Order No. 773-A

Order No. 773-A.pdf

FERC-725J, Definition of the Bulk Electric System

Order No. 773-A

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143 FERC ¶ 61,053
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
18 CFR Part 40
[Docket Nos. RM12-6-001 and RM12-7-001; Order No. 773-A]
Revisions to Electric Reliability Organization Definition of Bulk Electric System and
Rules of Procedure
(Issued April 18, 2013)
AGENCY: Federal Energy Regulatory Commission.
ACTION: Final rule; order on rehearing and clarification.
SUMMARY: The Commission denies rehearing in part, grants rehearing in part and
otherwise reaffirms its determinations in Order No. 773. In addition, the Commission
clarifies certain provisions of the Final Rule. Order No. 773 approved the 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. Order No. 773 also approved NERC’s revisions to its Rules of
Procedure, which create an exception process to add elements to, or remove elements
from, the bulk electric system on a case-by-case basis and established 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.
EFFECTIVE DATE: This rule will become effective [insert date of publication in the
FEDERAL REGISTER].

Docket Nos. RM12-6-001 and RM12-7-001

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FOR FURTHER INFORMATION CONTACT:
Susan Morris (Technical Information)
Office of Electric Reliability, Division of Reliability Standards and Security
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:

143 FERC ¶ 61,053
UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Jon Wellinghoff, Chairman;
Philip D. Moeller, John R. Norris,
Cheryl A. LaFleur, and Tony Clark.

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

Docket Nos. RM12-6-001
RM12-7-001

ORDER NO. 773-A
ORDER ON REHEARING AND CLARIFICATION
(Issued April 18, 2013)
I.

Introduction

On December 20, 2012, the Commission issued a Final Rule (Order No. 773)

approving 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). 1 The Commission found
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 Commission also found that the revised definition provides improved
clarity by identifying specific categories of facilities and configurations as inclusions and
1

Revisions to Electric Reliability Organization Definition of Bulk Electric System
and Rules of Procedure, Order No. 773, 141 FERC ¶ 61,236 (2012).

Docket Nos. RM12-6-001 and RM12-7-001

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exclusions. The Commission also found that NERC’s case-by-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. The Final Rule found that, after notice and comment, the Commission
can designate sub-100 kV facilities, or other facilities, as part of the bulk electric system.
The Commission also established 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 (FPA).
2.

In this order, the Commission denies in part and grants in part the requests for

rehearing and clarification of the Final Rule, as discussed below.
A.

Background
1.

Order Nos. 743 and 743-A

On November 18, 2010, in Order No. 743, the Commission directed that NERC,

through NERC’s Reliability Standards Development Process, develop modifications to
the currently-effective definition of the term “bulk electric system” to ensure that the
definition encompasses all facilities necessary for operating the interconnected
transmission network. 2 The Commission also directed NERC to address the
Commission’s technical and policy concerns. Among the Commission’s concerns were

Revision to Electric Reliability Organization Definition of Bulk Electric System,
Order No. 743, 133 FERC ¶ 61,150, at P 16 (2010), order on reh’g, Order No. 743-A,
134 FERC ¶ 61,210 (2011).

Docket Nos. RM12-6-001 and RM12-7-001

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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 the 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
definition, those 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.” 3 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. 4
4.

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

No. 743. In addition, the Commission clarified that the issue the Commission directed
NERC to rectify was the discretion the Regional Entities have under the current

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

Id. P 113.

Docket Nos. RM12-6-001 and RM12-7-001

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definition to define the bulk electric system in their regions without any oversight from
the Commission or NERC. 5 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. 6
5.

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. 7 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. 8 However, the
Commission left it to NERC to determine if and how the Seven Factor Test should be
5

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

Id. PP 40, 67, 102-103.

Id. P 68.

Order No. 743-A, 134 FERC ¶ 61,210 at P 69. See Promoting Wholesale
Competition Through Open Access Non-Discriminatory 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).

Docket Nos. RM12-6-001 and RM12-7-001

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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. 9 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. 10 In Order No. 743-A, the Commission also stated
that, “although local distribution facilities are excluded from the definition, it still is
necessary to determine which facilities are local distribution, and which are transmission.
Whether facilities are used in local distribution will in certain instances raise a question
of fact, which the Commission has jurisdiction to determine.” 11
2.
6.

Order No. 773

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
(Docket No. RM12-6-000); and (2) revisions to NERC’s Rules of Procedure to add a
procedure (an exception process) to classify or de-classify an element as part of the “bulk
electric system” (Docket No. RM12-7-000). 12

Order No. 743-A, 134 FERC ¶ 61,210 at P 70.

Id. PP 25, 58.

Id. P 67.

The Commission-approved core definition, inclusions and exclusions are
included in Attachment A to this order on rehearing.

Docket Nos. RM12-6-001 and RM12-7-001
7.

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On December 20, 2012, the Commission issued Order No. 773, a final rule

approving NERC’s modifications to the definition of “bulk electric system” and the
exception process, in response to Order Nos. 743 and 743-A. The Commission found
that the revised definition of “bulk electric system” establishes a bright-line threshold that
includes all facilities operated at or above 100 kV and removed language from the prior
definition that allows for broad regional discretion. Further, the Commission found that
inclusions and exclusions in the definition that address typical system facilities and
configurations such as generation and radial systems provide additional granularity that
improves consistency and provides a practical means to determine the status of common
system configurations. 13
8.

In the Final Rule, the Commission found that the modified definition is consistent,

repeatable and verifiable and will provide clarity that will assist NERC and affected
entities in implementing Reliability Standards. The Commission also found 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.

Order No. 773, 141 FERC ¶ 61,236 at PP 2, 4, 38-40, 51.

Docket Nos. RM12-6-001 and RM12-7-001
9.

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The Commission also approved NERC’s case-by-case exception process to add

elements to, and remove elements from, the definition of the bulk electric system. 14 In
addition, the Final Rule established a process by which an entity can seek a determination
by the Commission whether facilities are “used in local distribution” as set forth in the
FPA on a case-by-case basis. 15 The Commission also directed NERC to (1) implement
the exclusions for radial systems (exclusion E1) and local networks (exclusion E3) so that
they do not apply to tie-lines, i.e. generator interconnection facilities, for bulk electric
system generators; and (2) 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 to be eligible for the local network exclusion. 16
B.
10.

Requests for Rehearing

The following entities filed timely requests for rehearing and/or clarification of

Order No. 773: NERC, American Public Power Association (APPA); American Wind
Energy Association (AWEA); City of Holland, Michigan Board of Public Works
(Holland); Dow Chemical Company (Dow); Electricity Consumers Resource Council
(ELCON); National Association of Regulatory Utility Commissioners (NARUC);
National Rural Electric Cooperative Association (NRECA); New York State Public
Service Commission (NYPSC); Public Utility District No. 1 of Snohomish County,
14

Order No. 773, 141 FERC ¶ 61,236 at PP 251-262.

Order No. 773, 141 FERC ¶ 61,236 at PP 66-73.

Order No. 773, 141 FERC ¶ 61,236 at PP 155, 164-169.

Docket Nos. RM12-6-001 and RM12-7-001

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Washington (Snohomish); Transmission Access Policy study Group (TAPS); and Utility
Services, Inc. (Utility Services). 17
11.

Exelon Corporation filed a response to the NERC request for clarification. The

ITC Companies filed a motion for leave to answer and answer to the Holland rehearing
request, and NERC filed a motion for leave to answer and answer in response to Exelon’s
response. Holland filed an answer to the answer of the ITC Companies, and Exelon filed
a response to NERC’s answer.
II.

Discussion
A.

12.

Procedural Matters

Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure, 18 C.F.R.

§ 213(a)(2) (2012), provides that answers are generally not permitted unless requested by
the decisional authority. Rule 713(d) of the Commission’s Rules of Practice and
Procedure, 18 C.F.R. § 713(d) (2012), prohibits answers to requests for rehearing.
Accordingly, we will reject the answers filed by the parties in this proceeding.
17

We find that Utility Services’ rehearing request is deficient because it fails to
include a Statement of Issues section separate from its arguments, as required by Rule
713 of the Commission’s Rules of Practice and Procedure. 18 CFR 385.713(c)(2) (2012).
Rule 713(c)(2) requires that a rehearing request include a separate section entitled
“Statement of Issues” listing each issue presented to the Commission in a separately
enumerated paragraph that includes representative Commission and court precedent on
which the participant is relying. Under Rule 713, any issue not so listed will be deemed
waived. See Revision of Rules of Practice and Procedure Regarding Issue Identification,
Order No. 663, FERC Stats. & Regs. ¶ 31,193 (2005), order on reh’g, Order No. 663-A,
FERC Stats. & Regs. ¶ 31,211 (2006). Accordingly, we dismiss Utility Services’
rehearing request. However, we note that Utility Services’ rehearing request raises issues
similar to those addressed in other petitions in this proceeding.

Docket Nos. RM12-6-001 and RM12-7-001

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B.
Challenges to Commission Approval of the Revised Bulk Electric
System Definition and Use of a 100 kV Bright-Line Threshold
13.

NYPSC argues that the Commission's approval of the 100 kV bright-line threshold

was arbitrary, capricious and unsupported by substantial evidence because the record
lacks a technical justification for using the 100 kV threshold. NYPSC adds that the
Commission failed to demonstrate a sufficient technical justification that the bright-line
definition only encompasses facilities needed for the reliable operation of the Bulk-Power
System. While NYPSC believes that the Commission's bright-line approach is designed
to ensure consistency, NYPSC states the Commission cannot evade the jurisdictional
limitations of the FPA to ensure consistency. NYPSC also argues that the Final Rule
contains no factual basis for establishing 100 kV as the appropriate place to draw the line
and contends that the Commission conceded that not all facilities operated at or above
100 kV are necessary for operating the interconnected transmission network.
14.

NARUC and NYPSC also argue that the definition encompasses facilities that are

used for local distribution and are not necessary for operating an interconnected
transmission network. NYPSC contends that, through studies and functional testing, the
New York Independent System Operator, Inc. (NYISO) has developed a list of facilities
that have the potential to cause cascading problems on the system as well as facilities that
can have an impact on the Bulk-Power System but whose main function is to serve load.
NYPSC claims that the Commission ignored this information in establishing a bright-line
definition.

Docket Nos. RM12-6-001 and RM12-7-001
15.

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NARUC argues that a 100 kV bright-line threshold sweeps into the bulk electric

system elements that were previously classified as local distribution. According to
NARUC, the Final Rule creates the possibility of entities having to engage in a costly
analysis to seek an exception for facilities used in local distribution. NARUC states that
neither the inclusions and exclusions in the definition, nor the exception process cure the
jurisdictional overreach inherent in the bright-line rule set at 100 kV.
16.

Further, NYPSC argues that, even though the definition does not include facilities

used for local distribution, the Commission “effectively acknowledged that such facilities
would be placed under its jurisdiction by establishing an exception process whereby
entities may seek to demonstrate that the facilities are not necessary for operating the
interconnected transmission network, or are used in local distribution.” 18 NYPSC argues
that the Commission should not assume it has jurisdiction over facilities operated at 100
kV and above until an entity demonstrates that the Commission does not have
jurisdiction. According to NARUC and NYPSC, the approach adopted in the Final Rule
inappropriately shifts the legal and technical burdens on the jurisdictional issue to the
entity applying for an exception. 19 NYPSC adds that the Commission improperly
dismissed NYPSC’s evidence that there is a layer of "area" transmission facilities below
the Bulk-Power System and above distribution facilities that move energy within a utility
18

NYPSC Request for Rehearing and Clarification at 11 (citing Order No. 773,
141 FERC ¶ 61,236 at P 40). See also NARUC Request for Rehearing at 3-4.
19

See, e.g., NYPSC Request for Rehearing and Clarification at 11-12.

Docket Nos. RM12-6-001 and RM12-7-001

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service territory and toward load centers and only a small subset of these “area” facilities
assists in maintaining the reliability of the Bulk-Power System.
17.

NYPSC contends that the bright-line definition is inconsistent with the FPA’s

definition of the Bulk-Power System, which, according to NYPSC, recognizes that a
functional test is needed to determine whether a facility is necessary for reliable
operation. NYPSC claims that the Commission ignored a functional test for defining the
Bulk-Power System, such as the one the Northeast Power Coordinating Council, Inc.
(NPCC) has historically used to identify facilities having an adverse impact on the BulkPower System. NYPSC also argues that the Commission should not require utilities to
upgrade facilities to comply with Commission-approved Reliability Standards where a
timely request for an exception has been submitted and is still pending. NYPSC contends
that compliance and the expenditure of ratepayer funds should not be required until after
the Commission has made a final determination on the exception, which will ensure that
the costs of compliance are not unnecessarily imposed upon ratepayers, and the
Commission does not impermissibly exert jurisdiction.
Commission Determination
18.

We deny rehearing and affirm the findings in the Final Rule. As described below,

petitioners have previously raised, and the Commission has addressed and rejected, the
arguments with respect to the Commission’s authority and technical justification for the
100 kV bright-line threshold and the functional test.
19.

In Order No. 743, the Commission found sufficient justification for the finding

that the current definition allows broad regional discretion without ERO or Commission

Docket Nos. RM12-6-001 and RM12-7-001

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oversight, which has resulted in reliability issues and has failed to ensure that all facilities
necessary for operation of the interconnected transmission network are covered by the
Reliability Standards. 20 The Commission found that
many facilities operated at 100 kV and above have a significant
effect on the overall functioning of the grid. 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 flow gate, which illustrates their parallel nature and
therefore their necessity to the reliable operation of the
interconnected transmission system. 21
The Commission also explained its concern with the application of the currently-effective
definition by illustrating examples of wide-scale cascading outages that NERC or the
Commission did not have a chance to mitigate because the facilities were not considered
part of the bulk electric system. 22 As discussed in Order No. 743, the Commission found
that failure of 100-200 kV facilities has caused cascading outages that would have been
minimized or prevented if these facilities were operated in compliance with the NERC
Reliability Standards. 23

Order No. 743, 133 FERC ¶ 61,150 at P 72.

Order No. 773, 141 FERC ¶ 61,236 at P 41 (citing Order No. 743, 133 FERC
¶ 61,150 at P 73).
22

Order No. 743, 133 FERC ¶ 61,150 at PP 72-96.

Order No. 743, 133 FERC ¶ 61,150 at P 87.

Docket Nos. RM12-6-001 and RM12-7-001
20.

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The Commission also noted that NERC already applies a general 100 kV

threshold, and all regions, with the exception of NPCC, also apply a 100 kV threshold. 24
The Commission stated that the best way to address its concerns “is to eliminate the
regional discretion in the ERO’s current definition, maintain the bright-line threshold that
includes all facilities operated at or above 100 kV except defined radial facilities, and
establish an exemption process and criteria for excluding facilities the ERO determines
are not necessary for operating the interconnected transmission network.” 25 The
Commission did not propose to change the existing threshold in the definition, but rather
charged NERC with eliminating “the ambiguity created by the current characterization of
that threshold as a general guideline.” 26 In other words, while the Commission did not
mandate the 100 kV threshold, it directed NERC to develop a revised definition that
addresses the inconsistency, lack of oversight and exclusion of facilities inherent in the
current definition. 27
21.

