# Federal Energy Regulatory Commission (2006) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Aferc%3A247b5c7442f3e480 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Friday, November 3, 2006 Part II Department of Energy Federal Energy Regulatory Commission sroberts on PROD1PC70 with PROPOSALS 18 CFR Part 40 Mandatory Reliability Standards for the Bulk-Power System; Proposed Rule VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\03NOP2.SGM 03NOP2 64770 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules DEPARTMENT OF ENERGY Federal Energy Regulatory Commission 18 CFR Part 40 Docket No. RM06–16–000] Mandatory Reliability Standards for the Bulk-Power System October 20, 2006. AGENCY: Federal Energy Regulatory Commission, DOE. ACTION: Notice of proposed rulemaking. SUMMARY: Pursuant to section 215 of the Federal Power Act (FPA), the Commission is proposing to approve 83 of 107 proposed Reliability Standards, including six of the eight regional differences, and the Glossary of Terms Used in Reliability Standards developed by the North American Electric Reliability Council, on behalf of its wholly-owned subsidiary, the North American Electric Reliability Corporation (NERC), which the Commission has certified as the Electric Reliability Organization (ERO) responsible for developing and enforcing mandatory Reliability Standards. Those Reliability Standards meet the requirements of section 215 of the FPA and Part 39 of the Commission’s regulations. However, although we believe it is in the public interest to make these Reliability Standards mandatory and enforceable by June 2007, we also find that much work remains to be done. Specifically, we believe that many of these Reliability Standards require significant improvement to address, among other things, the recommendations of the Blackout Report. We therefore propose, pursuant to section 215(d)(5), to require the ERO to make significant improvements to many of the 83 Reliability Standards that are being approved as mandatory and enforceable. Appendix D provides a list of the Reliability Standards that should be given the highest priority when the ERO undertakes to make these improvements. With respect to the remaining 24 Reliability Standards, the Commission proposes that they remain pending at the Commission until further information is provided. The Commission is not proposing to remand any Reliability Standards. The Commission proposes to amend the text of its regulation to require that each Reliability Standard identify the subset of users, owners and operators to which that particular Reliability Standard applies. The Commission also is proposing to amend its regulations to require that each Reliability Standard that is approved by the Commission will be maintained in the Commission’s Public Reference Room and on the ERO’s Internet Web site for public inspection. DATES: Comments are due January 2, 2007. ADDRESSES: You may submit comments, identified by Docket No. RM06–16–000, by one of the following methods: • Agency Web site: http://ferc.gov. Follow the instructions for submitting comments via the eFiling link found in the Comment Procedures section of the Preamble. • Mail: Commenters unable to file comments electronically must mail or hand deliver an original and 14 copies of their comments to: Federal Energy Regulatory Commission, Office of the Secretary, 888 First Street. NE., Washington, DC 20426. Refer to the Comment Procedures section of the preamble for additional information on how to file paper comments. FOR FURTHER INFORMATION CONTACT: Jonathan First (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502–8529. Paul Silverman (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502–8683. Robert Snow (Technical Information), Office of Energy Markets and Reliability, Division of Reliability, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502– 6716. Kumar Agarwal (Technical Information), Office of Energy Market and Reliability, Division of Policy Analysis and Rulemaking, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502–8923. SUPPLEMENTARY INFORMATION: sroberts on PROD1PC70 with PROPOSALS Paragraph Numbers I. Introduction ......................................................................................................................................................................................... II. Background ......................................................................................................................................................................................... A. Voluntary Reliability Standards ................................................................................................................................................ B. EPAct 2005 and Order No. 672 ................................................................................................................................................. C. The Electric Reliability Organization ........................................................................................................................................ D. NERC Petition for Approval of Reliability Standards .............................................................................................................. E. Staff Preliminary Assessment ..................................................................................................................................................... III. Discussion ......................................................................................................................................................................................... A. The Commission’s Reliability Standards Proposal .................................................................................................................. 1. Applicability ........................................................................................................................................................................ 2. Mandatory Reliability Standards ........................................................................................................................................ 3. Availability of Reliability Standards .................................................................................................................................. B. Applicability Issues .................................................................................................................................................................... 1. Definition of User of the Bulk-Power System .................................................................................................................... 2. Use of the NERC Functional Model .................................................................................................................................... 3. Applicability to Small Entities ............................................................................................................................................ 4. Regional Reliability Organizations ...................................................................................................................................... 5. Bulk-Power System v. Bulk Electric System ...................................................................................................................... C. Mandatory Reliability Standards ............................................................................................................................................... 1. Legal Standard for Approval of Reliability Standards ...................................................................................................... 2. Commission Options When Acting on a Reliability Standard ......................................................................................... 3. Prioritizing Modifications to Reliability Standards ........................................................................................................... 4. Trial Period .......................................................................................................................................................................... 5. International Coordination of Remands ............................................................................................................................. D. Common Issues Pertaining to Reliability Standards ................................................................................................................ 1. Blackout Report Recommendations .................................................................................................................................... VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 E:\FR\FM\03NOP2.SGM 03NOP2 1 12 12 15 21 24 29 33 33 35 37 39 42 42 44 49 54 60 72 72 76 83 90 94 96 97 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules 64771 Paragraph Numbers 2. Measures and Levels of Non-Compliance .......................................................................................................................... 3. Ambiguities and Potential Multiple Interpretations .......................................................................................................... 4. Technical Adequacy ............................................................................................................................................................ 5. Fill-in-the-Blank Standards ................................................................................................................................................. E. Discussion of Each Individual Reliability Standard ................................................................................................................. 1. BAL: Resource and Demand Balancing .............................................................................................................................. 2. CIP: Critical Infrastructure Protection ................................................................................................................................ 3. COM: Communications ....................................................................................................................................................... 4. EOP: Emergency Preparedness and Operations ................................................................................................................. 5. FAC: Facilities Design, Connections, Maintenance, and Transfer Capabilities ............................................................... 6. INT: Interchange Scheduling and Coordination ................................................................................................................ 7. IRO: Interconnection Reliability Operations and Coordination ........................................................................................ 8. MOD: Modeling, Data, and Analysis .................................................................................................................................. 9. PER: Personnel Performance, Training and Qualifications ............................................................................................... 10. PRC: Protection and Control ............................................................................................................................................. 11. TOP: Transmission Operations ......................................................................................................................................... 12. TPL: Transmission Planning ............................................................................................................................................. 13. VAR: Voltage and Reactive Control .................................................................................................................................. 14. Glossary of Terms Used in Reliability Standards ............................................................................................................ IV. Information Collection Statement ................................................................................................................................................... V. Environmental Analysis .................................................................................................................................................................... VI. Regulatory Flexibility Act Certification .......................................................................................................................................... VII. Comment Procedures ...................................................................................................................................................................... VIII. Document Availability ................................................................................................................................................................... 103 108 113 116 124 125 217 232 263 343 427 497 588 749 802 951 1037 1129 1151 1157 1171 1172 1177 1179 Appendix A: Proposed Disposition of Standards, Glossary and Regional Differences Appendix B: Commenters on Staff Preliminary Assessment Appendix C: Abbreviations in this Document Appendix D: High Priority List sroberts on PROD1PC70 with PROPOSALS I. Introduction 1. Pursuant to section 215 of the Federal Power Act (FPA), the Commission is proposing to approve 83 of 107 proposed Reliability Standards, including six of the eight regional differences, and the Glossary of Terms Used in Reliability Standards (glossary) developed by the North American Electric Reliability Council, on behalf of its wholly-owned subsidiary, the North American Electric Reliability Corporation (NERC), which the Commission has certified as the Electric Reliability Organization (ERO) responsible for developing and enforcing mandatory Reliability Standards. Those Reliability Standards meet the requirements of section 215 of the FPA and Part 39 of the Commission’s regulations. However, although we believe it is in the public interest to make these Reliability Standards mandatory and enforceable by June 2007, we also find that much work remains to be done. Specifically, we believe that many of these Reliability Standards require significant improvement to address, among other things, the recommendations of the Blackout Report. We therefore propose, pursuant to section 215(d)(5), to require the ERO to make significant improvements to many of the 83 Reliability Standards that are being approved as mandatory and enforceable. Appendix D provides a list of the VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 Reliability Standards that should be given the highest priority when the ERO undertakes to make these improvements. With respect to the remaining 24 Reliability Standards, the Commission proposes that they remain pending at the Commission until further information is provided. The Commission is not proposing to remand any Reliability Standards. 