NERC Petitions FERC for Approval of Revised Bulk Electric System Definition and Exception Request Procedure
On January 25, 2012, the North American Electric Reliability Corporation (“NERC”) filed two related compliance filings, a petition seeking approval of a revised Bulk Electric System (“BES”) definition in the NERC Glossary of Terms Used in Reliability Standards (“BES Petition”) and a petition seeking approval of a BES Exception Request procedure (“Procedure Petition”), with the Federal Energy Regulatory Commission (“FERC”). NERC filed these petitions in response to FERC directives in Order No. 743 to: (i) submit a revised definition of BES, which determines the facilities subject to mandatory NERC Reliability Standards, as applicable across all Regional Entities; and (ii) develop a procedure for entities seeking to obtain an exception from the BES definition for a particular facility.2
FERC’s concern about the “potential for gaps in coverage of facilities” was initially expressed in Order No. 693 where it approved NERC’s current BES definition. FERC subsequently confronted this issue in the rulemaking preceding Order No. 743 and Order No. 743-A. In those proceedings, FERC expressed particular concern over the Northeast Power Coordinating Council’s (“NPCC’s”) use of an impact-based approach, instead of a voltage-based approach used by the other Regional Entities, for determining which facilities are deemed to be part of the BES and, therefore, subject to NERC Reliability Standards. NPCC, along with a group of New York transmission owners, initially resisted a bright-line BES approach because the NPCC’s impact-based approach was developed and refined through years of experience with NPCC’s unique system and the benefits of switching to a voltage-based approach did not justify the cost.3 FERC ultimately directed NERC to revise the BES definition in Order No. 743, noting that FERC believes the “best way” to meet the nation’s reliability goals was to use a bright-line, voltage-based BES definition.
Proposed Revised BES Definition
In response to FERC’s directive in Order No. 743, NERC, in the BES Petition, proposes the following BES definition: “[u]nless modified by the lists [regarding Inclusions and Exclusions], all Transmission Elements operated at 100 kV or higher and Real Power and Reactive Power resources connected at 100 kV or higher. This does not include facilities used in the local distribution of electric energy.” The definition also lists five inclusions for facilities not falling under the general definition and four exclusions for facilities that would otherwise erroneously be categorized as part of the BES.4
Proposed BES Exception Request Procedure
Furthermore, FERC directed NERC, in Order No. 743, to create a BES Exception Request procedure in lieu of FERC’s original proposal requiring FERC approval of all exceptions. The BES Exception Request procedure, as proposed in the Procedure Petition, would permit entities to request an exception determination from NERC that: i) a facility that falls within the definition of BES should be exempted from being considered part of the BES (“Exclusion Exception”); or ii) a facility that falls outside of the BES should be considered part of the BES (“Inclusion Exception”). An entity requesting either an Exclusion or Inclusion Exception must first file an Exception Request with the Regional Entity where the facility is located. The Exception Request must include a set of information and data entitled “Detailed Information to Support an Exception Request” that is set forth in the BES Petition. The Regional Entity would determine if the request is valid and the requesting entity has the right to appeal a negative decision directly with NERC. The Regional Entity would then evaluate the request and provide a recommendation to NERC as to whether the request should be approved or disapproved. Next, a three-person NERC review panel would evaluate the request and make a recommendation to the NERC President, who would approve or disapprove the exception request considering the record and the recommendations of the NERC panel and the Regional Entity. The requesting entity would have the right to appeal the NERC President’s decision to the NERC Board of Trustees Compliance Committee.
As noted above, the “Detailed Information to Support an Exception Request” contained in the BES Petition sets forth specific data and information requirements that entities must submit upon filing an Exclusion or Inclusion Exception Request that NERC and Regional Entities will use to evaluate each request. These requirements include: i) a one-line breaker diagram identifying the facility for which the exception is being requested; ii) supporting data and studies; and iii) answers to a set of questions which will differ if the facility at issue is a transmission or generation facility.
Proposed Implementation Plan
NERC proposed a transition plan, pursuant to FERC’s directive in Order No. 743, that allows asset owners a reasonable period of time to bring facilities now falling under the revised BES definition into compliance with applicable Reliability Standards. NERC would require asset owners to perform a gap analysis with respect to registration (and certification, if applicable) and compliance with Reliability Standards. Asset owners would need to develop an implementation plan for any newly-included assets and submit the plan to its respective Regional Entity for approval. The implementation plan must bring all newly-included assets into compliance, unless granted an exception by the Regional Entity. Compliance must be achieved by the end of NERC’s proposed two-year transition period from the effective date of the revised BES definition, which is the first day of the second calendar quarter following FERC’s approval.
Expanding the scope of facilities that fall under the BES definition will automatically expand the scope of NERC’s Reliability Standards. Additionally, entities, particularly those owning and/or operating facilities in the NPCC region, should take careful note of the new BES Exception Request procedure to assess whether the procedure is practical and not overly burdensome. FERC is expected to issue a Notice of Proposed Rulemaking on NERC's petitions with a 60-day comment period.