
Nonetheless inclusion I5 provides criteria for reactive power devices that are not

Docket Nos. RM12-6-000 and RM12-7-000

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explicitly addressed in the existing definition. The Commission does not agree with
G&T Cooperatives that exclusions E1 and E3 override inclusion I5 and exclude the
reactive power devices. Exclusions E1 and E3 exclude transmission elements only and
not resources.
124.

The Commission agrees with PSEG Companies that issues, such as whether the

connecting equipment for reactive devices should be included pursuant to inclusion I5,
can be raised in Phase 2. Similarly, the issues raised by AEP, Idaho Power, MISO and
G&T Cooperatives may be raised in NERC’s Phase 2 effort.
Exclusions
125.

The proposed definition identifies four facilities configurations that should not be

included in the bulk electric system: (1) radial systems; (2) behind-the-meter generating
units; (3) local networks; and (4) retail customer reactive power devices.
126.

We agree that the proposed exclusions provide clarity and granularity. For

example, the exclusion of generating units on the customer’s side of the retail meter that
serves all or part of the retail load (exclusion E2) and the exclusion for reactive power
devices owned and operated by a retail customer for its own use (exclusion E4) provide
reasonable limitations on bulk electric system elements. While we approve in the
Final Rule the language of exclusions E1, E2 and E4, we have concerns with regard to
the application of exclusions E1 and E3 in specific situations and, thus, direct NERC to
implement or apply these exclusions consistent with the determinations set forth below.
In addition, we direct NERC to remove the 100 kV minimum operating threshold
language from exclusion E3.

Docket Nos. RM12-6-000 and RM12-7-000
6.
127.

- 77 -

Exclusion E1 (Radial Systems)

Exclusion E1 provides as follows:
Radial systems: A group of contiguous transmission Elements that emanates from
a single point of connection of 100 kV or higher and:
a)
Only serves Load. Or,
b)
Only includes generation resources, not identified in Inclusion I3,
with an aggregate capacity less than or equal to 75 MVA (gross nameplate
rating). Or,
c)
Where the radial system serves Load and includes generation
resources, not identified in Inclusion I3, with an aggregate capacity of nonretail generation less than or equal to 75 MVA (gross nameplate rating).
Note – A normally open switching device between radial systems, as
depicted on prints or one-line diagrams for example, does not affect this
exclusion.

In its petition, NERC explained that radial facilities are excluded under the currently
effective bulk electric system definition, and the detailed criteria in the revised definition
provide enhanced clarity. 118
Commission Determination
128.

The Commission approves exclusion E1. We agree with NERC that the currently-

effective definition of bulk electric system excludes radial facilities, and the
modifications provide additional granularity regarding the radial exclusion. In the
NOPR, the Commission requested comment regarding specific applications of the E1
radial system exclusion. Below, we discuss these applications and comments received,
and provide further explanation or direction as we deem appropriate.
118

NERC BES Petition at 18.

Docket Nos. RM12-6-000 and RM12-7-000
a.

- 78 -

Exclusion E1 Does Not Apply to Whether Generation is
Included or Excluded

NOPR Proposal
129.

In the NOPR, the Commission requested comment on whether exclusion E1

removes from the bulk electric system “generation connected to a radial system that
otherwise satisfies inclusion I2.” 119 The Commission sought to ensure that the conditions
in exclusion E1 would not “lead to conflicting results when applying inclusion I2 and
exclusion E1. 120 The Commission noted that exclusion E1 applies to “a group of
contiguous transmission Elements that emanates from a single point of connection of
100 kV or higher.…” 121 The Commission observed that the term “Elements” includes
the term generator, and that the use of the term “transmission” before “Elements”
indicates that exclusion E1 applies only to transmission elements. 122 Thus, the
Commission stated that “transmission Elements” do not include generating resources that
are bulk electric

119

NOPR, 139 FERC ¶ 61,247 at P 76.

120

Id.

121

NOPR, 139 FERC ¶ 61,247 at P 77.

122

“Element” is defined in the NERC Glossary as “[a]ny electrical device with
terminals that may be connected to other electrical devices such as a generator,
transformer, circuit breaker, bus section, or transmission line. An element may be
comprised of one or more components.” (emphasis added).

Docket Nos. RM12-6-000 and RM12-7-000

- 79 -

system resources pursuant to the generating resources included in inclusion I2 connected
to a radial line operated at 100 kV above. 123
Comments
130.

NERC confirms that exclusion E1 does not apply to nor is it determinative of

whether any generation is included or excluded from the bulk electric system. NERC
states that, whether or not generation is included in the bulk electric system is determined
by inclusions I2 through I4 and exclusion E2. Other commenters, including EEI,
SoCal Edison, TAPS, Hydro One, and Alameda, also state that exclusion E1 does not
apply to generating resources. Southern Companies suggest that the use of the term
“includes” in subparts (b) and (c) could lead to some ambiguity because the implication is
that a radial system includes generating resources. Southern Companies suggests that,
the word “serves” should replace the word “include” to better reflect the intent of the
provision.
131.

PSEG Companies state there is confusion created by the fact that generators

included in one provision of the definition (inclusion I2) are excluded under others
(exclusions E1 through E3). According to PSEG Companies, a generator cannot be
included under one provision of the bulk electric system definition and excluded under

123

See NOPR, 139 FERC ¶ 61,247 at P 77 and n.100 (citing NERC BES Petition,
Exh. D, Consideration of Comments Report, at 223 (“Exclusion E1 is an exclusion for
the contiguous transmission Elements connected at or above 100 kV.”)).

Docket Nos. RM12-6-000 and RM12-7-000

- 80 -

another provision and that this issue requires clarification and, once clarified, the bulk
electric system definition needs to be modified accordingly. 124
132.

SmartSenseCom states that in the event of a conflict between an inclusion and

exclusion, “there should exist a presumption that the [e]lement be considered included,
absent an [e]xception” and asks that the Commission direct NERC to include a provision
that states this presumption. 125
Commission Determination
133.

The Commission finds that the radial system exclusion only applies to

“transmission Elements” and does not apply to nor is it determinative of whether any
generation is included or excluded from the bulk electric system. This understanding is
consistent with NERC’s defined terms, and consistent with the comment of NERC and
other commenters. Further, in response to Southern Companies, AEP and PSEG
Companies, we believe that the language of exclusion E1 is sufficiently clear that it does
not exclude generation facilities that are otherwise included as part of the bulk electric
system pursuant to inclusion I2. Thus, we will not direct NERC to modify exclusion E1
to state this more explicitly. We agree with SmartSenseCom that exclusion E1 should
not lead to conflicting results when applying inclusion I2, but we decline to direct NERC
to include a provision that specifically states this presumption.

124

PSEG Comments at 11-13.

125

SmartSenseCom Comments at 13.

Docket Nos. RM12-6-000 and RM12-7-000
b.

- 81 -

Definition of “Radial Systems,” Figure 1 and Condition
(a) Radials Only Serving Load

NOPR Proposal
134.

Exclusion E1 defines the term “radial systems” as “a group of contiguous

transmission Elements that emanates from a single point of connection of 100 kV or
higher.” In the NOPR, the Commission requested comment on how NERC’s proposal
would be applied in the three scenarios. Figure 1 in the NOPR depicted facilities
configurations in which all of the 230 kV and 69 kV transmission elements emanate from
a single point of connection of 100 kV or higher. The Commission requested comment
on whether each of the radial systems shown in figure 1, the 230 kV elements above each
transformer to the point of connection to each 230 kV line, respectively, are excluded
from the bulk electric system pursuant to exclusion E1.

Docket Nos. RM12-6-000 and RM12-7-000

- 82 -

Figure 1
Two Radial Systems Eligible for Exclusion E1

Comments
135.

NERC and other commenters state that both radial systems depicted in figure 1

would be subject to exclusion E1(a) because they each only serve load. 126 ELCON
agrees with NERC adding that these types of radial systems pose no reliability risk to the
interconnected transmission network if the system is lost due to a fault condition.
Similarly, SoCal Edison states that the figure 1 facilities would either be excluded or not

126

E.g., Southern Companies, AEP, National Grid, TAPS, ISO New England,
Barrick, IUU, and WPPC.

Docket Nos. RM12-6-000 and RM12-7-000

- 83 -

part of the bulk electric system. SoCal Edison asserts that, because transformers 1 and 2
each have secondary voltages that are less than 100 kV, they do not meet the inclusion I1
requirements and, thus, are not included in the bulk electric system. In other words,
SoCal Edison believes exclusion E1 should exclude all radial facilities that are greater
than 100 kV up to the point where “the system is no longer radial, as indicated in figure 1
by the brackets where the 230 kV lines meet [lines 1 and 2].” 127 APPA believes that all
the scenarios described by the Commission could create reliability concerns “if taken in
isolation and operated in a certain matter” and believes that the exception process can
capture configurations that pose a significant risk to the reliable operation of the
interconnected transmission network. Idaho Power maintains that it is inappropriate to
apply exclusion E1 for 230 kV elements in the scenarios if the breakers are part of the
protection scheme for a three terminal 230 kV line. Idaho Power adds that if either
breaker only opens for transformer protection, the exclusion would be applicable.
136.

Anaheim agrees that the radials shown in figure 1 should be excluded and requests

clarification that the associated bus work and protection system equipment installed on
those radial lines are also excluded. Anaheim advocates that the exclusion should also
apply to protection system equipment on the excluded facilities that provide backup
protection for devices that are part of the bulk electric system, i.e. lines 1 and 2 in
figure 1.

127

SoCal Edison Comments at 5.

Docket Nos. RM12-6-000 and RM12-7-000
137.

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BPA is concerned about excluding the 230 kV lines without review by a planning

authority or transmission operator because the fault magnitude on voltages above 200 kV
are much higher than below 200 kV lines. BPA states that since actual power flows on
systems above 200 kV are much higher, these systems have a higher risk for serious
impacts on the interconnected transmission system.
138.

Holland supports the exclusion of radial systems but contends that the phrase

“emanates from a single point of connection” could be too narrowly interpreted.
According to Holland, multiple buses within a single substation could be viewed as
multiple points of connections. Holland believes that an entity whose connection
emanates from a single substation should not be denied an exclusion solely because it
connects to multiple buses at the single substation.
139.

Consumers argues that the exclusion of 100 kV radial systems that only serve load

exceeds the Commission’s jurisdiction and the Seven Factor Test. 128 Consumers believes
that exclusion E1(a) would exclude radials that only serve load and this phrase expands
the Commission’s jurisdiction by classifying 100 kV distribution systems that primarily
serve load but could also have a secondary purpose. Consumers also argues that this
exclusion is inconsistent with the Seven Factor Test which examines whether local
distribution facilities are “primarily” radial in character. Further, Consumers argues that

128

Consumers cites to Detroit Edison Co. v. FERC, 334 F.3d 48 (D.C. Cir 2003)
as support for its belief that the Commission cannot rewrite the FPA to exclude only
facilities used exclusively in local distribution. See Consumers comments at 7.

Docket Nos. RM12-6-000 and RM12-7-000

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the Commission should not adopt a rule that exceeds its jurisdiction or constitutes a
collateral attack on the local distribution findings of the Seven Factor Test.
Commission Determination
140.

The Commission agrees with NERC that the radial systems shown in figure 1

meet the definition of “radial system” in exclusion E1. This configuration would result in
the 230 kV lines between transformers 1 and 2 to the two 230 kV lines, respectfully,
being excluded from the bulk electric system. The Commission agrees with NERC and
other commenters that both radial systems depicted in figure 1 would be subject to
exclusion E1 condition (a) because they each only serve load.
141.

Idaho Power, BPA and Anaheim raise concerns about protection system

equipment and design, needed for analysis by the planning authority and transmission
operator, while APPA states that all scenarios described by the Commission could create
reliability concerns. Regarding these concerns, the Commission agrees with APPA that
the exception process can be used to add to the bulk electric system specific
configurations that pose a significant risk to the operation of the interconnected
transmission network.
142.

The Commission disagrees with Holland’s interpretation that the phrase ”emanates

from a single point of connection” can refer to multiple buses. The phrase refers to a
single point, and if there is more than one point of connection the configuration does not
meet the radial system definition as stated in exclusion E1. NERC, in the standard
development process, emphasized that radial systems cannot have multiple connections at

Docket Nos. RM12-6-000 and RM12-7-000

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100 kV or higher. Networks that have multiple connections at 100 kV or higher may
qualify under exclusion E3. 129
143.

The Commission also disagrees with Consumers that the exclusion of 100 kV

radial systems that only serve load expands the Commission’s jurisdiction by classifying
100 kV distribution systems that primarily serve load, but may also have a secondary
purpose, as transmission. First, exclusion E1 condition (a) reflects the language
contained in the current bulk electric system definition and therefore, is itself not an
expansion from the existing definition. In addition, as NERC stated, application of the
definition is a three-step process. In step 1, the core definition is used to establish the
bright line of 100 kV, the overall demarcation point between bulk electric system and
non-bulk electric system elements. Step 2, applying the specific inclusions, provides
additional clarification for the purposes of identifying specific elements that are included
in the bulk electric system. Step 3 is to evaluate specific situations for potential exclusion
from the bulk electric system. Further, an entity may seek a case-specific exception if it
believes that facilities with radial qualities that are not excluded pursuant to exclusion E1
or petition the Commission when seeking a determination whether a facility, otherwise
included in the bulk electric system, is used in local distribution. Thus, merely applying

129

NERC BES Petition, Exhibit E, “Complete Development Record of the
Proposed Revised Definition of “Bulk Electric System,” Consideration of Comments on
Initial Ballot - Definition of BES,” at 259.

Docket Nos. RM12-6-000 and RM12-7-000

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the definition, and the inclusions or exclusions is not necessarily the end of the inquiry
regarding whether an element is part of the bulk electric system.
c.

Figure 2 and Condition (a) Radials Serving Only Load

NOPR Proposal
144.

In the NOPR, the Commission requested comment on the scenario shown in figure

2 which shows a 115 kV loop, with the configuration emanating from two points of
connection of 100 kV or higher. Specifically, the Commission requested comment on
whether “the 115 kV and 230 kV elements above Transformers 1 and 2 to the points of
connection to the two 230 kV lines would be excluded from the bulk electric system
pursuant to exclusion E1.” 130 The Commission asked for comment on whether it is more
appropriate to analyze figure 2 pursuant to the “local network” exclusion E3 and, if so,
what if any elements operated at or above 100 kV would be excluded pursuant to
exclusion E3.

130

NOPR, 139 FERC ¶ 61,247 at P 80.

Docket Nos. RM12-6-000 and RM12-7-000

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Figure 2
Networked Configuration w/115 kV Loop

Comments
145.

NERC states that figure 2 is a non-radial loop on the 115 kV system. According

to NERC, the 115 kV elements above transformers 1 and 2 to the point of interconnection
with lines 1 and 2 would not be eligible for exclusion E1 because they do not emanate
from a single point of connection. NERC also states that it would be appropriate to
evaluate figure 2 under exclusion E3 as a potential local network. 131 For such a

131

See also Comments of NESCOE, BPA, Idaho Power, ITC Companies, and
National Grid.

Docket Nos. RM12-6-000 and RM12-7-000

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candidate local network to qualify for exclusion, NERC states that additional technical
analysis is needed to determine if all the exclusion E3 criteria are satisfied. 132 NERC
asserts that without such a technical analysis, the 115 kV elements above transformers 1
and 2 should be considered part of the bulk electric system.
146.

Likewise, Idaho Power, ITC Companies, and National Grid contend that the

figure 2 configuration should be included in the bulk electric system. Southern
Companies believe exclusion E1 may apply from the breakers down and that the
configuration may belong to exclusion E3. AEP assumes that each of the facilities below
the 115 kV loop shown in figure 2, and including breaker 1 and breaker 2, are radial and
excluded pursuant to exclusion E1. According to AEP, the facilities above breakers 1
and 2 may be excluded pursuant to exclusion E3 depending on the circumstances. 133
147.

Valero states that the figure 2 configuration is very similar to common facilities

configurations employed in many industrial facilities involving the interconnection of the
industrial facility to the utility through two high voltage feeder lines that originate at
different utility owned and operated substations. Valero requests that the Commission
include in the final rule an additional exclusion that would “categorically exclude from
the [bulk electric system] any on-site high voltage switchyard facilities (less than 300 kV)
owned by the industrial end-user where the predominant function of the facilities is to

132

E.g., ISO New England Comments at 10, MISO Comments at 7.

133

AEP Comments at 7.

Docket Nos. RM12-6-000 and RM12-7-000

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distribute electricity in an inward direction to the end-user’s load.” 134 WPPC argues that
figure 2 shows both radial and network systems and that the system from the 115 kV loop
upwards would be assessed under exclusion E3 and below that point would be assessed
by exclusion E1.
Commission Determination
148.

The Commission affirms NERC’s statement that figure 2 is a non-radial loop and

thus would not be eligible for exclusion E1 because it does not emanate from a single
point of connection. The Commission agrees with commenters that the elements below
the 115 kV loop should be assessed as two separate radial systems pursuant to exclusion
E1. The remaining elements (the 115 kV loop, transformers 3 and 4 and the 230 kV tie
lines above the transformers to the two 230 lines 1 and 2) should be assessed pursuant to
exclusion E3 and if the configuration meets the criteria of exclusion E3, the elements
could be excluded.
149.

Regarding Valero’s request for an additional exclusion if equipment owners’

configurations cannot meet the exclusion E3 criteria, Valero can request that the elements
be excluded through the exception process. The exception process allows equipment
owners to request an exception regardless of the owner’s registration status.

134

Valero Comments at 8.

Docket Nos. RM12-6-000 and RM12-7-000
d.

- 91 -

Figure 3 and Condition (a) Radials Only Serving Load

NOPR Proposal
150.

In the NOPR, the Commission agreed with NERC’s proposal that radial systems

only serving load and emanating from a single point of connection of 100 kV or higher
should be excluded from the bulk electric system. However, the Commission expressed
concern “that the exclusion could allow elements operating at 100 kV or higher in a
configuration that emanates from two or more points of connection “to be deemed
“radial” even though the configuration remains contiguous through elements that are
operated below 100 kV.” 135 Figure 3 in the NOPR illustrated this concern, and the
Commission asked for comment on how to evaluate the configuration relative to the
radial system definition. The Commission also requested comment on the
appropriateness of examining elements below 100 kV to determine if the configuration
meets exclusion E1, i.e., whether figure 3 depicts “a system emanating from two points of
connection at 230 kV and, therefore, the 230 kV elements above the transformers to the
points of connection to the two 230 kV lines would not be eligible for the exclusion E1
notwithstanding the connection below 100 kV.” 136

135

NOPR, 139 FERC ¶ 61,247 at P 81.

136

Id.

Docket Nos. RM12-6-000 and RM12-7-000

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Figure 3
Networked Configuration w/69 kV Loop

Comments
151.

NERC disagrees with the Commission’s characterization of figure 3 in the NOPR.

NERC states that figure 3 does not depict a configuration with two points of 100 kV or
higher or a system emanating from two points of connection at 230 kV. According to
NERC, except for lines 1 and 2, all the other elements depicted in figure 3 are excluded
from the bulk electric system. NERC explains that the elements between line 1 and
transformer 2 and from line 2 to transformer 1 are excluded by exclusion E1(a) because
“each separate set of [e]lements [described above] is contiguous and emanate from a

Docket Nos. RM12-6-000 and RM12-7-000

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single point of connection of 100 kV or higher.” 137 NERC states that the elements below
the 69 kV side of transformers 1 and 2 are excluded from the definition because they are
less than 100 kV, and transformers 1 and 2 are excluded because they “bridge voltages of
69 kV and 230 kV” and therefore do not meet inclusion I1.
152.