2. The Commission proposes to amend the text of its regulations to require that each Reliability Standard identify the subset of users, owners, and operators to which that particular Reliability Standard applies. The Commission also is proposing to amend its regulations to require that each Reliability Standard that is approved by the Commission will be maintained in the Commission’s Public Reference Room and on the ERO’s Internet Web site for public inspection. 3. On August 8, 2005, The Electricity Modernization Act of 2005, which is Title XII of the Energy Policy Act of 2005 (EPAct 2005), was enacted into law.1 EPAct 2005 adds a new section 215 to the FPA, which requires a Commission-certified ERO to develop mandatory and enforceable Reliability Standards, which are subject to Commission review and approval. Once approved, the Reliability Standards may 1 The Energy Policy Act of 2005, Pub. L. No. 109– 58, Title XII, Subtitle A, 119 Stat. 594, 941 (2005), to be codified at 16 U.S.C. 824o (2000). PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 be enforced by the ERO, subject to Commission oversight. 4. On February 3, 2006, the Commission issued Order No. 672, which implements section 215 of the FPA and provides specific processes for the certification of one entity as the ERO, the development and approval of mandatory Reliability Standards, and the compliance with and enforcement of approved Reliability Standards.2 On April 4, 2006, NERC made two filings: (1) An application for certification of NERC Corporation as the ERO and (2) a petition for Commission approval of 102 Reliability Standards, as well as eight regional differences and a glossary of terms.3 On July 20, 2006, the Commission issued an order certifying NERC Corporation as the ERO.4 This rulemaking proceeding addresses NERC’s submission of Reliability Standards and represents the next 2 Rules Concerning Certification of the Electric Reliability Organization; Procedures for the Establishment, Approval and Enforcement of Electric Reliability Standards, Order No. 672, 71 FR 8662 (February 17, 2006), FERC Stats. & Regs. ¶ 31,204 (2006), order on reh’g, Order No. 672–A, 71 FR 19814 (April 18, 2006), FERC Stats. & Regs. ¶ 31,212 (2006). 3 The April 4, 2006 filing contained 102 Reliability Standards, a Glossary of Terms Used in Reliability Standards and eight regional differences. On August 28, 2006, NERC filed an additional 19 Reliability Standards and withdrew three of the 102 Reliability Standards. Eleven of the nineteen reliability Standards replace those filed on April 4, 2006. 4 ERO Certification Order, 116 FERC ¶ 61,062. E:\FR\FM\03NOP2.SGM 03NOP2 sroberts on PROD1PC70 with PROPOSALS 64772 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules significant step toward achieving the statutory goal of mandatory and enforceable Reliability Standards. 5. The ERO’s filing is comprehensive, and represents a significant effort by NERC, the industry representatives who serve on NERC’s standards development teams, and the entities that participate in NERC’s Reliability Standards development process. After the August 2003 cascading blackout that affected large portions of the central and eastern United States and Canada, NERC revised many of the then-existing NERC operating policies and planning standards to provide greater clarity and compliance guidance. These revised standards (referred to as ‘‘Version 0’’ and ‘‘Version 1’’) were developed using NERC’s American National Standards Institute (ANSI)-accredited Reliability Standards development process and are what has been filed with the Commission for approval. 6. The Commission believes that these Reliability Standards will form a solid foundation on which to develop and maintain the reliability of the North American Bulk-Power System. At the same time, the Commission recognizes, as does NERC,5 that the Version 0 and Version 1 standards were developed as an initial step in the transition to clear, enforceable Reliability Standards. As such, some technical, enforceability and policy aspects of the 107 proposed Reliability Standards submitted by the ERO can, and should, be improved. 7. Therefore, in evaluating NERC’s proposal, the Commission recognizes that the Reliability Standards are in a state of transition and that NERC has ongoing plans to improve them. Thus, at this juncture, we will approve a proposed Reliability Standard that needs clarification, improvement, or strengthening, provided that we are confident that it satisfies the statutory requirement that a Reliability Standard must be ‘‘just, reasonable, not unduly discriminatory or preferential, and in the public interest.’’ 6 Rather than remanding an imperfect Reliability Standard, the NOPR generally proposes to approve such a Reliability Standard. In addition, as a distinct action under the statute, the Commission proposes to direct that the ERO modify such a Reliability Standard, pursuant to section 215(d)(5) of the FPA, to address the identified issues or concerns. This approach would allow the proposed Reliability Standard to be enforceable while the ERO develops any required modifications. 6 16 U.S.C. 824o(d)(2). 16:18 Nov 02, 2006 7 NERC Petition at 25. 8 See id. at 87–90. 9 The ERO is reminded when filling in these blanks that a regional difference is generally permitted when it is more stringent or when there 5 See NERC Petition at 69. VerDate Aug<31>2005 8. The Commission believes that, for this period of transition from a voluntary to a mandatory system of compliance, the above course of action is appropriate when reviewing the ERO’s first set of proposed Reliability Standards. This action provides the benefit that mandatory and enforceable Reliability Standards will be in effect prior to the summer of 2007, the next anticipated peak season for the nation’s Bulk-Power System. Critical to our decision to propose to approve such Reliability Standards is NERC’s representation to the Commission that approval of the existing Reliability Standards ‘‘will reinforce the importance of these standards and will have an immediate positive benefit with regard to the reliability performance of all bulk power system owners, operator and users * * *.’’ 7 9. Accordingly, the Commission proposes to approve the Reliability Standards based on recognizing this period of transition, the importance of making them mandatory before the summer of 2007, and by giving due weight to the technical expertise of the ERO with the expectation that the Reliability Standards will accomplish the purpose represented to the Commission by the ERO; and that they will improve the reliability of the BulkPower System by proactively preventing situations that can lead to blackouts. By taking this approach, we believe that the responsibility for the technical adequacy of the proposed Reliability Standards falls squarely on the ERO, and we expect the ERO to monitor the effectiveness of the proposed Reliability Standards and inform us if any Reliability Standard proves, in practice, to be inadequate in protecting and improving Bulk-Power System reliability. 10. Further, the Commission proposes to request additional information with regard to 24 proposed Reliability Standards. These proposed Reliability Standards would not be approved or remanded by the Commission until further action is taken by the ERO. This group of Reliability Standards includes NERC’s so-called ‘‘fill-in-the-blank’’ standards that require regional reliability organizations to develop— and users, owners, or operators to comply with—regional criteria.8 Until the Commission receives this supplemental information to fill in the ‘‘blanks’’ 9 and assurances that the Jkt 211001 PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 processes to fill in the blanks satisfy our procedural requirements, the Commission is not in a position to approve or remand such Reliability Standards. Second, a proposed Reliability Standard that would apply only to regional reliability organizations will not be approved or remanded until the ERO identifies a user, owner or operator of the Bulk-Power System as the applicable entity.10 11. Although the proposed Reliability Standards for which the Commission is requesting additional information will not be enforceable under section 215, this does not mean that no standards governing a particular matter are in place. Rather, in the interim, though not enforceable under section 215, compliance with these Reliability Standards would be expected as a matter of good utility practice. II. Background A. Voluntary Reliability Standards 12. In the aftermath of the 1965 blackout in the northeast United States, the electric utility industry established NERC, a voluntary reliability organization. Since its inception, NERC has developed Operating Policies and Planning Standards that provide voluntary guidelines for operating and planning the North American BulkPower System. 13. A common cause of the past three major regional blackouts was violation of NERC’s then existing Operating Policies and Planning Standards. During July and August 1996, the west coast of the United States experienced two cascading blackouts caused by violations of voluntary Operating Policies.11 In response to the outages, the Secretary of Energy convened a task force to advise the U.S. Department of is a geographical/physical reason for the difference. Consolidation of regional standards into a single continent-wide standard should not result in a lowest common denominator. Order No. 672 at P 291. 10 In addition, some of the proposed Reliability Standards overlap with other Commission regulatory initiatives. For example, in a recent Notice of Proposed Rulemaking, the Commission has proposed to direct public utilities, in conjunction with NERC and the North American Energy Standards Board to provide for greater consistency in Available Transmission Capacity (ATC) calculation. See Preventing Undue Discrimination and Preference in Transmission Service, 71 FR 32636 (June 6, 2006), 71 FR 39251 (July 12, 2006), FERC Stats. & Regs. ¶ 39,602 (May 19, 2006) (OATT Reform NOPR). 11 The Electric Power Outages in the Western United States, July 2–3, 1996, at 76 (ftp:// www.nerc.com/pub/sys/all_updl/docs/pubs/ doerept.pdf) and WSCC Disturbance Report, for the Power System Outage that Occurred on the Western Interconnection August 10, 1996, at 4 (ftp:// www.nerc.com/pub/sys/all_updl/docs/pubs/ AUG10FIN.pdf). E:\FR\FM\03NOP2.SGM 03NOP2 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules Energy (DOE) on issues needed to be addressed to maintain the reliability of the Bulk-Power System. In a September 1998 report, the task force recommended, among other things, that federal legislation should grant more explicit authority for the Commission to approve and oversee an organization having responsibility for bulk-power reliability standards.12 Further, the task force recommended that such legislation provide for Commission jurisdiction over reliability of the Bulk-Power System and Commission implementation of mandatory, enforceable reliability standards. 14. On August 14, 2003, a blackout affected significant portions of the Midwest and Northeast United States, and Ontario, Canada. This blackout affected an estimated 50 million people and 61,800 megawatts of electric load. A joint U.S.-Canada task force studied the causes of the August 14, 2003 blackout and determined that several entities violated NERC’s then-effective Operating Policies and Planning Standards, and that several of the standards contained ambiguities that rendered the standards ineffective. Those violations and ambiguities directly contributed to the blackout.13 The joint task force, in its recommendations to prevent or minimize the scope of future blackouts, identified the need for legislation to make reliability standards mandatory and enforceable, with penalties for noncompliance and identified specific ambiguities within the standards that should be corrected to make the standards effective.14 sroberts on PROD1PC70 with PROPOSALS B. EPAct 2005 and Order No. 672 15. EPAct 2005 adds a new section 215 to the FPA, which provides for a system of mandatory and enforceable Reliability Standards. On February 3, 2006, the Commission issued Order No. 672, implementing section 215 of the FPA.15 Pursuant to Order No. 672, the Commission certified one organization, 12 Maintaining Reliability in a Competitive U.S. Electricity Industry, Final Report of the Task Force on Electric System Reliability, Secretary of Energy Advisory Board, U.S. Department of Energy (September 1998), at 25–27, 65–67. 13 The joint team, known as the U.S.-Canada Power System Outage Task Force, issued a Final Report on the August 14, 2003 Blackout in the United States and Canada: Causes and Recommendations (Blackout Report) on April 5, 2004, which presented an in-depth analysis of the causes of the blackout and recommendations for avoiding future blackouts. 14 See id. at 140–42. 15 Order No. 672, 71 FR 8662 (Feb. 17, 2006), FERC Stats. & Regs. ¶ 31,204 (2006), order on reh’g, Order No. 672–A, 71 FR 19814 (Apr. 18, 2006), FERC Stats. & Regs. ¶ 31,212 (2006). Terms defined in Order No. 672 are capitalized in this order. VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 NERC, as the ERO. The ERO is required to develop Reliability Standards, which are subject to Commission review and approval.16 Once approved, the Reliability Standards may be enforced by the ERO, subject to Commission oversight.17 The Reliability Standards will apply to users, owners and operators of the Bulk-Power System. The ERO must submit each proposed Reliability Standard to the Commission for approval. 16. Section 215(d)(2) of the FPA and the Commission’s regulations provide that the Commission may approve a proposed Reliability Standard if it determines that the proposal is just, reasonable, not unduly discriminatory or preferential, and in the public interest. The Commission specified in Order No. 672 certain general factors it would consider when assessing whether a particular Reliability Standard is just and reasonable.18 According to this guidance, a proposed Reliability Standard must provide for the Reliable Operation of Bulk-Power System facilities and may impose a requirement on any user, owner, or operator of such facilities. It must be designed to achieve a specified reliability goal and must contain a technically sound means to achieve this goal. The proposed Reliability Standard should be clear and unambiguous regarding what is required and who is required to comply. The possible consequences for violating a proposed Reliability Standard should be clear and understandable to those who must comply. There should be a clear criterion or measure of whether an entity is in compliance with a proposed Reliability Standard. While a proposed Reliability Standard does not necessarily need to reflect the optimal method for achieving its reliability goal, 16 Section 215(a)(3) of the FPA defines the term Reliability Standard to mean ‘‘a requirement, approved by the Commission under this section, to provide for reliable operation of the bulk-power system. This term includes requirements for the operation of existing bulk-power system facilities, including cybersecurity protection, and the design of planned additions or modifications to such facilities to the extent necessary to provide for the reliable operation of the bulk-power system, but the term does not include any requirement to enlarge such facilities or to construct new transmission capacity or generation capacity.’’ 