We disagree with NYPSC and NARUC that by establishing an exception process

the Commission effectively acknowledged that local distribution facilities would be
placed under its jurisdiction. As we explained in the Final Rule, the bright-line threshold
24

Order No. 743, 133 FERC ¶ 61,150 at P 56; Order No. 773, 141 FERC ¶ 61,236

at P 42.
25

Order No. 743, 133 FERC ¶ 61,150 at P 30.

Id. (footnotes omitted).

See Order No. 743-A, 134 FERC ¶ 61,210 at P 53.

Docket Nos. RM12-6-001 and RM12-7-001

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would be a “first step or proxy” in determining which facilities should be included in the
bulk electric system. The Commission also explained that 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.” 28 Thus, the exception
process is not evidence that the “core” definition violates the FPA but instead is a means
to ensure the application of the definition complies with the FPA.
22.

Further, as we explained in the Final Rule, the determination of whether an

element or facility is “used in local distribution,” is a multi-step process that may require
a jurisdictional analysis that is more appropriately performed by the Commission. 29 The
Commission stated:
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 distribution. 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. 30

Id.

Order No. 773, 141 FERC ¶ 61,236 at P 69 (citations omitted).

Order No. 773, 141 FERC ¶ 61,236 at P 72 (citations omitted).

Docket Nos. RM12-6-001 and RM12-7-001

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In other words, if a facility is classified as part of the bulk electric system by application
of the definition but should be excluded because it is a facility used in local distribution,
an entity may apply to the Commission for a local distribution determination. Thus,
because application of the 100 kV threshold is the first step in the process of determining
whether an element is part of the bulk electric system, we reject the argument that the
definition will sweep in all elements above 100 kV in a manner inconsistent with the
Commission’s jurisdiction. 31
23.

In sum, we deny rehearing and affirm that approval of the 100 kV bright-line

threshold was adequately supported with a technical justification. Petitioners raise
arguments that the Commission has previously considered and rejected in this proceeding
as well as previous Commission decisions with respect to the reasons for requiring
revisions to the definition of bulk electric system. In all these cases, the Commission
explained and justified the appropriateness of a 100 kV threshold. Therefore, we reject
the requests for rehearing on these issues.
24.

We also reject the argument that a functional test is a more appropriate manner to

determine which facilities are part of the bulk electric system. In Order No. 743, the
Commission concluded that a material impact or functional test excludes facilities
“without regard to whether they are necessary to operate the system, and instead seek to

Order No. 773, 141 FERC ¶ 61,236 at P 41.

Docket Nos. RM12-6-001 and RM12-7-001

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determine the impact of the loss of an element.” 32 The Commission also concluded that
these tests are subjective and result in an inconsistent process that excludes facilities from
the bulk electric system. 33 In the NOPR comments in this proceeding, these same issues
were raised, and in the Final Rule the Commission again rejected them. 34 Further, as
discussed in detail in the Final Rule, the Commission found that NERC’s proposal
adequately ensures that all facilities necessary for operating an interconnected electric
energy transmission network are included under the bulk electric system. In the Final
Rule, the Commission also relied on its finding in Order No. 743 that
“[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. 35
32

Order No. 743, 133 FERC ¶ 61,150 at P 76.

Order No. 743, 133 FERC ¶ 61,150, at PP 73-86.

Order No. 773, 141 FERC ¶ 61,236 at P 41.

Order No. 773, 141 FERC ¶ 61,236 at P 39 (citing Order No. 743, 133 FERC
¶ 61,150, at P 82 (footnote omitted)). Order No. 743 did not reject all material impact
assessments but instead took issue with particular tests and outlined general problems
with the material impact tests used to determine the extent of the bulk electric system.
Order No. 743, 133 FERC ¶ 61,150 at PP 76-78; Order No. 743-A, 134 FERC ¶ 61,210 at
PP 44-47. Indeed, the ERO had flexibility to develop alternative approaches, such as a
functional test. However, the ERO, in applying its technical expertise, developed a
revised definition that retained a 100 kV threshold.

Docket Nos. RM12-6-001 and RM12-7-001
25.

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We also disagree with NYPSC’s claim that the Commission ignored the NYPSC

evidence of NYISO studies and functional testing. As NYPSC states, the NYISO data is
the result of a functional test. 36 While the Commission did not reject all material impact
tests, the Commission took issue with particular tests and outlined general problems with
the material impact tests used to date because they exclude facilities without regard to
whether they are necessary to operate the interconnected transmission network. In
addition, as explained above, failure of 100-200 kV facilities has caused cascading
outages that would have been minimized or prevented if these facilities were operated in
compliance with the NERC Reliability Standards. Further, in the Final Rule the
Commission noted that NYPSC cited specific examples of facilities that should be
excluded, but found that determinations for treatment for specific facilities were “more
appropriate for the exception process” and were beyond the scope of this proceeding. 37
26.

With regard to NYPSC’s request for clarification about the need to upgrade

facilities while an exception request is pending, in Order No. 743-A we agreed with
petitioners “that currently unregistered entities that may be required to seek an exemption
for facilities under the revised bulk electric system definition will not be required to
register and thereafter comply with Reliability Standards until a final decision is made to
deny the application for exemption,” stating that “entities should not be required to take

NYPSC Request for Rehearing at 10.

Order No. 773, 141 FERC ¶ 61,236 at P 43.

Docket Nos. RM12-6-001 and RM12-7-001

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costly steps to comply with the Reliability Standards prior to the ERO’s initial
determination on an exemption request.” 38 NERC’s exception process is consistent with
the approach in Order No. 743-A. According to NERC, elements that are newly-included
in the bulk electric system due to the revised definition will only become subject to
relevant Reliability Standards twenty-four months after the effective date of the revised
definition. 39 It is NERC’s expectation that during the twenty-four month transition
period entities with newly-included elements will file exception requests and the
Regional Entities and NERC will make determinations of the exception requests. 40 This
transition period is sufficient to obtain a NERC ruling and avoid any compliance costs. 41
However, if an element that is already deemed part of the bulk electric system and subject
to relevant Reliability Standards today is included by application of the revised definition
of bulk electric system, but an entity seeks an exclusion exception of the element, the
element will remain subject to the relevant Reliability Standards during the pendency of
the exception process. Conversely, if an element is excluded from the bulk electric
system by application of the revised definition, but a different entity with a reliability
oversight obligation seeks to include the element in the exception process, the element
38

See Order No. 743-A, 134 FERC ¶ 61,210 at PP 91, 93.

NERC Petition at 34.

See NERC BES Petition at 36.

See Order No. 743-A, 134 FERC ¶ 61,210 at P 93. See also NERC BES
Petition at 36.

Docket Nos. RM12-6-001 and RM12-7-001

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will not be subject to Reliability Standards during the exception process. If NERC
determines the element is needed for operation of the interconnected transmission
network and thus part of the bulk electric system, the entity can propose an appropriate
implementation plan for compliance. 42
C.
27.

Order No. 773 Directives Regarding the Revised Definition

A number of entities request clarification and/or rehearing in connection with the

Commission directives in the Final Rule. Specifically, they request clarification and/or
rehearing of (1) the Commission decision for treatment of looped configurations
connected below 100 kV and the corresponding directive to modify the local network
exclusion (exclusion E3) to remove the 100 kV minimum operating voltage; and (2) the
directive to implement the exclusions for radial systems (exclusion E1) and local
networks (exclusion E3) so that they do not apply to tie-lines (generator interconnection
facilities) for bulk electric system generators indentified in inclusion I2 (generating
resources). 43
42

NERC ROP Petition, Att. 1 (“Proposed Appendix 5C to the Rules of Procedure,
Procedure for Requesting and Receiving an Exception from the NERC Definition of Bulk
Electric System, Section 10.1”) at 16: “In the case of an Element not included in the BES
by application of the BES Definition but for which an Inclusion Exception is approved,
the Owner shall submit a proposed implementation plan to the Regional Entity detailing
the schedule for complying with any Reliability Standards applicable to the newly
included Element. The Regional Entity and Owner shall confer to agree upon such
schedule.
43

The phrase generator tie-line means the same as generator interconnection
facility as used 61,049 in the Notice of Proposed Rulemaking in Docket No. RM12-16000. Generator Requirements at the Transmission Interface, 143 FERC ¶ 61,049 (2013).

Docket Nos. RM12-6-001 and RM12-7-001

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1.
Looped Configurations Connected below 100 kV and Removing
the 100 kV Minimum in Exclusion E3
Order No. 773
28.

In the Final Rule, the Commission held that radial systems with elements

operating at 100 kV or higher in a configuration that emanate from two or more points of
connection cannot be deemed “radial” if the configuration remains contiguous through
elements that are operated below 100 kV. The Commission held that such a
configuration is a networked configuration and does not qualify for exclusion E1. The
Commission included a depiction of this configuration, shown below, in the Final Rule as
Figure 3. 44 However, the Commission also found that 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.

See Order No. 773, 141 FERC ¶ 61,236 at P 150.

Docket Nos. RM12-6-001 and RM12-7-001

- 21 -

Networked Configuration w/69 kV Loop

Requests for Rehearing
29.

APPA, TAPS and ELCON argue that the Commission erred in holding that two

radial lines at or above 100 kV connected by a sub-100 kV line are not eligible for
exclusion E1. 45 They argue that the Commission lacks authority to redraft standards, but
claim that the Final Rule does so by reinterpreting the exclusion contrary to its language
and NERC’s interpretation. They claim that finding that exclusion E1 is inapplicable to
such a configuration because the configuration is “networked” and not a “radial system”
45

See also Dow Request for Rehearing at 8-10.

Docket Nos. RM12-6-001 and RM12-7-001

- 22 -

is unreasonable and constitutes an impermissible change to the NERC-filed definition.
APPA, TAPS and ELCON state that, if radial systems connected by a sub-100 kV loop
had not been intended to be eligible for exclusion E1, then exclusion E3 would have been
drafted to allow such configurations to be covered. They contend that the fact that
exclusion E1 is intended to encompass radial lines at or above 100 kV that are connected
below 100 kV works in tandem with exclusion E3’s limitation to facilities 100 kV and
above and reinforces the conclusion that the Final Rule’s interpretation of exclusion E1 is
inconsistent with the language and structure of the definition. They also argue that the
ruling on exclusion E1 and the corresponding directive to modify exclusion E3
improperly substituted the Commission’s own judgment for NERC’s which, they claim,
violates the FPA section 215(d)(2) requirement for the Commission to give due weight to
the technical expertise of the ERO.
30.

APPA, TAPS and ELCON contend that the Final Rule’s identification of

additional factors that NERC did not consider provides no support for second guessing
the technical content of NERC’s definition. APPA states that the exception process
exists to consider other factors, such as the factors the Commission indicated that may be
relevant in particular cases. 46 According to APPA, TAPS and ELCON, NERC made a
determination that loops below 100 kV generally do not impact the grid, but recognized
that those that do are more appropriately handled through the exception process. They

See Order No. 773, 141 FERC ¶ 61,236 at P 155 n.139.

Docket Nos. RM12-6-001 and RM12-7-001

- 23 -

also argue that the Commission effectively changed the definition without giving NERC
the opportunity to find an equally effective or superior solution to the Commission’s
concern.
31.

Further, TAPS and ELCON argue that the Commission should also reverse its

directive to NERC to modify exclusion E3 to remove the 100 kV minimum threshold.
They contend that the need to change exclusion E3 arises only if exclusion E1 is changed
to foreclose exclusion of radials above 100 kV connected at lower voltages, resulting in
the need for consideration of such configurations under exclusion E3. According to
TAPS and ELCON, exclusion E3, as written, works well with the rest of the definition
when exclusion E1 is construed as NERC intended. TAPS and ELCON state that, if the
Commission is concerned that NERC’s process is not adequately including radial
facilities of 100 kV or more connected by sub-100 kV loops, the Commission should not
revise exclusions E1 and E3 but should direct NERC to submit a report that provides
information on how entities use this exclusion, similar to the Final Rule directive in
connection with exclusion E3’s 300 kV voltage ceiling. 47
32.

APPA claims that, by not allowing exclusion E1 to apply to sub-100 kV loops

between radial systems in conjunction with deletion of the 100 kV floor in exclusion E3,
the Commission directive will create a disincentive for distribution providers from
connecting their distribution systems to the bulk electric system at multiple points at
47

TAPS and ELCON Request for Rehearing and Clarification at 6 (citing Order
No. 773, 141 FERC ¶ 61,236 at P 206).

Docket Nos. RM12-6-001 and RM12-7-001

- 24 -

voltages greater than 100 kV. APPA also stated that distribution providers will be less
likely to construct such distribution networks with built-in redundancy that provide
multiple paths to provide continuous, high quality service, because of the concern that
these distribution systems will be designated as bulk electric system elements.
33.

NERC seeks clarification of the Commission directive to revise exclusion E3.

Specifically NERC requests clarification that it should remove the phrase “or above 100
kV but” in the first sentence of exclusion E3 as shown below.
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: 48
NERC contends that the Commission’s approach will entail the evaluation of
significantly more facilities in applying exclusion E3 and is administratively burdensome,
NERC requests that the Commission clarify the basis and intent of this directive to allow
NERC to implement this directive appropriately. 49
Commission Determination

NERC Request for Clarification at 4.

Id.

Docket Nos. RM12-6-001 and RM12-7-001
34.

- 25 -

The Commission denies rehearing and upholds the Final Rule. The Commission

disagrees that it failed to give due weight to NERC. As explained below, the
Commission considered NERC’s rationale, but after giving due weight found it
unpersuasive.
35.

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, we 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.” 50
The Commission also requested comment on the appropriateness of examining elements
below 100 kV to determine if the configuration (shown in the figure above) meets
exclusion E1, i.e., whether the figure 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.” 51 In response to the NOPR, some
commenters disagreed with the Commission’s characterization that the configuration

Revisions to Electric Relibaility Organization Definition of Bulk Electric System
and Rules of Procedure, Notice of Proposed Rulemaking (NOPR), 139 FERC ¶ 61,247 at
P 81.
51

Id.

Docket Nos. RM12-6-001 and RM12-7-001

- 26 -

depicts a loop, claiming that it represents two separate radial systems, while other
commenters agreed with the NOPR that the configuration does not meet the definition of
a radial system. 52 The Commission considered NERC’s explanations, but in the Final
Rule the Commission found that the configuration shown above is a networked
configuration through a 69 kV loop and does not qualify for exclusion E1 because the
load can be served by either 230 kV line. 53
36.