NERC further explains that the focus of the definition of bulk electric system is on

looped or networked connections at or above 100 kV. According to NERC, connections
operated below 100 kV, generally do not carry significant parallel flow due to the higher
impedance of lower voltage facilities. If such facilities are necessary for the reliable
operation of the interconnected transmission network, NERC states that the exception
process can be used to include such facilities.
153.

Exelon agrees with NERC and explains that it has many connections similar to the

one shown in figure 3 and provides a specific example where a 138 kV substation is fed
by two radially connected 138 kV lines which in turn are connected through 40 MVA
transformers to a 12 kV bus section. Exelon states that in its example the 40 MVA
transformers cross bus sections so that if one of the 138 kV lines is out of service, each
side of the 12 kV bus retains service. Exelon believes that due to the high impedance of
the transformers, little energy flows between the buses in Exelon’s example. 138 Exelon
137
138

NERC Comments at 19.

Exelon Comments at 6. TAPS states that impedance is inversely proportional
to the square of the voltage of the network and power flow is inversely proportional to the
impedance. According to TAPS, impedance factors are very significant in limiting the
amount of parallel path flows. TAPS Comments at 7.

Docket Nos. RM12-6-000 and RM12-7-000

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states that owners and operators of these configurations would be required to go through
the exception process.
154.

Other commenters believe that the figure 3 configuration may not be eligible for

exclusion E1. SoCal Edison explains that the 69 kV loop is not open and therefore is a
parallel path to the 230 kV system. BPA, Alameda and WREA do not view the figure 3
system as eligible for exclusion E1 because the system is networked. Idaho Power states
that the 230 kV lines would be included only if there is a protection system in place for
the 230 kV lines. According to Idaho Power, the elements above the transformers in
figure 3 would not be excluded from the bulk electric system. Idaho Power believes this
configuration should be evaluated under exclusion E3.
Commission Determination
155.

The Commission finds figure 3, which is identical to figure 5, is a networked

configuration through a 69 kV loop and does not qualify for exclusion E1. The
Commission also finds that, because the load in figure 3 can be served by either 230 kV
line, it does not depict a “radial system.” However, the facilities below 100 kV may or
may not be necessary for the operation of the interconnected transmission network, and
this decision can be made case-by-case in the exception process. In other words, such
facilities below 100 kV depicted in figure 3 would be excluded under the general
threshold of the core definition unless found on a case-specific basis as necessary for the
reliable operation of the interconnected transmission network. Thus, the Commission,
while disagreeing with NERC’s interpretation, does not propose to include the below
100 kV elements in figure 3 in the bulk electric system, unless determined otherwise in

Docket Nos. RM12-6-000 and RM12-7-000

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the exception process. Further, as we discuss below in connection with exclusion E3 and
figure 5, while we find that the configuration shown in figures 3 and 5 would not be
eligible for exclusion E1, we believe that such configurations should be eligible for
exclusion E3 for local networks. However, exclusion E3 as written requires the
candidate local network to be contiguous and above 100 kV, thus, the exclusion E3
language as written does not allow for figures 3 and 5 to be eligible for the local network
exclusion because they are not contiguous and include facilities that are not above
100 kV. Therefore, we direct NERC to modify exclusion E3 to remove the 100 kV
minimum operating voltage in the local network definition. This modification will
enable configurations similar to figures 3 and 5 to be assessed for the local network
exclusion. The Commission believes this modification, together with satisfying the
criteria outlined in exclusion E3, will appropriately exclude local network configurations
that are not necessary to the reliable operation of the interconnected transmission
network. 139

139

NERC and Exelon contend that looped or networked connections operating
below 100 kV generally do not carry significant parallel flow because of higher
impedance characteristics and thus need not be evaluated as part of a radial system.
However, the Commission believes that excluding these configurations solely on the
level of impedance does not consider other factors, including voltage, the system
configuration, type of conductors, length of conductors, and proximity of the networked
system in the interconnected transmission network. Regardless of our disagreement with
NERC and Exelon regarding the consideration of impedance, however, as we discuss
above, configurations such as those described by Exelon may be assessed for exclusion
through exclusion E3, which apply criteria to determine whether such facilities are
necessary for reliable operation of the interconnected transmission network.

(continued…)

Docket Nos. RM12-6-000 and RM12-7-000
e.

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Condition (b) – Radials With Limited Generation and
Condition (c) – Radials With Limited Generation and
Load

NOPR Proposal
156.

Exclusion E1, condition (b) describes generation connected to a radial system with

no load, and condition (c) describes generation connected to a radial system with
generation and load. In its petition, NERC stated that conditions (b) and (c) are “intended
to address the circumstances of small utilities (including municipal utilities and
cooperatives).” 140
157.

In the NOPR, the Commission requested comment regarding the specific

circumstances that conditions (b) and (c) are intended to address. In addition, the
Commission observed that the power generated on these radial systems would be
“delivered or injected to the bulk electric system and transported to other markets.” 141
The Commission noted that it appeared that a line 100 kV or above connected to a
generator with a capacity 75 MVA or below would not be included in the bulk electric
system. The Commission requested comment on the appropriateness of excluding such
radial facilities.

Accordingly, the inclusion or exclusion of such facilities is better determined through
application of exclusion E3, or case-by-case in the exception process.
140

NERC BES Petition at 19.

141

NOPR, 139 FERC ¶ 61,247 at P 83.

Docket Nos. RM12-6-000 and RM12-7-000

- 97 -

Comments
158.

With respect to applicability to small utilities, NERC states that exclusion E1,

conditions (b) and (c) are not intended solely for such entities. According to NERC,
these conditions are intended to exclude radial systems that have limited benefit to the
reliability of the interconnected transmission network. NERC states that the
configurations described in exclusion E1(b) and (c) “pose no reliability risk to the
interconnected transmission network when the radial system is lost due to a failure or
fault condition.” 142
159.

NERC states that the basis for exclusion E1(b) “is dependent on a single point of

failure causing the radial system to separate” from the bulk electric system, which will
result in a limited loss of generation without an adverse reliability impact to the
interconnected transmission network.” 143 NERC explains that exclusion E1(c) addresses
the installation of limited amounts of generation that are installed within a radial system
and are intended to serve local load within that radial system.
160.

In response to the Commission’s question about the delivery or injection of power

from the radial systems described in these exclusions, NERC states that because of the
limitation of the generation in exclusion E1(b) and (c), the power generated on the radial
system would be delivered to the embedded load within the radial system and injected

142

NERC Comments at 20.

143

NERC Comments at 20.

Docket Nos. RM12-6-000 and RM12-7-000

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into the bulk electric system in very limited quantities. NERC argues that subjecting the
elements associated with this type of radial system to all the Reliability Standards has
limited benefit to the reliability of the interconnected transmission network. NERC
believes it is more appropriate to identify these elements through the “the applicability in
specific standards where a reliability benefit can be identified.” 144
161.

A number of commenters agree with NERC. 145 Idaho Power states that the

exclusion is appropriate if the generation connected to the radials is not relied on to meet
reliability performance criteria on bulk electric system elements. Idaho Power indicates
that it follows the WECC guidelines and thresholds (10 MVA individually, 20 MVA
aggregate) to determine the appropriateness of excluding the power from components
from radial connected generation. Alameda contends that the radial systems in these
exclusions have only a minor impact on the bulk electric system and that system planning
and operation assessments must provide for reliable operation under N-1 contingency
operations including loss of the exclusion E1(b) and (c) configurations. WPPC states that
the generator thresholds in these conditions are a logical cut-off to separate radial systems
with generation that is not likely to be meaningful to operation of the bulk electric
system.

BPA.

144

NERC Comments at 21-22.

145

E.g. Idaho Power, National Grid, AEP, Hydro One, ISO New England, and

Docket Nos. RM12-6-000 and RM12-7-000
162.

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Anaheim urges the Commission to clarify that the presence of generation

resources connected at voltages below 100 kV “does not invalidate the availability of the
radial exclusion for lines that are operated at greater than 100 kV unless the generating
unit is actually connected to the higher voltage line.” 146 PSEG Companies state there is
confusion regarding the generation limits in exclusion E1(b) and (c) and in exclusion E3.
They contend that it is not clear if the generation limit only applies to generators
connected at 100 kV or higher. PSEG Companies also ask for clarification regarding the
definition of the phrase “non-retail generation.” 147
163.

AEP does not believe that the three conditions of exclusion E1 would remove the

generation connected to the radial system from the bulk electric system definition but
states that the conditions may have the consequence of removing the radial line itself
from the definition in error. According to AEP, this would be in cases of a 25 MVA
generator (meeting I2 properties) but less than 75 MVA aggregate. AEP suggests that the
conditions in (b) and (c) be revised to reference non-bulk electric system generation. 148
Commission Determination
164.

We approve exclusion E1 conditions (b) and (c). However, we direct NERC

to implement exclusion E1 so that the exclusions for radial systems do not apply to

146

Anaheim Comments at 7.

147

PSEG Comments at 3.

148

AEP Comments at 5.

Docket Nos. RM12-6-000 and RM12-7-000

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tie-lines for bulk electric system generators identified in inclusion I2. If the generator is
necessary for the operation of the interconnected transmission network, the Commission
believes that it is generally appropriate to have the radial tie-line operating at or above
100 kV that delivers the generation to the bulk electric system included as well.
165.

In general, we believe that it is appropriate to have the bulk electric system

contiguous, without facilities or elements “stranded” or “cut-off” from the remainder of
the bulk electric system as shown in the figure below. However, the contiguous quality
of the bulk electric system is lost in exclusion E1, condition (b), because it removes from
the bulk electric system the 100 kV or greater generator tie-line that connects the bulk
electric system generator to the interconnected transmission network. Such tie-lines
should be subject to appropriate Reliability Standards.
Radial System with BES Generation

Docket Nos. RM12-6-000 and RM12-7-000
166.

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NERC explains that the exclusion of radial systems pursuant to conditions (b) and

(c) is based on the premise that a single point of failure causing the radial system to
separate from the bulk electric system, resulting in the loss of a limited amount of
generation will not have an adverse reliability impact. However, there are other
reliability concerns that NERC does not address. For example, both the radial line
emanating from a generator and the portion of the bulk electric system to which it is
connected have protective relays that require coordination to prevent the lines from
tripping. The generator needs to coordinate the protective relays with transmission
operators, otherwise there may not be adequate information to prevent a fault on the
radial line from causing cascading outages on the bulk electric system. The Commission
also notes that the phrase “adverse reliability impact,” which is defined in the NERC
Glossary of Terms as “the impact of an event that results in frequency-related instability;
unplanned tripping of load or generation; or uncontrolled separation or cascading outages
that affects a widespread area of the Interconnection,” is an extreme result that should not
occur from the loss of a single tie-line for any sized generator. 149 A single contingency
that results in an “adverse reliability impact” violates planning and operating criteria in
Commission approved Reliability Standards. 150 NERC also does not consider issues,

149

See the NERC Glossary of Terms at
http://www.nerc.com/files/Glossary_of_Terms.pdf
150

See, e.g., Reliability Standards, TPL-002-0b and IRO-004-2.

Docket Nos. RM12-6-000 and RM12-7-000

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such as the issue raised by Idaho Power, that the exclusion is appropriate if the generation
connected to the radial system is not relied on to meet reliability performance criteria.
167.

Some commenters suggest there is a conflict between the inclusion I2 and

exclusion E1 because they believe that the 100 kV or greater tie-line and the generator
should remain in the bulk electric system. We agree that exclusion E1 as written does not
prevent the radial tie-line operating at or above 100 kV from the high side of the step-up
transformer to the bulk electric system from being excluded while the generator and
associated step-up transformer(s) remain included. Inclusion I2 depends on the status of
the tie-line based on the core definition’s 100 kV threshold to determine if a generator
and its step-up transformers are part of the bulk electric system. Thus, this inclusion
results in most bulk electric system generators having a contiguous connection to the
interconnected transmission network. As noted above, we believe that it is generally
appropriate to have the bulk electric system contiguous. Therefore, the Commission
directs NERC to implement exclusion E1 so that the exclusion for radial systems does not
apply to tie-lines for bulk electric system generators identified in inclusion I2. This
directive provides consistent application of the entire definition by not allowing exclusion
E1 to override the qualifying tie-lines pursuant to inclusion I2.
168.

The Commission also rejects NERC’s argument that subjecting the elements

associated with this type of radial system to all the Reliability Standards has a limited
benefit to the reliability of the interconnected transmission network. In cases of radial
tie-lines for bulk electric system generators where the generator owner also owns the
tie-line, NERC has exercised discretion, on a case-by-case basis, in determining which

Docket Nos. RM12-6-000 and RM12-7-000

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entities require registration as transmission owners/operators and identified sub-sets of
applicable reliability standard requirements for these entities. 151 In other situations, such
generator tie-lines may appropriately be considered an extension of the generation
facility, which would not subject significant additional compliance obligations on the
generator owner and/or operator.
169.

In response to the question raised by PSEG Companies about whether the

generation limit specified in exclusion E1(b) and (c) only applies to generators connected
at 100 kV or higher, we note that exclusions E1(b) and (c) do not specify the generation
connected to the radial system or local network to any voltage.
f.

Normally Open Switches

NOPR Proposal
170.

NERC included a note accompanying the description of exclusion E1 stating that

“[a] normally open switching device between radial systems, as depicted on prints or
one-line diagrams for example, does not affect this exclusion.” NERC drafted this note
to address a common network configuration in which two separate sets of facilities that,
each standing alone, would be recognized as radial systems but are connected by a switch
that is set to the open position for reliability purposes. In its petition, NERC explained
that these switches are installed by entities to provide greater reliability to their end-use
customers. NERC also explained that “a normally open switch” will be identified in
151

E.g., New Harquahala Generating Company, LLC, 123 FERC ¶ 61,173, order
on clarification, 123 FERC ¶ 61,311 (2008).

Docket Nos. RM12-6-000 and RM12-7-000

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documents such as prints or one-line diagrams and that “[t]he concept and usage of the
‘normally open switch’ in such configuration is well understood in the electric utility
industry.” 152
171.

In the NOPR, the Commission requested comment on NERC’s characterization

and whether the phrase “normally open” is subject to interpretation or misunderstanding,
or whether a “normally open” configuration is potentially difficult to oversee. The
Commission also requested comment on the need of transmission operators or other
functional entities to study the system impacts of the closing of a “normally open”
switch, or to take other steps to ensure awareness of the impacts of the loop that is created
by the closing of the switch if the closed loop is not included as part of the bulk electric
system.
Comments
172.

NERC explains that the term “normally opened” is well understood and

commonly used in industry for a variety of reasons including public and personnel safety.
NERC also explains that the purpose of recognizing a normally open switch in the
definition is to preserve the bright-line so that the facilities can be characterized as they
are planned to be operated which avoids the need to constantly reclassify elements to
adjust to the changing operating conditions that occur on the system. NERC believes that
a normally open switch is not difficult to oversee.

152

NERC BES Petition at 19.

Docket Nos. RM12-6-000 and RM12-7-000
173.

- 105 -

Nearly all commenters that addressed this issue agree with NERC’s positions.

NRECA highlights NERC’s explanation that the configuration is so common that to write
the definition to include radial systems connected by a normally open switch, with the
caveat that entities can request an exception, would result in a flood of exception
requests. Steel Manufacturers Association points out that such a switch can make a
secondary connection point available to a large industrial load when needed to improve
service reliability and continuity. Consumers Energy states that such switches would
only be closed during emergency conditions and an entity in that instance would follow
contingency plans and ensure that a proper study is performed on a normally open switch
that is closed due to the emergency to avoid related equipment failures. TAPS agrees
with NERC and notes that such switches are marked as normally open on one line
diagrams.
174.

PSEG Companies state that in effect the switch is irrelevant because if the

normally open switch is open the systems are radial and therefore excluded and when the
switch is closed the radial systems are also excluded for the same reasons figure 3
facilities should be excluded. Alameda submits it documents a normally open switch in
operational diagrams and SCADA applications and its use is coordinated in advance with
its transmission operator. Alameda also states that the system impacts of closing a
normally open switch do not need to be required to be studied since it is the operational
experience and documentation of such switch that is most important.
175.

G&T Cooperatives state that some operational studies would be useful if there is

an upcoming operational decision to close the normally open switch that could parallel

Docket Nos. RM12-6-000 and RM12-7-000

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the bulk electric system. However, G&T Cooperatives explain that the study would be
used to ensure that the system can operate with the switch closed without inadvertently
tripping one of the source breakers. G&T Cooperatives explain that a normally open
switch would not need to be modeled into any real-time model or contingency analysis,
nor would it require the interconnecting radial systems to be incorporated into the bulk
electric system, where such conditions are managed through quick changes to the
equivalence bus loads or generation capacities. Similarly, TAPS states that closing a
normally open switch does not have an impact on the system that needs to be studied
because it is only close to change a down stream path on a temporary basis and does not
create a loop.
Commission Determination
176.

Upon consideration of comments, we are persuaded that the concept of a normally

open switch is well understood, common and not difficult to oversee. We accept NERC’s
explanation that recognizing a normally open switch in the definition will preserve the
bright-line so that the facilities can be characterized as they are planned to be operated
and avoids the need to constantly reclassify elements to adjust to the changing operating
conditions that occur on the system.
177.

With regard to the Commission’s question concerning the need to study the system

impacts of the closing of a “normally open” switch, at this time we will not require them
to be studied. We are persuaded that the operational experience and documentation of
such switch is most important and, thus, we decline to require additional studies.

Docket Nos. RM12-6-000 and RM12-7-000
7.

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Exclusion E2 (Behind the Meter Generation)

NOPR Proposal
178.

NERC stated in its petition that the wording of exclusion E2 is extracted from the

Statement of Compliance Registry Criteria. 153 In the NOPR, the Commission stated that
the exclusion of “[a] generating unit or multiple generating units on the customer’s side
of the retail meter…” was an appropriate exclusion that provides additional clarity and
granularity to the definition of bulk electric system. 154 While the Commission did not ask
specific questions about exclusion E2, several commenters expressed support for the
inclusion, while others stated concerns with the exclusion.
Comments
179.

NERC and EEI agree with the Commission that the exclusion provides additional

clarity. ELCON notes that such configurations are commonly employed by industrial
users of electricity, and they do not affect in any significant way the bulk power system.
On the other hand, ISO New England believes that exclusion E2 should be eliminated
because it is contrary to the reliability of the bulk electric system. According to
ISO New England, a 400 MW generator which is behind the meter with a 400 MW load
could be excluded even though it could have a significant impact on the performance of
the bulk electric system. ISO New England states that the owner of the generator in this
example would not need to provide generator stability modeling information nor abide by
153

NERC BES Petition at 22.

154

NOPR, 139 FERC ¶ 61,247 at P 88.

Docket Nos. RM12-6-000 and RM12-7-000

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the many normally applicable Reliability Standards. MISO believes that the exclusion
could encourage entities to move generation capacity behind the meter which could
adversely impact the bulk electric system.
180.

PSEG Companies state that exclusion E2 could exclude generation included in

inclusion I2. For example, PSEG Companies contends that, if a single 200 MVA behindthe-meter generator is connected to the bulk electric system at 100 kV or higher, the net
capacity provided to the bulk electric system does not exceed 75 MVA and the generator
has standby, backup, and maintenance services, under exclusion E2 the generator would
be excluded from the bulk electric system, but it would be included pursuant to
inclusion I2. 155
181.

Other commenters, such as Barrick and the IUU, believe additional clarification is

needed for the terms “retail meter” and “net capacity.” Specifically, they question what
the capacity is “net” of or whether it means the sum of flows at all points of connection to
the bulk electric system. They also question whether “net” means the capacity of a
generator that is made available for use by someone other than an owner of the generator
or capacity less parasitic load only.
182.