16 U.S.C. 824o(a)(3). Section 215(a)(4) of the FPA defines the term ‘‘reliable operation’’ broadly to mean, ‘‘* * * operating the elements of the bulk-power system within equipment and electric system thermal, voltage, and stability limits so that instability, uncontrolled separation, or cascading failures of such system will not occur as a result of a sudden disturbance, including a cybersecurity incident, or unanticipated failure of system elements.’’ 16 U.S.C. 824o(a)(4). 17 The Commission can independently enforce Reliability Standards. 16 U.S.C. 824o(e)(3). 18 Order No. 672 at P 262, 321–337. PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 64773 a proposed Reliability Standard should achieve its reliability goal effectively and efficiently. A proposed Reliability Standard must do more than simply reflect stakeholder agreement or consensus around the ‘‘lowest common denominator.’’ It is important that the Reliability Standards developed through any consensus process be sufficient to adequately protect Bulk-Power System reliability.19 17. A proposed Reliability Standard may take into account the size of the entity that must comply and the costs of implementation. However, the ERO should not propose standards that would achieve less than operational excellence or otherwise be inadequate to support Bulk-Power System reliability. A proposed Reliability Standard should be a single standard that applies across the North American Bulk-Power System to the maximum extent this is achievable taking into account geographic variations in grid characteristics, terrain, weather, and other factors. It should also account for regional variations in the organizational and corporate structures of transmission owners and operators, variations in generation fuel type and ownership patterns, and regional variations in market design if these affect the proposed Reliability Standard. Finally, a proposed Reliability Standard should have no undue negative effect on competition.20 Order No. 672 directs the ERO to explain how the proposal satisfies the factors the Commission identified and how the ERO balances any conflicting factors when seeking approval of a proposed Reliability Standard.21 18. Pursuant to section 215(d)(2) of the FPA and section 39.5(c) of the Commission’s regulations, the Commission is required to give due weight to the technical expertise of the ERO with respect to the content of a Reliability Standard or to a Regional Entity organized on an Interconnectionwide basis with respect to a proposed Reliability Standard or a proposed modification to a Reliability Standard to be applicable within that Interconnection. However, the Commission is not required to defer to the ERO or a Regional Entity with respect to the effect of a proposed Reliability Standard or proposed modification to a Reliability Standard on competition.22 19. The Commission’s regulations require the ERO to file with the 19 Order No. 672 at P 329. 20 Order No. 672 at P 332. 21 Id. at P 337. 22 18 CFR 39.5(c)(1), (3). E:\FR\FM\03NOP2.SGM 03NOP2 64774 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules Commission each new or modified Reliability Standard that it proposes to be made effective under section 215 of the FPA. The filing must include a concise statement of the basis and purpose of the proposed Reliability Standard, a summary of the Reliability Standard development proceedings conducted by either the ERO or Regional Entity, together with a summary of the ERO’s Reliability Standard review proceedings, and a demonstration that the proposed Reliability Standard is just, reasonable, not unduly discriminatory or preferential, and in the public interest.23 20. The Commission will remand to the ERO for further consideration a proposed new or modified Reliability Standard that the Commission disapproves in whole or in part.24 When remanding a Reliability Standard to the ERO, the Commission may order a deadline by which the ERO must submit a proposed or modified Reliability Standard. sroberts on PROD1PC70 with PROPOSALS C. The Electric Reliability Organization 21. NERC is a New Jersey nonprofit corporation with a membership comprised of the eight regional reliability councils covering the contiguous 48 States, several provinces in Canada and a portion of Baja California Norte, Mexico. NERC has operated as a voluntary, industrysponsored reliability organization formed to ensure the reliability of the North American Bulk-Power System. 22. NERC filed an application with the Commission on April, 4, 2006 seeking certification as the ERO. NERC stated that it expects NERC Council and NERC Corp. to merge upon being certified as the ERO by the Commission. NERC Corp. will be the surviving entity and will assume the assets and liabilities of NERC Council. 23. In its July 20, 2006 order certifying NERC as the ERO, the Commission directed NERC to submit a compliance filing incorporating various clarifications and revisions to its bylaws and rules of procedure. Among the improvements the Commission has directed NERC to undertake as the ERO are changes to expedite the existing process for developing new Reliability Standards in response to a Commission deadline to deal with an urgent situation. The order also directs NERC to modify its proposed pro forma delegation agreement for delegating 23 18 CFR 39.5(a). 24 18 CFR 39.5(e). VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 enforcement authority to a Regional Entity.25 D. NERC Petition for Approval of Reliability Standards 24. On April 4, 2006, as modified on August 28, 2006 NERC submitted to the Commission a petition seeking approval of the 107 proposed Reliability Standards that are the subject of this NOPR (NERC Petition).26 NERC states that 90 of these Reliability Standards, known as ‘‘Version 0’’ standards, became effective on a voluntary basis on April 1, 2005. It explains that the Version 0 standards ‘‘are a translation, with certain improvements, of NERC’s operating policies that were developed over several decades and its planning standards, which were approved in September 1997.’’ 27 In addition, the April 4, 2006 filing includes 12 new Reliability Standards that were approved by the NERC board of trustees for implementation in February 2006. According to NERC, the 107 proposed Reliability Standards collectively define overall acceptable performance with regard to operation, planning and design of the North American Bulk-Power System. Seven of these Reliability Standards specifically incorporate one or more ‘‘regional differences’’ (which can include an exemption from a Reliability Standard) for a particular region or subregion, resulting in eight regional differences. NERC requests that the Reliability Standards become effective on January 1, 2007, or an alternative date determined by the Commission. NERC also states that it simultaneously filed the proposed Reliability Standards with governmental authorities in Canada. 25. Each proposed Reliability Standard follows a common format that includes five organizational elements: a. Introduction 1. Title: a phrase that describes the topic of the Reliability Standard. 2. Number: A unique identification number that starts with three letters to identify the group followed by a dash and a three digit number, followed by a 25 Although the ERO Certification Order directs NERC to modify the pro forma delegation agreement, the pro forma agreement will not be refiled with the Commission before negotiating the individual delegation agreements. The pro forma agreement will form the basis for the individual Regional Entity delegation agreements that will be filed with the Commission. ERO Certification Order, 116 FERC ¶ 61,062 at P 518. 26 The filed proposed Reliability Standards are not attached to this NOPR but are available on the Commission’s eLibrary document retrieval system in Docket No. RM06–16–000 and are available on the ERO’s Web site, http://www.nerc.com/∼filez/ nerc_filings_ferc.html. 27 See NERC Petition at 28. PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 dash and the version number e.g., PRC– 014–0. 3. Purpose: One or more sentences that explicitly states the outcome to be achieved by the adoption of the Reliability Standard. 4. Applicability: 4.1 Each entity, as defined by the NERC Functional Model, that must comply with the Reliability Standard, such as Transmission Owner. b. Requirements R1. A listing of explicitly stated technical, performance and preparedness requirements and who is responsible for achieving them. c. Measures M1. A listing of the factors and the process NERC will use to assess performance and outcomes in order to determine non-compliance, and who is responsible for achieving the measures. Measures are ‘‘the evidence that must be presented to show compliance’’ with a standard and ‘‘are not intended to contain the quantitative metrics for determining satisfactory performance.’’ 28 d. Compliance 1. Compliance Monitoring Process 1.1 Compliance Monitoring Responsibility: NERC’s explanation of who is responsible for assessing performance or outcomes. 1.2 Compliance Monitoring Period and Reset Timeframe: The timeframe for each compliance monitoring period before it is reset for the next period. 1.3 Data Retention: How long compliance documentation needs to remain on file. 1.4 Additional Compliance Information: Any other information relating to compliance. 2. Levels of Non-Compliance: Usually four levels of non-compliance are identified, with level 1 being used for the least severe non-compliance and level 4 for the most severe noncompliance. e. Regional Differences Identification of any regional differences that have been approved by the applicable NERC Committee (including Regions that are exempt). Version History: The chronological history of changes to the standard. 26. In its April 4, 2006 petition, NERC requested ‘‘unconditional’’ approval of 77 proposed Reliability Standards and the glossary of terms. Further, NERC 28 NERC Comments at 104. NERC clarified its position that Measures did not include metrics after the Staff Preliminary Assessment interpreted the Measures section as including metrics. E:\FR\FM\03NOP2.SGM 03NOP2 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules sroberts on PROD1PC70 with PROPOSALS requested ‘‘conditional’’ approval of 25 proposed Reliability Standards. 27. In a June 26 filing, NERC revised its recommended action on the proposed Reliability Standards: (1) Unconditional approval of 51 proposed Reliability Standards, to become enforceable in the U.S. on a date in 2007 to be determined by the Commission; (2) conditional approval of 26 proposed ‘fill-in-the-blank’ Reliability Standards, to become enforceable in the U.S. on a date in 2007 to be determined by the Commission. NERC recommends that ‘‘conditional approval’’ shall mean ‘‘that any limitation of the standard caused by the presence of a regional ‘fill-in-theblank’ requirement * * * would be considered as a factor in the evaluation of circumstances surrounding an alleged violation of the standard and the determination of a violation and setting of an appropriate penalty;’’ and (3) conditional approval of another 25 proposed Reliability Standards lacking Measures or Levels of Non-Compliance, to become enforceable in the U.S. on a date in 2007 to be determined by the Commission. In addition, NERC plans to file modified Reliability Standards in early November 2006 that will add missing Measures and Levels of Noncompliance elements as well as risk factors. NERC recommends that the Commission act on the proposed modifications to Reliability Standards that are currently before the Commission in the same proceeding to achieve an initial set of Reliability Standards. 28. On August 28, 2006, NERC submitted 27 new and revised standards. The Commission will address these proposed new and revised Reliability Standards in this rulemaking proceeding, except for eight proposed Reliability Standards that relate to cyber security. Reliability Standards CIP–002 through CIP–009 will be addressed in a separate rulemaking proceeding in Docket No. RM06–22–000. E. Staff Preliminary Assessment 29. On May 11, 2006, Commission staff issued a ‘‘Staff Preliminary Assessment of the North American Electric Reliability Council’s Proposed Mandatory Reliability Standards’’ (Staff Preliminary Assessment). The Staff Preliminary Assessment identified staff’s preliminary observations and concerns regarding NERC’s then-current voluntary reliability standards. The Staff Preliminary Assessment describes issues common to a number of proposed Reliability Standards. It reviewed and identified issues regarding each individual Reliability Standard but did not make specific recommendations VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 regarding the appropriate action on a particular proposal. 30. The Staff Preliminary Assessment provided a basis for soliciting input regarding which of the proposed Reliability Standards should be approved, approved on an interim basis, or remanded to the ERO; established a platform from which to identify and prioritize potential problems with the proposed Reliability Standards; and provided a comprehensive and objective assessment of NERC’s then-current 102 Reliability Standards. 31. Comments on the Staff Preliminary Assessment were due by June 26, 2006. Entities that filed comments are listed in Appendix A to this NOPR. Approximately 50 persons filed comments in response to the Staff Preliminary Assessment. In addition, on July 6, 2006, the Commission held a technical conference to discuss NERC’s proposed Reliability Standards, the Staff Preliminary Assessment and other related issues. The technical conference was transcribed, and is a part of the record in this docket. 