The Commission disagrees that this decision is contrary to the language of

exclusion E1. Instead, our interpretation of NERC’s wording reasonably construes the
ambiguity, if any, in exclusion E1. Even apart from NERC’s wording of exclusion E1, it
is difficult to envision any reasonable exclusion for radial lines that would cover the
facilities in the configuration above. The looped systems have more than one path to the
bulk electric system and, therefore, it is reasonable not to consider them “radial” in
nature. Exclusion E1 provides a definition of “radial system” as “[a] group of contiguous
transmission Elements that emanates from a single point of connection of 100 kV or
higher…” (emphasis added). 54 This definition of “radial system” only allows a single
point of connection and does not limit operating voltage of the transmission elements
connecting two such points to any minimum value. Therefore, “radial systems” as

Order No. 773, 141 FERC ¶ 61,236 at P 154.

Order No. 773, 141 FERC ¶ 61,236 at P 155.

Order No. 773, 141 FERC ¶ 61,236 at P 18.

Docket Nos. RM12-6-001 and RM12-7-001

- 27 -

defined in exclusion E1 includes elements that cover the entire range of operating
voltages. It strikes us as unreasonable to characterize lines as radial by ignoring
connecting facilities below 100 kV. Rather the reasonable approach is to find these lines
to be non-radial and then consider whether they should be excluded as a local network or
through the exception process. Further, as we noted previously, many facilities operated
at 100 kV and above have a significant effect on the overall functioning of the grid. 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 flow gate, which illustrates their
parallel nature and therefore their necessity to the reliable operation of the interconnected
transmission system. The Final Rule also noted that NERC emphasized that radial
systems cannot have multiple connections at 100 kV or higher. 55 For these reasons, we
believe it is important that these configurations be assessed for exclusion from the bulk
electric system under the criteria in exclusion E3, to ensure that any excluded facilities do
not contribute to the reliable operation of the interconnected system. Moreover, as noted
in the Final Rule, the sub-100 kV elements comprising radial systems and local networks
will not be included in the bulk electric system, unless determined otherwise in the
exception process. 56

Order No. 773, 141 FERC ¶ 61,236 at P 42.

Order No. 773, 141 FERC ¶ 61,236 at P 155. In the Final Rule the Commission
states that it expects entities to identify and include sub-100 kV facilities necessary for
(continued…)

Docket Nos. RM12-6-001 and RM12-7-001
37.

- 28 -

We also deny rehearing on TAPS’ and ELCON’s argument that the Commission’s

decision regarding exclusion E1 and the Final Rule directive to change the language in
exclusion E3 (removing the 100 kV minimum operating threshold language) will no
longer allow exclusions E1 and E3 to work together and will be administratively more
burdensome. As we stated in the Final Rule, exclusion E3 as written applies to a local
network that is contiguous and above 100 kV. Thus, the exclusion E3 language, as
NERC initially proposed, did not apply to a configuration where the facilities in question
are contiguous below 100 kV. 57 Removing the 100 kV minimum operating voltage in
exclusion E3 allows networked configurations below 100 kV, that may not otherwise be
eligible for exclusion E1, to be eligible for exclusion E3. This modification also makes
the “local network” exclusion language consistent with language in exclusion E3
criterion (a), which limits generation on the local network and its underlying elements.

the operation of the interconnected transmission network and found NERC’s approach to
include such facilities in the bulk electric system to be reasonable. Order No. 773, 141
FERC ¶ 61,236 at P 269. The Commission notes that the joint NERC and Commission
staff report on the September 8, 2011, Arizona-Southern California blackout explains
why facilities operating below 100 kV should not be ignored simply because the elements
are below 100 kV. See Arizona-Southern California Outages on September 8, 2011 –
Causes and Recommendations at 96 (September 2011 Blackout Report), available at
http://www.ferc.gov/legal/staff-reports/04-27-2012-ferc-nerc-report.pdf. There, facilities
below 100 kV were a significant factor in a major blackout, but their significance was not
fully or widely recognized until after the blackout.
57

Order No. 773, 141 FERC ¶ 61,236 at P 155.

Docket Nos. RM12-6-001 and RM12-7-001

- 29 -

As we stated in the Final Rule, the entire range of operating voltage elements must be
examined when considering a local network. 58
38.

In the Final Rule, the Commission concluded that removing the 100 kV floor in

exclusion E3 will decrease the burden for some entities that would have otherwise been
included in the bulk electric system because these entities may now apply exclusion E3.
This is because many, if not most, of the configurations in question may still be excluded
through application of the modified exclusion E3.
39.

We disagree with TAPS’s, ELCON’s and APPA’s contention that the Final Rule’s

identification of other possible factors to be considered does not support dismissing the
technical content of NERC’s definition. The Commission did not rely on these other
factors as the basis for its decision. 59 Instead, the Commission found that looped systems
have more than one path to the bulk electric system. Therefore, the Commission
concluded that it is reasonable not to consider them “radial” in nature. 60
40.

With respect to NERC’s request for clarification, we agree that removing the

phrase “or above 100 kV but” from the definition of local networks in the first sentence
of exclusion E3 is an appropriate way to meet the Commission’s directive to remove the
100 kV minimum operating voltage in the local network definition. As we explained in

Id.

See Order No. 773, 141 FERC ¶ 61,236 at P 155 n.139.

Id.

Docket Nos. RM12-6-001 and RM12-7-001

- 30 -

the Final Rule, 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. 61
41.

While APPA claims that the Commission directive to not allow exclusion E1 to

apply to sub-100 kV loops will create a disincentive for distribution providers to connect
their distribution systems to the bulk electric system, our result derives directly from
NERC’s own wording of exclusion E1. We cannot avoid the reasonable effect of these
words based on an unsupported claim that concerns about jurisdiction will cause
distribution providers to forgo the significant reliability benefits of an added connection.
42.

We do not agree with NERC that “the Commission’s approach will entail the

evaluation of significantly more facilities in applying exclusion E3 and is
administratively burdensome.” Exclusion E3 is one part of the bright-line definition of
bulk electric system, and all asset owners must apply the definition as a whole in order to
determine whether their elements are part of the bulk electric system. As we stated in the
Final Rule, exclusion E3 as proposed by NERC requires the local network to be
contiguous and above 100 kV. Thus, the exclusion E3 language, as NERC initially
proposed, did not allow for the figure above to be eligible for the local network exclusion
because it includes contiguous facilities below 100 kV and could have resulted in more

Order No. 773, 141 FERC ¶ 61,236 at P 155.

Docket Nos. RM12-6-001 and RM12-7-001

- 31 -

exception process decisions. 62 However, as we explained, removing the 100 kV
minimum operating voltage in the local network definition allows networked
configurations comprised of facilities ranging from below 100 kV to multiple
connections at 100 kV and above to be candidates for exclusion E3. In other words,
removing the language from exclusion E3 will relieve the burden of addressing all
configurations similar to the looped configuration described above in the exception
process by first allowing entities that do not qualify for exclusion E1 to apply exclusion
E3. We recognize that certain facilities that might have qualified for exclusion E1 as
interpreted by NERC may now seek instead to qualify for exclusion E3 or, if
unsuccessful there, may seek relief through the exception process. However, we expect
that documenting a valid claim of exclusion E3 will not be particularly burdensome,
consisting often of reviewing historic data or relying on information that entities already
possess (such as the amount of generation connected to the facilities or whether the
facilities contain a Flowgate or transfer path), not necessarily preparing new load flow
studies or similar analyses, and retaining such records for possible future review by the
Regional Entity. Also, certain entities that will not qualify even for exclusion E3 may
seek relief under the exception process. While this possibility exists, we are not
persuaded that there will be an inordinate number of such instances, particularly since

Order No. 773, 141 FERC ¶ 61,236 at P 155.

Docket Nos. RM12-6-001 and RM12-7-001

- 32 -

commenters have not submitted estimates of the number of facilities affected by the
entirety of our changes to NERC's proposal.
43.

Thus, while we have carefully considered the concerns raised by petitioners, we

are not persuaded that the Commission’s directives in the Final Rule will result in a
significant increase in administrative and compliance burdens. Further, we reiterate that
elements that are newly-included in the bulk electric system due to the revised definition
will only become subject to relevant Reliability Standards twenty-four months after the
effective date of the revised definition. 63 It is NERC’s expectation that during the
twenty-four month transition period entities will file exception requests and the Regional
Entities and NERC will make determinations on the exception requests. 64 We expect that
this transition period will be sufficient for those few configurations that may need to seek
an exception based on the Commission’s determinations regarding exclusions E1 and E3
to obtain a NERC ruling and avoid any compliance costs. 65 However, if an element that
is already deemed part of the bulk electric system and subject to relevant Reliability
Standards today is included by application of the revised definition of bulk electric
system, but an entity seeks an exclusion exception of the element, the element will
remain subject to the relevant Reliability Standards during the pendency of the exception
63

NERC Petition at 34.

See NERC BES Petition at 36.

See Order No. 743-A, 134 FERC ¶ 61,210 at P 93. See also NERC BES
Petition at 36.

Docket Nos. RM12-6-001 and RM12-7-001

- 33 -

process. Conversely, if an element is excluded from the bulk electric system by
application of the revised definition, but a different entity with a reliability oversight
obligation seeks to include the element in the exception process, the element will not be
subject to Reliability Standards during the exception process. If NERC determines the
element is needed for operation of the interconnected transmission network and thus part
of the bulk electric system, the entity can propose an appropriate implementation plan for
compliance. 66
44.

Notwithstanding the foregoing, we agree with petitioners that NERC has the

flexibility to develop an equally effective and efficient alternative, provided that NERC
addresses our concern to ensure elements at or above 100 kV in a looped configuration
are not excluded from the bulk electric system under exclusion E1. 67

See Mandatory Reliability Standards for the Bulk-Power System, Order No. 693,
FERC Stats. & Regs. ¶ 31,242, at P 186 order on reh’g, Order No. 693-A, 120 FERC
¶ 61,053 (2007).

Docket Nos. RM12-6-001 and RM12-7-001

- 34 -

2.
Generator Interconnection Facilities Connected to Bulk Electric
System Generators
Order No. 773
45.

In the Final Rule, the Commission directed NERC to implement exclusion E1

(radial systems) and exclusion E3 (local networks) so that they do not apply to generator
interconnection facilities for bulk electric system generators identified in inclusion I2.
The Commission stated that, if the generator is necessary for the operation of the
interconnected transmission network, it is appropriate to have the generator
interconnection facility operating at or above 100 kV that delivers the generation to the
bulk electric system included as well. The Commission also stated 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. 68
Requests for Rehearing
46.

NERC requests that the Commission clarify the directives to implement exclusions

E1 and E3 so that they do not apply to generator interconnection facilities for bulk
electric system generators identified in inclusion I2. NERC states that the Commission
does not state whether “implementation” applies to Phase 1 or Phase 2 or how the
implementation would be effectuated without a change to the definition of bulk electric

Order No. 773, 141 FERC ¶ 61,236 at PP 164-165, 214.

Docket Nos. RM12-6-001 and RM12-7-001

- 35 -

system. 69 Specifically, NERC requests that the Commission clarify how these directives
should be reconciled with the plain language of the exclusions.
47.

NERC opines that the Commission’s use of the term “tie-line” is potentially

confusing for stakeholders and claims that it could create additional complications with
the implementation of the Commission’s directive unless the Commission clarifies its use
of this term. NERC also requests that the Commission reconcile the directives with the
express language of the definition. NERC states that the Commission acknowledged in
the Final Rule 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.
48.

Similarly, NRECA requests that the Commission clarify that, when the

Commission directed NERC to implement exclusion E1 it was not seeking to directly
modify the definition or the exclusions with respect to generator tie-lines, but rather that
it was directing that this issue be addressed in the Phase 2 process as required by FPA
section 215(d)(4). NRECA states that the tie-line distinction is an important directive
that must be evaluated under the Phase 2 process, and implemented only after the
Commission rules on the further revision to the definition that is proposed by NERC at

NERC separated the development of the revised definition into two phases.
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. Order No. 773, 141 FERC ¶ 61,236 at P 52
n.46.

Docket Nos. RM12-6-001 and RM12-7-001

- 36 -

the conclusion of the Phase 2 process. NRECA states that NERC should be given an
opportunity to address the Commission’s concern and present a response for
consideration as part of a rule emanating from the Phase 2 process. NRECA adds that
such a directive is consistent with the Commission’s obligation to remand to the ERO any
proposed Reliability Standard or a modification to a Reliability Standard that the
Commission disapproves in whole or in part.
49.

APPA, TAPS and ELCON contend that the Commission’s interpretation will

prevent radial systems and local networks from qualifying for exclusions E1 and E3,
respectively, if they connect to bulk electric system generators identified in inclusion I2
with gross nameplate ratings between 20 MVA and 75 MVA. They also argue that the
Commission’s directive fails to give due weight to NERC’s expertise. APPA, TAPS and
ELCON contend that the directive will force many more facilities into the exception
process. They also argue that the Commission does not have the authority to direct
NERC to implement the definition contrary to its plain meaning. Further, they contend
that the Commission’s concern is already being addressed in the Phase 2 process. APPA,
TAPS and ELCON state that, if the Commission determines it needs more information to
address its concerns with respect to tie-lines for bulk electric system generators identified
in inclusion I2, it should direct NERC to submit a report regarding how entities utilize
this exclusion.
Commission Determination
50.

We grant rehearing to the extent that, rather than direct NERC to implement

exclusions E1 and E3 as described above, we direct NERC to modify the exclusions

Docket Nos. RM12-6-001 and RM12-7-001

- 37 -

pursuant to FPA section 215(d)(5) to ensure that generator interconnection facilities at or
above 100 kV connected to bulk electric system generators identified in inclusion I2 are
not excluded from the bulk electric system. We find that the Phase 2 standard
development process is an appropriate means to address the Commission’s concern. If
NERC chooses to propose a different solution, it must demonstrate that its proposal is
equally effective or efficient to ensure that generator interconnection facilities that
connect generators included in the bulk electric system to the grid, and that are at or
above 100 kV, are included in the bulk electric system and must support any alternate
proposal with a technical analysis sufficient for the Commission to make an informed
decision.
51.

We deny rehearing regarding arguments that the Commission did not give due

weight to NERC’s technical justification. As an initial matter, the Final Rule focused on
a generator interconnection facility that connects the bulk electric system generator to the
interconnected transmission network at a voltage of 100 kV or above. 70 The language
was accompanied by the following:

Order No. 773, 141 FERC ¶ 61,236 at P 165.