Barrick and IUU believe there is more than one use for the term “retail meter,” and

it is not clear whether all situations are covered by the use in the proposed exclusion E2.
Barrick proposes that the term “retail meter” should include an end-user’s meter at an

155

PSEG Comments at 14.

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end-user’s generator when that meter is used to measure the end-user’s generation for
consumption.
Commission Determination
183.

We find that exclusion E2 provides additional clarity to the definition of bulk

electric system, and we disagree that exclusion E2 is contrary to the reliability of the bulk
electric system. We agree with ELCON that such configurations are commonly
employed by industrial users of electricity. Indeed, this exclusion is similar to the
exclusion for such facilities in NERC’s Registry Criteria. 156 With regard to
ISO New England’s and PSEG Companies specific examples, to the extent such scenario
exists, they may be eligible for inclusion or exclusion through use of the exception
process.
184.

We decline to define the additional terms cited by commenters, such as Barrick

and the IUU, who believe additional clarification is needed for the terms “retail meter”
and “net capacity.” These terms are in common use in the electric power industry.
Therefore, we do not see a need to adopt a formal definition.
8.

Exclusion E3 (Local Networks)

NOPR Proposal
185.

NERC’s proposed exclusion E3 defines the term “local networks” as:
A group of contiguous transmission Elements operated at or
above 100 kV but less than 300 kV that distribute power to
156

NERC Statement of Compliance Registry Criteria, section III.c.4.

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Load rather than transfer bulk-power across the
interconnected system. LN’s emanate from multiple points of
connection at 100 kV or higher to improve the level of service
to retail customer Load and not to accommodate bulk-power
transfer across the interconnected system.
Exclusion E3 also identifies three criteria that must be satisfied for the exclusion to apply:
(a) limit on connected generation to 75 MVA aggregate capacity of non-retail generation
(gross nameplate rating); (b) power flows only into the local network and does not
transfer through the local network; and (c) the local network is not part of a flowgate or
transfer path.
186.

In the NOPR, the Commission requested comment on: (1) whether generation

resources are excluded by this exclusion; (2) how the exclusion applies to a looped lower
voltage system; (3) whether the 300 kV ceiling is appropriate for the application of the
exclusion; and (4) whether the prohibition for generation produced inside a local network
is not transporting power to other markets outside the local network applies in both
normal and emergency operating conditions. 157 The Commission also sought further
explanation regarding the design and technical justification of a local network. These
issues are discussed in detail in the following sections.

157

NOPR, 139 FERC ¶ 61,247 at P 89.

Docket Nos. RM12-6-000 and RM12-7-000
a.

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Local Network Design and Technical Justification

NOPR Proposal
187.

In the NOPR, the Commission requested explanation and comment on the

statement in NERC’s petition that “neither will the local network’s separation or
retirement diminish the reliability of the interconnected electric transmission network.” 158
In its petition, NERC stated that the design and operation of local networks is such that at
the point of connection with the interconnected transmission network is similar to that of
a radial facility, in particular that power always flows in the direction from the
interconnected transmission network into the local network. 159 Further, according to
NERC, “[l]ocal networks provide local electrical distribution service and are not planned,
designed or operated to benefit or support the balance of the interconnected transmission
network.” 160
188.

In the NOPR, the Commission observed that, while a radial facility emanates from

one point of connection to the interconnected transmission network, a local network by
definition has multiple points of connection to the interconnected transmission network.
Thus, regarding a local network, a contingency situation may arise where one of the
multiple connections to the interconnected transmission network separates, while other
local network connections maintain connectivity with the bulk electric system.
158

NERC BES Petition, Exhibit G at 2. (Local Network Technical Justification).

159

NERC BES Petition at 22.

160

Id.

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Accordingly, the Commission requested comments to better understand how an entity
with a candidate local network would analyze such contingencies to determine potential
impacts to the reliable operation of the interconnected transmission network.
Comments
189.

EEI, MISO and other commenters generally support exclusion E3. 161 With respect

to the issue raised by the Commission regarding how an entity’s local network separation
will not diminish the reliability of the interconnected transmission network, NERC
explains that the reliability of the interconnected transmission network is not impacted by
the existence or absence of the local network. NERC maintains that excludable facilities
under exclusion E3 will naturally satisfy this principle because the exclusion E3
conditions were crafted in such a way to ensure reliability is not adversely impacted by
the disconnection of the local network. While specific analyses are not necessary to
support exclusion of facilities under exclusion E3, NERC states that transmission
operators or other functional entities need to be aware of the change of status of all
devices on the system and the impact to the system from device changes. According to
NERC, exclusion of a local network does not obviate the transmission operator or other
functional entity from the responsibility to assess the system impact on any bulk electric

161

E.g., NRECA, ELCON, BPA, and G&T Cooperatives.

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system facility due to the separation of one local network connection while the remainder
of the local network remains connected with the bulk electric system. 162
190.

TAPS agrees with NERC stating “sophisticated engineering analysis should not be

needed to determine the applicability of [i]nclusions and [e]xclusions.” 163 Likewise,
WREA agrees with NERC’s assertion that the entity with a local network does not need
to analyze local network contingencies since this analysis is already made by the
transmission planner and transmission operator responsible for the bulk electric system
facilities feeding the local network. Regarding the transmission planner responsibilities,
WREA states the NERC Reliability Standard TPL-002 requires the transmission planner
to study N-1 contingencies and prepare plans for reliable operation. WREA further
explains that the transmission operator is required to plan to meet unscheduled changes in
system configuration pursuant to Reliability Standard TOP-002, R6 and “if there are
non-[bulk electric system] facilities that are significant, that have not been properly
represented in a [transmission operator’s] models, [then] when the [transmission
operator] performs its required model accuracy validation (TOP-002, R19), the
[transmission operator] would observe a modeling inconsistency and would be able to
take steps to correct the modeling error.” 164

162

NERC Comments at 26.

163

TAPS Comments at 9.

164

WREA Comments at 8-9.

Docket Nos. RM12-6-000 and RM12-7-000
191.

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AEP advocates for a baseline or cut-off point, which would be determined by the

size (in MW) of the local network. Idaho Power believes that the statement means that
total separation or loss of the local network elements does not cause a reliability
performance impact on the remaining bulk electric system elements. Idaho Power
explains that it would analyze such contingencies by evaluating overload levels and
voltage performance impacts on the remaining bulk electric system elements as well as
overload levels and voltage performance on the remaining local network elements.
192.

Southern Companies state that such a contingency would be incorporated into

planning studies regardless of whether the local network was part of the bulk electric
system. 165 BPA believes that before a candidate local network is excluded, it must be
evaluated by the impacted balancing authority, transmission operator and planning
authority to ensure the integrity of the bulk grid is not compromised. 166
Commission Determination
193.

The Commission approves exclusion E3. The Commission accepts NERC’s

explanation about the statement that “neither will the local network’s separation or
retirement diminish the reliability of the interconnected transmission network.” The
Commission also accepts NERC’s comments relating to how an entity with a candidate
local network would analyze such contingencies to determine potential impacts to the

165

Southern Companies Comments at 13.

166

BPA Comments at 7-8.

Docket Nos. RM12-6-000 and RM12-7-000

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reliable operation of the interconnected transmission network. In particular, the
Commission agrees that the exclusion of a local network does not obviate the
transmission operator or other functional entity from the responsibility to assess the
system impact of separating one local network connection while the remainder of the
local network remains connected with the bulk electric system. We will not direct NERC
to modify the provision as suggested by AEP and BPA. Rather, as NERC indicates, AEP
and BPA may raise these suggestions with NERC in the Phase 2 development effort.
b.
194.

Figure 5, Contiguous Transmission Elements and the 100
kV Lower Limit

Exclusion E3 defines local networks as “[a] group of contiguous transmission

Elements operated at or above 100 kV but less than 300 kV that distribute power to Load
rather than transfer bulk-power across the interconnected system.” While the local
network exclusion applies to contiguous transmission elements operating at a minimum
of 100 kV, the Commission stated in the NOPR that it is unclear how the exclusion
applies to a looped lower voltage system. The Commission provided an example of its
concern depicted in figure 5 in the NOPR which shows a 69 kV looped system emanating
from two points of connection at 100 kV or higher.

Docket Nos. RM12-6-000 and RM12-7-000

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Figure 5
Networked Configuration w/69 kV Loop

195.

In the NOPR, the Commission stated that figure 5 depicts a group of elements that

are contiguous through a 69 kV loop and requested comment whether the configuration
in figure 5 qualifies as a local network and, in particular, whether the configuration
satisfies the conditions that a local network be contiguous and operated at or above
100 kV.
Comments
196.

NERC views figure 5 the same as figure 3 - as a looped system below 100 kV -

that is not considered under this exclusion because the elements below 100 kV are

Docket Nos. RM12-6-000 and RM12-7-000

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presumed to be not part of the bulk electric system. 167 NERC maintains that, if it is
determined that the sub-100 kV looped system is necessary for the reliable operation of
the interconnected transmission network, the exception process may be utilized to include
the appropriate elements. NERC states that figure 5 depicts two separate and distinct
groups of elements that each emanate from a single point of interconnection at 230 kV
and only serve load. Accordingly, NERC states that 230 kV lines 1 and 2 are included in
the bulk electric system with the only other included elements being the lines extending
from lines 1 and 2. However, according to NERC, the elements between 230 kV line 1
and transformer 2 and between 230 kV line 2 and transformer 1 are each subject to
exclusion E1(a) because each separate set of elements is contiguous and emanate from a
single point of connection of 100 kV or higher. NERC asserts that the elements below
the 69 kV side of transformers 1 and 2 are excluded because they are less than 100 kV.
NERC explains that transformers 1 and 2 are excluded because they bridge voltages of
69 kV and 230 kV and therefore, inclusion I1 is not applicable because a transformer
must have two terminals over 100 kV to qualify for inclusion I1. According to NERC,
the definition should focus on looped or networked connections at 100 kV or greater
because such connections, when operated below 100 kV, generally do not carry

167

Figure 5 and figure 3 set forth in the NOPR are identical configurations.

Docket Nos. RM12-6-000 and RM12-7-000

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significant parallel flow because of the higher impedance associated with lower voltage
facilities. 168
197.

Exelon states that the clear intent of the definition is that configurations such as

shown in figure 5 are radial systems subject to exclusion E1 (radial systems). According
to Exelon, had this not been the intent of exclusion E1, exclusion E3 would have allowed
for a local network where the tie was below 100 kV to avoid a reliability gap. Exelon
believes that the configuration shown in figure 5, which is identical to figure 3, does not
qualify as a local network within the terms of exclusion E3 and supports NERC’s view
that figure 5 represents two radial systems that qualify under exclusion E1. Exelon
cautions that, if the Commission determines that the systems depicted in figure 5 do not
qualify under exclusion E1 because of the low voltage tie and does not qualify under
exclusion E3 because the tie is at low voltage and not a 100 kV or above, such a decision
would leave a gap under which a substantial number of facilities that are not part of the
bulk electric system would be classified as such. Exelon states that it would have to go
through the separate exception process for dozens of substations, at great cost and for no
useful purpose. Exelon states that the Commission should clarify that the configuration
shown in figures 3 and 5 qualifies as a radial system and is excluded pursuant to
exclusion E1.

168

NERC Comments at 27-28.

Docket Nos. RM12-6-000 and RM12-7-000
198.

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Other commenters disagree with NERC’s position. Idaho Power believes the

network configuration with a 69 kV loop belongs to a local network category pursuant to
exclusion E3 and that these types of networks should be studied to identify if there is any
resulting voltage, overload, or stability violation that could propagate and impact the
reliability of the system. Idaho Power believes that the 69 kV loop can tie the 230 kV
systems together; therefore, outages in the 230 kV system could cause loop flow in the
69 kV system. According to Idaho Power, planning studies would have to be performed
to determine the amount of loop flow and whether the loop flow could lead to outages on
the 69 kV system, resulting in further impact to the bulk electric system. 169 WREA also
notes figure 5 is the same as figure 3 and states that the 230 kV elements described in the
figure would not qualify for the radial system exclusion E1 because the 230 kV elements
are networked via facilities less than 100 kV. WREA concludes the elements above
100 kV in the figure might qualify for the local network exclusion and the below 100 kV
facilities in this configuration are non-bulk electric system on the basis of the core
definition unless the facilities are included via the exception process. 170 AEP believes
that figure 5 could be considered for exclusion E3, provided that it is understood that at
some point on the local network, the network could be of the size that would have a

169

Idaho Power Comments at 11.

170

WREA Comments at 9.

Docket Nos. RM12-6-000 and RM12-7-000

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potential impact on the bulk electric system and would still need to meet the parameters
of exclusion E3. 171
Commission Determination
199.

As discussed above, the Commission is directing a modification to exclusion E3 to

better capture local networks like those depicted in figure 5. The Commission notes that
Exelon believes that the configuration shown in figure 5, which is identical to figure 3,
does not qualify as a local network within the terms of exclusion E3. While figures 3 and
5 are a networked configuration through a 69 kV loop, they do not qualify for the local
network exclusion because exclusion E3 defines local networks as “[a] group of
contiguous transmission Elements operated at or above 100 kV but less than 300 kV that
distribute power to Load rather than transfer bulk-power across the interconnected
system.” The configuration in figure 5 includes elements that are below 100 kV, and
does not have contiguous elements operating at or above 100 kV but less than 300 kV.
As noted above, while the Commission finds that these configurations should not be
eligible for exclusion E1, we believe that they should be eligible for the local network
exclusion. Therefore, we direct NERC to modify exclusion E3 to remove the 100 kV
minimum operating voltage in the local network definition. Within 30 days of the
effective date of this Final Rule, we direct NERC to submit a schedule outlining how and
when it will make the modification to the definition.

171

AEP Comments at 10.

Docket Nos. RM12-6-000 and RM12-7-000
c.

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300 kV Cap

NOPR Proposal
200.

NERC explained the selection of a 300 kV cap for the applicability of an

exclusion for a local network was based upon recent NERC standards development work
in Project 2006-02 “Assess Transmission Future Needs and Develop Transmission Plans”
which sets a voltage level of 300 kV to differentiate extra high voltage (EHV) facilities
from high voltage facilities acting as a threshold to distinguish between expected system
performance criteria. 172 In the NOPR, the Commission noted that NERC provided an
example of the electrical interaction between a typical local network and the bulk electric
system which depicted a local network operating at 115 kV. However, the Commission
observed that NERC did not provide examples of a local network operating within the
200 to 300 kV range. The Commission expressed concern whether the 300 kV ceiling is
appropriate and reflects actual system configurations that serve local distribution, the
stated purpose of the local network exclusion. Thus, the Commission requested comment
whether the 300 kV ceiling is appropriate for the application of exclusion E3 and
requested examples of systems between 200 and 300 kV that would qualify for this
exclusion.

172

NERC BES Petition at 23.

Docket Nos. RM12-6-000 and RM12-7-000

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Comments
201.

NERC asserts that the 300 kV cap is appropriate. NERC reiterates that the voltage

cap is consistent with the distinction being made between extra high voltage and high
voltage in the Reliability Standard TPL-001-2. NERC adds that the important attributes
of a local network are the limit on capacity of connected non-retail generation,
prohibition of power flow out of, or through, the local network, and prohibition of local
networks containing flowgates or major transfer paths. NERC maintains that these
attributes, rather than the operating voltage of the local network facilities, assure that
local networks do not impact reliability of the interconnected transmission network.
202.

Most commenters agree that the 300 kV threshold is appropriate. 173 With respect

to the Commission’s request for examples of systems between 200 and 300 kV that
would qualify for this exclusion, ICNU states that, one of its members operates a large
industrial facility that takes service from the bulk electric system from two transformers,
both of which operate at 230 kV on the high side, but step down to 13.5 kV for
distribution within the complex. According to ICNU, this industrial plant serves no
reliability function and serves only the retail load, but if the ceiling for exclusion E3 were
lowered to 200 kV, this network potentially would not be excluded because it contains
some elements operating between 200-300 kV. ICNU believes that the function of a
local network, rather than its voltage, is the critical factor in excluding it from the bulk

173

E.g. National Grid, AEP, ICNU, and WPPC.

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electric system and therefore, recommends a local network exclusion based on function,
not voltage. Nonetheless, to the extent a ceiling is deemed necessary, ICNU states that
the 300 kV threshold is appropriate.
203.

WPPC supports the 300 kV ceiling and WPPC states that the ceiling reflect

industry’s extensive use of 115-230 kV system to provide distribution service through a
local network. WPPC points out that in low density areas it is more economical to serve
load using one 230 kV network rather than four 69 kV networks. WPPC adds that many
55 and 69 kV networks that serve towns and cities have been upgraded to 115 or 230 kV
for economic, technical and environmental reasons, but raising the voltage does not
change their function.
204.

In contrast, BPA, Hydro One, and WREA express concern regarding the 300 kV

cap. BPA states that the 300 kV ceiling may not “reflect[] actual system configurations
that serve local distribution, the stated purpose of the local network exclusion.” 174 BPA
believes that exclusion E3 should not apply to any facility above 200 kV, without
appropriate review, analysis, and concurrence, from the impacted transmission operator,
planning authority, and reliability coordinator. BPA states that fault magnitudes on
systems between 200 kV and 300 kV are much higher than fault magnitudes on systems
operated below 200 kV. According to BPA, these systems have a much higher potential
for serious impacts than networks operating below 200 kV if something fails to operate

174

BPA Comments at 8.

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properly, including cascading outages, transient instability, and post transient voltage
instability.
205.

Hydro One believes that the 300 kV cap associated with the applicability of

exclusion E3 is not justifiable on technical grounds, and submits that certain systems with
greater than 300 kV should be able to qualify for exclusion E3 based on their own merits.
Hydro One states that a radial or a local network below 300 kV can have as much or
more impact on the reliability of the interconnected transmission network than a local
network operating at 300 kV or above depending upon its location and configuration.
WREA also disagrees with the 300 kV ceiling and recommends that the Commission
delete this limitation entirely.
Commission Determination
206.

The Commission approves the 300 kV voltage threshold for local networks for the

initial implementation of the definition. While we approve the 300 kV threshold, the
limited number of examples provided for 200-300 kV systems cause us to seek additional
information. Thus, following implementation when actual exclusion data is available, the
Commission directs NERC to submit a compliance filing within one year of the
implementation date identifying in sufficient detail the types of local network
configurations that have been excluded from the bulk electric system under this
exclusion. This will assist us in better understanding the type and magnitude of systems
that fall into above 200 kV category.

Docket Nos. RM12-6-000 and RM12-7-000
d.

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Criterion (a) – Limits on Connected Generation

NOPR Proposal
207.

Exclusion E3 criterion (a) provides that the local network and its underlying

elements do not include the blackstart resources identified in inclusion I3 and do not have
an aggregate capacity of non-retail generation greater than 75 MVA gross nameplate
rating. In addition, criterion (a) does not limit the amount of generation besides “nonretail generation” connected to the local network. The Commission stated in the NOPR
that it agrees with NERC that “local networks” do not include blackstart resources and
agrees with the limits on the connected generation imposed by this exclusion. The
Commission also stated that similar to the discussion of the definition of “radial systems”
in exclusion E1, the exclusion E3 local network exclusion applies to “transmission
Elements,” but does not exclude generation resources connected to a local network that
otherwise satisfy inclusion I2.
Comments
208.

NERC concurs with the Commission’s statement that “local networks” do not

include blackstart resources and agrees with the limits on the connected generation
imposed by this exclusion. NERC, EEI, Alameda, Hydro One, and WREA state that,
whether or not generation is included in the bulk electric system is determined by
inclusions I2 through I4 and exclusion E2. In addition, NERC confirms that exclusion E3
does not exclude generation resources.
209.