32. The written comments as well as the panel discussions at the technical conference have been very informative, and reference to the public comments is mentioned throughout the NOPR. Moreover, our proposed disposition of the Reliability Standards reflects our consideration of all comments that were submitted. III. Discussion A. The Commission’s Reliability Standards Proposal 33. The Commission’s proposed reliability regulation is entitled Mandatory Reliability Standards for the Bulk-Power System. Section 215(b) of the FPA obligates all users, owners and operators of the Bulk-Power System to comply with Reliability Standards that become effective pursuant to the processes set forth in the statute and in Part 39 of the Commission’s regulations. The complete text of the proposed rule is provided in the Attachment to this notice of proposed rulemaking. 34. The proposed regulation is organized into three sections: 40.1—Applicability; 40.2—Mandatory Reliability Standards; and 40.3—Availability of Reliability Standards. 1. Applicability 35. Section 40.1(a) of the proposed regulations provides that this Part applies to all users, owners and operators of the Bulk-Power System within the United States (other than PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 64775 Alaska and Hawaii) including, but not limited to, the entities described in section 201(f) of the FPA. This statement is consistent with § 215(b) of the FPA and section 39.2 of the Commission’s regulations. 36. Section 40.1(b) requires each Reliability Standard made effective under this Part to identify the subset of users, owners and operators to whom that particular Reliability Standard applies. 2. Mandatory Reliability Standards 37. Section 40.2 (a) of the proposed regulations requires that each applicable user, owner or operator of the BulkPower System comply with Commission-approved Reliability Standards developed by the ERO, and provides that the Commission-approved Reliability Standards can be obtained from the Commission’s Public Reference Room at 888 First Street, NE., Room 2A, Washington, DC 20426. 38. Section 40.2(b) of the proposed regulations provides that a proposed modification to a Reliability Standard proposed to become effective pursuant to § 39.5 shall not be effective until approved by the Commission. 3. Availability of Reliability Standards 39. Section 40.3 of the proposed regulations would require that the ERO maintain in electronic format that is accessible from the Internet the complete set of effective Reliability Standards that have been developed by the ERO and approved by the Commission. The Commission believes that ready access to an electronic version of the effective Reliability Standards will enhance transparency and help avoid confusion as to which Reliability Standards are mandatory and enforceable. We note that NERC currently maintains the existing, voluntary reliability standards on the NERC Web site. 40. While the NOPR discusses each proposed Reliability Standard and identifies the Commission’s proposed disposition for each Reliability Standard, neither the text nor the title of an approved Reliability Standard would be codified in the Commission’s regulations. Rather, as indicated above, each applicable user, owner or operator of the Bulk-Power System would be required to comply with Commissionapproved Reliability Standards that are available in the Commission’s Public Reference Room and on the Internet at the ERO’s Web site. 41. This approach would preserve the statutory options of approving a proposed Reliability Standard or modification to a Reliability Standard E:\FR\FM\03NOP2.SGM 03NOP2 64776 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules ‘‘by rule or order.’’ 29 While we anticipate that the Commission would address through the rulemaking process most, if not all, new Reliability Standards proposed by NERC, certain modifications may be appropriately addressed by order. B. Applicability Issues 1. Definition of User of the Bulk-Power System 42. In Order No. 672, the Commission acknowledged that, generally, a person directly connected to the Bulk-Power System selling, purchasing or transmitting electric energy over the Bulk-Power System is a ‘‘User of the Bulk-Power System.’’ However, the Commission declined to adopt a formal definition, explaining that, ‘‘until we have proposed Reliability Standards before us, we will reserve further judgment on whether a definition of ‘User of the Bulk-Power System’ is appropriate or whether the decision of who is a ‘User of the Bulk-Power System’ should be made on a case-bycase basis.’’ 30 43. We do not propose a generic definition of the term ‘‘User of the BulkPower System.’’ Rather, the Commission will determine applicability on a standard-by-standard basis.31 The phrase ‘‘user, owner or operator of the Bulk-Power System’’ as used in section 215(b) of the FPA indicates the scope of the Commission’s authority with regard to compliance with Reliability Standards. The proposed regulations would require that the ERO identify in each proposed Reliability Standard the specific subset of users, owners and operators of the Bulk-Power System to which the proposed Reliability Standard would apply. In fact, this is NERC’s current practice, and each of the 107 proposed Reliability Standards submitted by NERC includes an ‘‘applicability’’ provision that identifies the specific categories of applicable entities based on NERC’s Functional Model.32 Parties concerned that a 29 See 16 U.S.C. 824o(d)(2). sroberts on PROD1PC70 with PROPOSALS 30 Order No. 672 at P 99. 31 Many of the proposed Reliability Standards apply to reliability coordinators and balancing authorities and other clearly appropriate entities. We believe that such Reliability Standards do not raise applicability issues. Thus, in our standard-bystandard analysis, the Commission’s silence as to applicability issues means that it agrees with the ERO’s proposed applicability of a Reliability Standard. 32 See NERC Petition at 80–81. For information regarding the Functional Model, see NERC Reliability Functional Model, Function Definitions and Responsibility Entities, Version 2, February 10, 2004. NERC is currently developing revisions to the Functional Model (referred to as ‘‘Version 3’’) that, among other things, changes the name of the VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 proposed Reliability Standard would apply more broadly than the statute allows may raise their concern in the context of the specific Reliability Standard. We believe that this approach provides sufficient notice regarding which entities are ‘‘users of the BulkPower System’’ that must comply with a specific Reliability Standard. 2. Use of the NERC Functional Model 44. As mentioned above, each Reliability Standard proposed by the ERO identifies entities to which the Reliability Standard applies based on the NERC Functional Model.33 The Staff Preliminary Assessment observed that the Functional Model omits the categories of ‘‘users, owners and operators,’’ and includes other categories of entities that are not users, owners or operators of the Bulk-Power System.34 45. NERC states that, while the term ‘‘users, owners and operators’’ defines the statutory applicability of the Reliability Standards, the Functional Model adds descriptive detail to reliability functions so the applicability of each Reliability Standard can be clearly defined. NERC explains that ‘‘every entity class described in the Reliability Functional Model performs functions that are essential to the reliability of the bulk power system.’’ 35 Several commenters concur with NERC and suggest that the Commission approve the Functional Model so that future modifications would require Commission approval. MISO and Allegheny point to specific examples of what they consider ambiguities in the NERC Functional Model, primarily in the context of applicability to RTO or ISO functions. 46. The objective here is to make sure that each Reliability Standard is sufficiently clear with respect to applicability and specifically identifies each category of entities to which it applies. The NERC Functional Model reliability authority to ‘‘reliability coordinator’’ and explains its role in ‘‘wide area’’ reliability oversight. Both versions of the Functional Model are available on NERC’s Web site at: http://www.nerc.com/∼filez/ functionalmodel.html. 33 The functional categories include: (1) Reliability coordinator, (2) balancing authority, (3) planning authority, (4) transmission planner, (5) transmission operator, (6) transmission service provider, (7) transmission owner, (8) resource planner, (9) distribution provider, (10) generator owner, (11) generator operator, (12) load-serving entity, (13) purchasing-selling entity, (14) compliance monitor. ERO Certification Order, 116 FERC ¶ 61,062, at n.247. 34 Staff Preliminary Assessment at 24. 35 NERC Comments at 96. In addition to its April 4, 2006, Petition, NERC filed comments in response to the Staff Preliminary Assessment on June 26, 2006 (NERC Comments). PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 represents a reasonable and practical approach to determining the applicability of a particular Reliability Standard. This approach is consistent with the ERO Certification Order, in which the Commission, in the context of addressing NERC’s proposed compliance registry, found that ‘‘NERC’s functional approach provides a reasonable means to ensure that the proper entities are registered and that each knows which Commissionapproved Reliability Standard(s) are applicable to it.’’ 36 Thus, we agree with NERC that identifying specific functional categories of entities that comprise users, owners and operators of the Bulk-Power System provides a useful level of detail and appears to be more practical than simply identifying an applicable entity as a user, owner or operator. Accordingly, we propose to use the NERC functional model to identify the applicable entities to which each Reliability Standard applies. 47. We are mindful of the concerns of certain commenters that the Functional Model may contain ambiguities and add or omit certain entities or functions. Elsewhere in the NOPR we are proposing to require NERC to specifically address these concerns.37 Further we note that NERC’s Rules of Procedure pertaining to the NERC compliance registry provide that NERC will notify an entity before it is formally registered and allow an opportunity for an entity to challenge its inclusion on the compliance registry.38 This process should resolve any specific disputes that may arise. 48. Some commenters suggest that any future modification to the Functional Model could affect the categories of entities that must comply with a particular Reliability Standard, without the benefit of the open, stakeholder process required when the ERO develops a modification to a Reliability Standard. Because the Functional Model is so closely linked with applicability of the Reliability Standards, the Commission proposes to require the ERO to submit any future modifications to the Functional Model that may affect the applicability of the Reliability Standards for Commission approval. 3. Applicability to Small Entities 49. NERC indicates that a Reliability Standard may identify limitations on 36 ERO Certification Order, 116 FERC ¶ 61,062, at P 689. 37 For example, commenters’ concerns regarding applicability to ISOs and RTOs are discussed in detail in the chapter on proposed communications Reliability Standards. 38 See NERC Rule of Procedure section 501.1.3. E:\FR\FM\03NOP2.SGM 03NOP2 sroberts on PROD1PC70 with PROPOSALS Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules applicability based on electric facility characteristics ‘‘such as generators with a nameplate rating of 20 MW or greater, or transmission facilities energized at 200 kV or greater.’’ 39 It explains that, ‘‘to ensure that the standards are applied in a cost effective manner and the applicability of the standards is focused on entities having a material impact on reliability of the bulk power system, it is necessary in the future to begin providing greater specificity in the applicability section of the standards.’’ 40 NERC, as the ERO, indicates that it plans to develop a set of guidelines on such limitations for the standard drafting teams and to require that a new Reliability Standard or a modification to an existing Reliability Standard, going forward, include this degree of specificity. 50. A number of commenters advocate that a mandatory Reliability Standard should not apply to entities that have no ‘‘material impact’’ on the Bulk-Power System.41 These commenters also ask that the Commission encourage and facilitate contractual arrangements for the delegation of compliance obligations faced by small entities to Joint Action Agencies (JAAs) and other organizations that have ongoing relationships with NERC. 51. While NERC has yet to submit a specific proposal, the Commission agrees that it is important to examine the impact a particular entity may have on the Bulk-Power System in determining the applicability of a specific Reliability Standard. However, we do not believe that a ‘‘blanket waiver’’ approach that would exempt entities below a threshold level from compliance with all Reliability Standards would be appropriate because there may be instances where a small entity’s compliance is critical to reliability. For instance, the reporting of a sabotage event required by CIP–001– 0 may be important regardless of the size of the entity since such reporting helps others by putting them on notice of potential attacks to their own systems. For purposes of assessing compliance with a particular Reliability Standard, it may be appropriate to differentiate among certain subsets of users, owners, and operators. For example, the requirement to have adequate communications capabilities to address real-time emergency conditions (COM–001–0 and COM– 002–1) may be necessary for all applicable entities regardless of size or role, although we understand that the 39 NERC Petition at 9. 40 Id. at 82. 41 See, e.g., Alcoa, APPA, BPA and TAPS. VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 implementation of these requirements for applicable entities may vary based on size or role.42 Therefore, we propose to direct NERC to take such factors into account in determining applicability, as well as compliance requirements, for a particular Reliability Standard. 52. In addition, the Commission solicits comment on whether, despite the existence of a threshold in a particular standard (e.g., generators with a nameplate rating of 20 MW or over), the ERO or a Regional Entity should be permitted to include an otherwise exempt facility, e.g., a 15 MW generator, on a facility-by-facility basis, if it determines that the facility is needed for Bulk-Power System reliability. If so, what if any process should the ERO or Regional Entity provide when making such a determination? 