Docket Nos. RM12-6-001 and RM12-7-001

- 38 -

Radial System with BES Generation 71

In the Final Rule, the Commission found that NERC’s rationale did not support excluding
generator interconnection facilities operated at or above 100 kV connecting bulk electric
system generators to the bulk electric system. 72 NERC based its proposal on the premise
that a single point of failure causing the radial systems to separate from the bulk electric
system results in a loss of a limited amount of generation that will not have an adverse
impact on reliability. In the Final Rule, however, the Commission noted that there are
other reliability concerns that NERC did not address. For example, the Commission
noted that “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
71

In Order No. 773, the Commission included this diagram identified as “Radial
System with BES Generation.” See Order No. 773, 141 FERC ¶ 61,236 at P 165.
72

Order No. 773, 141 FERC ¶ 61,236 at PP 165-168.

Docket Nos. RM12-6-001 and RM12-7-001

- 39 -

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.” 73
The Commission also relied on the fact that an “adverse reliability impact…is an extreme
result that should not occur from the loss of a single tie-line for any sized generator”
because a single event that results in an adverse reliability impact violates planning and
operating criteria in Commission approved Reliability Standards. 74 The Final Rule also
explained that, in general, “it is appropriate to have the bulk electric system contiguous,”
without facilities “stranded” or “cut off.” 75 As shown in the diagram above, inclusion I2
(generator resources) includes the generator and the generator terminals through the highside of the step-up transformer(s) connected at a voltage of 100 kV or above. 76 However,
NERC’s interpretation of exclusion E1 would have excluded the 230 kV generator
interconnection facility from the high side of the step-up transformer to the
interconnected transmission network. This would be inconsistent with the Commission’s

Order No. 773, 141 FERC ¶ 61,236 at P 166 and n.150 (citing, Reliability
Standards, TPL-002-0b and IRO-004-2).
74

Id.

Order No. 773, 141 FERC ¶ 61,236 at P 165.

Order No. 773, 141 FERC ¶ 61,236 at P 85. Inclusion I2 states “Generating
resource(s) with gross individual nameplate rating greater than 20 MVA or gross
plant/facility aggregate nameplate rating greater than 75 MVA including the generator
terminals through the high-side of the step-up transformer(s) connected at a voltage of
100 kV or above.”

Docket Nos. RM12-6-001 and RM12-7-001

- 40 -

statement in the Final Rule that, if the generator is necessary for the operation of the
interconnected transmission network, it is generally appropriate to include the generator
interconnection facility radial tie-line operating at or above 100 kV that delivers the
generation to the bulk electric system. 77
52.

We disagree with APPA that the directive to include 100 kV and above generator

interconnection facilities connected to bulk electric system generators will result in
making the owners of these qualifying 100 kV and above generator interconnection
facilities subject to the full range of transmission planner, transmission owner and
transmission operator Reliability Standards and requirements. As we state above, in
cases of generator interconnection facilities for bulk electric system generators where the
generator owner also owns the generator interconnection facility, NERC has determined
on a case-by-case basis which entities require registration as transmission
owners/operators and identified sub-sets of applicable Reliability Standard requirements
for these entities rather than automatically subjecting such generators to the full scope of
standards applicable to transmission owners and operators. 78

77
78

Order No. 773, 141 FERC ¶ 61,236 at P 167.

In addition, in Docket No. RM12-16-000, NERC has submitted proposed
revisions to certain Reliability Standards to assure that generator interconnection facilities
are adequately covered rather than subjecting them to all of the requirements applicable
to transmission owners and operators.

Docket Nos. RM12-6-001 and RM12-7-001

- 41 -

D.
Arguments Regarding the Need to Modify the Inclusions and
Exclusions
53.

In the NOPR, the Commission requested comment on certain aspects of NERC’s

petition to better understand the application of the specific inclusions and exclusions.
NERC and other entities filed comments that assisted in our understanding of the
parameters of the definition. In the Final Rule, in addition to the “core” definition, the
Commission adopted many of these explanations and approved without modification
most of the specific inclusions and exclusions, finding that they add clarity regarding
which elements are part of the bulk electric system as compared to the existing
definition. 79 Several entities request rehearing of the approval of specific inclusions and
exclusions that the Commission approved without modification. On rehearing, entities
argue that the Commission erred by failing to direct NERC to (1) eliminate inclusion I4
(dispersed power producing resources); (2) modify or eliminate the generator thresholds
in exclusions E1 and E3; and (3) eliminate exclusion E3(b), the criterion that power
cannot flow out of a local network in order to be eligible for exclusion from the bulk
electric system.
1.

Inclusion I4 (Dispersed Power Producing Resources)

Order No. 773
54.

Inclusion I4 includes in the bulk electric system dispersed power producing

resources with aggregate capacity greater than 75 MVA (gross aggregate nameplate
79

Order No. 773, 141 FERC ¶ 61,236 at P 39.

Docket Nos. RM12-6-001 and RM12-7-001

- 42 -

rating). In the Final Rule, the Commission approved inclusion I4 finding that it provides
useful granularity in the bulk electric system definition. The Commission also found that
the language in inclusion I4 regarding the collector system language is consistent with
language in the Registry Criteria, section III.c.2 and agreed that it is appropriate “to
expressly cover dispersed power producing resources utilizing a system designed
primarily for aggregating capacity.” 80
Requests for Rehearing
55.

AWEA states that the Commission did not base its approval of inclusion I4 on

sufficient evidence to show inclusion I4 would result in any material reliability benefit.
AWEA contends that neither the Final Rule nor the record demonstrate that the inclusion
of dispersed generation resources would help protect the reliable operation of the
interconnected transmission network. AWEA contends that all evidence in the record
indicates that dispersed generation resources are unlikely to affect the reliability of the
interconnected transmission network. AWEA argues that the Commission’s decision “to
modify the definition regardless of the record on dispersed generation resources shows
the Commission’s decision was arbitrary and capricious…and not the result of reasoned
decision-making.” 81

Order No. 773, 141 FERC ¶ 61,236 at P 112.

AWEA Request for Rehearing and Reconsideration at 3.

Docket Nos. RM12-6-001 and RM12-7-001
56.

- 43 -

AWEA argues that the electrical equipment at the point of interconnection with

the bulk electric system is a more appropriate point for delineating between the bulk
electric system and non-bulk electric system electrical components because the point of
interconnection for a wind project comprised of more than 75 MVA of generation and
operating at more than 100 kV is the only part of the wind project that could reasonably
affect bulk electric system reliability.
57.

AWEA adds that the Commission erred in agreeing with NERC’s suggestion to

include individual dispersed generators and their collector systems in approving the
modification because this inclusion was not based on evidence supported by the record.
According to AWEA, the typical electrical layout of a wind plant will be aggregated onto
an electrical string of the collector array that operates at voltages “well below” 100kV, so
losing a single electrical string or even multiple electrical strings will typically only result
in the loss of a few dozen MWs of generation. 82 AWEA also states the capacity value
contribution that grid operators typically assume for wind projects for meeting peak
electricity demand is less than 20% of the nameplate capacity of the wind project.
AWEA maintains that such minimal impacts fall well below the 75 MVA threshold that
inclusion I4 seeks to establish, as well as any reasonable threshold for determining which
electrical components are likely to cause a reliability problem on the bulk electric system.
Alternatively, AWEA states that if the Commission does not modify the definition as

Id.

Docket Nos. RM12-6-001 and RM12-7-001

- 44 -

AWEA proposes it could recognize that all wind turbines installed in the United States
are not subject to the modified definition.
Commission Determination
58.

The Commission denies rehearing and confirms its finding that inclusion I4

provides useful granularity in the bulk electric system definition.
59.

The Commission’s approval of the bulk electric system definition including

inclusion I4 is adequately supported by the evidence in the record in this proceeding. In
the Final Rule, the Commission agreed with NERC’s statement that the purpose of this
inclusion is to include variable generation (e.g., wind and solar resources). 83 The
Commission also agreed with NERC 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), it is appropriate for clarity to add

Order No. 773, 141 FERC ¶ 61,236 at P 115. See also NERC BES Petition,
Exhibit D, August 19, 2011 Consideration of Comments, at 416: “Although dispersed
power producing resources (wind, solar, etc.) can be intermittent suppliers of electrical
generation to the interconnected transmission network, the [standard drafting team] has
been made aware of geographical areas that depend on these types of generation
resources for the reliable operation of the interconnected transmission network which has
prompted the development of Inclusion I4….” See also NERC BES Petition, Exhibit D,
“Consideration of Comments on Second Draft of the Definition of the Bulk Electric
System” at 160: “The [standard drafting team] disagrees with excluding dispersed power
producing sources such as wind and solar from the BES definition. These resources
comprise a significant share of the North American resource mix.”

Docket Nos. RM12-6-001 and RM12-7-001

- 45 -

this separately-stated inclusion to expressly cover dispersed power producing resources
using a system designed primarily for aggregating capacity. 84
60.

The Commission further concluded that, although dispersed power producing

resources (wind, solar, etc.) are typically variable suppliers of electrical generation to the
interconnected transmission network, certain geographical areas depend on these
generation resources for the reliable operation of the interconnected transmission
network. 85 In addition, having considered NERC’s rationale for adopting inclusion I4 in
its petition and NOPR comments, the Commission concluded that owners and operators
of dispersed power producing 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. The threshold of 75 MVA
for plants is well established in the NERC Statement of Compliance Registry Criteria and
consistently applicable to all generating facilities. 86 Therefore, the Commission denies
rehearing that it did not adequately support its approval of inclusion I4.

Order No. 773, 141 FERC ¶ 61,236 at P 115.

Order No. 773, 141 FERC ¶ 61,236 at P 115. See also the ERCOT daily wind
integration reports at: http://www.ercot.com/gridinfo/generation/windintegration/.
86

Order No. 773, 141 FERC ¶ 61,236 at P 112.

Docket Nos. RM12-6-001 and RM12-7-001
2.

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Generator Thresholds in Exclusions E1 and E3

Order No. 773
61.

In its petition, NERC explained that conditions “b” and “c” of exclusion E1 allow

some generation to be connected to a radial system while still qualifying for the radial
systems exclusion (aggregate capacity less than or equal to 75 MVA). Similarly, with
respect to exclusion E3, NERC explained that the purpose of local networks is to provide
local distribution service, not to provide transfer capacity for the interconnected
transmission network, thus some generation within a local network would be
appropriate. 87 NERC stated, that the maximum amount of generation allowed on the
radial facility per exclusion E1 conditions “b” and “c” is consistent with the aggregate
capacity threshold presently provided in the Registry Criteria for registration as a
generator owner or generator operator (75 MVA gross nameplate rating). In the Final
Rule, the Commission found NERC’s explanations for limiting generation capacity
reasonable because the amount of connected generation allowed by conditions “b” and
“c” is intended to have limited benefit to the reliability of the interconnected transmission
network and pose no reliability risk to the interconnected transmission network. 88

NERC Petition at 22.

Order No. 773, 141 FERC ¶ 61,236 at PP 158, 164, 201, 207, 209, 211, 216.

Docket Nos. RM12-6-001 and RM12-7-001

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Requests for Rehearing
62.

Holland raises three arguments on rehearing. First, Holland states that the

Commission should have revised the generator thresholds in exclusion E1 for radial
systems and in exclusion E3 for local networks to ensure that they do not inappropriately
include local distribution facilities. Second, Holland argues that the Commission failed
to respond to Holland’s alternative recommendation that the Commission modify the
generation limits in exclusions E1 and E3 by basing the limit on net generation. Third,
Holland argues that the Commission erred in its conclusion with respect to the meaning
of “emanates from a single point of interconnection” in exclusion E1.
63.

Holland states that it supports the exclusion of radial systems from the bulk

electric system but that exclusion E1 will still capture facilities used in local distribution.
Holland notes that in its NOPR comments, it recommended that the Commission revise
exclusion E1 to remove the generation threshold from exclusion E1(c) but that the
Commission failed to consider and respond to Holland’s comments. Holland also argues
that the Commission erred by (1) failing to state a factual basis upon which the
Commission reached its decision not to exclude from the bulk electric system radial
systems that also serve load and (2) citing no record evidence to support its rejection of
Holland’s comments. Holland maintains that the effect of approving exclusions E1 and
E3 without the modification it proposed is that only those systems electrically isolated
from the bulk electric system or those with no generation above the threshold size will
meet the criteria for exclusion E1. Holland contends that the Commission’s approval of
the exclusion prejudges the outcome of the Seven Factor Test by arbitrarily approving

Docket Nos. RM12-6-001 and RM12-7-001

- 48 -

criteria without having the results of any such test, or without having a specific context in
which to apply the criteria.
64.

Similarly, Holland argues that the Commission erred by failing to remove or alter

the generator thresholds from exclusion E3 local networks, and that approving exclusion
E3 with the generator thresholds encroaches on facilities used in the local distribution of
electric energy. Holland states that the Commission erred by not directing any changes to
the connected generation limitation, and that the Commission erroneously relied on the
fact that the generation limits were consistent with the NERC Registration Criteria.
Holland argues that the Commission finding could make some local distribution facilities
that do not meet exclusion E3 subject to Reliability Standards and Commission authority.
According to Holland, the Commission must revise exclusion E3 regarding local
networks to ensure that the definition does not conflict with the FPA section 215
prohibition against regulating facilities used in the local distribution of electric energy.
Holland states that the Commission did not address how local networks with internal
generation consumed internally differ from local distribution facilities with lesser
amounts of or no generation, or how this interpretation is consistent with the
Commission’s determination that “local distribution” has a consistent meaning
throughout the FPA. Holland also claims that, despite having decided to use the Seven
Factor Test for local distribution determinations, the Commission made factual
determinations without any application of the Seven Factor Test.
65.

Further, Holland argues that the Commission failed to consider Holland’s

alternative comments that the Commission modify the generation limit in exclusion E3

Docket Nos. RM12-6-001 and RM12-7-001

- 49 -

by basing the limit on net generation. Holland contends that exclusion E3(a) arbitrarily
ignores the development and practice of local networks operated by municipal utilities.
Holland maintains that, historically, municipal utilities with internal generation installed
to meet the municipality’s distribution load sized the generation comparably to the local
distribution load. Holland contends that the Commission disregarded that history and
assumes that all internal generation, regardless of how remote, connects to and is
exported to the bulk electric system. According to Holland, the Commission
compounded its error by disregarding Holland’s comments stating that local networks
should be able to deliver power to the bulk electric system.
66.

Holland also contends that the Commission dismissed its comment that the

Commission should interpret the phrase “emanates from a single point of
interconnection” for radial systems to mean a single electrical point, such as a single bus
or normally connected bus work within a substation, without citing any record evidence
equating electrical points with physical locations.
Commission Determination
67.