In contrast, some commenters are concerned about allowing generators identified

in inclusion I2 to be connected to local networks. Idaho Power states that it is not

Docket Nos. RM12-6-000 and RM12-7-000

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appropriate to exclude a local network if it contains generation that would normally be
included in the bulk electric system through inclusion I2. 175 PSEG Companies states that
“there is confusion created by the fact that generators included in the [bulk electric
system] definition per [inclusion] I2 are at the same time excluded under [exclusions] E2
and E3.” 176 According to PSEG Companies, a generator cannot be included under one
provision of the bulk electric system definition and excluded under another provision and
that this issue requires clarification and, once clarified, the bulk electric system definition
needs to be modified accordingly.
210.

Some commenters seek clarification of exclusion E3 criterion (a) regarding the

term “non-retail.” 177 Barrick and the IUU raise several questions about exclusion E3.
First, they claim that the phrase “not . . . non-retail generation” is unclear and question
whether it means generation used for retail. They also question whether exclusion E3
excludes generation resources for an owner’s own use or generation used for wholesale.
They also ask how the term “non-retail” relates to “net capacity.”
211.

While Holland supports the exclusion of local networks from the bulk electric

system, Holland argues that criteria (a) and (b) should be eliminated because they limit
the amount of connected generation, even where the connected generation is distributed

175

Idaho Power Comments at 10.

176

PSEG Comments at 11.

177

E.g., Barrick, IUU, and PSEG.

Docket Nos. RM12-6-000 and RM12-7-000

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locally. Holland states that exclusion E3(a) improperly maintains the aggregate 75 MVA
limit for connected generation. Holland believes this limit is inconsistent with the
concept of a local network and should be removed. Holland explains that if the local
network does not accommodate bulk power transfer across the interconnected system,
then the amount of generation that exists and is distributed within that system, regardless
of size, is distributed and consumed locally, and is therefore beyond the scope of FPA
Section 215. Holland maintains that, if the Commission does not remove exclusion E3(a)
in its entirety, it should require the limitation to be based on the net of the local network’s
total load, rather than the gross nameplate rating.
212.

NESCOE contends that three conditions in exclusion E3 would unnecessarily

include some New England networks in the bulk electric system without any clear
reliability benefit. In particular, NESCOE states that the limits on connected generation
should be raised to 300 MVA instead of 75 MVA, stating that the northeast portion of the
eastern interconnection defines a 1200 MVA loss of source as the largest contingency to
which the control area is designed to operate. Therefore, NESCOE believes that 25
percent of that contingency at 300 MVA falls well within typical loss of source
expectations for the northeast. Alameda suggests that the Commission raise the
connected generation limitation for local network exclusions to 150 MVA. According to
Alameda, since the local network is comparable to two radials, limiting a local network to
75 MVA could result in entities choosing to operate two less reliable radial systems, each
with 75 MVA of generation, rather than one local network with 150 MVA of generation
to avoid a designation as bulk electric system for their local network.

Docket Nos. RM12-6-000 and RM12-7-000

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Commission Determination
213.

We find that the local network exclusion only applies to “transmission Elements”

and does not allow the exclusion of generation resources otherwise included in the bulk
electric system pursuant to inclusion I2, as discussed above in our determination
regarding exclusion E1.
214.

Further, as discussed above regarding exclusion E1, the Commission agrees with

Idaho Power, PSEG Companies, SmartSenseCom, and AEP that tie-lines for generators
identified in the inclusion I2 should not qualify for exclusion as radial systems or local
networks. Rather the tie-lines can be considered for exclusion under NERC’s exception
process. Accordingly, consistent with the Commission’s directive discussed above
regarding exclusion E1, the Commission directs NERC to implement exclusion E3 so
that the exclusion for local networks does not apply to bulk electric system generator
tie-lines operated at or above 100 kV as shown in the figure below.

Docket Nos. RM12-6-000 and RM12-7-000

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115 kV Loop with BES Generation

215.

In response to Barrick’s and IUU’s requests for clarification, we decline to clarify

the terms/phrases “non-retail,” “gross plant/facility,” “not necessary,” “aggregate,” “net
capacity,” and “retail meter.” We believe the terms/phrases are sufficiently clear.
However, Barrick and IUU may pursue further clarification from NERC in an appropriate
forum such as NERC’s Phase 2 project.
216.

With regard to the comments of Holland, NESCOE and Alameda, we will not

direct any change in the connected generation limitation for the local network exclusion.
The limit on connected generation within the local network is consistent with the existing
threshold above which a generating plant in aggregate becomes subject to registration
under the NERC Registry Criteria. Entities may avail themselves of the exception

Docket Nos. RM12-6-000 and RM12-7-000

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process to exclude a local network that otherwise does not qualify pursuant to
exclusion E3.
e.

Criterion (b) – Power Flows only into the Local Network

NOPR Proposal
217.

Exclusion E3 criterion (b) specifies that, to qualify for the exclusion, power can

only flow into the local network and the local network does not transfer energy
originating outside the local network for delivery through the local network. The
Commission noted in the NOPR that, pursuant to criterion (b), generation produced
inside a local network is not transporting power to other markets outside the local
network. The Commission stated in the NOPR that it understands that criterion (b)
applies in both normal and emergency operating conditions. 178
Comments
218.

NERC confirms, and TAPS, Idaho Power and others concur with the

Commission’s understanding that, pursuant to criterion (b), generation produced inside a
local network is not transporting power to other markets outside the local network.
NERC and other commenters also agree that criterion (b) applies in both normal and
emergency operating conditions.

178

See NOPR, 139 FERC ¶ 61,247 at P 98 (citing NERC BES Petition, Exh. E at
59 (“The Commission directed NERC to revise its BES definition to ensure that the
definition encompasses all Facilities necessary for operating an interconnected electric
Transmission network. The SDT interprets this to include operation under both normal
and Emergency conditions….”)).

Docket Nos. RM12-6-000 and RM12-7-000
219.

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NERC states that prohibitions on outbound power flow and transportation of

power to other markets beyond the local network apply in all conditions, both normal and
contingent, and will eliminate the exclusion of facilities which may contribute power
flow into the bulk electric system under contingent or unusual circumstances. According
to NERC, basing the determination solely on normal conditions could lead to inconsistent
application of this exclusion and would introduce subjectivity into the application of the
definition.
220.

Duke Energy agrees with NERC’s comment that prohibitions on outbound power

flow beyond the local network apply in “both normal and contingent conditions,” but
believes that “contingent” should be further clarified as limited to N-1 contingencies for
the bright line definition. Idaho Power also agrees, and comments that additional
clarification is needed to define whether the meaning of “emergency conditions” includes
contingencies within the local network itself. In contrast, Southern Companies states that
criterion (b) would apply in normal but not emergency operating conditions. MISO
cautions against precluding local networks from sending electricity to the transmission
system in emergency conditions when doing so could improve the availability of
electricity.
221.

Portland notes that the application of criterion (b) in both normal and emergency

operating conditions is similar to one element of the Seven Factor Test that states that
power rarely if ever flows out. Portland suggests that the Commission should clarify the
relationship between the Seven Factor Test and the local distribution exception in the
reliability regulatory context.

Docket Nos. RM12-6-000 and RM12-7-000
222.

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Alameda believes that the power flow prohibition should apply only where the

flow from the local network is necessary for the reliable operation of the interconnected
transmission network. Alameda contends that these conditions would typically apply
during peak or near-peak operating conditions and that it would be inappropriate to
include a local network in the bulk electric system because generation flowed outside the
local network only under off peak conditions when these flows were not vital to
reliability. Alameda suggests that the power flow prohibition be modified to allow flows
of less than 75 MVA to flow outside the network, making the local networks electrically
comparable to radial systems with a 75 MVA generator.
223.

ISO New England believes the NOPR suggests an implicit expectation regarding

the determination of local networks in that there is no stated requirement for contingency
analyses in that determination. ISO New England believes that the Commission
understanding of criterion (b) implies that criterion (b) needs to be analyzed both pre- and
post-contingency. In such a case, this issue needs to be defined in the exclusion.
Additionally, ISO New England requests clarification whether this indicates that one
must apply a first contingency to the analysis or a second contingency in determining if
the criterion is met.
224.

Dow asserts that the requirement that power may only flow into a local network

should be clarified to apply only to power that originates outside of, and flows through, a
local network. Dow believes that it should not apply to power generated by non-retail
generation resources meeting applicable size or export quantity thresholds that are
connected to local networks. Dow maintains such a clarification is consistent with other

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language in the exclusion specifying that up to 75 MVA of non-retail generation may be
attached to a local network. Dow views the reference to non-retail generation as intended
to apply to generation resources that are used to make wholesale sales which requires that
power be able to flow into the bulk electric system for delivery to downstream buyers.
Dow also states that exclusion E3 should be clarified to address situations in which a
local network does not qualify for the local network exclusion because it is not clear
“whether all facilities rated 100 kV and above that are part of the local network would be
considered part of the [bulk electric system] and become subject to transmission-related
reliability standards….” 179
225.

Valero contends that criterion (b) indicates that the existence of a power flow that

“transfers through the local network” would disqualify an element from satisfying the
exclusion. On the other hand, Valero points to the excerpt from the NERC BES Petition
which implies that this meaning of criterion (b) might not be the appropriate
interpretation. 180 Valero requests that the Commission either clarify as stated above or
modify criterion (b) to allow for transfers through the local network if such transfers are
not necessary for the reliability of the interconnected transmission network.

179
180

Dow Comments at 6.

The NERC statement is quoted in the NOPR at P 81: “[l]ocal networks provide
local electrical distribution service and are not planned, designed or operated to benefit or
support the balance of the interconnected transmission network.”

Docket Nos. RM12-6-000 and RM12-7-000
226.

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NESCOE and G&T Cooperatives state that minimal transfers may and do occur,

and local networks should not necessarily be ineligible for exclusion E3 simply because
some amount of power may transfer out of the network. NESCOE states that the
Commission should direct NERC to reevaluate exclusion E3 to allow these minimal
flows up to a 100 MVA limit. 181 G&T Cooperatives state that even with optimal load
projections, there may be times when energy flows into the local network that exceed the
load, and in those cases the local network may need to export the excess energy back to
the bulk electric system which could create perverse incentives to restrict flows into and
out of the local network. G&T Cooperatives suggest that criterion (b) should be read to
allow exclusion E3 to cover local networks in which “normally” power flows into the
local network and the local network does not transfer energy originating outside the local
network for delivery through the local network.
227.

Holland states that the exclusion E3(b) criterion is unnecessary and should be

removed. Holland states that exclusion E3(b) appears to be concerned with flows
originating from outside of the local network, coming into the local network, and then
exiting the local network to loads outside of the local network. According to Holland,
however, exclusion E3(c) appears to address this concern because it fails to recognize
that a local network may have internal generation that is less than its peak load but in
excess of off-peak load levels. Holland states that, if exclusion E3(b) is maintained, then
181

NESCOE states that this represents 25 percent of the rated value of a typical
345/115 kV substation.

Docket Nos. RM12-6-000 and RM12-7-000

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the clause, “[p]ower flows only into the [local network],” should be deleted because it is
inconsistent with the second clause, “the [local network] does not transfer energy
originating outside the [local network] for delivery through the [local network].”
Commission Determination
228.

The Commission finds that: (1) pursuant to exclusion E3 criterion (b), generation

produced inside a local network should not transport power to other markets outside the
local network; and (2) exclusion E3 criterion (b) applies in both normal and emergency
operating conditions. The Commission agrees with NERC’s statements that basing the
determination solely on normal or optimal conditions could lead to inconsistent
application of this exclusion and hence the definition itself, and would also introduce a
degree of subjectivity in the application of the definition that is not in the interest of
reliability.
229.

MISO and other commenters suggest that local networks should be allowed to

deliver power to the bulk electric system in some circumstances. 182 The Commission
agrees that the facilities should supply such power if needed, but disagrees that facilities
expected to be needed in this way should nonetheless be excluded from the bulk electric
system. If a local network is expected to be needed to operate the interconnected
transmission network, i.e., to meet reliability performance criteria in transmission
planning assessments, it should not be excluded from the bulk electric system under
182

E.g. Southern Companies, Alameda, Dow, Valero, NESCOE, Holland and
G&T Cooperatives.

Docket Nos. RM12-6-000 and RM12-7-000

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exclusion E3. The Commission also rejects Holland’s suggestion to remove criterion (b)
because NERC has presented an acceptable technical justification for this and the other
criteria in exclusion E3. 183 In response to Alameda’s comment that some power should
be permitted to flow out of a local network during off-peak hours, the Commission
disagrees that the bright-line definition should be modified for case-specific
circumstances. Entities can seek to exclude configurations that do not meet the exclusion
E3 criteria through the exception process on a case-by-case basis. The Commission
agrees with Portland that criterion (b) is similar to one element of the Seven Factor Test
but otherwise addresses what constitutes local distribution above.
230.

In response to Idaho Power and ISO New England asking for how emergency

conditions are defined to determine if a candidate configuration meets exclusion E3
criterion (b), the Commission believes that the best way to show that a local network
meets criterion (b) is through historical power flow data.
231.

We will not direct NERC to allow minimal flows up to a 100 MVA limit as

NESCOE requests. NESCOE may choose to pursue this matter further with NERC, with
the Phase 2 project being one appropriate forum. Similarly, Dow may raise its contention
that exclusion E3 should not apply to certain non-retail generation resources during
Phase 2. Regarding Dow’s argument that exclusion E3 should be further clarified, we
believe our discussion above regarding figure 5 adequately addresses Dow’s concern.

183

NERC BES Petition at 22-24.

Docket Nos. RM12-6-000 and RM12-7-000
f.
232.

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Criterion (c) – Not Part of a Flowgate or Transfer Path

Exclusion E3 criterion (c) specifies a “local network” does not contain a

monitored facility of a permanent flowgate in the Eastern Interconnection, a major
transfer path within the Western Interconnection, or a comparable monitored facility in
the ERCOT or Quebec Interconnections, and is not a monitored facility included in an
interconnection reliability operating limit. NERC stated that the presence of a local
network is not for the operability of the interconnected electric transmission network;
neither will the local network’s separation or retirement diminish the reliability of the
interconnected electric transmission network.” 184 The Commission stated in the NOPR
that it believes that this is an appropriate criterion.
Comments
233.

G&T Cooperatives state that criterion (c) should be clarified to allow local

networks to come under exclusion E3 even if they are interconnected with a “monitored
facility of a permanent Flowgate” in the Eastern Interconnection or a “major transfer
path” in the Western interconnection. G&T Cooperatives recognize that such monitored
facilities and major transmission paths are important to reliability, but criterion (c) could
be read in a manner that would prevent a local network interconnected with such major
facilities from qualifying under exclusion E3. G&T Cooperatives do not believe that
NERC intended such a broad reading.
184

at 2).

NOPR, 139 FERC ¶ 61,247 at P 93 (citing NERC BES Petition, Exhibit G

Docket Nos. RM12-6-000 and RM12-7-000

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Commission Determination
234.

The Commission finds that exclusion E3 criterion (c) is an appropriate criterion.

We agree with NERC that facilities with, e.g., permanent flowgates, cannot be included
in a local network as the separation of such facilities during a system event could have an
adverse impact on the operation of the interconnected transmission network. The
language for criterion (c) only prohibits flowgates and their associated monitored
elements from being within a candidate local network. Therefore, we believe the
language is sufficiently clear and will not direct NERC to modify this provision in
response to G&T Cooperatives request for clarification.
9.

Exclusion E4 (Reactive Power Devices)

NOPR Proposal
235.

Exclusion E4 excludes from the bulk electric system “Reactive Power devices

owned and operated by the retail customer solely for its own use.” NERC explained that
exclusion E4 is the technical equivalent of exclusion E2 for reactive power devices and
that the currently effective bulk electric system definition is unclear as to how these
devices are to be treated. In the NOPR, the Commission stated that this is an appropriate
exclusion that provides additional clarity and granularity to the definition of bulk electric
system.
Comments
236.

NERC, ELCON and EEI support the Commission’s proposal. Steel

Manufacturers Association supports a definitive exclusion for reactive power equipment
that is installed and used to benefit end use loads. The exclusion, however, in the

Docket Nos. RM12-6-000 and RM12-7-000

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Steel Manufacturers Association’s opinion, should not be confined to such devices that
are owned and operated by a retail customer solely for its own use because there are
instances in which capacitor banks have been installed for the benefit of a steel-making
facility but, for various reasons, that equipment is owned, operated and maintained by its
local utility. Consequently, the Steel Manufacturers Association suggests that exclusion
E4 be revised to read: “Reactive Power devices owned and operated by, or installed
solely for the benefit of, retail customers.”
Commission Determination
237.

The Commission finds that exclusion E4 is an appropriate exclusion that provides

additional clarity and granularity to the definition of bulk electric system. In response to
the Steel Manufacturers Association, we will not direct the suggested clarifying change to
exclusion E4 criterion. Rather, Steel Manufacturers Association may choose to pursue
this matter further with NERC in its Phase 2 project.
E.

The NERC Rules of Procedure Exception Process, RM12-7-000

NOPR Proposal
238.

As described above in section I.D.2, NERC proposed revisions to its Rules of

Procedure to provide an “exceptions process” to add elements to, and remove elements
from, the bulk electric system, on a case-by-case basis. NERC stated, inter alia, that the
exception process decisions to approve or disapprove exception requests will be made by
NERC, rather than by the Regional Entities.
239.

In the NOPR, the Commission proposed to find that, pursuant to section 215(f) of

the FPA, the exception process is just, reasonable, not unduly discriminatory or

Docket Nos. RM12-6-000 and RM12-7-000

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preferential, and in the public interest and satisfies the requirements of section 215(c).
Further, the Commission proposed to find that the proposed exception process satisfies
the statement in Order No. 743 that NERC establish an exception process for excluding
facilities that are not necessary for the reliable operation of the interconnected
transmission network from the definition of the bulk electric system. 185
Comments
240.

Many commenters support the exception process as proposed. Commenters state

that the exception process will be able to handle the more unusual situations that need to
be addressed on a case-by-case basis, including sub-100 kV transmission elements that
are necessary for the reliable operation of the interconnected transmission network. 186
They further state that the exception process balances the need for effective and efficient
administration with due process and clarity of expectations and promotes consistency in
determinations and eliminates regional discretion by having all decisions on exception
requests made at NERC. Southern Companies support approval of the exception process
and assert that the Commission should allow time for NERC, Regional Entities and
industry to implement the definition and exception process and determine at a later date
whether it is sufficiently capturing the appropriate facilities.

185

See NOPR, 139 FERC ¶ 61,247 at PP 103-04 (citing Order No. 743, 133 FERC
¶ 61,150 at P 16).
186

E.g., ELCON, TAPS, and Southern Companies.

Docket Nos. RM12-6-000 and RM12-7-000
241.

- 141 -

MISO states that RTOs, as reliability coordinators, planning coordinators or

authorities, and balancing authorities, should be allowed to file exception requests.
MISO also states that there should be fewer requirements for filing exception requests by
RTOs because they have been assigned substantial authority over facilities under their
authority by their member transmission owners and operators, and because they utilize
rigorous stakeholder processes. Specifically, MISO requests that the Commission direct
NERC to modify the exception process to recognize RTO stakeholder processes and their
results as evidence that the RTO as the submitting entity conferred with the owner about
the reasons for an exception and either an agreement was reached between the entities
that an exception should be filed and that the RTO should submit the exception, or that
the entities could not reach agreement regarding the submission of such an exception
request.
242.

NYISO comments that the exception process needs to provide interested parties

notice and an opportunity to be heard. NYISO states that ISOs and RTOs have an
interest in participating in an exception proceeding prior to a final determination by the
Regional Entity or NERC because exception requests may affect them operationally or in
their planning studies depending upon the final determination made on the specific
exception request.
243.