53. NERC has proposed registration of joint action agencies or similar organizations that would register on behalf of their members. APPA asks that NERC permit a joint action agency or similar organization to accept compliance responsibilities on a standard-by-standard basis. We propose to direct NERC to develop procedures which permit a joint action agency or similar organization to accept compliance responsibility on behalf of their members. 4. Regional Reliability Organizations 54. NERC has proposed 28 Reliability Standards that would apply, in whole or in part, to a regional reliability organization.43 Many of the 28 Reliability Standards concern such matters as data gathering, data base maintenance, preparation of assessments and other ‘‘process’’ related responsibilities. Others are what have been referred to as ‘‘fill-in-the-blank’’ Reliability Standards. Many of the proposed Reliability Standards that have compliance measures refer to the regional reliability organization as a compliance monitor. 42 For example, a dedicated phone line that would remain operative during a power failure may suffice for a small cooperative with minimal BulkPower System facilities, while a large investorowned utility may need a sophisticated communication system with redundancy and diverse routing requirements. 43 NERC states that the regional reliability organizations are the same as the existing eight regional reliability councils and that ‘‘a regional reliability organization may or may not be the same organization that is providing statutory functions delegated by agreement with a regional entity.’’ NERC Comments at 101. In the order certifying NERC as the ERO, the Commission asked that NERC provide additional information regarding the possible ongoing role of the regional reliability organizations and their relationship with Regional Entities. ERO Certification Order, 116 FERC ¶ 61,062, at P 76. PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 64777 55. The Staff Preliminary Assessment expressed concern as to whether a Reliability Standard that applies to a regional reliability organization is enforceable pursuant to section 215(e) of the FPA, since it is not clear whether a regional reliability organization is a user, owner or operator of the BulkPower System. NERC contends that such Reliability Standards are enforceable, and identifies several legal theories to support its position. Specifically, NERC contends that such Reliability Standards are enforceable because: (1) Each regional reliability organization will voluntarily register as a member of NERC and thereby be bound to comply; 44 (2) a regional reliability organization performs functions on behalf of its members that are users, owners and operators of the Bulk-Power System; and (3) NERC is in the process of updating its functional model to provide a functional description of a regional reliability organization that includes functions that NERC believes are consistent with a system operator. EEI and other commenters question whether a Reliability Standard can be enforced against a regional reliability organization. 56. The Commission is not persuaded that a regional reliability organization’s compliance with a Reliability Standard can be enforced as proposed by NERC. Section 215 of the FPA does not appear to recognize a regional reliability organization as a user, owner or operator of the Bulk-Power System. Moreover, NERC’s arguments assume that each regional reliability organization will voluntarily join as a member of NERC and be legally bound as a member to comply. Further, NERC’s claim that a regional reliability organization will perform functions on behalf of its members that are users, owners and operators of the Bulk-Power System does not establish a binding agency relationship that would create a legal basis for requiring regional reliability organization compliance with Reliability Standards. While it is important that the existing regional reliability organizations continue to fulfill their current roles during the transition to a regime where Reliability Standards are mandatory and enforceable, we do not understand why, once the transition is complete, a regional reliability organization should play a role separate from a Regional Entity whose function and 44 Pursuant to NERC’s ERO application, a member ‘‘accepts the responsibility to promote, support, and comply with the Bylaws, Rules of Procedure, and Reliability Standards * * *.’’ E:\FR\FM\03NOP2.SGM 03NOP2 64778 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules sroberts on PROD1PC70 with PROPOSALS responsibility is explicitly recognized by section 215 of the FPA. We seek comment on whether there is any need to maintain separate roles for regional reliability organizations with regard to establishing and enforcing Reliability Standards under section 215. 57. At present, 28 of the proposed Reliability Standards are written to apply solely or partially to regional reliability organizations.45 We do not believe it is necessary or useful to remand those Reliability Standards simply because they refer to the regional reliability organization. For the five standards that apply partially to regional reliability organizations, the Commission proposes action similar to other Reliability Standards that need improvement, i.e., to approve them and direct modification.46 For the other Reliability Standards, as an interim measure, we propose to direct the ERO to use its authority pursuant to § 39.2(d) of our regulations to require users, owners, and operators to provide to the regional reliability organizations the information 47 related to data gathering, data maintenance, reliability assessments and other ‘‘process’’-type functions.48 We believe that this approach is necessary to ensure that there will be no ‘‘gap’’ during the transition from the current voluntary reliability model to a mandatory system in which Reliability Standards are enforced by the ERO and Regional Entities. In the long run, we propose to make the Regional Entities responsible, through delegation by the ERO, for the functions currently performed by the regional reliability organizations. As part of this change, the delegation agreements to the Regional Entities should be modified to bind the Regional Entities to assume these duties and responsibility for noncompliance. In addition, the Reliability Standards should be modified to apply through the Functional Model, to the users, owners and operators of the Bulk-Power System that are responsible for providing information. 58. Further, the Commission proposes to require that any Reliability Standard 45 BAL–002, EOP–004, EOP–007, FAC–003, IRO– 001, MOD–001, MOD–002, MOD–003, MOD–004, MOD–005, MOD–008, MOD–009, MOD–011, MOD– 013, MOD–014, MOD–015, MOD–016, MOD–024, MOD–025, PRC–002, PRC–003, PRC–006, PRC–012, PRC–013, PRC–014, PRC–020, TPL–005, and TPL– 006. 46 BAL–002, EOP–004, FAC–003, IRO–001, and MOD–016. Three of these (EOP–004, FAC–003 and MOD–016) are ‘‘data-gathering’’ or ‘‘process-type’’ Reliability Standards. 47 EOP–007, MOD–011, MOD–013, MOD–014, MOD–015, MOD–024, MOD–025, PRC–002, PRC– 003, PRC–006, PRC–012, PRC–013, PRC–014, PRC– 020, TPL–005, and TPL–006. 48 18 CFR 39.2(d). VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 that references a regional reliability organization as a compliance monitor be modified to refer to the ERO as the compliance monitor. 59. Finally, for the remaining seven Reliability Standards (fill-in-the-blank standards),49 we propose to request additional information on these proposed Reliability Standards pending receipt of additional information, as detailed below in the discussion on fillin-the-blank standards. 5. Bulk-Power System v. Bulk Electric System 60. As noted above, Commissionapproved Reliability Standards are to provide for the Reliable Operation of the Bulk-Power System. Generally speaking, the Nation’s Bulk-Power System has been described as consisting of ‘‘generating units, transmission lines and substations, and system controls.’’ 50 The transmission system component of the Bulk-Power System is understood to provide for the movement of power in bulk to points of distribution for allocation to retail electricity customers. Essentially, whereas transmission lines and other parts of the transmission system, including control facilities serve to transmit electricity in bulk form from the generation sources to concentrated areas of retail customers, the distribution system moves the electricity to where these retail customers consume it at a home or business. 61. Section 215(b)(1) of the FPA provides that all users, owners and operators of the Bulk-Power System must comply with Commissionapproved Reliability Standards. For purposes of section 215, the statute defines ‘‘Bulk-Power System’’ to mean: (A) Facilities and control systems necessary for operating an interconnected electric energy transmission network (or any portion thereof); and (B) electric energy from generating facilities needed to maintain transmission system reliability. The term does not include facilities used in the local distribution of electric energy.51 62. Notably, the statutory definition of Bulk-Power System does not establish voltage threshold limits on applicable transmission facilities or electric energy from generating facilities. It does, however explicitly exclude facilities used in the local distribution of 49 MOD–001, MOD–002, MOD–003, MOD–004, MOD–005, MOD–008, and MOD–009. 50 Maintaining Reliability in a Competitive U.S. Electricity Industry, Final Report of the Task Force on Electric System Reliability, Secretary of Energy Advisory Board, U.S. Department of Energy (September 1998) at 2, 6–7. 51 16 U.S.C. 824o(a)(1). PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 electricity. The NERC glossary, in contrast, states that Reliability Standards apply to the ‘‘bulk electric system,’’ which is defined in terms of a voltage threshold, as follows: As defined by the Regional Reliability Organization, the electrical generation resources, transmission lines, interconnections with neighboring systems, and associated equipment, generally operated at voltages of 100 kV or higher. Radial transmission facilities serving only load with one transmission source are generally not included in this definition.52 63. While NERC’s definition generally excludes transmission facilities operated below 100 kV, NERC allows each regional reliability organization to add specificity to this general obligation. 64. The Staff Preliminary Assessment expressed concern that differences between the statutory definition of BulkPower System and NERC’s definition of bulk electric system create a discrepancy that could result in reliability gaps.53 Staff also expressed concern that allowing a regional reliability organization to define what facilities are included in the bulk electric system could result in conflicting definitions—potentially subjecting or excluding similar facilities from compliance with the Reliability Standards. 65. NERC recommends that, for the initial approval of proposed Reliability Standards, the continued use of NERC’s definition of Bulk Electric System is appropriate. In the longer term, NERC suggests that change may be appropriate but that any global change at this juncture will affect many Reliability Standards and is best achieved through the Reliability Standards development process. Some commenters emphasize that all facilities necessary for BulkPower System reliability must be covered by the Reliability Standards, and none should be omitted by a discretionary act of a regional reliability organization. Many commenters, however, state that these excluded transmission systems have not been the cause of any of the large blackouts and therefore should not be considered as part of the Bulk-Power System.54 52 See NERC Petition, Exhibit A, NERC glossary at 2. 53 Staff Preliminary Assessment at 25–26. For example, the two 230 kV cables that connect Mirant’s Potomac River Plant and the 69 kV transmission facilities that supply portions of Washington, DC were not included in the MAAC definition of bulk electric system. New York City’s 138 kV system is not included in NPCC’s definition of bulk electric system. 54 Staff review of selected Form No. 1 reports filed with the Commission indicates that 25 percent or more of many public utilities’ total transmission E:\FR\FM\03NOP2.SGM 03NOP2 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules sroberts on PROD1PC70 with PROPOSALS Furthermore, some commenters, including those representing small transmission owners, prefer the continued use of the NERC definition and caution against simply replacing all references to bulk electric system with Bulk-Power System because (1) the latter term as defined in section 215 of the FPA is ambiguous and (2) it would likely lead to an unintended substantive change in various Reliability Standards. 66. We believe that Congress intended that the definitions of Bulk-Power System and Reliable Operation 55 in section 215 of the FPA to further the objective of maintaining the reliability of the entire Bulk-Power System, including maintaining the reliability of all of the elements of the transmission component of the Bulk-Power System. We believe that the transmission elements excluded under NERC’s bulk electric system approach, including transmission that serves critical load centers, are subject to the Commission’s jurisdiction under section 215. 67. The term Bulk-Power System as defined in section 215 of the FPA is one determinant of the Commission’s jurisdiction for reliability purposes (the phrase ‘‘user, owner or operator’’ being another). While we do not believe that it is appropriate to categorically exclude any class of facilities from the definition of Bulk-Power System, we recognize that a particular Reliability Standard may appropriately only need to apply to a subset of facilities that comprise the Bulk-Power System. Thus, the Commission may approve a Reliability Standard that applies to the bulk electric system as defined by NERC without limiting the ability of the ERO to develop and propose standards applicable to the broader set of facilities encompassed by the statutory definition as may be necessary. 68. The Commission believes that the ERO has suggested a sensible transition approach. The Commission proposes that, for the initial approval of proposed line miles operate below 100 kV. Yet such facilities may well be as much a part of an entity’s portion of the nation’s integrated transmission system component of the Bulk-Power System as the transmission facilities operating at or above 100 kV because these lower voltage facilities support the higher voltage facilities. Indeed, it is not unusual to see outages of 69 kV transmission facilities limiting the higher voltage transmission facilities with which they are networked. 