The Commission denies rehearing on these issues raised by Holland. Pursuant to

section 215(d)(2) of the FPA, the Commission gives due weight to the technical expertise
of the ERO with respect to the content of a Reliability Standard or definition. 89 In this
instance, NERC explained that exclusion E1(c) addresses limited amounts of generation

16 U.S.C. 824o(d)(2).

Docket Nos. RM12-6-001 and RM12-7-001

- 50 -

that are installed within a radial system and are intended to serve local load within that
radial system. 90 In the NOPR, the Commission requested comment about the delivery or
injection of power from the radial systems described in these exclusions. NERC
responded that, “because of the limitation of the generation in exclusion E1(c), the power
generated on the radial system would be delivered to the embedded load within the radial
system and injected into the bulk electric system in very limited quantities…” and
“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.” 91 Further, NERC found that “it is more appropriate to identify these elements
through the ‘the applicability in specific standards where a reliability benefit can be
identified.’” 92 Holland’s arguments were directed to unlimited generation for radial
systems and local networks, but the Commission found NERC’s explanations for the
limitations reasonable and approved this aspect of the exclusion. 93 Removing the
generator limitation or using net generation in excess of load would also be inconsistent
with the bright-line concept and NERC’s approach that the definition should be based on
physical characteristics and not based on function. Also, the NERC standards drafting
team concluded the following regarding generator size thresholds:
90

Order No. 773, 141 FERC ¶ 61,236 at P 159.

NOPR, 139 FERC ¶ 61,247 at P 160.

Id. at P 161 (citing NERC’s NOPR Comments at 21-22).

Order No. 773, 141 FERC ¶ 61,236 at P 164.

Docket Nos. RM12-6-001 and RM12-7-001

- 51 -

[t]he vast array of functional qualities of generation does not lend
itself to a ‘bright-line’ concept of identifying BES Elements.
Therefore the SDT has opted for the size threshold designation of
generating facilities and allows for use of the Exception Process
for further analysis of the facility and potential exclusion from or
inclusion to the BES. 94
68.

Holland raised the same argument with respect to the generating limits in

exclusion E3. NERC provided ample justification for its selection of generator
thresholds. As NERC stated in its “LN Technical Justification” paper in Exhibit G of its
petition, including a restriction on generation in a local network “minimizes the
contribution and influence the local network may have over the neighboring [e]lements of
the [bulk electric system] by limiting both the magnitude and the function of the
connected generation. NERC chose the threshold of 75 MVA to provide consistency
with the criteria applied in the ERO’s [Registry Criteria] regarding the registration for
entities owning and operating generation plants in aggregate.” 95 In the Final Rule, the
Commission found reasonable NERC’s rationale for limiting both the magnitude and the
function of a local network by limiting the amount of connected generation and that use
of the generator thresholds was consistent with the existing thresholds in the
Commission-approved NERC Registry Criteria. 96 Thus, the Commission disagrees that it

NERC BES Petition, Exhibit D, August 19, 2011, Consideration of Comments

NERC BES Petition, Exhibit G at 3.

Order No. 773, 141 FERC ¶ 61,236 at P 216.

at 439.

Docket Nos. RM12-6-001 and RM12-7-001

- 52 -

did not provide adequate explanation for rejecting Holland’s NOPR arguments on this
issue.
69.

Holland also argues that the Commission did not consider that exclusion E3 has

the possibility of encompassing local distribution facilities. As stated in the Final Rule as
well as elsewhere in this order on rehearing, determining whether a facility is part of the
bulk electric system is a multi-step process and applying the definition is just one step in
that process. 97 If an entity believes its facility is a local distribution facility but after
applying the definition and its exclusions the facility is not excluded, the entity may
apply to the Commission to determine whether a facility is used for local distribution.
The Commission disagrees, however, that it made factual determinations in the Final
Rule without application of the Seven Factor Test, or arbitrarily adopted criteria that
prejudge that test. The Commission approved NERC’s bright-line approach to the
definition, and the definition by itself is not intended to resolve all bulk electric system
determinations. An entity’s application of the definition as a whole, inclusive of the
inclusions and exclusions, is the first step in determining whether the element is part of
the bulk electric system and is a separate inquiry from the Commission’s use of the
factors in the Seven Factor Test in a local distribution determination. Further, as we
stated in the Final Rule, the Commission will apply the factors in the Seven Factor Test,
plus other factors, as the starting point for making local distribution determinations on a

Order No. 773, 141 FERC ¶ 61,236 at P 216.

Docket Nos. RM12-6-001 and RM12-7-001

- 53 -

case-by-case basis. 98 In sum, the Commission’s approval of NERC’s process establishes
a process for determining whether a facility is part of the bulk electric system and is not
making specific determination about particular facilities.
70.

Further, in the Final Rule, the Commission addressed Holland’s argument about

the meaning of “emanates from a single point of connection.” Specifically, in the Final
Rule the Commission dismissed Holland’s contention that the phrase can refer to multiple
buses. The Commission noted that NERC, in the standard development process,
considered the issue and concluded that radial systems “cannot have multiple connections
at 100 kV or higher. Networks that have multiple connections at 100 kV or higher may
qualify under exclusion E3.” 99
3.

Exclusion E3(b) and Power Flows

Order No. 773
71.

Exclusion E3 criterion (b) specifies that, to qualify for the local network 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. In its
NOPR comments NERC elaborated by stating that, to be considered for exclusion
pursuant to criterion (b), generation produced inside a local network cannot be
98
99

Order No. 773, 141 FERC ¶ 61,236 at P 71.

Order No. 773, 141 FERC ¶ 61,236 at P 142 (citing 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. RM12-6-001 and RM12-7-001

- 54 -

transported to other markets outside the local network. NERC also stated that criterion
(b) applies in both normal and emergency operating conditions. In the Final Rule the
Commission found NERC’s explanation reasonable and approved exclusion E3 criterion
(b). 100
Requests for Rehearing
72.

Holland and Dow state that the Commission erred by not modifying exclusion E3

to allow it to apply even if some power flowed from the local network to the bulk electric
system. Holland notes that the Commission’s explanation that, if facilities are capable of
supplying power when needed under any normal or emergency operating condition these
facilities would forfeit their designation as local networks under exclusion E3, is
premised incorrectly “on a presumption that the facilities in question perform a
transmission function, rather than a distribution function.” 101 Holland states that courts
have held that the Commission does not have authority over facilities used in local
distribution, not just over those facilities used solely in local distribution. Accordingly,
Holland states that simply because the “facilities are capable of being called upon to
support the bulk electric system, does not mean that is how those facilities are used in the
normal course of business.” 102
100

Order No. 773, 141 FERC ¶ 61,236 at P 228.

101

Holland Request for Rehearing at 16.

102

Holland Request for Rehearing at 15-16 (citing Detroit Edison v. FERC,
334 F.3d 48, 54 (D.C. Cir. 2003)).

Docket Nos. RM12-6-001 and RM12-7-001
73.

- 55 -

Dow states that the Commission’s resolution regarding the requirement that power

may only flow into and not out of a local network requires clarification. Dow notes that,
in its NOPR comments, it requested that the Commission clarify that exclusion E3(b)
only prohibits energy originating outside the local network from being transferred
through the network and into the bulk electric system, and does not prohibit energy
generated by resources connected to the local network for delivery into the bulk electric
system. Dow states this understanding is consistent with exclusion E3(a) allowing up to
75 MVA of non-retail generation to be attached to a local network. Dow maintains that it
would not make sense to permit non-retail generation resources to be attached to local
networks if output from such resources could not be delivered into the bulk electric
system for purposes of making non-retail sales to downstream buyers. Dow asserts that,
while the Commission suggested that the issue be addressed further in Phase 2, the
Commission appears to have adopted an interpretation of the local network exclusion that
is inconsistent with Dow’s requested clarification. According to Dow, for the local
network exclusion to be applicable, the Commission stated that “generation produced
inside a local network should not transport power to other markets outside the local
network,” but that the Commission indicated it could be addressed further in Phase 2.
According to Dow, it is not clear whether and to what extent the Commission intended to
resolve this issue in the Final Rule and, if it did, what additional issues would be eligible
for further consideration in the Phase 2 process. Dow also requests that the Commission
clarify which of Dow’s concerns it can raise in the Phase 2 process.

Docket Nos. RM12-6-001 and RM12-7-001
74.

- 56 -

Snohomish agrees with the Commission’s conclusion that the “no outflow”

condition in exclusion E3 applies in both normal and emergency circumstances.
However, Snohomish notes that, in the Phase 2 process, NERC is examining the types of
“emergency” that should be considered in examining the flow conditions in a local
network. Snohomish requests that the Commission clarify that the appropriate,
technically justified definition of “emergency” should be based upon the technical
analysis now being performed as part of Phase 2 and that the Final Rule does not restrict
the examination of this question. Snohomish also requests that the Commission clarify
that, in Phase 2, NERC is free to develop a technically justified threshold for outflow that
would not disqualify a local network under exclusion E3.
75.

In addition, while agreeing that historical records of power flow on a local

network form an appropriate evidentiary basis for demonstrating that power only flows
into a local network, Snohomish requests that the Commission clarify (1) that entities can
establish power flows through more than just historical records and (2) a local network
will remain eligible for exclusion if it contains temporary reversals of flows resulting
from extreme and unlikely emergency conditions. Otherwise, according to Snohomish,
local networks that rely on historical flow data could, if an unusual event happens
causing a temporary outflow, suddenly become part of the bulk electric system.
Commission Determination
76.

We deny the requests for rehearing of Dow and Holland on the power flow issue.

As part of its rationale for developing the local network exclusion, NERC explained that
power always flows in the direction from the interconnected transmission network into

Docket Nos. RM12-6-001 and RM12-7-001

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the local network. 103 NERC also explained that “[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.” 104 Further, NERC explained that
the reliability of the interconnected transmission network is not impacted by the existence
or absence of a local network. Exclusion E3 will satisfy this principle because NERC
crafted exclusion E3 to ensure reliability is not adversely impacted by the disconnection
of the local network. 105 NERC confirmed that, pursuant to criterion (b), exclusion E3
applies if generation produced inside a local network is not transported to other markets
outside the local network. NERC stated 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 not exclude facilities which may contribute power
flow into the bulk electric system under contingent or unusual circumstances. NERC’s
Local Network (LN) Technical Paper further explains these statements:
By restricting the flow direction to be exclusively into the network
at its connection points to the BES and precluding the network from
providing transmission wheeling service, this exclusion
characteristic further ensures that the local network is providing
only a distribution service, and is not contributing to, nor is
necessary for, the reliable operation of the interconnected electric
transmission network. 106
103

NERC BES Petition at 22.

104

Id.

105

See Order No. 773, 141 FERC ¶ 61,236 at P 189.

106

NERC BES Petition, Exhibit G at 3.

Docket Nos. RM12-6-001 and RM12-7-001

77.

- 58 -

In approving exclusion E3, the Commission found NERC’s explanations for the

applicability of exclusion E3(b) to be reasonable. 107 The Commission also agreed with
NERC’s explanation that, with respect to exclusion E3(b), generation produced inside a
local network should not be transported to other markets outside the local network. 108
78.

The Commission rejects Holland’s contention that the Commission’s finding is

premised on a presumption that “the facilities in question perform a transmission
function.” 109 One of NERC’s overarching principles in revising the definition was to
establish a bright-line definition that will eliminate discretion in application of the revised
definition, and the local network exclusion is consistent with that principle. 110 If an
entity applies the definition and the exclusions to an element and finds that the element is
included by application of the definition of the bulk electric system, it may avail itself of
the exception process for a determination that the element should be excluded from the
bulk electric system or seek a determination from the Commission that the element is
used in local distribution.
79.

In its request for rehearing, Dow seeks clarification regarding what issues were

resolved in the Final Rule and what it may raise in Phase 2. As stated above, NERC
107

Order No. 773, 141 FERC ¶ 61,236 at P 193.

108

Order No. 773, 141 FERC ¶ 61,236 at P 231.

109

Holland Request for Rehearing at 15.

110

See, e.g., NERC BES Petition at 15.

Docket Nos. RM12-6-001 and RM12-7-001

- 59 -

developed exclusion E3 with the bright-line concept in mind and its conclusion that
power may not be delivered from a local network to the bulk electric system. The
Commission approved exclusion E3 with this understanding. 111 Thus, if power flows out
of a local network to the bulk electric system, it is not eligible for the exclusion, no
matter the type of generation. However, we recognize that in crafting the revised
definition to be responsive to Order No. 743, entities raised additional issues that, due to
time constraints in meeting the compliance deadline set in Order No. 743, NERC
postponed to Phase 2 in which it is focusing on other industry concerns raised during
Phase 1. Thus, if Dow believes that a local network should be allowed to have some nonretail generation that delivers power to the bulk electric system, we believe that this issue
is better suited for vetting through the NERC standard development process, including
the Phase 2 process. 112
80.

With regard to the Snohomish request for clarification of additional terms in the

Phase 2 process, the standard development process allows NERC to develop new or
revised Reliability Standards or definitions to address any issues and the Final Rule does

111
112

Order No. 773, 141 FERC ¶ 61,236 at PP 201, 205, 218, 228.

Indeed, this issue is one that the NERC standard drafting team is considering in
Phase 2. See the NERC Standard Authorization Request at 3: “[d]etermine if there is a
technical justification to support allowing power flow out of the local network under
certain conditions….” Available at:
http://www.nerc.com/docs/standards/sar/SAR_BES_Definition_Phase_2_final_071012_c
lean.pdf.

Docket Nos. RM12-6-001 and RM12-7-001

- 60 -

not restrict this process. NERC may propose changes to the bulk electric system
definition with supporting technical justification for submission to the Commission.
81.

Snohomish requests that the Commission clarify that entities can establish power

flows through more than just historical records. Snohomish also seeks clarification that a
local network will remain eligible for exclusion if it contains temporary reversals of
flows resulting from extreme conditions. We clarify that historical records are not the
only basis for establishing power flows. However, we deny clarification that temporary
reversals of flows should not disqualify a local network from being treated as a local
network because, as written and presented to us in this proceeding, exclusion E3(b) does
not permit power flows from the local network in any circumstances. 113 Nevertheless,
similar to our response to Dow above, Snohomish can raise its concerns through the
NERC standards development process in Phase 2.
E.
NERC Exception Process and Commission Local Distribution
Determinations
Order No. 773
82.

In the Final Rule, the Commission approved NERC’s exception process to add

elements to, and remove elements from, the bulk electric system, on a case-by-case
basis. 114 However, the Commission determined that the Commission, rather than NERC,

113
114

See Order No. 773, 141 FERC ¶ 61,236 at P 228.

Order No. 773, 141 FERC ¶ 61,236 at P 251 (citing Order No. 743, 133 FERC
¶ 61,150 at P 16).

Docket Nos. RM12-6-001 and RM12-7-001

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will determine on a case-by-case basis whether an element or facility is used in local
distribution and will apply the conditions set forth in the Seven Factor Test. 115
Requests for Rehearing
1.
83.