NYPSC and NESCOE are concerned that NERC’s proposal does not give state

commissions an opportunity to participate directly in the process. NESCOE states that,
without state participation, NERC will not address the full range of substantive concerns
that may arise in any given case, and, if the Commission is asked to review an exemption

Docket Nos. RM12-6-000 and RM12-7-000

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determination, the record presented will not reflect the states’ views. NESCOE is also
concerned that the exceptions process lacks a mechanism for a state regulatory authority
to initiate review of the classification of an element. NESCOE contends that states may
have an interest in the proper classification of bulk electric system facilities, but they are
not in a position to submit an exception request because they lack the detailed
information required for a submission under the proposal. NESCOE suggests that this
can be remedied by allowing a state to request a review from the relevant Regional Entity
and to require the Regional Entity to submit a formal exception request if it finds that the
classification is inaccurate. In addition, NESCOE believes that a state should have a right
to seek review from NERC of the Regional Entity’s determination.
244.

In reply comments, NERC disagrees with MISO and explains that the exception

process needs to be applied consistently and that the required information should be the
same regardless of the identity of the submitter. NERC states that the Detailed
Information Form is intended to ensure that a consistent baseline of technical information
is provided to the Regional Entity and NERC with all exception requests, in addition to
the specific information and arguments submitted by the submitting entity in support of
its exception request. The MISO Transmission Owners and AMP support NERC’s
comments.
245.

NERC also explains that RTOs and ISOs have the ability to file an exception

request where they are acting in their capacity as planning authorities, reliability
coordinators, transmission operators, transmission planners, or balancing authorities.
NERC states that “the exceptions process is technical and is based on engineering

Docket Nos. RM12-6-000 and RM12-7-000

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expertise, and these are the necessary parties with the required information.” 187 NERC
also disagrees regarding a state or third party role and the need for notice and access to
information. NERC states that state commissions have other means and methods at their
disposal for working with entities to identify candidates for an exception request. NERC
notes that the exception process provides that detailed notice of any request would be
provided to every registered entity with reliability oversight obligation (e.g., planning
authorities, reliability coordinators, transmission operators, transmission planners, or
balancing authorities) for the element subject to the request and that general information
about an exception request will be publicly posted. NERC also notes that third parties
including state regulatory agencies will have adequate opportunity to provide comments
regarding the request without formally participating in the process.
246.

ICNU states that the Commission should make clear that utilities and Regional

Entities, not end-use customers should be required to perform the studies to determine if
a facility of an end-use customer should be included or excluded. Alameda suggests that
the Commission set forth a future date for review of the definition seeking both an
effectiveness report from NERC as well as industry comment.
247.

IUU and Barrick believe that NERC’s explanation that an exception may be

obtained by showing that the element is “not necessary” for reliable operation of the
interconnected transmission system is too ambiguous and does not give adequate

187

NERC Reply Comments at 5.

Docket Nos. RM12-6-000 and RM12-7-000

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information as to what may or may not be eligible for an exception. They believe
guidance is necessary as to the types of evidence that should be presented in an exception
request and the criteria to which the evidence will be subjected.
248.

Redding states that the exception process provides that entities are not required to

use the exception process to affirmatively demonstrate they fall within the general local
distribution carve-out in the core definition or meet one of the exclusions. Redding notes
that new section 509 of the Rules of Procedure states that application of the entire
definition will determine what facilities qualify as bulk electric system components.
Therefore, Redding argues that section 509 confirms that no exception request is
necessary if the facility fits within either the local distribution carve-out language of the
core definition, or the explicitly identified exclusions. Furthermore, Redding argues that
this is confirmed by NERC’s statement that the definition expressly excludes both
“facilities used in the local distribution of electric energy,” and radial systems as
described in Exclusion E1 of the definition. Redding believes this statement recognizes
that facilities that are excluded from the definition at the outset - through either the core
definition or the specific exclusions - need not submit any requests through the
exemption process confirming that exclusion.
249.

Holland is concerned that the exception process is too narrowly focused on

excluding facilities that are not necessary for the reliable operation of the interconnected
transmission network. Holland does not believe that exceptions should be limited to a
demonstration that the facilities lack a material impact to the bulk electric system.
Holland supports the exception process for this purpose; however, the lack of materiality

Docket Nos. RM12-6-000 and RM12-7-000

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demonstration is independent of the question of whether the facilities should be excluded
on the grounds that they are used in local distribution. Holland believes the Commission
should clarify that, for exceptions seeking exclusion based upon a claim of being local
distribution, NERC must evaluate additional information submitted, and not merely rely
on the criteria in Exclusions E1 through E4.
250.

Steel Manufacturers Association is concerned that because the Rules of Procedure

provide that only a Regional Entity may submit an exception request for the inclusion in
the bulk electric system of an element owned by an owner that is not a registered entity,
they do not contemplate that the owner will be notified that its facilities are being
considered for inclusion in the bulk electric system.
Commission Determination
251.

Pursuant to FPA section 215(f), we approve the NOPR proposal and find that the

exception process is just, reasonable, not unduly discriminatory or preferential, and in the
public interest. Further, we find that the proposal satisfies the statement in Order No. 743
that NERC establish an exception process for excluding facilities that are not necessary
for the reliable operation of the interconnected transmission network from the definition
of the bulk electric system. 188 The exception process balances the need for effective and
efficient administration with due process and clarity of expectations and promotes
consistency in determinations and eliminates regional discretion by having all decisions

188

See Order No. 743, 133 FERC ¶ 61,150 at P 16.

Docket Nos. RM12-6-000 and RM12-7-000

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on exception requests made at NERC. The exception process also provides for
involvement of persons with applicable technical expertise in making decisions on
exception requests and allows for an entity to appeal a final NERC decision to the
Commission.
252.

The exception process provides a reasonable mechanism for the ERO to determine

whether a facility or element should be added to, or removed from, the bulk electric
system on a case-by-case basis. However, for the reasons explained above in our
discussion in section II.C regarding local distribution, the case-by-case determination of
whether an element or facility is used in local distribution will be decided by the
Commission.
253.

We also find that NERC’s explanation, that it was not feasible to develop a single

set of technical criteria that would be applicable to all exception requests so it developed
the Detailed Information Form (discussed in detail below) to ensure that a consistent
baseline of technical information is provided for NERC to make a decision on all
exception requests, is reasonable. We find that this information, coupled with the
proposed exception process, allows NERC to provide consistent determinations on
exception requests submitted from different regions involving the same or similar facts
and circumstances, and allows NERC to take into account the aggregate impact on the
bulk electric system of approving or denying all the exception requests. Thus, we find
that NERC’s proposal is clear, transparent, and uniformly applicable and is as equally
efficient and effective as the Order No. 743 directive to establish an exception process for

Docket Nos. RM12-6-000 and RM12-7-000

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excluding facilities that are not necessary for the reliable operation of the interconnected
transmission network.
254.

We are not persuaded by Barrick’s and IUU’s comments that more guidance is

necessary. Order No. 743 tasked NERC with developing a revised definition and
exemption process. NERC noted that it was not feasible to develop a single set of
criteria. The Commission believes that applying the 100 kV threshold in the definition,
the inclusions and exclusions and the information required in the Detailed Information
Form will be a sufficient starting point to enable the ERO to make determinations as to
whether an element is necessary for reliable operation of the interconnected transmission
network. The body of exception decisions that NERC promulgates will further assist
entities in presenting the relevant facts and circumstances when seeking an exception.
255.

In response to MISO’s request, we note that RTOs and ISOs, in their capacity as

planning authorities, reliability coordinators, transmission operators, transmission
planners, or balancing authorities, have the ability to file an exception request. 189 We are
not persuaded that fewer requirements should apply to exception requests submitted by
RTOs and ISOs, and we agree with NERC, MISO Transmission Owners and AMP that
the exception process needs to be applied consistently and that the required information
should be the same regardless of the identity of the submitter.

189

See NERC ROP Petition, Attachment 1, Proposed Appendix 5C, Section 4.1.

Docket Nos. RM12-6-000 and RM12-7-000
256.

- 148 -

NYISO comments that the exception process should provide interested parties -

particularly ISOs and RTOs - notice and an opportunity to be heard. As we note above,
the exception process affords ISOs and RTOs, in their capacity as planning authorities,
reliability coordinators, transmission operators, transmission planners, or balancing
authorities, notice and opportunity to comment on elements within their scope of
responsibility.
257.

Similarly, with regard to NYPSC’s and NESCOE’s comments on the role of state

commissions in the exception process, we believe that NERC’s proposal is reasonable
and provides an adequate opportunity for state regulator participation. Specifically,
NERC explains in its ROP petition that, in developing the proposed Rules, state
regulators and others raised concerns about their ability to participate in the exception
process. NERC responded that “the exception process should be one based on the
technical reliability issues of the specific case presented.… [A] procedure that
encouraged or even invited multi-party filings would unduly complicate the process
without any concomitant benefit in reliability.” 190 However, to provide transparency and
some opportunity for participation, the proposed exception process provides that “(1)
detailed notice of any request would be provided to every Registered Entity with
reliability oversight obligation for the Element subject to the Request and (2) general

190

NERC ROP Petition, Att. 9 (“The Development Process and Basis for the ROP
Team’s Recommended Provisions - How Stakeholder Comments were Considered and
Addressed”) at 7.

Docket Nos. RM12-6-000 and RM12-7-000

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information about the request will be publicly posted,” thereby allowing third parties
including state regulators “adequate opportunity to provide comments regarding the
request without formally participating in the process.” 191 We agree that NERC’s
proposal strikes an appropriate balance between efficient processing of highly technical
decisions and the opportunity for states and other entities to comment in the exception
process. Nonetheless, as discussed above, requests for exclusion from the bulk electric
system on local distribution grounds will be determined by the Commission on a case-bycase basis. In such proceedings, state regulatory authorities will have an opportunity to
intervene and provide comments.
258.

We disagree with Redding’s characterization of how the exception process is not

necessary for determining whether an element is used for local distribution. Redding’s
characterization of the exception process leaves the determination of whether an element
is used for local distribution in the hands of registered entities or NERC. However, as we
explain in the local distribution discussion above, in circumstances where there is a
factual question as to whether facilities not otherwise excluded from the bulk electric
system by the core definition and four exclusions should nonetheless be excluded because
they are used in local distribution, a determination should be made by this Commission.
In addition, in our discussion in section II.C above regarding local distribution, we

191

Id.

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provide direction with respect to how an entity may seek a determination of whether an
element is used in local distribution.
259.

Regarding Steel Manufacturers Association’s concern that the Rules of Procedure

do not contemplate that an owner of an element that is not a registered entity will be
notified by a Regional Entity that its facilities are being considered for inclusion in the
bulk electric system, we note that section 4.1 of Appendix 5C the Rules of Procedure
states that when a Regional Entity requests an exception, the Regional Entity “shall
prepare and submit copies of its exception request (or portions thereof) to all applicable
entities…” 192 Further, section 4.4 of Appendix 5C provides that, if the submitting entity
is not the owner (i.e., is a Regional Entity, planning authority, balancing authority, etc) it
must provide a copy of the exception request to the owner. Therefore, if a Regional
Entity submits an exception request for an element owned by a non-registered entity, the
owner is notified.
260.

With respect to Holland’s request for clarification for what must be submitted for

a claim of being local distribution, we believe that our discussion above regarding how
local distribution elements will be determined addresses Holland’s concerns.
261.

In response to ICNU’s comments, the Commission notes that NERC has identified

the entities that are responsible for providing the information necessary for an exception
request. Section 3.2 of the exception process states that “the burden to provide a

192

NERC Rules of Procedure, Appendix 5C, section 4.1.

Docket Nos. RM12-6-000 and RM12-7-000

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sufficient basis for approval of an exception request in accordance with the provisions of
the exception procedure is on the submitting entity.” Additionally, in section 4.1 of the
exception process, NERC lists the eligible submitting entities as the owner of an element,
or a Regional Entity, planning authority, reliability coordinator, transmission operator,
transmission planner, or balancing authority that has (or will have upon inclusion in the
bulk electric system) the elements covered by an exception request within its scope of
responsibility.
262.

Southern Companies state that the Commission should allow time for NERC,

Regional Entities and industry to implement the definition and exception process and
determine at a later date whether it is sufficiently capturing the appropriate facilities.
Similarly, Alameda suggests that the Commission set forth a future date for review of the
definition seeking both an effectiveness report from NERC as well as industry comment.
First, as discussed below, the Commission is granting NERC’s request for a 24 month
implementation plan. The Commission believes that this is sufficient to implement the
definition and exception process. In addition, the Commission declines to set a future
date to determine effectiveness of the definition and the exception process.
1.

How Entities Will Review and Seek Inclusion of Necessary
Elements

NOPR Proposal
263.

In Order Nos. 743 and 743-A, the Commission indicated that our goal is that the

definition of bulk electric system should include all facilities necessary for the operation
of the interconnected transmission network, except for local distribution. Further, while

Docket Nos. RM12-6-000 and RM12-7-000

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the Commission explained that one way to meet the goal was to establish a 100 kV
“bright line” threshold, the Commission also made clear that the “bright line” threshold
would be a “first step or proxy” in determining what facilities should be included in the
bulk electric system. 193 The NOPR reiterated that, in Order Nos. 743 and 743-A, the
Commission held that NERC should not necessarily stop at 100 kV and should, through
the development of the exception process, ensure that “critical facilities operated at less
than 100 kV, and that the Regional Entities determine [which facilities] are necessary for
operating the transmission network.” 194 The Commission clarified that the inclusion of
sub-100 kV facilities should be done in an “appropriate and consistent” manner. 195
Finally, in the NOPR, the Commission noted that the September 2011 Blackout Report
reinforced statements in Order Nos. 743 and 743-A with respect to ensuring that sub-100
kV facilities, as appropriate, are included in the bulk electric system. 196 The Commission
further noted that the NERC proposals at issue in this rulemaking take steps to address
the treatment of sub-100 kV facilities, as well as other facilities, necessary for the
operation of the interconnected transmission network, through the exception process.
However, in light of the September 2011 Blackout Report, the Commission requested
193

Order No. 743-A, 134 FERC ¶ 61,210 at P 40; see also NOPR, 139 FERC
¶ 61,247 at P 106.
194

Order No. 743, 133 FERC ¶ 61,150 at P 121.

195

Order No. 743-A, 134 FERC ¶ 61,210 at P 103.

196

NOPR, 139 FERC ¶ 61,247 at P 107.

Docket Nos. RM12-6-000 and RM12-7-000

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comment on how the relevant entities who control and run facilities on the interconnected
transmission network will seek inclusion of sub-100 kV facilities, as well as other
facilities, to ensure that all facilities that are necessary for the operation of the bulk power
system are designated as bulk electric system elements. 197
Comments
264.

NERC proposes that entities can identify sub-100 kV facilities for inclusion in a

variety of ways: in the course of performing planning assessments, from day-to-day
operating experience, or assessment of system events that indicate facilities not identified
by application of the definition are necessary for reliable operation of the interconnected
transmission network. NERC further states that an entity that requests the inclusion or
exclusion of a facility must provide certain technical and engineering support for its
request. NERC also points out that the exception process provides for the appeal of a
decision to NERC as to whether a facility is part of the bulk electric system. NERC
believes this process adequately addresses the issue of whether certain sub-100 kV
facilities are included in the bulk electric system.
265.

ELCON states that the NOPR’s suggestion that the entities would not take

cognizance of Commission or NERC findings related to any sub-100 kV elements that
have a material impact on system reliability would call into question the efficacy of the
entire construct established by the Commission to address reliability issues.

197

NOPR, 139 FERC ¶ 61,247 at PP 109-10.

Docket Nos. RM12-6-000 and RM12-7-000
266.

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APPA believes that it will be excessively burdensome to industry and small

entities if they have to conduct a study of all their sub-100 kV elements. APPA asserts
that it would require small registered entities to hire consultants to perform studies to
assess the impact of large numbers of non-bulk electric system facilities.
267.

Idaho Power believes that entities could periodically (e.g. every five years) review

the impact of sub-100 kV facilities and verify if any of the inclusions would require them
to be included and explain why certain sub-100 kV facilities are excluded.
268.

ISO New England and National Grid believe that, during the conduct of

transmission planning system assessments, performed in accordance with requirements of
the NERC Transmission Planning Reliability Standards, facilities required for inclusion
in the bulk electric system may be identified.
Commission Determination
269.

As we held in Order Nos. 743 and 743-A, the goal of revising the definition of

bulk electric system is to ensure that all necessary facilities are included in the bulk
electric system. As we noted in Order No. 743, applying the definition of bulk electric
system should be a “first step or proxy” in determining which facilities should be
included in the bulk electric system. 198 The Commission stated that NERC should not
end the inquiry at 100 kV and should, through the development of the exception process,
ensure that “critical” facilities operated at less than 100 kV, and that the Regional Entities
198

NOPR, 139 FERC ¶ 61,247 at P 106 (citing Order No. 743-A, 134 FERC
¶ 61,210 at P 40).

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determine are necessary for operating the interconnection network are included. 199 We
continue to expect entities to identify and include sub-100 kV facilities, as well as other
facilities, necessary for the operation of the interconnected transmission network. In the
NOPR we asked how the entities responsible for including elements in the bulk electric
system will assure that the all facilities, including sub-100 kV elements, that are
necessary for operating the interconnected transmission network will be included in the
bulk electric system. We find NERC’s response to that question reasonable: that
Regional Entities, planning authorities, reliability coordinators, transmission operators,
transmission planners, balancing authorities, and owners of system elements will include,
through the exception process, facilities identified in the course of performing planning
assessments, from day-to-day operating experience, or assessment of system events that
are not included by application of the definition but are necessary for reliable operation of
the interconnected transmission network. We believe that entities, having knowledge of
their systems and the concomitant planning assessments and system impact studies, will
identify an element that is necessary for reliable operation of the integrated transmission
network while conducting their day-to-day operations and planning and performing
studies. If the element does not fall within the definition, we expect that the entity will
submit the element for inclusion through the exception process. Use of this process
should ensure that the all sub-100 kV elements, as well as other facilities, necessary for

199

Order No. 743, 133 FERC ¶ 61,150 at P 121.

Docket Nos. RM12-6-000 and RM12-7-000

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the operation of the interconnected transmission network are included in an “appropriate
and consistent” manner. By identifying and seeking inclusion of sub-100 kV facilities,
and other facilities, in the bulk electric system through performance of these routine
functions, such as those identified by ISO New England and National Grid, we do not
expect that entities will have to perform studies indiscriminately to make such
determinations. Indeed, comments indicate that the determination of which elements,
including sub 100 kV elements, should be included in the bulk electric system is a natural
part of an entities’ process for assuring the reliable operation of the grid. 200 Thus, the
Commission believes that, if a study is needed outside the ordinary course of operations,
it would be infrequent. By adopting this approach, we believe that APPA’s concerns
about burdensome tasks are alleviated.
2.
270.

NERC Role in Identifying Necessary Elements

In the NOPR, the Commission observed that, despite NERC’s statutory functions

to develop and enforce Reliability Standards, its continent-wide perspective, and
technical understanding that can provide valuable assistance in the identification of bulk
electric system facilities, the exception process does not provide that NERC may initiate
an exception request. Accordingly, the Commission requested comments on the role
NERC should have in initiating the designation of or directing others to initiate the
designation of sub-100 kV facilities, or any other facilities, necessary for the operation of

200

E.g., ELCON Comments at 8.