55 As mentioned earlier, ‘‘Reliable Operation means operating the elements of the Bulk-Power System within equipment and electric system thermal, voltage, and stability limits so that instability, uncontrolled separation, or cascading failures of such system will not occur as a result of sudden disturbance, including a Cybersecurity Incident, or unanticipated failure of system elements.’’ See Order No. 672 at P 64. See also 18 CFR 39.1. VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 Reliability Standards, the continued use of NERC’s definition of bulk electric system as set forth in the NERC glossary is appropriate.56 However, we interpret the term ‘‘bulk electric system’’ to apply to all of the ≥ 100 kV transmission systems and any underlying transmission system (< 100 kV) that could limit or supplement the operation of the higher voltage transmission systems. It would also include transmission to all significant local distribution systems (but not the distribution system itself), load centers, and transmission connecting generation that supplies electric energy to the system. If there is a question concerning which underlying transmission system limits or supplements the operation of the higher voltage transmission system, the Commission proposed that the ERO would provide the final determination on a case by case basis. 69. Continued reliance on multiple regional interpretations of the NERC definition of bulk electric system, which omits significant portions of the transmission system component of the Bulk-Power System that serve critical load centers, is not appropriate. We propose that NERC eventually revise the current definition of bulk electric system to ensure that all facilities, control systems, and electric energy from generation resources that impact system reliability are included within the scope of applicability, and that NERC’s revision is consistent with the statutory term Bulk-Power System. 70. While the approach outlined above may result initially in a Reliability Standard applying to a set of Bulk-Power System facilities that is less than that of the full reach of the Commission’s jurisdiction pursuant to section 215 of the FPA (the ‘‘gap’’ to which the Staff Preliminary Assessment referred), we agree with the commenters that a wholesale substitution of one term for another could lead to unintended substantive changes within certain Reliability Standards. 71. The Commission solicits comment on this interpretation and whether the Regional Entities should, in the future, play a role in either defining the facilities that are subject to a Reliability Standard or be allowed to determine an exception on a case-by-case basis. 64779 C. Mandatory Reliability Standards 1. Legal Standard for Approval of Reliability Standards 72. Section 215(d)(2) of the FPA states that the Commission may approve a Reliability Standard if it determines that a Reliability Standard is just, reasonable, not unduly discriminatory or preferential, and in the public interest. In Order No. 672, the Commission addressed issues regarding the application of the statutory standard in our review of a proposed Reliability Standard. The Commission identified a series of factors it would consider when assessing whether to approve or remand a Reliability Standard.57 Further, Order No. 672 stated that the Commission would, consistent with the statute, give ‘‘due weight’’ to the technical expertise of the ERO with respect to the content of a proposed Reliability Standard. However, due weight does not equate to a rebuttable presumption that a proposed Reliability Standard meets the statutory requirement of being just, reasonable, not unduly discriminatory or preferential, and in the public interest.58 Further, the Commission review of a proposed Reliability Standard would balance any conflict between a proposed Reliability Standard and competition on a case-by-case basis.59 73. NERC suggests that a proposed Reliability Standard that has been developed through its Reliability Standards development process, which has been certified by ANSI as being open, inclusive, balanced and fair, is assured to be ‘‘just, reasonable, and not unduly discriminatory or preferential.’’ 60 NERC also proposes 10 ‘‘benchmarks’’ for evaluating a proposed Reliability Standard that, according to NERC, ‘‘may be helpful’’ to the Commission in determining whether a Reliability Standard is ‘‘just, reasonable and not unduly discriminatory or preferential’’ if due process provided by the ANSI process alone does not suffice.61 In addition, NERC suggests that the Commission should consider the benchmarks when determining whether a proposed Reliability Standard ‘‘is in the public interest.’’ 74. In Order No. 672, the Commission rejected the notion that it would 57 Order No. 672 at P 262, 321–37. 58 Id. at P 345. 59 Id. at P 378. 60 NERC Petition at 6–8. 56 We note that the regional definitions have not been submitted to us and we are not determining the appropriateness of any regional definition in this proceeding. PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 61 Id. at 9–12. The benchmarks are: Applicability; purpose; performance requirements; measurability; technical basis in engineering and operations; completeness; consequences for noncompliance; clear language; practicality; and consistent terminology. E:\FR\FM\03NOP2.SGM 03NOP2 64780 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules presume that a proposed Reliability Standard developed through an ANSIcertified process automatically satisfies the statutory standard of review.62 While an open and transparent process certainly is extremely important to the overall success of implementing section 215 of the FPA, an evaluation of any proposed Reliability Standard must focus primarily on matters of substance rather than procedure. We will, therefore, review each Reliability Standard in addition to the process through which it was approved by NERC to ensure that the Reliability Standard is just, reasonable, not unduly discriminatory or preferential, and in the public interest. 75. Likewise, with regard to NERC’s benchmarks, we will not constrain ourselves by approving or remanding a proposed Reliability Standard based on whether it satisfies the benchmarks. In our order certifying NERC as the ERO, we determined that the benchmarks and other factors would be useful for the ERO in developing proposed Reliability Standards.63 The Commission did not suggest that it would rely on the benchmarks in its review of a proposed Reliability Standard. Rather, as discussed above, Order No. 672 identified factors that the Commission will consider when determining whether a proposed Reliability Standard satisfies the statutory requirements.64 2. Commission Options When Acting on a Reliability Standard 76. NERC recommends that the Commission ‘‘conditionally approve’’ certain proposed Reliability Standards that it believes satisfy the statutory requirement but require improvement.65 The concept of conditional approval of a Reliability Standard was discussed at length in the July 6, 2006 technical conference.66 Many commenters responding to the Staff Preliminary Assessment support some form of conditional approval, while others oppose the concept out of concern that conditional approval will further complicate the understanding of sroberts on PROD1PC70 with PROPOSALS 62 Order No. 672 at P 338. 63 ERO Certification Order, 116 FERC ¶ 61,062, at P 241. 64 Order No. 672 at P 262, 321–37. 65 See NERC Petition at 109; NERC Comments at 14–19. 66 July 6, 2006 technical conference, Tr. at 14–47. According to NERC, conditional approval means that the Commission would approve the Reliability Standards as mandatory and enforceable. In enforcing conditional standards, NERC and the Regional Entities would factor into the determination of violations and the imposition of penalties that certain requirements may be regional ‘‘fill-in-the-blank’’ requirements or may be missing compliance information. VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 mandatory Reliability Standards and present a ‘‘moving target’’ because NERC has proposed a plan to modify numerous proposed Reliability Standards before the Commission would approve them in a final rule. 77. The Commission believes that conditional approval may be a useful procedural tool that it may want to use when reviewing a Reliability Standard proposed at some future date. However, after careful consideration, the Commission is not proposing to conditionally approve any of the 107 Reliability Standards currently before us. Rather, as reflected in our substantive analysis of each Reliability Standard, we will propose one of four actions: 78. Approve: Approval is appropriate for a proposed Reliability Standard that the Commission determines to be ‘‘just, reasonable, not unduly discriminatory or preferential, and in the public interest,’’ and as to which the Commission has not identified any additional issues that the ERO needs to address at this time to improve the Reliability Standard. Mandatory compliance with the Reliability Standard would be required as of the effective date of the Final Rule. The Commission has approved NERC’s plan to review each Reliability Standard within five years from the effective date of the standard or its latest revision. 79. Approve as mandatory and enforceable; and direct modification pursuant to section 215(d)(5): The Commission would take two separate and distinct actions under the statute. First, pursuant to section 215(d)(2) of the FPA, the Commission would approve a proposed Reliability Standard, which would be mandatory and enforceable upon the effective date of the Final Rule. Second, the Commission would direct NERC to submit a modification of the Reliability Standard to address specific issues or concerns identified by the Commission pursuant to section 215(d)(5) of the FPA.67 80. This option is appropriate for a large number of proposed Reliability Standards where the Commission has identified improvements which are 67 See ERO Certification Order at P 233, where the Commission also noted that, if a Reliability Standard is inadequate or has unintended consequences, it may order the ERO to submit a modification pursuant to section 215(d)(5) of the FPA, 16 U.S.C. 824o(d)(5), which provides that ‘‘[t]he Commission * * * may order the Electric Reliability Organization to submit to the Commission a proposed reliability standard or modification to a reliability standard that addresses a specific matter if the Commission considers such a new or modified reliability standard appropriate to carry out this section.’’ PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 necessary or appropriate, but where the proposed Reliability Standard nonetheless satisfies the statutory requirement that it be just, reasonable, not unduly discriminatory or preferential, and in the public interest. This approach also allows us to give due weight to the technical expertise of the ERO in approving a Reliability Standard, yet also provides a mechanism to have the Commission’s concerns addressed. Thus, where appropriate, we propose to approve these Reliability Standards as mandatory and enforceable, and direct modifications pursuant to section 215(d)(5). For these Reliability Standards, we provide guidance with regard to how and why they need to be improved and may establish a deadline by which a modification must be resubmitted to the Commission. 81. Request additional information: There are some Reliability Standards that do not contain sufficient information to enable us to propose a disposition. For those Reliability Standards, we will identify the information that we require, and propose not to approve or remand these Reliability Standards until all the relevant information is received. For example, many of the fill-in-the-blank Reliability Standards will not be approved or remanded until the Commission has received all the necessary information. We may set a deadline by which NERC must submit the necessary information. 82. Remand: Remand is appropriate for a proposed Reliability Standard that does not satisfy the statutory criteria that it be ‘‘just, reasonable, not unduly discriminatory or preferential, and in the public interest.’’ The Commission may choose to set a deadline for NERC to submit a modified Reliability Standard.68 In the interim, the remanded standard would not be mandatory and enforceable. The Commission will not hesitate to remand a Reliability Standard that it finds does not provide for an adequate level of reliability.69 3. Prioritizing Modifications to Reliability Standards 83. As discussed above, the Commission is proposing to approve certain Reliability Standards and, as a separate action, is proposing to direct the ERO to modify many of the same Reliability Standards pursuant to section 215(d)(5) of the FPA. The 68 See 18 CFR 39.5(g) (‘‘[t]he Commission, when remanding a Reliability Standard * * * may order a deadline by which the [ERO] must submit a * * * modified Reliability Standard’’). 69 Order No. 672 at P 329. E:\FR\FM\03NOP2.SGM 03NOP2 sroberts on PROD1PC70 with PROPOSALS Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules Commission recognizes that it is not reasonable to expect the modification of such a substantial number of Reliability Standards in a short period of time. Rather, the ERO will have to set priorities regarding the order and timing for developing modified Reliability Standards and resubmitting them to the Commission. 84. Many commenters recognize the need for NERC to identify priorities in terms of which Reliability Standards are most critical to reliability and should be revised immediately, and which are of lesser priority. A number of commenters, including WIRAB, suggest detailed plans on how to set such priorities, focusing primarily on identifying those Reliability Standards that are most critical to maintaining reliability and those that are closest to being ready for implementation. Commenters suggest a staggered schedule, some suggesting several years for completion. 85. We propose that NERC first focus its resources on modifying those Reliability Standards that have the largest impact on near term Bulk-Power System reliability. Many of the proposed modifications that reflect Blackout Report recommendations fit this description and should be a high priority. The Commission has identified a group of Reliability Standards that it believes should be given the highest priority by the ERO based on the above guidance.70 However, this is not meant to be an exclusive or inflexible list and ERO and commenter input is welcome. We propose that NERC address the modifications we propose for these high priority Reliability Standards within 1 year of the effective date of the Final Rule. 86. In addition, we propose that NERC address certain Reliability Standards that are not necessarily identified above as ‘‘high priority’’ may be modified in a relatively short time frame where the proposed modifications are relatively minor or ‘‘administrative’’ in nature. We believe that the ERO may complete such modifications relatively quickly with little diversion of ERO resources. Such modifications may include a proposal to modify a Reliability Standard to: (1) Identify the ERO as the compliance monitor rather than the regional reliability organization; (2) include Measures and Levels of Noncompliance; or (3) require other relatively minor clarifications or modifications. 