Jurisdictional and Due Process Issues

A number of entities claim that, or are unsure of whether, the Commission has

imposed duplicative processes (the NERC exception process and the Commission process
for making local distribution determinations) for determining whether particular facilities
are part of the bulk electric system. 116 TAPS and ELCON question whether NERC
would be bound by prior Commission determinations on local distribution and whether
the Commission would reopen NERC determinations, and they request that on rehearing
the Commission state that it will make local distribution determinations only in
connection with review of NERC exception decisions. TAPS and ELCON state that the
Commission should clarify that it will address local distribution issues if raised in
connection with review of NERC exception determinations, so a full record can be
developed through a single process. Alternatively, TAPS and ELCON request
clarification (1) of how the Commission intends the process for making local distribution
determinations to interact with the NERC exception process, especially when similar

115

Order No. 773, 141 FERC ¶ 61,236 at P 252.

116

E.g., NRECA, TAPS, ELCON and NYPSC.

Docket Nos. RM12-6-001 and RM12-7-001

- 62 -

facts are at issue, and (2) that entities are not foreclosed from making all applicable
arguments to NERC in the exception process.
84.

NRECA states that the Commission’s role as primary arbiter of a local distribution

decision and its reliance on the Seven Factor Test raises ambiguity and must be clarified.
NRECA questions whether the process runs concurrently with the NERC exception
process and, if not, which process will be conducted first. NRECA also questions
whether “an entity that is currently registered and seeks to remove itself from the registry
based on the local distribution distinction, or, conversely, the ERO that desires to include
an entity not currently on the registry based on the absence of local distribution facilities,
would first have to engage a proceeding before the Commission….” 117 NRECA states
that a multi-tiered process will be expensive and unnecessarily time consuming for the
Commission, NERC and the affected entities. NRECA further questions what rules and
timeframe the Commission will use and whether the Commission considered the greater
expense of running two processes for small entities.
85.

Holland argues that applying the definition and exception process unlawfully

subjects facilities used in the local distribution of electric energy to NERC authority
through the exception process before a determination is made on whether those facilities

117

at 5-6.

NRECA Motion for Clarification, or in the Alternative, Request for Rehearing

Docket Nos. RM12-6-001 and RM12-7-001

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serve a local distribution function. 118 Holland claims that the Final Rule is internally
inconsistent because it directs entities to seek an exception from NERC before the
Commission will apply the Seven Factor Test to determine whether the facilities are
subject to regulation under the FPA. Holland states that the Commission must prohibit
NERC from exercising any authority over any facilities while the owners and operators
of such facilities petition the Commission for a determination that they are used in the
local distribution of electric energy.
86.

NYPSC contends that the exception process is an impermissible approach to

exercising jurisdiction. NYPSC claims that, although the definition states that it “does
not include facilities used in the local distribution of electric energy,” the Commission
effectively acknowledged that such facilities would be placed under its jurisdiction by
establishing a process whereby entities may seek to demonstrate that the facilities are not
necessary for operating the interconnected transmission network, or are used in local
distribution.
87.

NYPSC and NARUC claim that the Commission failed to provide adequate notice

and comment regarding the decision to use the Seven Factor Test and the Commission’s
decision to itself make determinations of whether a facility is used in local distribution.
They state the Final Rule is the first time the Commission established a process for

118

For example, Holland argues that the limitations on exclusion E1 conditions
(b) and (c) will still capture facilities used in local distribution and is tantamount to
making a factual determination without any application of the Seven Factor Test.

Docket Nos. RM12-6-001 and RM12-7-001

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petitioning for a local distribution determination and argue that the Commission has not
substantiated its decision to apply the Seven Factor Test. NARUC states that the
Commission should develop a full record to determine what criteria “would be lawfully
applied if the Commission were to make case-by-base local distribution determinations
under section 215.” 119 NYPSC states that the Commission failed to comply with the
Administrative Procedure Act (APA) requirement that agencies provide notice of a
proposed rule and a meaningful opportunity for parties to comment.
Commission Determination
88.

The Commission denies rehearing on the issues related to the exception process

and the Commission making local distribution determinations. The Commission believes
that entities misconstrue the function of the NERC exception process and the
Commission’s local distribution determinations. Accordingly, we reiterate and expand
on those functions below.
89.

As explained below, the two processes are separate, not concurrent and will be

used for different determinations. In the Final Rule, the Commission found that
“NERC’s case-by-case exceptions process is appropriate to determine the technical issue
of whether facilities are part of the bulk electric system” and that “the jurisdictional

119

NARUC Request for Rehearing at 7.

Docket Nos. RM12-6-001 and RM12-7-001

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question of whether facilities are used in local distribution should be decided by the
Commission.” 120
90.

The Commission also stated that we expect that the “core” definition together with

the exclusions “should provide a reasonable means to accurately and consistently
determine on a generic basis whether facilities are part of the bulk electric system.” 121
Also, the Commission explained that most local distribution facilities will be excluded by
the 100 kV threshold or exclusion E3 without needing to seek a Commission
jurisdictional determination. However, if after applying the definition and exclusions, an
entity believes its facility is used in local distribution, it must petition the Commission for
a determination, and the Commission will apply the factors in the Seven Factor Test, plus
other factors, as the starting point for making local distribution determinations. 122 This
inquiry is a distinct process not made in connection with review of NERC exception
process decisions. In response to NRECA’s question regarding what process an entity or
NERC would use with respect to a local distribution determination, as stated above, the
Commission will decide all local distribution determinations.
91.

All inquiries that do not involve a question of whether a facility is used in local

distribution (i.e., whether the facility is or is not part of the bulk electric system) are to be

120

Order No. 773, 141 FERC ¶ 61,236 at P 66.

121

Order No. 773, 141 FERC ¶ 61,236 at P 67.

122

Order No. 773, 141 FERC ¶ 61,236 at P 69.

Docket Nos. RM12-6-001 and RM12-7-001

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presented through the NERC exception process. In other words, if an entity believes its
facilities are non-local distribution facilities but nevertheless are incorrectly included by
application of the bulk electric system definition and its inclusions and exclusions, it
should use the NERC exception process to determine whether the facilities in question
should be excluded from the bulk electric system. In response to the questions about
appeals to the Commission, as stated in the Final Rule, an entity may appeal a final
NERC exceptions process decision to the Commission. 123 In response to TAPS and
ELCON’s request, we clarify that, in the exception process, entities have the option of
making all applicable arguments that a facility should not be included in the bulk electric
system.
92.

With regard to NRECA’s question about the rules and timeframe the Commission

will apply, as the Commission stated in the Final Rule, the Commission will assign local
distribution inquiries “RC” dockets and the determinations will be public proceedings
subject to notice and comment requirements which will allow NERC and interested
parties to provide input on a petition. We decline to establish a specific timeframe within
which we will act because such decisions will be based on the specific facts of each case.
93.

In response to Holland’s arguments that the Commission improperly included or

excluded local distribution facilities in the definition, the Commission notes that,
although the bulk electric system definition excludes local distribution facilities, it still

123

Order No. 773, 141 FERC ¶ 61,236 at P 251.

Docket Nos. RM12-6-001 and RM12-7-001

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may be necessary to factually determine which facilities are used for local distribution or
transmission. 124 The Commission stated in the Final Rule that applying the definition
and its exclusions is not necessarily the end of the inquiry, and the Commission
ultimately determines whether facilities are used in local distribution and thus excluded
from the bulk electric system. 125 Thus, if an entity believes its facility is a local
distribution facility but after applying the bulk electric system definition including
inclusions and exclusions the facility is not excluded, the entity may apply to the
Commission to determine whether the facility is used for local distribution. Thus, as
explained above, the Final Rule contemplates two separate and distinct processes and
does not direct entities to seek an exception from NERC before seeking a local
distribution determination from the Commission.
94.

We disagree with Holland’s argument that all facilities that NERC reviews

through the exception process that the Commission later finds are used in local
distribution will have been unlawfully regulated by NERC. NERC, in applying the bulk
electric system definition and exception process, established an implementation period
for newly identified elements in the bulk electric system before compliance enforcement
is initiated. This should provide ample time for the affected entity to request a local

124

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

125

Order No. 773, 141 FERC ¶ 61,236 at P 70.

Docket Nos. RM12-6-001 and RM12-7-001

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distribution determination from the Commission before any compliance obligations are
imposed.
95.

NYPSC and NARUC take issue with the Commission’s decision to apply the

factors set forth in the Seven Factor Test when determining whether a facility is used in
local distribution. NYPSC and NARUC contend that the Commission deprived them of
their due process rights and violated the APA because the Commission stated it will
apply the Seven Factor Test without providing entities an opportunity to comment on the
Commission’s decision. 126 As explained below, we deny rehearing on this issue.
96.

Due process requires certain procedural safeguards, including the requirement that

a party affected by government action be given “notice reasonably calculated, under all
the circumstances, to apprise interested parties of the pendency of the action,” 127 and also
“the opportunity to be heard at a meaningful time and in a meaningful manner.” 128
However, circumstances vary and the sufficiency of the procedures supplied must be

126

The APA requires agencies to give interested parties an opportunity for “the
submission and consideration of facts, arguments, offers of settlement, or proposals of
adjustment when time, the nature of the proceeding, and the public interest permit . . . .”
5 U.S.C. 554(c)(1) (2006).
127

Jones v. Flowers, 547 U.S. 220, 226 (2006) (citation and quotation omitted).

128

Mathews v. Eldridge, 424 U.S. 319, 333 (1976) (citations and quotation

omitted).

Docket Nos. RM12-6-001 and RM12-7-001

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decided in light of the circumstances of each case. 129 The Commission assesses due
process claims case-by-case based on the totality of the circumstances. 130 In this case,
the Commission expressed its concerns with respect to treatment of local distribution
facilities in Order Nos. 743 and 743-A and suggested that the Seven Factor Test could be
relevant and a possible starting point for local distribution determinations. 131 In addition,
in the NOPR in this proceeding, the Commission expressed its concern with NERC’s
approach by requesting additional explanation from NERC on its proposal regarding how
the exception process would handle local distribution facilities. These instances gave fair
notice of the Commission’s concerns and positions on this issue.
97.

Under these circumstances, an additional comment period on the local distribution

determination is unnecessary. The Commission has wide discretion in selecting its
procedures. 132 The Commission thus rejects NYPSC’s claim that the Commission’s

129

Id. 334 (“[D]ue process, unlike some legal rules, is not a technical conception
with a fixed content unrelated to time, place and circumstances.”) (citation and quotation
omitted).
130

See Morrissey v. Brewer, 408 U.S. 471, 481 (1972) (“[D]ue process is flexible
and calls for such procedural protections as the particular situation demands.”).
131

Order No. 743, 133 FERC ¶ 61,150 at PP 37-38, Order No. 743-A, 134 FERC
¶ 61,210 at PP 25, 55, 58, 67-72.
132

Pacific Gas and Electric Co. v. FERC, 746 F.2d 1383, 1386 (9th Cir. 1984)
(“We must allow the [Commission] wide discretion in selecting its own procedures . . .
and must defer to the [Commission] interpretation of its own rules, unless the
interpretation is plainly erroneous.”) (citations omitted).

Docket Nos. RM12-6-001 and RM12-7-001

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decision to determine whether facilities are used in local distribution on a case-by-case
basis and apply the factors of the Seven Factor Test violated due process.
2.
State Involvement in Local Distribution Determinations and the
NERC Exception Process; Application of the Seven Factor Test
98.

NYPSC, NARUC, NRECA and APPA argue that the Commission did not explain

how it will apply the Seven Factor Test or properly acknowledge state involvement in the
local distribution process as contemplated by Order No. 888. NYPSC and NARUC
request clarification or rehearing on whether, in adopting the Seven Factor Test, the
Commission intended to apply the Order No. 888 finding that gives deference to state
determinations as to which facilities are transmission and which are local distribution.
NYPSC states that the Commission “indicated in Order No. 888 that it would entertain
proposals by public utilities, filed under section 205 of the Federal Power Act, containing
classifications for transmission and local distribution facilities” but required consultation
with state regulatory authorities as a prerequisite to making such filings. 133 NRECA
maintains the Seven Factor Test should not be determinative in the context of section 215
jurisdiction decisions because the test involves coordination with state regulators and
proceedings involving the affected parties and wholesale and retail interests. NARUC
and APPA contend that the Commission ignored the circumstances under which a local
distribution test would be employed as described in Order No. 888. 134 NARUC states
133

NYPSC Request for Rehearing at 5.

134

Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,783-84 (1996).

Docket Nos. RM12-6-001 and RM12-7-001

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that in Order No. 888, the Commission acknowledged that in making case-by-case
determinations concerning local distribution, it would “take advantage of state regulatory
authorities’ knowledge and expertise concerning the facilities of the utilities that they
regulate…defer[ring] to the recommendations by state regulatory authorities concerning
where to draw the jurisdictional line under the Commission’s technical test for local
distribution facilities.” 135 According to NARUC and APPA, rather than deferring to the
state’s expertise, as it did when it developed the Seven Factor Test, the Commission is
relegating the states to commenter status.
99.

APPA, NARUC and NRECA express concern that use of the Seven Factor Test

may not translate well into the reliability context. NRECA requests clarification that,
because of the differences between FPA sections 201 and 215, the Commission will
review significantly more than the Seven Factor Test components and will not apply the
Seven Factor Test in the same manner it has in section 201 analyses. 136 NRECA argues
that section 215 states that NERC and the Commission lack reliability jurisdiction over
facilities used in local distribution, which is a different inquiry from the one made in rate
cases, where the “predominant use” of the facilities may be of significance. 137 NRECA
claims it is also different from the determination made when evaluating the Commission's
135

NARUC Request for Rehearing at 7 (citing Order No. 888, FERC Stats.
& Regs. ¶ 31,036 (1996)).
136

NRECA Request for Rehearing at 6.

137

NRECA Request for Rehearing at 6.

Docket Nos. RM12-6-001 and RM12-7-001

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jurisdiction over a facility for purposes of sections 205 and 206 of the FPA. NRECA
states that under those analyses, facilities used for both distribution and transmission are
treated as Commission-jurisdictional transmission facilities. NRECA contrasts that with
section 215 which states that any use of the facility for distribution removes it from
NERC’s and the Commission's reliability jurisdiction. APPA, NARUC and NRECA
claim that, while some of the seven factors may apply, others seem less appropriate to
consider when determining whether facilities are local distribution, and the Commission
does not define the other factors it may use nor explain how its criteria will adequately
differentiate between local distribution and transmission facilities. Similarly, TAPS and
ELCON state that several of the seven factors are very similar to components of the core
definition and exclusions and to items on the “Detailed Information to Support an
Exception Request” form. TAPS and ELCON thus contend that NERC’s exception
process analysis and the Commission’s local distribution analysis will likely overlap each
other.
100.

NYPSC, NARUC and APPA state that the NERC exception process does not

explicitly provide for state involvement. 138 NYPSC and NARUC believe that, because
the states have a unique interest and jurisdictional role, the exceptions process must allow

138

APPA states that the Commission could consider forming a standing federalstate joint board, pursuant to section 209(a) of the FPA, to address local distribution
determinations, given that its changes to exclusions E1 and E3 will substantially increase
the need for and frequency of such determinations.