Docket Nos. RM12-6-000 and RM12-7-000

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the interconnected transmission network for inclusion in the bulk electric system. 201 The
Commission also requested comment on the role NERC should have in designating sub100 kV facilities, and other facilities, for inclusion in the bulk electric system, directing
Regional Entities or others to conduct such reviews, or itself nominating an element to be
included in the bulk electric system.
Comments
271.

NERC states that inherent in its oversight of the Regional Entities is the ability to

request a Regional Entity or others to propose inclusion of sub-100 kV facilities, and
other facilities in the bulk electric system. NERC further states that the Rules of
Procedure do not limit its ability to perform this function and such action is fully
consistent with NERC’s obligations and authority as the ERO.
272.

Dominion believes that if NERC wants to nominate a sub-100 kV facility, it could

do so through the broad powers assigned to NERC through its Rules of Procedure and/or
regional delegation agreements. TAPS maintains that if, through its investigations, risk
assessments, or analysis of events, NERC identifies facilities that should be included in
(or excluded from) the bulk electric system, it would be appropriate for NERC to have
the authority to make such a proposal through the exception process, provided that it
implements due process safeguards such as the designation of decisional and nondecisional staff.

201

NOPR, 139 FERC ¶ 61,247 at P 111.

Docket Nos. RM12-6-000 and RM12-7-000
273.

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Several commenters state that NERC should have the ability to nominate a facility

for inclusion. SmartSenseCom believes NERC should have authority to initiate an
exception request because, even with a bright line standard, there remains the possibility
of inconsistent interpretation and application of the definition. ISO-NE states that NERC
should have the ability to nominate a facility for inclusion, but the Regional Entities
along with planning authorities, reliability coordinators, transmission operators,
transmission planners and balancing authorities should be provided an opportunity to
review and comment on this nomination.
274.

AEP believes that RTOs or Regional Entities “are equipped to facilitate the efforts

to be effective with the exception process.” 202 AEP also suggests that NERC and the
Commission could assign review of sub-100 kV facilities to the RTOs. AEP states that
the RTO processes could be modified to address the exceptions. AEP defers to the
judgment of the Commission and NERC in regions where there are currently no
functioning RTOs.
275.

Other commenters do not support a NERC role as contemplated in the NOPR.

SoCal Edison believes that NERC should not initiate exception requests to include
facilities within the bulk electric system. Rather, SoCal Edison posits that NERC’s role
is to communicate to the Regional Entities their obligation to review systems in their area
that operate in parallel with the bulk electric system and to include such systems in the

202

AEP Comments at page 11.

Docket Nos. RM12-6-000 and RM12-7-000

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bulk electric system. APPA supports consideration of a NERC role in Phase 2 of the
project to identify specific reliability gaps but objects to NERC being able to step into the
shoes of the Regional Entity.
Commission Determination
276.

NERC states that, as the ERO, and in its oversight of the Regional Entities, it has

the ability to request a Regional Entity or others to propose inclusion of sub-100 kV
facilities, and other facilities, in the bulk electric system. NERC believes that nothing in
the proposed Rules of Procedure limits its oversight obligations and authority as the
ERO. The Commission finds NERC’s approach to be reasonable. Section 215(e)(4)(C)
of the FPA authorizes the Commission to issue regulations authorizing the ERO to enter
into an agreement to delegate authority to Regional Entities if the agreement promotes
effective and efficient administration of Bulk-Power System reliability. 203 Subsequently,
the Commission approved delegation agreements between NERC and the eight Regional
Entities. 204 Pursuant to the delegation agreements, NERC may issue guidance or
directions as to the manner in which a Regional Entity performs delegated functions and
related activities. 205 Thus, the Commission agrees with NERC that, as the ERO, NERC

203

16 U.S.C. 824o (2006).

204

North American Electric Reliability Corp., 119 FERC ¶ 61,060, order on reh’g,
120 FERC ¶ 61,260 (2007).
205

See, e.g., section 8(d) of the Amended and Restated Delegation Agreement
between NERC and Midwest Reliability Organization (…the NERC Board (or a Board
committee to which the Board has delegated authority) may issue guidance or directions
(continued…)

Docket Nos. RM12-6-000 and RM12-7-000

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has the authority to request a Regional Entity or other eligible submitting entity to
propose inclusion of sub-100 kV facilities, or other facilities, in the bulk electric system.
277.

TAPS supports NERC having the ability to initiate the designation of facilities or

elements as part of the bulk electric system, provided that NERC implements due process
safeguards such as the designation of appropriate decisional and non-decisional staff. We
agree that, to avoid actual or appearance of impropriety, NERC must develop appropriate
safeguards.
278.

In response to AEP, the Commission will not direct modifications to provide

RTOs and ISOs the authority to address exception requests. RTOs and ISOs can submit
exception requests in their capacity as planning authorities, reliability coordinators,
transmission operators, transmission planners, and/or balancing authorities.
3.

Commission Role in Identifying Necessary Elements

NOPR Proposal
279.

In the NOPR, the Commission requested comment on the role the Commission

should have with respect to the designation of sub-100 kV facilities, or other facilities,
necessary for the operation of the interconnected transmission network for inclusion in
the bulk electric system. The Commission observed that “there may be circumstances
(like the September 2011 Blackout Report) where the Commission, through the
performance of its statutory functions, may conclude that certain sub-100 kV facilities
as to the manner in which Midwest Reliability Organization and, if applicable, other
Regional Entities, shall perform delegated functions and related activities.”).

Docket Nos. RM12-6-000 and RM12-7-000

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not already included in the bulk electric system are necessary for the operation of the
interconnected transmission network and thus should be included in the bulk electric
system.” 206 The Commission stated that it expected that Regional Entities and others
“will take affirmative steps to review and include sub-100 kV elements and facilities, and
other facilities, necessary for the operation of the interconnected transmission system in
the bulk electric system,” and requested comment as to how the Commission could
ensure that such facilities are considered for inclusion in the bulk electric system. 207 The
Commission also requested comment on instances when the Commission itself should
designate or direct others to designate sub-100 kV facilities, or other facilities, necessary
for the operation of the interconnected transmission grid for inclusion in the bulk electric
system.
Comments
280.

NERC notes that the Commission has authority pursuant to FPA section 215(d)(5)

to initiate a Reliability Standards development process that “addresses a specific matter.”
According to NERC, for the Commission to play a more active role in the designation of
such facilities would be inconsistent with its role as the adjudicator of disputes.

206

NOPR, 139 FERC ¶ 61,247 at P 112.

207

NOPR, 139 FERC ¶ 61,247 at P 112.

Docket Nos. RM12-6-000 and RM12-7-000
281.

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Some commenters assert that the Commission has the authority to designate a

facility as part of the bulk electric system. 208 SmartSenseCom states that, if the
Commission is concerned that a facility is necessary for the operation of the
interconnected transmission system, it possesses authority to order NERC or a Regional
Entity to address that matter. Specifically, SmartSenseCom points to section 215(b) and
section 215(d)(5) where the Commission has plenary authority over the ERO and “all
users, owners, and operators of the bulk-power system” for the purposes of approving
reliability standards and enforcing compliance with those standards. 209 SmartSenseCom
states that, pursuant to the statutory authority, the Commission could, on its own motion,
“order [NERC] to submit… a modification to a reliability standard that addresses a
specific matter if the Commission considers such…modified reliability standard
appropriate to carry out this section.” 210
282.

Furthermore, SmartSenseCom states that the Commission should be able to review

NERC exceptions decisions. SmartSenseCom asserts that NERC decisions should be
subject to the discretionary review of the Commission and the Commission should retain
the ability to remand or reject an exception determination, pursuant to the Commission’s
FPA section 215 statutory authority to approve, disapprove, or remand NERC-proposed

208

E.g., Dominion and SmartSenseCom.

209

SmartSenseCom Comments at 14, quoting 16 U.S.C. 824o(b).

210

Id. at 14, quoting 16 U.S.C. 824o(d)(5).

Docket Nos. RM12-6-000 and RM12-7-000

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Reliability Standards. While the Commission should give NERC’s exception decision
“due weight” as required by section 215, SmartSenseCom asserts that the availability of
review would ensure reliable operation of existing and future Bulk-Power System
facilities. SmartSenseCom also suggests that Commission review of exception decisions
would provide industry stakeholders with valuable precedent and clarity on the treatment
of certain facilities.
283.

Other commenters claim that the Commission does not possess the authority to

designate elements as part of the bulk electric system. ISO New England contends that
the Commission, as the ultimate decision making authority, should not have a role in
nominating facilities for inclusion in the bulk electric system. APPA does not believe
that the FPA gives the Commission authority to designate specific elements for inclusion
in the bulk electric system. Rather, according to APPA, the Commission’s role is to
review NERC decisions. APPA states that policy considerations and Congressional
intent also “militate against direct [Commission] identification of specific facilities or
classes of facilities to be included in the [bulk electric system] definition.” 211 APPA
asserts that, during the course of a Part 1b investigation or other inquiry, the Commission
may identify facts that indicate that a registered entity has not properly applied the
definition. APPA points to FPA section 215(e)(3) which provides that, after notice and
opportunity for hearing, the Commission may enforce compliance by a particular user,

211

APPA Comments at 20.

Docket Nos. RM12-6-000 and RM12-7-000

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owner or operator of the Bulk-Power System with a Reliability Standard, which could
include application of the definition within the context of a specific reliability standard.
APPA argues, that section 215 contemplates a standard development and enforcement
framework in which rules of general applicability, i.e., Reliability Standards, are
developed by the ERO on a continent-wide, and are subject to Commission approval
prior to the enforcement of such Reliability Standards. In contrast, APPA argues that
section 215 contemplates the delegation of enforcement authority by the ERO to
Regional Entities that are organized to accomplish this specific purpose. APPA
concludes that the Commission, like NERC, should focus its resources on ensuring that
Regional Entities enforce compliance with the definition and the Rules of Procedure.
284.

SoCal Edison does not support active Commission involvement in designating

facilities for inclusion in the bulk electric system. According to SoCal Edison, because
the Commission has the authority to review NERC’s decisions in the exceptions
procedure, the Commission’s role should be limited to providing to NERC information
that the Commission develops on facility categories that should potentially be included in
the bulk electric system. Further, SoCal Edison states that NERC should be responsible
for communicating that information to Regional Entities for further action and ensuring
that those Regional Entities take the appropriate action with respect to such information,
and the Commission should ensure that NERC and the regional authorities act upon the
information provided by the Commission with respect to such facilities.

Docket Nos. RM12-6-000 and RM12-7-000

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Commission Determination
285.

For the reasons discussed below, we conclude that the Commission has the

authority to designate an element as part of the bulk electric system pursuant to our
authority set forth in sections 215(a)(1) and (b)(1) of the FPA. We are cognizant of the
concerns stated by SoCal Edison and other commenters regarding the appellate role of
the Commission, and the desire to allow registered entities and Regional Entities to take
the lead in identifying sub-100 kV elements, and other elements, that should be included
in the bulk electric system. As explained above, we expect entities to identify and
include sub-100 kV elements, and other elements, that are necessary for operating the
interconnected transmission network in the bulk electric system. Nonetheless, we believe
that in appropriate circumstances, for example, where an event analysis of a system
disturbance indicates the operational importance of sub-100 kV elements, and other
elements, to bulk electric system reliability, the Commission may find it necessary for the
reliable operation of the interconnected transmission network to designate facilities to be
included in the bulk electric system. We anticipate that such circumstances will be rare.
Consistent with the approach discussed in the NOPR, the Commission would provide
public notice and opportunity for public comment before designating facilities as part of
the bulk electric system. 212

212

NOPR, 139 FERC ¶ 61,247 at P 112, n.127.

Docket Nos. RM12-6-000 and RM12-7-000
286.

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Commenters are mistaken in characterizing the Commission’s designation of

facilities as bulk electric system as a modification to the bulk electric system definition or
other Reliability Standard. Rather, our authority to designate facilities is based on the
statutory definition of Bulk-Power System and the jurisdictional authority vested in the
Commission pursuant to section 215 of the FPA. Specifically, section 215(b)(1) of the
FPA provides that “the Commission shall have jurisdiction, within the United States,
over…all users, owners and operators of the bulk-power system…for purposes of
approving Reliability Standards established under this section and enforcing compliance
with this section.” 213 Section 215(a)(1) of the FPA, in turn, defines “Bulk-Power
System” to mean “facilities and control systems necessary for operating an
interconnected electric energy transmission network (or any portion thereof); and electric
energy from generation facilities needed to maintain transmission system reliability.” 214
If an entity owns or operates sub-100 kV elements, or other elements, “necessary for
operating an interconnected electric energy transmission network,” the Commission has
jurisdiction pursuant to FPA section 215(b)(1) to “enforc[e] compliance with this
section,” and to ensure that the approved definition is being implemented properly.
287.

For example, an entity may operate sub-100 kV elements, or other elements, that

are, pursuant to the modified definition approved in this Final Rule, not treated as part of

213

16 U.S.C. 824o(b)(1).

214

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

Docket Nos. RM12-6-000 and RM12-7-000

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the bulk electric system. However, an event analysis may reveal that such facilities are
“necessary for operating an interconnected electric energy transmission network.” As an
appropriate prospective remedy, pursuant to the FPA section 215(b)(1) authority to
“enforc[e] compliance with this section,” the Commission could designate the facilities as
part of the bulk electric system. This approach is consistent with Commission precedent
regarding unregistered entities whose facilities are involved in a violation of Reliability
Standards. The Commission determined that, in such situations, the appropriate remedy
is to register the entity so that, prospectively, the entity must comply with the relevant
Reliability Standards based on the functions performed by that entity. 215
288.

The Commission would not modify the language of the definition of bulk electric

system or the specific inclusions and exclusions. Rather, the Commission would initiate
the designation of elements to ensure that the definition is properly applied. To be clear,
when, for example, a system disturbance or other event demonstrates the necessity of
sub-100 kV elements, or other elements, for reliable operations, we expect in the normal
course that registered entities, Regional Entities and NERC will proactively identify and
include sub-100 kV elements, or other elements, in the bulk electric system. The
Commission’s strong preference is that registered entities review their facilities to
determine which are needed for operating the interconnected transmission network and

215

See Reliability Standard Compliance and Enforcement in Regions with
Regional Transmission Organizations or Independent System Operators, 122 FERC

¶ 61,247, at P 19 (2008).

Docket Nos. RM12-6-000 and RM12-7-000

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include them in the bulk electric system. However, when it is recognized that an element
is necessary for the operation of the interconnected transmission network and no other
entity steps forward to designate the element as included in the bulk electric system for
purposes of section 215, the Commission has the authority to do so. We anticipate that
such instances will be rare. Should the Commission find it necessary and appropriate to
exercise this authority, we anticipate that the Commission would, for example, issue
either a notice or order proposing to designate a specific element or elements as part of
the bulk electric system, and explain the rational for the proposal. The Commission
would make a final determination after providing notice and opportunity for comment by
interested parties.
4.

Technical Review Panel

NOPR Proposal
289.

NERC’s exception process provides that the Regional Entity shall not recommend

disapproval of the exception request without review by a technical review panel. The
Regional Entity is not bound by the opinion of the panel, but the panel’s evaluation
becomes part of the record associated with the exception request and provided to NERC.
In the NOPR, the Commission stated that it saw value in the Regional Entity receiving
the opinion of a qualified technical review panel. The Commission observed that NERC
did not explain why the proposed exception process only requires a technical review
panel to provide an opinion where the Regional Entity recommends disapproval of an
exception request. Accordingly, the Commission requested comment from NERC
explaining why the review is only required when a Regional Entity disapproves a request

Docket Nos. RM12-6-000 and RM12-7-000

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and whether NERC should modify the exception process to require Regional Entities to
submit all proposed determinations to a technical review panel regardless of the
recommendation and receive the panel’s opinion on each request.
Comments
290.

NERC stated that it considered obtaining the opinion of a technical panel for all

Regional Entity recommendations; however, NERC concluded that a review should only
be required when a Regional Entity disapproves a request due to concerns regarding
administrative efficiency. NERC determined that negative technical reviews would be
sufficient to promote consistency and that the additional costs and work of a review of all
proposed determinations would outweigh the benefits. NERC further states the record of
every request is reviewed by a panel of experts at the NERC level as part of the decision
making process.
291.

Several entities support NERC’s explanation. 216 ELCON believes NERC’s

approach will avoid the burden, inefficiency and delay inherent in unnecessary referrals
to a technical review panel. ELCON notes that the exception process already calls for
submission of in-depth technical information through the Detailed Information Form,
initial review by the Regional Entity, and subsequent review and final decision by NERC.
ELCON believes that considerable technical expertise will, therefore, be available to both
the Regional Entity and to NERC as they assess exception requests.

216

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

Docket Nos. RM12-6-000 and RM12-7-000
292.

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In contrast, some entities believe that a technical panel be convened for either

approval or denial of all exceptions. 217 They believe that using a panel for all requests
will ensure that the requests receive adequate consideration and vetting before a final
decision is rendered. WPPC requests that the Commission obtain additional information
from NERC with respect to why the Technical Review Panels are not required to review
all exception requests that are rejected on procedural grounds.
Commission Determination
293.

The Commission accepts NERC’s explanation that requiring a technical panel

review of all Regional Entity recommendations will likely cause an additional
administrative burden on Regional Entities, delaying final recommendations to NERC.
While the Commission sees benefits in utilizing a technical review panel for all requests,
we are not persuaded that these benefits will outweigh the costs associated with the
increased administrative burden likely to be imposed. Additionally, if the Technical
Review Panel does not provide an opinion on all exception requests, the exception
process is not without other levels of technical review. On the contrary, the exceptions
process provides multiple levels of technical review before a final determination is made
by NERC, including a substantive review by the Regional Entity and a subsequent review
by a panel of technical experts at the NERC level. For these reasons, the Commission
approves the Technical Review Panel as proposed by NERC.

217

E.g., ISO New England and BPA.

Docket Nos. RM12-6-000 and RM12-7-000
294.

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In response to WPPC’s request, the Commission declines to seek further

information from NERC with respect to why the Technical Review Panels are not
required to review all exception requests that are rejected on procedural grounds. Section
5.1.5(a) of Appendix 5C to the Rules of Procedure requires a Regional Entity to reject an
exception request if it is not from an eligible submitting entity and/or it does not contain
all the required information specified in section 4.0. The Commission does not believe a
Technical Review Panel needs to determine if an exception request was properly
submitted by an eligible entity and/or contains all the required information. Additionally,
as WPPC states in its comments, submitting entities may appeal Regional Entity
rejections of exception requests to NERC through the procedure provided in section 7.0
of the exception process. Requiring Technical Review Panel review of all rejections of
exception requests, as well as all recommendations of disapprovals, would unnecessarily
impose administrative burdens as if the Technical Review Panel was required to review
all exception request recommendations. For these reasons, the Commission declines
WPPC’s request to obtain further information from NERC on this matter.
5.

Use of Industry Subject Matter Experts

NOPR Proposal
295.

Section 8 of the proposed exception process sets forth the procedures for NERC’s

review of a Regional Entity’s recommendation. The NERC President will appoint a team
of at least three persons with the relevant technical background to evaluate an exception
request. NERC contemplated that its review teams would be drawn from NERC staff
resources, supplemented by contractors as necessary, but situations may arise in which

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NERC may need to call on industry subject matter experts to participate as members of
review teams. In the NOPR the Commission supported NERC’s proposal to use staff
resources, supplemented by contractors as necessary, to make up the exception request
review teams. We stated that consistent appointment of the same NERC staff and
contractor resources, based on subject matter expertise, will promote a more uniform and
consistent review of the Regional Entities’ exception request recommendations.
Comments
296.

No comments were received on this issue.
Commission Determination

297.