87. While the Commission has identified some modifications to Reliability Standards that it believes 70 See Appendix D (High Priority List). VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 would be appropriate for the ERO to resubmit as high priority items, we believe that it is important that the ERO develop a detailed, comprehensive work plan to address all of the modifications that are directed pursuant to a final rule. The work plan should take a staggered approach and complete all the proposed modifications either within two or three years from the effective date of the final rule. 88. The Commission believes that this proposal strikes a reasonable balance between the need to timely implement identified improvements to the existing Reliability Standards that will further Bulk-Power System reliability and the need for the ERO to develop modifications with industry input using its open, stakeholder process. The Commission may use its authority, pursuant to § 39.5(g) of the Commission’s regulations, to set a deadline for the ERO to submit a modified Reliability Standard if the Commission is not satisfied with the time frame proposed by the ERO work plan. 89. The Commission solicits comment on its prioritization proposal. 4. Trial Period 90. A number of commenters favor a phase-in of Reliability Standards with a trial period, during which Reliability Standards would be mandatory, but no penalties would be assessed.71 Various commenters suggest that the trial period should last for a range of six months to five years. 91. NERC, in its application for ERO certification, proposed a six month ‘‘notice period’’ during which NERC would determine ‘‘financial’’ penalties and provide notice of the penalties to violating entities, but would not collect any penalties. NERC stated that it would submit a report on the effectiveness of the revised Sanction Guidelines to the Commission by May 31, 2007. In the ERO Certification Order, the Commission rejected requests to lengthen NERC’s proposed six-month ‘‘notice period’’ because it ‘‘appropriately balances the time needed for NERC to implement the Sanction Guidelines with the countervailing interest in activating the mandatory Compliance Enforcement program as rapidly as possible.’’ 72 92. The Commission, however, is increasingly concerned that a trial period that commences with the effective date of mandatory Reliability 71 See, e.g., Alberta, APPA, ISO/RTO Council, PSEG, WIRAB and WECC. 72 ERO Certification Order, 116 FERC ¶ 61,062, at P 462. PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 64781 Standards may interfere with mandatory and enforceable Reliability Standards being in effect by next summer. Moreover, the proposed Reliability Standards have already been in effect for a substantial period of time on a voluntary basis. Thus, the Commission proposes to eliminate a formal trial period. Entities that have complied with NERC’s standards on a voluntary basis should be familiar with the proposed mandatory Reliability Standards and what is required for compliance. Therefore, an extensive trial period is unnecessary for such entities. 93. The Commission recognizes that there are entities that have not historically participated in the voluntary system (including some relatively small entities) that may not be familiar with the proposed mandatory Reliability Standards and what is required for compliance. For such entities, we propose that the ERO and Regional Entities use their enforcement discretion in imposing penalties on such entities for the first six months the Reliability Standards are in effect. However, the Commission, the ERO, and the Regional Entities would still retain the authority to impose penalties on such entities if warranted by the circumstances. 5. International Coordination of Remands 94. Canadian commenters, such as the FPT Group, Alberta, CEA and Ontario IESO, request that the Commission affirm that it will seek to coordinate with authorities in Canada prior to any exercise of conditional approval, remand or rejection of a proposed Reliability Standard; and that each existing NERC standard will retain its present applicability until such time as the Commission approves it as a mandatory Reliability Standard. 95. The Commission has recognized the importance of international coordination in both Order No. 672 73 and the ERO Certification Order.74 In the latter order, the Commission directed NERC to revise its proposed coordination process to: (1) Identify the relevant regulatory bodies and their respective standards approval and remand processes that will be implicated in any remand of a proposed standard; and (2) specify actual steps to coordinate all of these processing requirements, including those that may be necessary to expedite processing a proposed Reliability Standard that must be remanded. The Commission believes 73 See Order No. 672 at P 400. 74 ERO Certification Order, 116 FERC ¶ 61,062, at P 286. E:\FR\FM\03NOP2.SGM 03NOP2 64782 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules that NERC’s development of a coordination process, together with existing means of communication and coordination such as the U.S.—Canada Bilateral Electric Reliability Oversight Group, will provide the necessary mechanisms for international coordination. sroberts on PROD1PC70 with PROPOSALS D. Common Issues Pertaining to Reliability Standards 96. As explained in the Staff Preliminary Assessment,75 certain issues are common to a number of proposed Reliability Standards. Immediately below, we discuss these common issues, followed by a discussion and determination of each individual proposed Reliability Standard. 1. Blackout Report Recommendations 97. As explained in the Staff Preliminary Assessment, the Blackout Report identified a number of factors common to eight major blackouts experienced in North America since 1965 and made 46 specific recommendations to improve reliability based on the lessons learned from the August 2003 blackout and previous blackouts. These included specific recommendations to modify certain existing Reliability Standards. While recognizing the progress NERC has made, the Staff Preliminary Assessment also expressed concern that the proposed Reliability Standards continue to reflect several of the deficiencies identified by the Blackout Report. 98. In its comments, NERC emphasizes that implementation of the Blackout Report recommendations has been its top priority since August 2003 and describes the progress it has made in addressing specific recommendations and the status of ongoing work. It states that some of the hardest work on issues such as relay loadability and reactive power require extensive investigation before standards can be drafted. Other commenters suggest that the Blackout Report recommendations provide useful direction for areas where the Reliability Standards require modification and for setting priorities when determining which Reliability Standards to modify first. A few commenters ‘‘downplayed’’ the significance of the Blackout Report, noting that there is no statutory basis to accept all the Task Force’s recommendations as absolute, infallible requirements and that not all recommendations translate into Reliability Standards. 99. The Commission believes that the Blackout Report recommendations address key issues for assuring BulkPower System reliability. The Blackout Report recommendations were developed by and have received international support from both industry and regulators in the United States and Canada and we believe they represent a well-reasoned and sound basis for action. Further, the Blackout Report recommendations address issues that caused or contributed to not only the August 2003 blackout, but multiple blackouts over the past 20 years.76 Thus, in the discussion of a particular proposed Reliability Standard, we often will recognize the merit of a specific Blackout Report recommendation and reaffirm the reasoning behind such recommendation in proposing to approve with a directive to modify a specific Reliability Standard. Further, we believe that a modification to a proposed Reliability Standard that was recommended in the Blackout Report should receive the highest priority in terms of NERC’s workplan to address identified deficiencies. 100. The Commission believes that prudent policy for Bulk-Power System reliability is to have Reliability Standards that are proactive. Such Reliability Standards would require actions be taken to prevent a blackout or outage and not simply address the undesirable outcomes. Therefore, it must first and foremost address the critical steps or actions that determine the achievement of the outcome. This proactive approach is necessary to ensure that the responsible entity is aware of and performs all of the necessary steps to achieve the ultimate reliability goal, rather than reacting to the implications of not achieving the outcome. 101. Our concern is illustrated by an analogy provided by NERC in regard to commercial airline maintenance.77 A purely outcome-based standard on maintenance would require zero plane crashes due to failure of airplane components. But the public interest would not be well served if this were the only standard because the consequences of failing to meet the standard are immediate and unacceptable and provides no guidance on how to achieve the goal. The public interest dictates that there should be standards on maintenance procedures, frequency of testing and qualifications of personnel conducting the maintenance—not just a requirement that there be no accidents. This same concept applies to mandatory Reliability 76 Blackout Report at Chapter 10. 75 See Staff Preliminary Assessment at 17–26. VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 77 NERC Comments at 40. PO 00000 Frm 00014 Fmt 4701 Sfmt 4702 Standards pertaining to the Bulk-Power System. 102. Accordingly, the Commission expects the ERO to include proactive Requirements in the Reliability Standards in addition to Requirements that identify a specific outcome. 2. Measures and Levels of NonCompliance 103. As noted above, the uniform format that NERC employs for each of its proposed Reliability Standards reflects five organizational elements: Introduction, Requirements, Measures, Compliance, and Regional Differences. The Staff Preliminary Assessment stated that 26 of the proposed Reliability Standards do not contain Measures 78 or Levels of Non-Compliance,79 or both. The Staff Preliminary Assessment emphasized that Reliability Standards would be less subject to variable implementation if they included the use of performance metrics, where applicable. The Staff Preliminary Assessment assumed that metrics used to determine non-compliance would be included in the Measures similar to BAL–001. NERC subsequently clarified that such metrics are not intended to be part of the Measure, but rather in the Requirements.80 104. NERC, in its Petition, identified 21 Reliability Standards that lack Measures or Levels of Non-Compliance and indicated that it plans to file modified Reliability Standards that include the missing Measures and Levels of Non-Compliance in November 2006. Further, NERC contends that a Reliability Standard lacking Measures or Levels of Non-Compliance is still enforceable because the Measures should be viewed as the process to determine non-compliance during audits and investigations. According to NERC, the ‘‘Requirements’’ within a Reliability Standard define what an entity must do to be compliant and establish an enforceable obligation, and the presence or absence of Measures or Levels of Non-Compliance should not be the sole determining factor as to whether a Reliability Standard meets the statutory test for approval. Several 78 Although NERC does not formally define ‘‘Measures,’’ NERC explains that they ‘‘are the evidence that must be presented to show compliance’’ with a standard and ‘‘are not intended to contain the quantitative metrics for determining satisfactory performance.’’ NERC Comments at 104. 79 ‘‘Levels of Non-Compliance’’ are established criteria for determining the severity of noncompliance with a Reliability Standard. The levels of non-compliance range from Level 1 to Level 4, with Level 4 being the most severe. 80 See NERC Comments at 105 (‘‘Metrics of satisfactory performance are defined in the requirements. * * *’’). E:\FR\FM\03NOP2.SGM 03NOP2 sroberts on PROD1PC70 with PROPOSALS Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules commenters take the opposite view, contending that Measures and Levels of Non-Compliance are necessary to ensure that a Reliability Standard is sufficiently clear to be fairly enforced.81 105. We agree that it is important to have Measures and Levels of NonCompliance specified for each Reliability Standard, and recognize that NERC has plans to provide many of these elements in a November 2006 filing. However, the absence of these two elements, which describe approaches that will be used to assess non-compliance, including the severity of a violation for penalty settingpurposes, is not critical to our determination of whether to approve a proposed Reliability Standard. The most critical element of a Reliability Standard is the Requirements. As NERC explains, ‘‘the Requirements within a standard define what an entity must do to be compliant * * * [and] binds an entity to certain obligations of performance under section 215 of the FPA.’’ 82 If properly drafted, a Reliability Standard may be enforced in the absence of specified Measures or Levels of NonCompliance. 106. While Measures and Levels of Non-Compliance provide useful guidance to the industry, compliance will in all cases be measured by determining whether a party met or failed to meet the Requirement under the specific facts and circumstances of its use, ownership or operation of the Bulk-Power System. Therefore, we propose to approve a Reliability Standard that lacks Measures or Levels of Non-Compliance, or where these elements contain ambiguities, provided that the Requirement is sufficiently clear and enforceable. Where a Reliability Standard will be improved by providing missing Measures or Levels of Non-Compliance or by clarifying ambiguities with respect to Measures or Levels of Non-Compliance, we propose to approve the Reliability Standard and concurrently direct NERC to modify the Reliability Standard accordingly. 