Docket Nos. RM12-6-001 and RM12-7-001

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for direct state participation, including the right to submit comments and contribute to the
development of the record prior to any preliminary or final determinations being made.
Commission Determination
101.

The Commission denies rehearing on these issues. In the Final Rule, the

Commission acted consistent with legal precedent that the question of whether facilities
are used in local distribution is a question of fact to be decided by the Commission. 139
The Final Rule stated that the Commission would apply the factors in the Seven Factor
Test, plus other factors as the starting point for making local distribution
determinations. 140 The Commission, however, did not adopt Order No. 888 for use in
this process.
102.

We disagree with arguments questioning the suitability of the factors in the Seven

Factor Test for use in the reliability context or that some of the factors seem less
appropriate to consider when determining whether facilities are used in local distribution.
FPA sections 201(b)(1) and 215 both use the legal term “local distribution.” As we stated
in the Final Rule, the determination whether an element or facility is “used in local
distribution,” as the phrase is used in the FPA, requires a jurisdictional analysis and use
of the factors in the Seven Factor Test, among others, “comports with relevant legal
139

See, e.g., California Pacific Electric Company, LLC, 133 FERC ¶ 61,018, at
n.59 (2010) (“The Supreme Court has determined that whether facilities are used in local
distribution is a question of fact to be decided by the Commission”) (citing FPC v.
Southern California Edison Co., 376 U.S. 205, 210 n.6 (1964)).
140

Order No. 773, 141 FERC ¶ 61,236 at PP 69, 71.

Docket Nos. RM12-6-001 and RM12-7-001

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precedent.” 141 Therefore, we are not persuaded that the factors in the Seven Factor Test
are an unsuitable means to determine whether a facility is used in local distribution. The
question of whether all the factors are relevant in each case is one for the Commission to
determine in specific circumstances. With regard to NRECA’s argument that NERC and
the Commission lack reliability jurisdiction over dual use facilities, the Commission will
address that issue when relevant to a specific case.
103.

We are not persuaded by the argument that the Commission needs to define at this

time the additional factors it may use or explain how its criteria will adequately
differentiate between local distribution and transmission facilities. The Final Rule stated
that local distribution determinations are factual in nature and the Commission will make
decisions on a case-by-case basis. We anticipate that applicants will take the seven
factors into account and, to the extent other factors are relevant, they are free to raise
them as part of their inquiry and the Commission will address them at that time. Further,
we find that TAPS’ and ELCON’s contention that the similarity between the seven
factors, the core definition and the Detailed Information Form will cause significant
overlap between NERC’s analysis of an exception request and the Commission’s analysis
of a request for a finding that a facility is used in local distribution is premature and
speculative.

141

See Order No. 773, 141 FERC ¶ 61,236 at P 69.

Docket Nos. RM12-6-001 and RM12-7-001
104.

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With regard to state involvement in Commission local distribution determinations,

the Final Rule only stated the Commission would apply the factors in the Seven Factor
Test and did not adopt Order No 888 for use here. 142 The Commission notes that state
regulators are not excluded from involvement in a Commission proceeding involving a
local distribution determination and will have the opportunity to participate in the local
distribution determination process at the Commission. As part of that participation, they
may support their position with evidence that a state commission determined that the
facilities in question are local distribution facilities.
105.

Similarly, with regard to state involvement in the exception process, we deny

rehearing. Petitioners essentially repeat their arguments from the NOPR and we are not
persuaded that our finding in the Final Rule was unreasonable. In the Final Rule, the
Commission found 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….” 143 Nevertheless, to
provide transparency and opportunity for participation, NERC’s 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 information about the request will be publicly posted,” thereby allowing third

142

Order No. 773, 141 FERC ¶ 61,236 at P 71.

143

Order No. 773, 141 FERC ¶ 61,236 at P 257.

Docket Nos. RM12-6-001 and RM12-7-001

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parties including state regulators “adequate opportunity to provide comments regarding
the request without formally participating in the process.” 144
F.
106.

Designation of Bulk Electric System Elements

In the Final Rule, the Commission concluded that registered entities must inform

the Regional Entity of any self-determination that an element is no longer part of the bulk
electric system. We noted that section 501 of NERC’s Rules of Procedure 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. 145 We further stated that this requirement
does not involve a justification of why the element is being excluded but rather as one
that involves nothing more than notification. 146 The Commission also concluded that it
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.
107.

Entities request clarification and/or rehearing on three aspects of these

determinations: (1) how must a registered entity inform a Regional Entity that it has
144

Order No. 773, 141 FERC ¶ 61,236 at P 257 citing 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.
145

Order No. 773, 141 FERC ¶ 61,236 at P 317.

146

Order No. 773, 141 FERC ¶ 61,236 at P 318.

Docket Nos. RM12-6-001 and RM12-7-001

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excluded an element from the bulk electric system; (2) what process a Regional Entity
must use to include a facility if it disagrees with a registered entity’s declaration that a
specific facility is not part of the bulk electric system; and (3) if the Commission decides
on its own to designate an element as part of the bulk electric system, it should consult
state regulatory authorities.
1.
108.

Regional Entity Role

Snohomish requests clarification, or in the alternative rehearing, with respect to

several aspects of the process for removing specific elements from the bulk electric
system. Snohomish notes that the Commission specifies that a registered entity may
remove specific elements from the bulk electric system by simply notifying its Regional
Entity, and Snohomish believes that notifying its Regional Entity by a simple written or
electronic notification satisfies the notification requirement. Snohomish also states that
the Final Rule does not explain what would occur if the Regional Entity disagrees with
the registered entity’s determination that an element is not part of the bulk electric
system. Snohomish requests clarification that, in the absence of bad faith on the part of
the registered entity providing a notification that an element is not a bulk electric system
element, that element should not be treated as part of the bulk electric system unless and
until a contrary determination is made by NERC. Snohomish states that this clarification
will help ensure that registered entities clearly understand their reliability compliance
obligations at a facility-by-facility level, and that, if they apply the bulk electric system
definition in good faith, they will not be subject to retroactive liability if that good faith

Docket Nos. RM12-6-001 and RM12-7-001

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determination is later successfully challenged by the Regional Entity and overturned by
NERC.
109.

Snohomish also requests clarification that, in the event that a Regional Entity

disagrees with a registered entity’s determination that an element is not part of the bulk
electric system, the Regional Entity must use the exception process to include the
element. Snohomish asserts that this clarification will ensure that there is a wellunderstood and consistent procedure for inclusion of elements in the bulk electric system.
In the alternative, Snohomish states that the Commission should clarify that the existing
appeals process in Appendix 5A of the NERC Rules of Procedure, which Snohomish
states “provides for appeals only from entity registration decisions and from decisions
regarding entity certification,” should govern when the Regional Entity disagrees with a
registered entity’s designation of an element as not part of the bulk electric system. 147
Commission Determination
110.

The Commission agrees with Snohomish that, in the absence of bad faith, if a

registered entity applies the bulk electric system definition and determines that an
element no longer qualifies as part of the bulk electric system, upon notifying the
appropriate Regional Entity that the element is no longer part of the bulk electric system
the element should not be treated as part of the bulk electric system unless NERC makes
a contrary determination in the exception process. If the Regional Entity disagrees with
147

Snohomish Request for Clarification, or in the Alternative, Petition for
Rehearing at 5 (footnotes omitted).

Docket Nos. RM12-6-001 and RM12-7-001

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the classification of the element and believes the element is necessary for reliable
operation, the Regional Entity should initiate an exception request to include the element
in the bulk electric system. If NERC agrees with the Regional Entity and determines that
the element should be included in the bulk electric system, the registered entity should
not be subject to retroactive liability for the time period the element was not included in
the bulk electric system.
2.
111.

Designation of Facilities

APPA argues that, if the Commission decides on its own to designate an element

as part of the bulk electric system, it should consult state regulatory authorities in this
process and not simply relegate them to notice and opportunity for comment. 148
Additionally, APPA states that “a full evidentiary hearing, with opportunities for
discovery and cross-examination, as opposed to a paper hearing may be required in such
circumstances because of the fact-based nature of these issues, and because the
Commission would be making precedent-setting policy determinations that could affect
many public utilities and registered entities.” 149 APPA requests that, consistent with the
Commission’s approval of NERC’s implementation plan, the Commission clarify that
entities subject to Commission-designated bulk electric system facility determinations

148

APPA Request for Rehearing at 29.

149

Id.

Docket Nos. RM12-6-001 and RM12-7-001

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will be given an appropriate amount of time to become compliant with reliability
standards.
Commission Determination
112.

We deny rehearing with respect to the APPA’s request that the Commission

consult state regulatory authorities when the Commission elects to designate an element
as part of the bulk electric system. We are not persuaded by APPA’s justification for
why the Commission should provide a greater role to state regulators than is already
provided to all interested parties through notice and opportunity for comment. As we
stated in the Final Rule, we expect that registered entities, Regional Entities, and NERC
will proactively identify and include elements in the bulk electric system. However, if no
other entity initiates the process to include in the bulk electric system an element
necessary for the operation of the interconnected transmission network, the Commission
has the authority to do so. If the Commission finds it necessary to initiate this authority,
it would make a final determination after providing interested parties notice and
opportunity for comment. 150 For the same reasons stated above in connection with a state
role in a local distribution determination and the exception process, we are not persuaded
by APPA’s argument that state regulators need additional process other than that already
afforded to all interested parties provided notice and opportunity for comment.
Accordingly, we deny APPA’s request for rehearing on this matter.

150

Order No. 773, 141 FERC ¶ 61,236 at P 285.

Docket Nos. RM12-6-001 and RM12-7-001
113.

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In response to APPA’s contention that a full evidentiary hearing is necessary when

the Commission proposes to designate an element as part of the bulk electric system, the
Commission will not require or preclude use of a full evidentiary hearing. The
Commission will provide due process as required by the APA which in appropriate
instances the Commission can accomplish through a paper hearing.
114.

In response to APPA’s comments regarding the implementation schedule when the

Commission determines an element should be part of the bulk electric system, we agree
that an entity will have an appropriate amount of time to become compliant with
applicable Reliability Standards.
G.

Other Requested Clarifications
1.

115.

Meaning of “Non-Retail Generation”

Snohomish requests that the Commission provide clarification concerning the

meaning of the term “non-retail generation” in exclusion E3. Snohomish requests that
the Commission clarify that “non-retail generation” includes both customer-owned,
behind-the-meter generation that is not resold on the Bulk-Power System to wholesale
purchasers and generation that a load-serving utility uses solely to provide power to its
own customers and does not sell to other wholesale purchasers. Snohomish maintains
that this result is consistent with FPA section 201(b)(1), which excludes generation
facilities and facilities used for the intrastate sale of electric energy from the
Commission’s jurisdiction.

Docket Nos. RM12-6-001 and RM12-7-001

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Commission Determination
116.

We decline to make the requested clarification. In the Final Rule several entities

requested clarification of various terms including the term “non-retail.” The Commission
found that the phrase was sufficiently clear. 151 We reiterate our statement in the Final
Rule that entities may pursue further clarification from NERC in an appropriate forum
such as NERC’s Phase 2 project.
2.
117.

Effective Date

Snohomish requests that the Commission clarify that the revised definition will

become effective for NERC compliance purposes on July 1, 2013, and that the transition
period discussed in the Final Rule will extend twenty-four months from that date.
Commission Determination
118.

The Commission grants Snohomish’s clarification. NERC stated 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. Order No. 773 was published in the Federal Register on January 4,
2013 with the Final Rule becoming effective 60 days thereafter, or March 5, 2013. Thus,
the first day of the second calendar quarter after March 5 is July 1, 2013.

151

Order No. 773, 141 FERC ¶ 61,236 at P 215.

Docket Nos. RM12-6-001 and RM12-7-001

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H.
Requests for Revised Information Collection Burden and Regulatory
Flexibility Act Analysis
119.

In the Final Rule, the Commission stated that it did not need to reassess the

reporting burden estimates and Regulatory Flexibility Act (RFA) certification. NARUC
requests that the Commission clarify its RFA analysis in light of its decision to rule on
jurisdictional questions and to direct NERC to not permit certain 100 kV and above
facilities that are looped with sub-100 kV facilities to qualify for exclusion E1. NARUC
maintains that the Commission modified the definition by changing language contained
in exclusions E1 and E3, the net effect of which would be to increase the number of
entities that might choose to use the exception process. Therefore, according to NARUC,
it is likely that the Commission’s actions will impose unjustified regulatory burdens and
costs.
120.

NRECA also states that the public reporting burden and information collection

requirement section of the Final Rule did not discuss additional costs associated with the
Commission making local distribution determinations or entities having to apply for an
exception as a result of the Commission’s interpretation of exclusion E1. NRECA also
states that the Commission erred by not modifying the RFA certification that the Final
Rule will not have a significant economic impact on a substantial number of small
entities. NRECA seeks clarification of the Final Rule because it believes that the
jurisdiction determination process and the exclusion E1 directive will affect other small
entities that were not identified previously, and the Commission must identify affected
entities before it can certify the determination. NRECA states that the RFA requires that

Docket Nos. RM12-6-001 and RM12-7-001

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all effects of a rule on small entities must be considered, not just initial compliance costs
or only the costs associated with small entities that identify, for the first time, facilities
that are subject to the bulk electric system definition. NRECA requests that the
Commission revisit the impact of the Final Rule on small entities, and thereafter clarify
and provide greater detail with respect to its RFA certification.
121.

Similarly, APPA states that the Commission’s modifications to the definition will

substantially increase the public reporting burden, necessitating a new analysis. APPA
argues that the Commission’s changes to exclusions E1 and E3 would substantially
increase the number of required studies and exception requests, which necessarily affect
the associated paperwork burden estimates. Yet, according to APPA, the Commission
has failed to reassess its burden calculations and adjust its estimates which will result in
the imposition of unjustified regulatory burdens and costs.
122.

APPA also states that the Commission must reassess its RFA analysis to account

for the Commission’s changes to exclusions E1 and E3. According to APPA, many of
the entities filing these requests might not currently be on the NERC Compliance
Registry or might only be listed as distribution providers or load serving entities. In
addition, APPA argues that the Commission estimate of 418 small entities is too low.
APPA states that it alone has approximately 330 members on the NERC registry, about
290 of which fall within the definition of a small utility under the relevant Small Business
Administration definition.

Docket Nos. RM12-6-001 and RM12-7-001

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Commission Determination
123.

The Commission grants rehearing in part and denies rehearing in part. The

Commission grants rehearing on the need to reassess the burden estimates relative to the
Final Rule modifications regarding exclusions E1 and E3. In revising the information
cost estimates, the Commission also included additional costs associated with the local
distribution determinations. However, because the Commission grants rehearing on
implementing exclusions E1 and E3 to instead direct NERC to modify the definition
pursuant to FPA section 215(d)(5) in the Phase 2 process, the Commission will address
estimates in connection with that change after NERC submits its proposal.
1.
124.