The Commission agrees with NERC’s proposal to use staff resources,

supplemented by contractors as necessary, and potentially industry subject matter experts
to make up the exception request review teams. The Commission believes that ensuring
that members of the NERC review teams have the required technical background
necessary to evaluate exception requests, review supporting technical documents, and
assess technical recommendations, is essential to providing consistent technically sound
determinations on exception requests. The Commission believes that consistent
appointment of the same NERC staff, contractor resources and industry subject matter
experts, based on subject matter expertise, will promote a more uniform and consistent
review of the Regional Entities’ exception request recommendations.

Docket Nos. RM12-6-000 and RM12-7-000
6.

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NERC’s Detailed Information Form

NOPR Proposal
298.

NERC developed the Detailed Information Form that the Regional Entity and

NERC can use in evaluating whether or not the elements that are the subject of an
exception request are necessary for operating the interconnected transmission network.
In the NOPR, the Commission stated that this information will provide consistency with
respect to the technical information provided with all exception requests and is an equally
efficient and effective approach to developing a substantive set of technical criteria for
granting and rejecting exception requests and proposed to approve the Detailed
Information Form.
Comments
299.

ELCON supports the Detailed Information Form and agrees that it is “more

feasible to develop a common set of data and information that could be used by the
Regional Entities and NERC to evaluate exception requests” than to develop the detailed
criteria and that the information specified in the form is relevant and appropriate for
exception requests.
300.

Holland and Alameda state that there should be some basic guidelines to evaluate

an exception request. Alameda states that having no technical criteria provides entities
with no guidance considering a request for exception. Alameda submits that parties
should have a reasonable basis for determining the outcome of a potential exception
request in advance of taking the time and effort to make the request. Alameda suggests
that the Commission direct NERC to develop appropriate technical exception criteria,

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recognizing that each criterion may not apply to all requests and that the criterion may
even change over time as specific requests are evaluated in detail. Alameda also seeks
clarification that parties may seek exceptions for proposed facilities, and not just for
existing facilities as allowing exceptions to be requested for proposed facilities would
provide an opportunity for entities to make reasoned decisions about planned system
improvements.
Commission Determination
301.

We approve the Detailed Information Form and find that it will provide

consistency with respect to the technical information provided with all exception requests
and is an equally efficient and effective approach to developing a substantive set of
technical criteria for granting and rejecting exception requests. We decline to adopt
Alameda’s suggestion that the Commission direct NERC to develop appropriate technical
exception criteria. We accept NERC’s conclusion that it was more feasible to develop a
common set of data and information that could be used by the Regional Entities and
NERC to evaluate exception requests than to develop the detailed criteria. NERC's
proposal provides the needed flexibility to allow Regional Entities to make a
recommendation of whether or not an element is necessary for the reliable operation of
the interconnected transmission network. Thus, the detailed criteria that NERC requires,
plus other information that an entity is free to include in its submission will provide
applicants a reasonable basis for determining whether an element is necessary for the
reliable operation of the interconnected transmission network. We also decline to direct
NERC to determine how to treat exceptions for proposed facilities.

Docket Nos. RM12-6-000 and RM12-7-000
7.

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NERC’s Implementation Plan

NOPR Proposal
302.

NERC requests that the effective date for revised definition should be the first day

of the second calendar quarter after receiving applicable regulatory approval, or, in those
jurisdictions where no regulatory approval is required, the revised bulk electric system
definition should go into effect on the first day of the second calendar quarter after its
adoption by the NERC Board. NERC also requested that compliance obligations for all
newly-identified elements to be included in the bulk electric system based on the revised
definition should begin twenty-four months after the applicable effective date of the
revised definition. NERC stated that sufficient time is needed to implement transition
plans, for exceptions to be filed and processed, for owners of newly-included elements to
train their personnel on compliance with the Reliability Standards. In the NOPR, the
Commission supported NERC’s justification for its implementation and proposed to
approve NERC’s implementation plan.
Comments
303.

A number of commenters support the NOPR proposal. 218 ELCON states that the

twenty-four month time period gives sufficient time to accommodate planning for and
changes resulting from the new definition, including any exception requests and
compliance obligations, without causing undue delay. Consumers believes the twenty-

218

E.g., Consumers Energy, ELCON, and NYISO.

Docket Nos. RM12-6-000 and RM12-7-000

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four month period should be sufficient in most cases but believes that the Commission
should make specific provision for longer periods to be allowed on a case-by-case basis
under special circumstances. Barrick and IUU also support the implementation plan but
believe further clarification is necessary with respect to an entity’s status during the
exception process.
Commission Determination
304.

We agree with commenters that the twenty-four month time period gives sufficient

time to accommodate planning for and changes resulting from the new definition,
including any exception requests and compliance obligations. Therefore, we approve
NERC’s proposal to implement a twenty-four month implementation plan. In response to
Consumers’ comment regarding the need for additional time for special circumstances, an
entity or NERC may petition for an extension of time. In response to the comments
raised by Barrick and IUU, we clarify that the status of an element remains unchanged
during the exception process.
8.

NERC List of Facilities Granted Exceptions

NOPR Proposal
305.

In the NOPR, the Commission noted that the proposed exception process does not

include provisions for NERC to maintain a list of facilities that have received exceptions,
as requested in Order No. 743. In its petition, NERC indicated that this is an internal
administrative matter for NERC to implement that does not need to be embedded in the
Rules of Procedure. NERC stated it will develop a specific internal plan and procedures
for maintaining a list of facilities for which exceptions have been granted and notes that

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Regional Entities will maintain lists of elements within their regions for which exceptions
have been granted, in order to monitor compliance with the requirement to submit
periodic certifications.
306.

In the NOPR, the Commission proposed that NERC make an informational filing

within 90 days of the effective date of a final rule, detailing its plans to maintain a list and
how it will make this information available to the Commission, Regional Entities, and
potentially to other interested persons. 219 The Commission also requested comment on
whether NERC’s proposal should be modified to include an obligation for the registered
entity to inform NERC or the Regional Entity of the entity’s self-determination through
application of the definition and specific exclusions E1 through E4 that an element is no
longer part of the bulk electric system.
Comments
307.

NERC confirms that it is continuing to develop details regarding how the list of

facilities that have received exceptions will be maintained. According to NERC, a
90-day window of time in which to submit an informational filing is reasonable.
308.

Other entities support NERC’s plan. 220 AEP cautions that the process of

submitting a filing must not overstep the confidentiality provisions of Critical Energy
Infrastructure Information as part of the gathering and dissemination of list(s).

219

NOPR, 139 FERC ¶ 61,247 at P 123.

220

ELCON and NRECA.

Docket Nos. RM12-6-000 and RM12-7-000
309.

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The Massachusetts DPU supports NERC’s keeping a list of exceptions and

requests that the Commission requires that state regulatory authorities have appropriate
access to the list. ISO New England proposes that NERC submit a compliance filing
detailing its internal process for tracking exception requests. ISO New England also
believes that NERC and/or the Regional Entities should be required to maintain a
database that lists the bulk electric system elements within their respective footprints and
should make this data available for affected entities.
Commission Determination
310.

We adopt the NOPR proposal and direct NERC to make an informational filing

within 90 days of the effective date of this Final Rule detailing its plans to maintain a list
and how it will make this information available to the Commission, Regional Entities,
and potentially to other interested persons. We find that the suggestions of the
Massachusetts DPU and ISO New England are premature as these comments are more
appropriate for consideration after NERC makes its compliance filing.
9.

Declassification of Facilities

NOPR Proposal
311.

In the NOPR, the Commission observed that, while NERC will maintain a list of

facilities that have received an exception pursuant to the case-specific exception process,
NERC does indicate whether it will track an entity’s “declassification” of current bulk
electric system facilities based on the entity’s self-application of the bulk electric system

Docket Nos. RM12-6-000 and RM12-7-000

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definition. 221 The Commission expressed concern particularly when an entity selfdetermines that an element is no longer part of the bulk electric system but the entity is
large enough to otherwise remain on the NERC Compliance Registry. Accordingly, the
Commission requested comment on whether NERC’s proposal should be modified to
include an obligation for the registered entity to inform NERC or the Regional Entity of
the entity’s self-determination through application of the definition and specific
exclusions E1 through E4 that an element is no longer part of the bulk electric system.
Comments
312.

NERC asserts that registered entities are obligated to inform the Regional Entity of

any self-determination that an element is no longer part of the bulk electric system.
NERC points to section 501 of the currently-effective Rules of Procedure, which
provides that each registered entity must notify its Regional Entity of any matters that
affect the registered entities’ responsibilities with respect to Reliability Standards. NERC
contends that a determination that an element is no longer part of the bulk electric system
would necessarily affect an entity’s responsibilities with respect to the Reliability
Standards. Further, NERC states that an entity’s failure to notify would not relieve it of
any obligations it may have associated with such failure.
313.

Idaho Power and National Grid support that registered entities should inform

NERC or the Regional Entity of elements that have been declassified. National Grid

221

NOPR, 139 FERC ¶ 61,247 at P 123.

Docket Nos. RM12-6-000 and RM12-7-000

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supports an obligation for each registered entity to inform the respective reliability
coordinators and Regional Entity of the entity’s self-determination through application of
the definition and specific exclusions that an element is no longer part of the bulk electric
system.
314.

PSEG Companies do not support requiring self reporting. PSEG Companies point

out that when the NERC Functional Model was first put in place, registered entities made
determinations of which facilities should be included and excluded from the bulk electric
system without any reporting requirements for those decisions. PSEG Companies assert
that a registered entity should only be contacting its Regional Entity regarding status
changes if those changes impact the registered entity’s registration (e.g., if a registered
Transmission Owner disposes of all its 100 kV or higher assets or a generation owner
acquires its first BES generator). According to PSEG Companies, facility changes that
impact a facility’s bulk electric system status do not presently require reporting. The
proposed reporting self-determined exclusions could lead to extensive facility-by-facility
tracking and reporting of all status changes which would be overly burdensome to
Registered Entities.
315.

AEP believes that it is imperative to keep the process simple in the beginning, and

thus advocates that no specific information submission requirements be implemented at
this time. If NERC or the Regional Entities determine this approach is problematic in the
future, AEP states that any issues can be addressed through a change in the NERC Rules
of Procedure.

Docket Nos. RM12-6-000 and RM12-7-000
316.

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ICNU states that if NERC requires an end-use retail customer to provide notice of

declassification, such notice should not involve extensive or burdensome reporting
requirements because, as noted above, end-use customers do not have the required
resources or expertise. On the other hand, ICNU believes that non-registered end-use
retail customers who, based on the new BES definition, determine that they remain
excluded from the BES should not be listed or required to report such determination to
NERC or the appropriate Regional Entity.
Commission Determination
317.

We agree with NERC that registered entities are obligated to inform the Regional

Entity of any self-determination that an element is no longer part of the bulk electric
system. PSEG Companies claim that there is currently no requirement to report the
change in status of facilities. NERC, however, cites section 501 of the currently-effective
Rules of Procedure, which provides that each registered entity must notify its Regional
Entity of any matters that affect the registered entities’ responsibilities with respect to
Reliability Standards. Section 501 also requires entities to inform the Regional Entity of
any self-determination that an element is no longer part of the bulk electric system.
Section 501, Part 1.3.5 provides:
Each Registered Entity identified on the NCR shall notify its
corresponding Regional Entity(s) of any corrections,
revisions, deletions, changes in ownership, corporate
structure, or similar matters that affect the Registered Entity’s
responsibilities with respect to the Reliability Standards.
Failure to notify will not relieve the Registered Entity from
any responsibility to comply with the Reliability Standards or

Docket Nos. RM12-6-000 and RM12-7-000

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shield it from any Penalties or sanctions associated with
failing to comply with the Reliability
Standards applicable to its associated Registration.
Thus, a registered entity that concludes that an element is no longer part of the
bulk electric system must notify the Regional Entity of such change. Further, we
disagree with PSEG Companies that such notification is unnecessary. PSEG
Companies point out that NERC did not require such notification when the
Functional Model was first put into place. Regardless of past practice, we find
that such notification is a necessary feature of the changes being implemented by
NERC. As explained in the NOPR:
a large utility with hundreds or thousands of transmission
lines may initially determine that a configuration on its
system does not qualify for the exclusion E3 local network
exclusion, but subsequently determines that the configuration
can be excluded. NERC’s petition does not indicate whether
an entity in such circumstance is obligated to inform NERC
or the appropriate Regional Entity of that self-determination.
It appears that NERC and the Regional Entities would need
this information for their compliance programs, for audit
purposes, and to understand the contours of the bulk electric
system within a particular region.
Further, the revised definition allows entities the discretion to “declassify” certain
facilities as part of the bulk electric system, and NERC, Regional Entities and the
Commission need notification of such instances to assure that the entities are
appropriately implementing the revised definition.
318.

We affirm ICNU’s assertion that this task does not involve new, extensive or

burdensome reporting requirements. We view this as an identification and notification
task so that a Regional Entity and NERC will know what elements are or not part of the

Docket Nos. RM12-6-000 and RM12-7-000

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bulk electric system. This will provide the entities tasked with overseeing the reliable
operation of the interconnected transmission network with having an adequate level of
information and transparency to fulfill those obligations. We disagree with PSEG
Companies that this is an overly burdensome requirement. First, such information
sharing is already contemplated by the Rules of Procedure. Second, as noted above, we
do not view this requirement as one that involves anything more than notification. It does
not require a justification of why the element is being excluded.
III.

Information Collection Statement

319.

The Office of Management and Budget (OMB) requires that OMB approve certain

information collection and data retention requirements imposed by agency rules. 222 Upon
approval of a collection(s) of information, OMB will assign an OMB control number and
an expiration date. Respondents subject to the filing requirements of a rule will not be
penalized for failing to respond to these collections of information unless the collections
of information display a valid OMB control number.
Public Reporting Burden and Information Collection Costs
320.

In the NOPR, the Commission solicited comment on the need for collecting the

information that is required to be prepared, maintained and/or submitted pursuant to this
Final Rule, whether the information will have practical utility, the accuracy of the burden
estimates, ways to enhance the quality, utility, and clarity of the information to be
collected or retained, and any suggested methods for minimizing respondents’ burden,
222

5 CFR 1320.11 (2011).

Docket Nos. RM12-6-000 and RM12-7-000

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including the use of automated information techniques. The NOPR also included a chart
that identified the estimated public reporting burdens for the proposed reporting
requirements, as well as a projection of the costs of compliance for the reporting
requirements. The Commission asked that any revised burden estimates submitted by
commenters be supported by sufficient detail to understand how the estimates are
generated. The Commission based its burden estimate on the revised definition of bulk
electric system developed by NERC.
321.

In the NOPR, the Commission stated that the proposal would result in entities

reviewing systems and creating qualified asset lists, submitting exception requests where
appropriate, and certain responsible entities having to comply with requirements to
collect and maintain information in mandatory Reliability Standards with respect to
certain facilities for the first time. The Commission requested comment on the estimated
number of entities that will have an increased reporting burden associated with the
identification of new bulk electric system elements as a result of the modified definition.
In developing an estimate of the reporting burden associated with the inclusion of
additional elements, like NERC, the Commission assumed that entities in the NPCC
Region will be most affected, with a lesser affect in other regions.
Comments
322.

NRECA and APPA do not take a position on the estimates but observe that

modifications to the proposed definition or directives to NERC may result in substantial
changes to the burden estimates and the assessment of whether the which would require
the Commission to re-assess its burden and small business impact determinations.

Docket Nos. RM12-6-000 and RM12-7-000

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Similarly, APPA and WPPC believe that any changes to the proposed definition in the
Final Rule that would include additional facilities would cause a significant increase in
the reporting burden on the industry. APPA believes that if the Commission were to
direct NERC to make revisions to the specific inclusions or exclusions without technical
justification, the exception process would quickly become overloaded, with burdens on
those seeking exceptions and those ruling on them.
323.

A number of commenters state that the NOPR underestimated the burden of the

rulemaking in terms of hours required to comply. APPA believes that the Commission
underestimates the information collection costs and the costs of compliance for small
utilities. For example, the Commission’s assumption that utility staff would be used to
conduct an analysis is not merited in the case of many small entities. APPA states that
many of its smaller members do not have the in-house employees and resources to
conduct such reliability analyses and would have to rely on outside consultants and legal
firms. Therefore, APPA estimates that the fees small utilities would pay for each of the
services, based on information and belief, as follows: Consulting Engineer, $225/hour;
Record Keeping, $75/hour; and Legal, $500/hour.
324.

Idaho Power contemplates five local network exclusions which contain sixty

100 kV and above lines, and its estimates for the time involved to document these
exceptions leads it to believe the Commission is underestimating the number of engineer
hours per entity’s responses. According to Idaho Power, based on an initial review of
potential exceptions, Idaho Power may seek approximately 9-12 exceptions. Idaho
Power agrees with the estimate that transmission owners, generator owners, and

Docket Nos. RM12-6-000 and RM12-7-000

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distribution providers will experience more significant reporting burdens than other
categories of registered entities.
325.

ISO New England believes that there could be a significant burden on planning

coordinators and transmission planners which is not addressed in the table shown in the
NOPR. ISO New England states that, while it has not performed a similar analysis, it
appears that the “Year 1” estimates in the table in the NOPR are significantly understated
in view of the resources that it believes will be necessary to establish the initial list.
According to ISO New England, the estimate of approximately $13 million expended
over the entire system seems overly optimistic. BPA anticipates, based on customer
feedback, that the BPA footprint alone will experience several hundred exception
requests in the first two years. BPA estimates the additional workload from evaluating
the exception requests will be approximately five to six full time equivalents which
includes one full time coordinator, a customer service engineer for system verification, a
planner to run studies, an operations engineer, and dispatch personnel for real-time
system impacts. NYPSC and the Massachusetts DPU contend that the costs of
compliance with the definition will be excessive. NYPSC cites to a 2009 report from
NERC and NPCC, that the compliance costs would exceed $280 million.
Commission Determination
326.

Commenters raise concerns that modifications to the proposed definition or

directives to NERC may result in substantial changes to the burden estimates. While the
Commission is requiring one modification to the language in the NERC proposal, the
Commission finds that it does not need to reassess the burden estimates because the

Docket Nos. RM12-6-000 and RM12-7-000

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change is intended to simply make more explicit what NERC and other commenters
indicate is the expected application of the proposed definition to a low-voltage, looped
system as depicted in figures 3 and 5 above. Therefore, we do not anticipate the one
modification to result in a significant change to what elements are considered part of the
bulk electric system or applications for case-by-case exceptions. The burden estimates in
this Final Rule represent the incremental burden changes related only to increased
reporting burden associated with the identification of new bulk electric system elements
as a result of the modified definition. Furthermore, we acknowledge that NPCC may be
subject to additional reporting requirements, however, the burden estimates are averages
for all of the filers. Idaho Power’s observation that the Commission is underestimating
the number of engineering hours is not supported by analysis. Similarly, we are not
persuaded by ISO New England’s position that there may be a significant burden on
planning coordinators and transmission planners associated with proposed definition
because it does not offer any analysis to support this assertion. The Commission expects
any burden for planning coordinators and transmission planners to be de minimis or
incorporated under their existing responsibilities. In any event, Idaho Power and ISO
New England did not provide any estimates of the number of hours that it would take to
determine exceptions, nor suggest alternative estimates. In response to APPA’s hourly
estimates that are higher than the estimates in the NOPR the Commission notes that its
hourly rate estimates for the burden estimates are averages for all of the filers and are
based on national wage data for utilities obtained from the Bureau of Labor Statistics (for
engineers and legal) and NPCC's assessment of Bulk Electric System Definition (for

Docket Nos. RM12-6-000 and RM12-7-000

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completing implementation plans and compliance), and Commission staff outreach
(recordkeeping). Thus, the Commission adopts the burden estimates that it set forth in
the NOPR.
327.