107. The common format of NERC’s proposed Reliability Standards calls for a ‘‘data retention’’ metric, generally in the ‘‘Compliance’’ section of the Reliability Standard. Yet, some proposed Reliability Standards do not contain a data retention requirement or state positively that no record retention period applies. The Commission seeks comment on whether the retention time periods specified in various Standards 81 See, e.g., National Grid and BPA. 82 NERC Comments at 104. See also NERC Petition at 83. VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 proposed by NERC are sufficient to foster effective enforcement.83 The Commission also seeks comment on what, if any, additional records retention requirements should be established for the proposed Reliability Standards. 3. Ambiguities and Potential Multiple Interpretations 108. The Staff Preliminary Assessment indicated that ‘‘various elements of numerous standards appear to be subject to multiple interpretations, especially with regard to the lack of specificity in the standards’ requirements, measurability, and degrees of compliance.’’ 84 NERC agrees that there are many areas in which the Reliability Standards can be further improved and states that it is committed to review each Reliability Standard in the next few years, based on priorities coordinated with the Commission and applicable authorities in Canada.85 NERC adds that, while there are opportunities for improvement, the existing Reliability Standards contain the degree of clarity and specificity required to meet the statutory test for approval. 109. Many commenters agree generally that ambiguities must be removed and mandatory Reliability Standards must be sufficiently clear with regard to who is responsible and what an entity must do to achieve compliance.86 Some commenters insist that a Reliability Standard should not go into effect until this is achieved. WECC and LPPC recommend that the Commission require NERC to institute a quality assurance program to ensure that Reliability Standards are clear, concise, and non-redundant. 110. Our review of the Reliability Standards has confirmed staff’s concern regarding the degree of ambiguity contained in certain Measures and Levels of Non-compliance portions of the proposed Reliability Standards. We 83 Notably, the Commission elsewhere imposes records retention requirements to facilitate effective enforcement. For example, in Order No. 677, FERC Stats. & Regs. 31,218 (2006), the Commission amended 18 CFR parts 35 and 284 by extending certain sellers’ record retention requirement from three to five years so as to bring the record retention requirement in line with the five year limitations period applicable where the Commission might seek to impose civil penalties for violations of the anti-manipulation rule, 18 CFR part 1c. In the reliability context, the civil penalty statute of limitations period for both the Commission and ERO and Regional Entities will also be five years. See Order No. 672 at P 487. 84 Staff Preliminary Assessment at 18–19. 85 NERC Petition at 90–91; NERC Comments at 101–02. 86 See, e.g., LPPC, MISO, NEMA, SDG&E and WECC. PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 64783 are pleased that the ERO intends to review each Reliability Standard to identify and address ambiguous Measures and Levels of NonCompliance language. While this is important, it is essential that the Requirements for each Reliability Standard, in particular, are sufficiently clear and not subject to multiple interpretations. Where the Requirements portion of a Reliability Standard is sufficiently clear (and no other issues have been identified), we propose to approve the Reliability Standard. 111. In other cases, where some ambiguity may exist but there is also a common interpretation for certain terms based on the best practices within the industry, we propose to adopt that interpretation in the NOPR. For purposes of enforcement, the Commission proposes to implement any approved Reliability Standard consistent with our interpretation of any ambiguity as explained in the final rule. In some cases, we propose to direct NERC to supplement the language pursuant to section 215(d)(5) of the FPA. 112. In summary, the Commission believes that a proposed Reliability Standard that has Requirements that are so ambiguous as to not be enforceable should be remanded. A Reliability Standard that has sufficiently clear Requirements, Measures, and Compliance language and is otherwise just and reasonable should be approved. A proposed Reliability Standard that has sufficiently clear and enforceable Requirements but Measures or Levels of Non-Compliance that are ambiguous (or none at all) should be approved in some cases with a directive that the ERO develop clear and objective Measures and Compliance language. 4. Technical Adequacy 113. The Staff Preliminary Assessment stated that the Requirements specified in certain Reliability Standards may not be sufficient to ensure an adequate level of reliability.87 Staff explained that, while Order No. 672 noted that the ‘‘best practice’’ may be an inappropriately high standard, it also warned that a ‘‘lowest common denominator’’ approach is unacceptable if it is insufficient to ensure system reliability. 114. NERC, EEI and others state that NERC’s proposed Reliability Standards are technically sound and that compliance with them will assure reliability. NERC contends that each proposed Reliability Standard meets the statutory test of providing an adequate 87 Staff Preliminary Assessment at 19. E:\FR\FM\03NOP2.SGM 03NOP2 64784 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules level of reliability for the Bulk-Power System. Others share staff’s concern that Reliability Standards not represent the lowest common denominator.88 One commenter suggested that there is a tendency for a standard drafting team to adopt a lowest common denominator approach to achieve a consensus on a standard. 115. We are cautious about drawing any general conclusions about technical adequacy as we consider this a matter that can only be addressed on a standard-by-standard basis. While we are required under the statute to accord due weight to the technical expertise of the ERO, we are still required to independently assess the technical adequacy of any proposed Reliability Standard. Where we have specific concerns regarding whether a Requirement set forth in a proposed Reliability Standard may not be sufficient to ensure an adequate level of reliability or represents a ‘‘lowest common denominator’’ approach, we address those concerns in the context of that particular Reliability Standard. 5. Fill-in-the-Blank Standards 116. Certain Reliability Standards developed by NERC require the regional reliability organizations to develop criteria for use by users, owners, or operators within the region. NERC refers to these as ‘‘fill-in-the-blank standards.’’ 89 NERC originally proposed 39 fill-in-the-blank standards, which it said fell into three categories. The first 14 were Reliability Standards that require a regional reliability organization to set regional criteria or develop a regional procedure.90 The second group contained 10 Reliability Standards that require the regional reliability organization to develop such criteria or procedures, and also require entities within the region to follow those procedures or criteria.91 The third category consisted of 15 Reliability Standards that require users, owners, and operators to follow criteria or procedures developed by the regional reliability organization, but did not (in the same Reliability Standard) require the development of such criteria or procedures.92 NERC indicated that the 88 See, e.g., NPCC, SDG&E and NYSRC. sroberts on PROD1PC70 with PROPOSALS 89 See NERC Petition at 87–90. 90 EOP–007, IRO–001, MOD–003, MOD–011, MOD–013, MOD–014, MOD–015, MOD–016, PRC– 002, PRC–003, PRC–006, PRC–012, PRC–013, and PRC–014. 91 BAL–002, EOP–004, MOD–001, MOD–002, MOD–004, MOD–005, MOD–008, MOD–009, MOD– 024, and MOD–025. 92 EOP–009, FAC–001, FAC–002, FAC–004, MOD–010, MOD–012, MOD–017, MOD–019, PER– 002, PRC–004, PRC–007, PRC–008, PRC–009, PRC– 015, and PRC–016. VerDate Aug<31>2005 16:18 Nov 02, 2006 Jkt 211001 first category did not pose a problem because they were enforceable as written. The issue with the remaining 25 Reliability Standards was whether they could be enforced given that the regional criteria and procedures were not developed through an EROapproved process and were not submitted to the Commission for approval. NERC acknowledged that the 25 fill-in-the blank Reliability Standards in categories two and three required further evaluation and proposed providing a work plan to the Commission by November 8, 2006 with a timetable for modifying, replacing, or withdrawing these standards.93 117. The Staff Preliminary Assessment recognized that the fill-inthe-blank standards raise two principal concerns: (i) Some are not enforceable against users, owners, and operators of the Bulk-Power System, but rather only provide broad direction to regional reliability organizations, and (ii) the specific implementing standards adopted by the regional reliability organizations have not undergone an approval process under section 215 and, thus cannot be enforced by the Commission or the ERO. 118. In its June 26, 2006 comments to the Staff Preliminary Assessment, NERC amended its approach to the fill-in-theblank standards. It recommends unconditional approval of the ‘‘category one’’ Reliability Standards, which place a requirement on a regional reliability organization to set criteria or procedures for reliability in the region, claiming that they are really not fill-in-the-blank standards. NERC then proposes to divide the remaining fill-in-the-blank standards into two new groups, the first group consisting of 26 Reliability Standards.94 The remaining group consists of three fill-in-the-blank standards that also are missing measures or compliance elements.95 NERC 93 NERC Petition at 89. 94 This group includes 24 of the 25 standards originally included in categories two and three, plus two additional standards not originally designated as fill-in-the-blank standards: BAL–002– 0, EOP–009–0, FAC–001–0, FAC–002–0, FAC–004– 0, MOD–001–0, MOD–002–0, MOD–004–0, MOD– 005–0, MOD–008–0, MOD–009–0, MOD–010–0, MOD–012–0, MOD–017–0, MOD–019–9, MOD– 024–1, MOD–025–1, PER–002–0, PRC–004–1, PRC– 007–0, RPC–008–0, PRC–009–0, PRC–015–0, PRC– 016–0, TPL–002–0,* and TPL–004–0.* (* Newly identified as fill-in-the-blank standards.) 95 EOP–004–0, EOP–006–0,* and IRO–005–1.* (* Newly identified as fill-in-the-blank standards.) NERC proposes that these 3 standards, along with 23 others that are missing measures or compliance elements be conditionally approved with the understanding that the missing measures and compliance information will be filed in November 2006, after completion of stakeholder balloting in September and NERC board voting on November 1, 2006. PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 recommends conditional approval of these 29 remaining fill-in-the-blank standards. 119. Some commenters raised concerns that the fill-in-the-blank standards undermine uniformity, and may exacerbate differences or seams between the various ISO and RTO control areas. Several commenters support limited use of fill-in-the-blank standards, noting that they provide flexibility, which may facilitate development of a Reliability Standard in instances where a continent-wide approach may not work. 120. NERC represents that it will submit an action plan and schedule in November 2006 for completing the fillin-the-blank standards. NERC expects that it will take approximately three years to complete the process, and will be prioritizing Reliability Standards that require the most immediate revision.96 NERC anticipates three potential approaches to the fill-in-the-blank standards: (1) If NERC determines that there is insufficient justification for a regional difference, it may replace a Reliability Standard with a uniform continent-wide Reliability Standard; (2) where a regional difference is justified, NERC proposes to direct the regions to develop their regional criteria as a Reliability Standard to be filed for approval with the ERO and thereafter with the Commission and applicable authorities in Canada; (3) if mandatory enforcement of a fill-in-the-blank standard is not necessary for reliability, NERC proposes to retire the Reliability Standard and allow a region to maintain voluntary criteria and procedures as needed. 121. We share commenters’ concerns regarding the potential for the fill-inthe-blank standards to undermine uniformity. Order No. 672 stated that, while uniformity is the goal with respect to Reliability Standards, it may not be achievable overnight. Where NERC had directed the regions to develop a particular Reliability Standard, we noted that ‘‘[o]ver time, we would expect that the regional differences produced under this framework will decline and a set of best practices will develop.’’ 97 NERC’s review states it will take uniformity concerns into consideration, only permitting regional differences where justified. In Order No. 672, we specified two instances where regional differences may be permitted: regional differences that are more stringent than the continent-wide Reliability Standard, including those addressing matters not 96 NERC Comments at 107. 97 Order No. 672 at P 292. E:\FR\FM\03NOP2.SGM 03NOP2 Federal Register / Vol. 71, No. 213 / Friday, November 3, 2006 / Proposed Rules addressed by a continent-wide Reliability Standard, and regional differences necessitated by a physical difference in the Bulk-Power System.98 NERC’s review must be consistent with these criteria. 122. In addition, if after an appropriate review, NERC determines that regional differences are still warranted, we propose that any regional proposal to fill-in-the-blank must be developed in accordance with the NERC’s ANSI-approved process, or through an alternative process approved by the ERO,99 and must be submitted to the ERO and the Commission for approval. 123. We propose to require supplemental information regarding any Reliability Standard that requires a regional reliability organization to fill in missing criteria or procedures. Where important information has not been provided to us to enable us to complete our review, we are not in a position to approve those Reliability Standards. Therefore, we propose to not approve or remand those Reliability Standards until all the necessary information has been provided. E. Discussion of Each Individual Reliability Standard sroberts on PROD1PC70 with PROPOSALS 124. We have reviewed each of the proposed Reliability Standards, and our analysis is by chapter according to the categories of Reliability Standards define [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Aferc%3A247b5c7442f3e480. Public record. Not legal advice.