Information Collection Statement

In the Final Rule, the Commission estimated the reporting burden for entities 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. The
Commission also estimated the burden for entities’ use of the exception process as well
as the costs for Regional Entities and NERC to process exception requests. In addition,
the Commission estimated the public reporting burden for entities to identify new
elements under the revised bulk electric system definition.
125.

While the Commission is providing revised information collection estimates, we

disagree with NARUC and APPA that the Commission’s modifications to NERC’s
proposal will substantially increase the public reporting burden or will impose unjustified
regulatory burdens and costs. None of the petitioners provide data to quantify or
substantiate their claims. With regard to the alleged increase in case-specific exceptions

Docket Nos. RM12-6-001 and RM12-7-001

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applications, APPA cites to one large entity that claimed that it would have to file dozens
of exception requests to have looped configurations excluded. However, we are not
persuaded by APPA and others that the Commission’s discussion of exclusion E1 (radial
systems) pertaining to sub-100 kV looped systems with multiple connections at 100 kV
and above and the corresponding modification to exclusion E3 will result in a substantial
increase in exception applications. Rather, as explained in the Final Rule, as well as this
order on rehearing, the Commission directed NERC to develop a modification to
exclusion E3 (local networks) that would eliminate the 100 kV “floor” to be eligible for
the exclusion. As a result, by design, we anticipate that many entities with sub-100 kV
looped configurations that are not eligible for exclusion E1 may avoid submitting an
exception request and be eligible for the E3 exclusion as revised by the Final Rule. As
explained elsewhere, an entity may apply the E3 exclusion without having to submit an
application to NERC for a case-specific ruling. 152
126.

With regard to applications submitted to the Commission for local distribution

determinations, we expect the number of local distribution determinations to be small. 153
Petitioners have not provided information in their rehearing requests that persuade us to
change our expectation. Thus, the Commission estimates that there will be
approximately eight local distribution determinations per year.

152

See supra P 42.

153

See Order No. 773, 141 FERC ¶ 61,236 at P 70.

Docket Nos. RM12-6-001 and RM12-7-001
127.

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Although we believe that the burden estimates set forth in the Final Rule are

generally sound, we nonetheless revise certain aspects to provide more accurate
estimates. To account for the Final Rule directive for exclusions E1 and E3, the
Commission has increased by five the number of engineering hours needed for “System
Review and List Creation” for transmission owners. The Commission increased the
number of engineering hours by three for the same review by distribution providers.
System Review and List Creation 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. 154 The Commission added these hours to
recognize the additional time needed for an entity that has a looped configuration
operating below 100 kV with multiple connections at 100 kV and above that is not
eligible for exclusion E1 to analyze whether the configuration is eligible for exclusion
E3.
128.

In addition, the Commission is increasing the estimate of the number of exception

requests in the first two years by approximately ten percent, from 260 per year to 285
requests per year. The original estimate of 260 requests per year considered all requests
for exceptions, undifferentiated by whether the applicant’s request is based on exclusions
E1 and E3 or any other part of the definition. Here, we estimate an additional 25

154

See NERC BES Petition at 38.

Docket Nos. RM12-6-001 and RM12-7-001

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exception requests that may be submitted by entities with looped configurations operating
below 100 kV that, based on the Final Rule, do not qualify for the E1 radial system
exclusion. However, as discussed above, we are not persuaded that a greater increase of
exception requests is warranted because the directive that NERC modify the local
network E3 exclusion by eliminating the 100 kV floor should allow many, if not most, of
the entities that operate systems with a sub-100 kV loop to exclude those 100 kV and
above facilities that connect them to the interconnected transmission network (without an
exception request) based on the E3 exclusion (noting that the elements operating below
100 kV are already excluded from the bulk electric system by the core definition).
129.

The revised estimates are shown as follows:

Number and
Number of
Type of
Responses
155
Entity
Per Entity
Requirement
(1)
(2)
333
1 response
Transmission
Owners
843 Generator 1 response
System Review
and List Creation Owners
554
1 response
Distribution
Providers

155

Average
Number of
Hours per
Response
(3)
85 (engineer
hours)
16 (engineer
hours)
27 (engineer
hours)

Total
Burden
Hours
(1)*(2)*(3)
28,305 Yr 1

13,488 Yr 1
14,958 Yr 1

The “entities” listed in this table are describing a role an entity is registered for
in the NERC registry. For example, a single entity may be registered as a transmission
owner and generator owner. The total number of entities applicable to this rule is 1,522,
based on the NERC registry. The total number of estimated roles is 1,730.

Docket Nos. RM12-6-001 and RM12-7-001

Exception
Requests 156

1,730 total
Transmission
Owners,
Generator
Owners and
Distribution
Providers

8 entities
Local
Distribution
Determinations 157

285 responses
each in Yrs 1
and 2 (total
for all entities,
i.e., not per
entity)
20 responses
in Yr 3 and
ongoing (total
for all entities,
i.e., not per
entity)
1 response

- 89 94 (60
engineer hrs,
32 record
keeping hrs,
2 legal hrs)

26,790 hrs in
Yrs 1 and 2

94 (60
engineer hrs,
32 record
keeping hrs,
2 legal hrs)

1,880 hrs in
Yr 3 and
ongoing

92 (60
engineer hrs,
8 record
keeping hrs,
24 legal hrs)

40,704 hrs

Costs to Comply:
• Year 1: $13,841,400 ($367,400 increase from the initial estimate)
• Year 2: $10,436,340 ($167,780 increase from the initial estimate)

156

From the total 1,730 estimated roles, we estimate an average of 285 requests
per year in the first two years. See Order No. 773 at n. 225. Therefore, the estimated
total number of hours per year for years 1 and 2, using an average of 285 requests per
year, is 26,790 hours. We estimate 20 requests per year in year 3 and ongoing.
157

The Commission estimates 92 hours for a local distribution request comprised
of 60 engineer hours, 8 record keeping hours and 24 legal hours. For the local
distribution burden category, 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: (sum of hourly expense per request * number of local
distribution determinations) = ((60 hrs * $60/hr) + (8 hrs * $27/hr) + (24 hrs * $106/hr)) *
8 requests) = $50,880. Hourly costs are loaded (wage plus benefits) and are based on
Commission staff study and industry data from the Bureau of Labor Statistics.

Docket Nos. RM12-6-001 and RM12-7-001

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• Year 3 and ongoing: $4,310,624 ($50,704 increase from the initial
estimate) 158
For the 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 revised
breakdown of cost by item and year follows:
• System Review and List Creation (year 1 only): (28,305 hrs + 13,488
hrs + 14,958 hrs) =56,751 hrs * 60/hr = $3,405,060.
• 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)) * 285 requests) = $1,332,660.
• Local Distribution (each year): (sum of hourly expense per request *
number of exception requests) = ((60 hrs * $60/hr) + (8 hrs * $27/hr) +
(24 hrs * $106/hr)) * 8 requests) = $50,880.
Title: FERC-725-J “Definition of the Bulk Electric System”
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
158

See NOPR, 139 FERC ¶ 61,247 at P 135 for the initial estimates. In the
summary costs for years 1-3 displayed in the NOPR and final rule, due to a arithmetic
error, the Years 1-3 cost estimates should have been $13,474,000, $10,268,560 and
$4,259,920, respectively.

Docket Nos. RM12-6-001 and RM12-7-001

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Necessity of the Information: The proposed revision to NERC’s definition of the term
bulk electric system, if adopted, would implement the Congressional mandate of the
Energy Policy Act of 2005 to develop mandatory and enforceable Reliability Standards to
better ensure the reliability of the nation’s Bulk-Power System. Specifically, the proposal
would ensure that certain facilities needed for the operation of the nation’s bulk electric
system are subject to mandatory and enforceable Reliability Standards. 159
Internal review: The Commission has reviewed the proposed definition and has assured
itself, by means of its internal review, that there is specific, objective support for the
burden estimate associated with the information requirements.
130.

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].
131.

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

159

For more information regarding the necessity of the information collected,
disclosed or retained, see Revisions to Electric Reliability Organization Definition of Bulk
Electric System and Rules of Procedure, Order No. 773, 141 FERC ¶ 61,236 (2012).

Docket Nos. RM12-6-001 and RM12-7-001

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be submitted by e-mail to: [email protected]. Comments submitted to
OMB should include Docket Number RM12-6 and OMB Control Number 1902-0259.
2.
132.

Regulatory Flexibility Analysis

The Commission grants rehearing in part, and denies rehearing in part, with

regard to the impact of the Final Rule on small entities’ applying for local distribution
determinations at the Commission and the Final Rule directive regarding implementation
of exclusions E1 and E3 for looped configurations. The Commission provides revised
estimates below.
133.

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. 160 The Commission estimated that, of the 418
small entities affected, 50 small entities within the NPCC region would have to comply
with the rule. The Commission assumed that the rule would affect more small entities in
the NPCC Region than those outside NPCC because there are more elements in NPCC
that would be added to the bulk electric system based on the new definition than
elsewhere. The Commission estimated the first year effect on small entities within the
NPCC region to be $39,414. 161 The Commission based this figure on information
collection costs plus additional costs for compliance. The Commission estimated the

160

NOPR, 139 FERC ¶ 61,237 at P 138.

161

NOPR, 139 FERC ¶ 61,237 at P 139.

Docket Nos. RM12-6-001 and RM12-7-001

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average annual effect per small entity outside of NPCC will be less than for the entities
within NPCC. The Commission concluded that there would not be a significant
economic impact for small entities within or outside of NPCC because it should not
represent a significant percentage of the operating budget. In Order No. 773, the
Commission affirmed its analysis and certified that the Final Rule will not have a
significant impact on a substantial number of small entities. 162
134.

While we affirm our certification that the Final Rule will not have a significant

impact on a substantial number of small entities, we grant rehearing in part to adjust our
estimates on the impact of the Final Rule on small entities. In particular, we adjust our
initial estimate to recognize the approximately $6,360 cost incurred by a small entity that
petitions the Commission for a local distribution determination. As stated above, the
Commission estimates eight local distribution requests per year. The Commission does
not believe that small entities will account for all local distribution requests, but even if
they do, this estimate will not have a significant economic impact on a substantial
number of small entities.
135.

We recognize that an entity may have some facilities that do not qualify for

exclusions E1 or E3 as revised by the Final Rule and may choose to use the exception
process. As stated above, the Commission estimates that the total number of entities with
looped configurations that do not qualify for exclusions E1 or E3 who choose to use the

162

Order No. 773, 141 FERC ¶ 61,236 at P 338.

Docket Nos. RM12-6-001 and RM12-7-001

- 94 -

exception process to be approximately 25, based on an approximately ten percent
increase in the estimated number of exception requests (i.e., an estimated 260 requests
revised to 285 requests) submitted during the first year after implementation. Of those,
the Commission estimates that ten of the entities could be small entities, with the effect
on those small entities to be $4,676 per entity. The Commission bases this figure on the
result of the exception request calculation total above, $1,332,660, divided by the number
of total estimated exception requests, 285, resulting in the cost per exception request
equal to $4,676. We do not assume additional costs of compliance for these ten small
entities requesting exceptions because looped systems connected at multiple connections
of 100 kV and above are already part of the bulk electric system. If the elements remain
in the bulk electric system as a result of the exception process, they will not be newly
identified elements and thus the compliance costs associated with these elements are
already accounted for in other rulings approving Reliability Standards. 163
136.

Based on the above, as many as 18 small entities may experience an economic

impact upwards of approximately $50,000 per year. 164 The Commission does not
consider 18 out of 418 small entities (4.3%) to be a substantial number of small entities.

163
164

See, e.g., Order No 693, FERC Stats, & Regs. ¶31,242 at PP 1899-1907.

This is based on a conservative assumption that the eight local distribution
determination requests and the ten additional entities to use the exception process all are
part of the NPCC region. Under this assumption, the total estimated annual cost per
entity is $50,450 ($39,414 + $6,360 + $4,676).

Docket Nos. RM12-6-001 and RM12-7-001

- 95 -

Accordingly, the Commission certifies that the Final Rule will not have a significant
economic impact on a substantial number of small entities.
137.

APPA argues that their members’ burdens will change by virtue of being included

on the NERC Compliance Registry. We disagree with APPA on this issue. First, it is
important to understand that NERC registers entities, not facilities, in the NERC
Compliance Registry. We do not expect that NERC’s revised BES definition, as well as
our determinations in the Final Rule and on rehearing, will have Compliance Registry
implications for a significant number of entities. As we have indicated consistently
throughout this proceeding, small entities in the NPCC region are most likely to be
substantively impacted by the Final Rule, and we have previously recognized the costs of
compliance for that sub-group of small entities. APPA has not provided any information
to persuade us that NERC will register a significant number of small entities as a result of
the Final Rule.
138.

APPA also argues that the Commission’s estimate that a total of 418 small entities

may be affected by the Final Rule is too low and that the Commission did not justify this
estimate. We disagree with APPA on this matter. The Commission justified the estimate
in the NOPR stating that we started with the Order No. 693 estimate that all the
Reliability Standards approved in Order No. 693 would apply to approximately 682 small
entities. 165 The Commission concluded that the bulk electric system rulemaking would
165

NOPR, 139 FERC ¶ 61,247 at P 139 n.156 (citing Order No 693, FERC Stats,
& Regs. ¶31,242 at P 1940).

Docket Nos. RM12-6-001 and RM12-7-001

- 96 -

affect a smaller subset of the categories of registered entities and thus our estimate was
lower in this proceeding than cited in Order 693. 166 Therefore, we deny rehearing on this
issue.
III.

Document Availability

139.

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.
140.

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.
141.

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

166

Id.

Docket Nos. RM12-6-001 and RM12-7-001

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(202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room at
[email protected].
By the Commission.
(SEAL)

Kimberly D. Bose,
Secretary.

Docket Nos. RM12-6-001 and RM12-7-001

- 98 -

Note: Attachment A will not appear in the Code of Federal Regulations.
ATTACHMENT A
Definition of Bulk Electric System

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

Docket Nos. RM12-6-001 and RM12-7-001

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

Docket Nos. RM12-6-001 and RM12-7-001

- 100 -

Quebec Interconnections, and is not a monitored Facility included in
an Interconnection Reliability Operating Limit (IROL).
E4 – Reactive Power devices owned and operated by the retail customer
solely for its own use.
Note - Elements may be included or excluded on a case-by-case basis
through the Rules of Procedure exception process.

File Type	application/pdf
File Title	RM12-6-001 Revisions to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure
Subject	RM12-6-001 Revisions to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedurel, What's New
Author	FERC
File Modified	2013-04-18
File Created	2013-04-18