The Commission disagrees with BPA that there may be a large number of

exception requests generated from entities within its footprint that may have to be
processed and the significant addition of FTEs. First, BPA has not provided any analysis
or evidence to support its claim. Nevertheless, the Commission’s expectation, like
NERC’s, is that application of the definition with its inclusions and exclusions should not
materially change what is considered part of the bulk electric system today. Thus, the
number of exception requests should not be excessive.
328.

Some comments address the potential impact the requirements would have on

small entities but did not provide specific estimates on this impact. Because these
comments are also the subject of the analysis performed under the Regulatory Flexibility
Act, the Commission has provided a response under that section of this rulemaking.
329.

We are not persuaded by NYPSC and Massachusetts DPU that the costs for

compliance will be $280 million. First, NYPSC nor Massachusetts do not dispute or
address the specific information collection cost estimates in the NOPR. In addition, the
vast majority (approximately $234 million) of the costs included in the report to which
the commenters cite appear to be capital costs which are not applicable to an information
collection estimate. Further, the report does not account for the revised language in the
definition of bulk electric system and the specific inclusions and exclusions that we are
approving in this Final Rule.

Docket Nos. RM12-6-000 and RM12-7-000
330.

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After consideration of comments, the Commission adopts the NOPR proposal for

the Public Reporting Burden and the information collection costs as follows.

Requirement

System Review
and List
Creation 224

Exception
Requests 225

Number and
Type of
Entity 223
(1)
333
Transmission
Owners
843 Generator
Owners
554
Distribution
Providers
1,730 total
Transmission
Owners,

Number of
Responses
Per Entity
(2)
1 response

Average
Number of
Hours per
Response
(3)
80 (engineer
hours)
16 (engineer
hours)
24 (engineer
hours)

.260 responses 94 (60
each in Yrs 1
engineer hrs,
and 2
32 record

Total
Burden
Hours
(1)*(2)*(3)
26,640 Yr 1

13,488 Yr 1
13,296 Yr 1

24,393 hrs in
Yrs 1 and 2

223

The “entities” listed in this table are describing a role a company is registered
for in the NERC registry. For example, a single company may be registered as a
transmission owner and generator owner. The total number of companies applicable to
this rule is 1,522, based on the NERC registry. The total number of estimated roles is
1,730.
224

This requirement corresponds to Step 1 of NERC’s proposed transition plan,
which requires each U.S. asset owner to apply the revised bulk electric system definition
to all elements to determine if those elements are included in the bulk electric system
pursuant to the revised definition. See NERC BES Petition at 38.
225

We recognize that not all 1,730 transmission owners, generator owners,
and distribution providers will submit an exception request. Rather, from the total
1,730 entities, we estimate an average of 260 requests per year in the first two years,
based on a low to high range of 87 to 433 requests per year. Therefore, the estimated
total number of hours per year for years 1 and 2, using an average of 260 requests
per year, is 24,393 hours. We estimate 20 requests per year in year 3 and ongoing.

Docket Nos. RM12-6-000 and RM12-7-000

Regional and
ERO Handling
of Exception
Requests 226

Generator
Owners and
Distribution
Providers
NERC and 8
Regional
Entities

20 responses
in Yr 3 and
ongoing

keeping hrs,
2 legal hrs)

1,880 hrs in
Yr 3 and
ongoing

1 response

1,386.67 hrs

12,480 hrs in
Yrs 1 and 2

111 NPCC
Region
Registered
Entities 228

1 response

700 hrs in
Yrs 1 and 2
350 hrs in Yr
3 and
ongoing
700 hrs in
Yrs 1 and 2
350 hrs in Yr
3 and
ongoing

77,700 hrs in
Yrs 1 and 2
38,850 hrs in
Yr 3 and
ongoing
52,500 hrs in
Yrs 1 and 2
26,250 hrs in
Yr 3 and
ongoing
220,497 hrs
in Yr 1
167,073 hrs
in Yr 2
66,980 hrs in
Yr 3 and
ongoing

Implementation
Plans and
75 Registered
Compliance 227
Entities from
7 other
Regions

TOTALS

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1 response

226

Based on the assumption of two full-time equivalent employees added to
NERC staff and 0.5 full-time equivalent employees added to each region’s staff, each
full-time equivalent at $120,000/year (salary + benefits).
227

The Commission does not expect a significant number of registered entities
outside of the NPCC region to identify new elements under the revised bulk electric
system definition. NERC also states that the other Regional Entities do not expect an
extensive amount of newly-included facilities. See NERC BES Petition at 38.
“Compliance” refers to entities with new elements under the new bulk electric system
definition required to comply with the data collection and retention requirements in
certain Reliability Standards that they did not previously have to comply with.
228

The estimated range of affected NPCC Region Registered Entities is from 66 to
155 entities.

Docket Nos. RM12-6-000 and RM12-7-000

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Costs to Comply:
• Year 1: $13,641,200
• Year 2: $10,435,760
• Year 3 and ongoing: $4,343,520.
For the first two burden categories above, the loaded (salary plus benefits) costs are:
$60/hour for an engineer; $27/hour for recordkeeping; and $106/hour for legal. The
breakdown of cost by item and year follows:
• System Review and List Creation (year 1 only): (26,640 hrs + 13,488
hrs + 13,296 hrs) =53,424 hrs * 60/hr = $3,205,440.
• Exception Requests (years 1 and 2): (sum of hourly expense per request
* number of exception requests) = ((60 hrs * $60/hr) + (32 hrs * $27/hr) +
(2hrs * $106/hr)) * 260 requests) = $1,215,760.
• Exception Requests (year 3): (sum of hourly expense per request *
number of exception requests) = ((60 hrs * $60/hr) + (32 hrs * $27/hr) +
(2 hrs * $106/hr)) * 20 requests) = $93,520.
• Regional and ERO handling of Exception Requests: Between NERC and
Regional Entities we estimate 6 full time equivalent (FTE) engineers will
be added at an annual cost of $120,000/FTE ($120,000/FTE * 6 FTE =
$720,000). This cost is only expected in years 1 and 2.

Docket Nos. RM12-6-000 and RM12-7-000

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• Implementation Plans and Compliance 229 (years 1 and 2): (hourly
expense per entity * hours per response * sum of NPCC and non-NPCC
entities) = ($64/hour * 700 hours per response * 186 responses) =
$8,332,800.
• Implementation Plans and Compliance (year 3 and beyond): We
estimate the ongoing cost for year 3 and beyond, at 50% of the year 1 and 2
costs, to be $4,166,400.
Title: FERC-725-J “Definition of the Bulk Electric System” 230
Action: Proposed Collection of Information
OMB Control No: 1902-0259
Respondents: Business or other for profit, and not for profit institutions.
Frequency of Responses: On Occasion
Necessity of the Information: The revision to NERC’s definition of the term bulk electric
system implements the Congressional mandate of the Energy Policy Act of 2005 to
develop mandatory and enforceable Reliability Standards to better ensure the reliability
229

The cost and hourly burden calculations for this category are based on a past
assessment (NPCC Assessment of Bulk Electric System Definition, September 14,
2009.). In that assessment NPCC indicated $8.9 million annually for operations,
maintenance and additional costs. We estimated that roughly half of that cost actually
relates to information collection burden. Using the resulting figure, we used a composite
wage and benefit figure of $64/hour to estimate the hourly burden figures presented in the
burden table.
230

All of the information collection requirements for years 1-3 in the proposed
rule are being accounted for under the new collection FERC-725J.

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of the nation’s Bulk-Power System. Specifically, the revised definition ensures that
certain facilities needed for the operation of the nation’s bulk electric system are subject
to mandatory and enforceable Reliability Standards.
Internal review: The Commission has reviewed the proposed definition and made a
determination that its action is necessary to implement section 215 of the FPA. The
Commission has assured itself, by means of its internal review, that there is specific,
objective support for the burden estimate associated with the information requirements.
331.

Interested persons may obtain information on the reporting requirements by

contacting the Federal Energy Regulatory Commission, Office of the Executive Director,
888 First Street, NE, Washington, DC 20426 [Attention: Ellen Brown, e-mail:
[email protected], phone: (202) 502-8663, fax: (202) 273-0873].
332.

For submitting comments concerning the collection of information and the

associated burden estimate, please send your comments to the Office of Management and
Budget, Office of Information and Regulatory Affairs, Washington, DC 20503
[Attention: Desk Officer for the Federal Energy Regulatory Commission, phone:
(202) 395-4718, fax: (202) 395-7285]. For security reasons, comments to OMB should
be submitted by e-mail to: [email protected]. Comments submitted to
OMB should include Docket Number RM12-6 and OMB Control Number 1902-0259.

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IV.

Regulatory Flexibility Act Analysis

333.

The Regulatory Flexibility Act of 1980 (RFA) 231 generally requires a description

and analysis of Proposed Rules that will have a significant economic impact on a
substantial number of small entities. The RFA mandates consideration of regulatory
alternatives that accomplish the stated objectives of a proposed rule and that minimize
any significant economic impact on a substantial number of small entities. The Small
Business Administration’s (SBA) Office of Size Standards develops the numerical
definition of a small business. 232 The SBA has established a size standard for electric
utilities, stating that a firm is small if, including its affiliates, it is primarily engaged in
the transmission, generation and/or distribution of electric energy for sale and its total
electric output for the preceding twelve months did not exceed four million megawatt
hours. 233
NOPR Proposal
334.

In the NOPR, the Commission estimated that approximately 418 of the 1,730

registered transmission owners, generator owners and distribution service providers may
fall within the definition of small entities. Further, the Commission estimated that of the
418 small entities affected there are 50 within the NPCC region that would have to
comply with the rulemaking. The Commission contemplated that the rulemaking would
231

5 U.S.C. 601-612 (2006).

232

13 CFR 121.101.

233

13 CFR 121.201, Sector 22, Utilities & n.1.

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affect more small entities in the NPCC Region than those outside NPCC because there
are more elements in the NPCC region that would be added to the bulk electric system
based on the new definition than elsewhere. The Commission estimated the first year
affect on small entities within the NPCC region to be $39,414. 234 This figure is based on
information collection costs plus additional costs for compliance. 235 The Commission
estimated the average annual affect per small entity outside of NPCC will be less than for
the entities within NPCC. In the NOPR, the Commission stated that it did not consider
this to be a significant economic impact for either class of entities because it should not
represent a significant percentage of the operating budget.
Comments
335.

APPA asserts that the Commission underestimates the costs of compliance for

small utilities. According to APPA, the Commission’s assumption that utility staff would
conduct an analysis is not merited in the case of many small entities. APPA states that
many of its smaller members do not have the in-house employees and resources to
conduct such reliability analyses and would have to rely on outside consultants and legal

234

For companies registered as more than one entity in the NERC compliance
registry this figure will increase accordingly. That is, if a company is registered as a
transmission owner and generator owner then the cost burden would be $78,828
($39,414*2 = $78,828).
235

We use fifty percent of the first year “number of hours per response” figure in
the information collection statement for calculation under the assumption that smaller
entities do not have complicated systems or will not have as many new elements on
average as larger entities do.

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firms. Therefore, APPA estimates that the fees small utilities would pay for each of the
services as follows, based on information and belief: Consulting Engineer, $225/hour;
Record Keeping, $75/hour; and Legal, $500/hour. According to APPA, these increased
dollar estimates alone substantially increase the burden estimates on smaller utilities to
comply with the Commission’s proposals. WPPC believes that the cost to satisfy
transmission owner/transmission operator certification alone would be $80,000. WPPC
points to one small municipally-owned utility paid $40,000 for third party expertise and
review of the utility’s required compliance. WPPC adds that the municipality had two
staff members spend a week reviewing a modifying city policies to ensure compliance
with reliability standards. WPPC points out that these costs only represent the initial
subject matter review and do not include subsequent implementation, training or material
purchase costs. WPPC also states that small entities have to divert employees from other
tasks to compliance tasks which represents a significant burden on staffing.
336.

ISO New England does not believe that the NOPR cost estimate captures the cost

of physical upgrades that might be necessary on the system. The cost estimates do not
reflect the true financial burden that might be borne by these smaller entities.
337.

BPA is concerned that the Commission is underestimating the costs and resources

associated with reliability compliance. BPA disagrees with the Commission’s estimated
annual costs of $39,414 for entities that are required to newly comply with Reliability
Standards as a result of adopting the definition. BPA believes that the Commission’s
figure vastly underestimates the actual effort and costs associated with compliance. In
BPA’s experience with its customers, the smallest customer impact is equivalent to at

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least one FTE, and larger customers have indicated they have an even higher burden.
BPA asserts that the Commission’s estimates also overlook indirect compliance costs and
their impact on small and large entities alike. BPA disagrees with the Commission’s
conclusion that the compliance burden is not “a significant economic impact . . . because
it should not represent a significant percentage of the operating budget.” It is BPA’s
experience that implementing a fully functioning compliance program requires
committed personnel, budget, and resources, which is never insignificant.
Commission Determination
338.

The Commission disagrees with commenters that challenge the Commission’s

conclusion that the rule will not have a significant economic impact on a substantial
number of small entities. We are not persuaded by APPA, BPA and ISO New England’s
assertions regarding how the Commission’s analysis is erroneous or in what ways the
Final Rule will have a significant economic impact on a substantial number of small
entities. As the Commission stated in its NOPR, most transmission owners, transmission
operators and transmission service providers do not fall within the definition of small
entities. In addition, the requirement to comply with the definition of bulk electric
system is not new. The reason for revising the definition of bulk electric system is to
comply with the Commission’s directives and address the technical and policy concerns
expressed in Order Nos. 743 and 743-A, which NERC accomplished by eliminating the
explicit basis of authority for Regional Entity discretion in the current definition, and
establishing specific threshold criteria rather than general guidelines of facilities operated
or connected at or above 100 kV. Thus, while the Commission recognizes that some

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

Environmental Analysis

339.

The Commission is required to prepare an Environmental Assessment or an

Environmental Impact Statement for any action that may have a significant adverse effect
on the human environment. 236 The Commission has categorically excluded certain
actions from this requirement as not having a significant effect on the human

236

Regulations Implementing the National Environmental Policy Act, Order
No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. Regulations Preambles
1986-1990 ¶ 30,783 (1987).

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environment. The actions proposed here fall within the categorical exclusion in the
Commission’s regulations for rules that are clarifying, corrective or procedural, for
information gathering, analysis, and dissemination. 237 Accordingly, neither an
environmental impact statement nor environmental assessment is required.
VI.

Document Availability

340.

In addition to publishing the full text of this document in the Federal Register, the

Commission provides all interested persons an opportunity to view and/or print the
contents of this document via the Internet through FERC's Home Page
(http://www.ferc.gov) and in FERC's Public Reference Room during normal business
hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A,
Washington DC 20426.
341.

From FERC's Home Page on the Internet, this information is available on

eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft
Word format for viewing, printing, and/or downloading. To access this document in
eLibrary, type the docket number excluding the last three digits of this document in the
docket number field.
342.

User assistance is available for eLibrary and the FERC’s website during normal

business hours from FERC Online Support at (202) 502-6652 (toll free at 1-866-2083676) or email at [email protected], or the Public Reference Room at (202)

237

18 C.F.R. § 380.4(a)(5).

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502-8371, TTY (202)502-8659. E-mail the Public Reference Room at
[email protected].
VII.

Effective Date and Congressional Notification

343.

These regulations are effective [insert date 60 days from the later of the date

Congress receives the agency notice or the date the rule is published in the Federal
Register]. The Commission has determined, with the concurrence of the Administrator of
the Office of Information and Regulatory Affairs of OMB, that this rule is not a “major
rule as defined in section 351 of the Small Business Regulatory Enforcement Fairness
Act of 1996.
List of subjects in 18 CFR Part 40
By the Commission. Commissioner Clark is not participating.
(SEAL)

Nathaniel J. Davis, Sr.,
Deputy Secretary.

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Appendix A
American Electric Power Service Corporation (AEP)
American Municipal Power, Inc. (AMP)
American Public Power Association (APPA)
American Wind Energy Association (AWEA)
Arizona Public Service Company (Arizona Public Service)
Barrick Goldstrike Mines Inc. (Barrick)
Associated Electric Cooperative, Inc., Basin Electric Power Cooperative, Tri-State
Generation and Transmission Association, Inc. (the G&T Cooperatives)
Bonneville Power Administration (BPA)
City of Alameda, California (Alameda)
City of Anaheim, California (Anaheim)
City of Redding, California (Redding)
City of Riverside, California (Riverside)
Cogeneration Association of California and the Energy Producers and Users
Coalition
Consumers Energy Company (Consumers)
Dominion Resources Services, Inc. (Dominion)
Dow Chemical Company (Dow)
Duke Energy Corporation (Duke Energy)
Edison Electric Institute (EEI)
Electricity Consumers Resource Council (ELCON)
Exelon Corporation (Exelon)
Florida Reliability Coordinating Council, Midwest Reliability Organization,
Northeast Power Coordinating Council, Inc., ReliabilityFirst Corporation,
Southwest Power Pool Regional Entity, SERC Reliability Corporation, Texas
Reliability Entity, Inc., Western Electricity Coordinating Council (the Regional
Entities)
City of Holland, Michigan Board of Public Works (Holland)
Hydro One Networks Inc. and the Independent Electricity System Operator (Hydro
One)
Hydro Quebec Transenergie (Hydro Quebec)
Idaho Power Company (Idaho Power)
Imperial Irrigation District (IID)
Industrial Customers of Northwest Utilities (ICNU)
Industrial Users of Utah (IUU)
International Transmission Company d/b/a ITC Transmission, Michigan Electric
Transmission Company, LLC, ITC Midwest LLC and ITC Great Plains LLC
(ITC)

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ISO New England Inc. (ISO New England)
Kansas City Power & Light Company and KCP&L Greater Missouri (KCP&L)
Large Public Power Council (LPPC)
Massachusetts Department of Public Utilities (Massachusetts DPU)
Midwest Independent Transmission System Operator, Inc. (MISO)
MISO Transmission Owners
National Association of Regulatory Utility Commissioners (NARUC)
National Grid USA (National Grid)
National Rural Electric Cooperative Association (NRECA)
Nevada Power Company and Sierra Pacific Power Company (NV Energy)
New England States Committee on Electricity (NESCOE)
New York Independent System Operator, Inc. (NYISO)
New York State Public Service Commission (NYPSC)
North American Electric Reliability Corporation (NERC)
North Carolina Eastern Municipal Power Agency (“NCEMPA”) and North Carolina
Municipal Power Agency Number 1 (“NCMPA1”) (together “Power Agencies”)
Oglethorpe Power Corporation, Georgia Transmission Corporation and Georgia
System Operations Corporation
Old Dominion Electric Cooperative (ODEC)
Occidental Energy Ventures Corp
Pennsylvania Public Utility Commission
Pepco Holdings, Inc., Potomac Electric Power Company, Delmarva Power & Light
Company, Atlantic City Electric Company (PHI Companies)
Portland General Electric Company (Portland)
Public Service Electric and Gas Company, PSEG Power LLC, and PSEG Energy
Resources & Trade LLC (PSEG Companies)
SmartSenseCom, Inc. (SmartSenseCom)
Snohomish County PUD No. 1 (Snohomish)
Southern California Edison Company (SoCal Edison)
Southern Company Services, Inc. (Southern Companies)
Springfield Utility Board (Springfield)
Steel Manufacturers Association
Transmission Access Policy Study Group (TAPS)
Utility Services, Inc.
Valero Services, Inc (Valero)
Western Public Power Coalition (WPPC)
White River Electric Association, Inc. (WREA)

File Type	application/pdf
File Title	RM12-6-000 Revisions to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure
Subject	RM12-6-000 Revisions to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure
Author	FERC
File Modified	2012-12-20
File Created	2012-12-20