FERC Proposes to Revise Definition of “Bulk Electric System” for Determining Who Must Comply with Federal Reliability Standards

by Davis Wright Tremaine LLP

[author: Brian R. Gish]

The Federal Energy Regulatory Commission (FERC) has issued a Notice of Proposed Rulemaking (NOPR) to revise the definition of “Bulk Electric System” (BES). This definition is important because it determines which transmission system elements are subject to mandatory electric reliability standards designed to ensure the uninterrupted operation of the electric grid. Owning or operating a facility that is within the BES definition imposes compliance obligations subject to audit, and failure to remain in compliance can result in substantial economic penalties. In addition to proposing a revised definition of BES, the NOPR proposes an “exception” process whereby entities could ask that specific facilities be included or excluded. All entities owning or operating electric facilities that may impact the integrated transmission network should review this NOPR to see how it might affect their reliability obligations.  Public comments on the NOPR are due Sept. 4, 2012.

In the Energy Policy Act of 2005, Congress addressed concerns about the reliability of the U.S. electric system by requiring that owners and operators of facilities that could impact grid reliability adhere to mandatory electric reliability standards. Congress established a complex hierarchy for the development and enforcement of standards. FERC was required to certify an entity as the Electric Reliability Organization–the North American Electric Reliability Corporation (NERC) was so certified–which has responsibility for developing reliability standards. NERC delegated some of its responsibilities for regional implementation and enforcement to Regional Entities. FERC has an oversight role and must approve standards and other actions taken by NERC.

Congress used the term “bulk-power system” to describe the facilities that are subject to reliability standards, which it defined generally as all facilities necessary to operate any part of an integrated transmission network, except that it would not include local distribution facilities. The industry had traditionally used the BES terminology to describe the integrated network, and that term has so far been treated as equivalent to the statutory “bulk-power system.” Because of the complexity of how power flows over a network, and the large variation in the types of facilities connected to the grid, creating a definition of BES that captures all essential facilities but excludes unnecessary ones is a difficult task.

In its Order No. 743 issued in 2011, FERC directed NERC to develop a revised definition of BES because the existing definition gives the Regional Entities discretion to define the term, and because it establishes a rather loose threshold that includes facilities “generally operated” at voltages of 100kV or higher. FERC was concerned that the existing definition did not encompass all facilities that are necessary for operating the grid, and identified as problems the regional discretion to define BES, the absence of a “bright-line” threshold, and the absence of a process to create exceptions for inclusion or exclusion of facilities. NERC responded to FERC’s directive in January 2012 when it filed for FERC’s approval a revised BES definition and procedures that closely followed FERC’s suggestions in Order No. 743.

In the NOPR, FERC proposes to adopt NERC’s BES revisions as filed, but also raises numerous questions for comment about how certain language should be interpreted or changed. The BES definition proposed by FERC has several parts: a core definition, five facility types that are explicitly included, four facility types that are explicitly excluded, and an exception process where entities can ask that specific facilities be included or excluded. The core definition of BES is as follows:

Unless modified by the [inclusion and exclusion] lists shown below, all Transmission Elements operated at 100 kV or higher and Real Power and Reactive Power resources connected at 100 kV or higher. This does not include facilities used in the local distribution of electric energy.

This core definition eliminates the discretion in the existing version for Regional Entities to alter the definition’s scope. Also, the definition eliminates the terms “generally operated” from the 100kV threshold, thus unequivocally including transmission elements that are operated at 100 kV or higher, and real power or reactive power resources that are connected at 100 kV or higher. FERC considers this a “bright-line” threshold. The definition continues to follow the statutory directive to exclude local distribution facilities, but FERC asks for comments on whether the definition adequately differentiates between local distribution facilities and transmission.

As for the lists of five specific inclusions and four specific exclusions from the core definition, FERC proposed them as filed by NERC, but asked a number of questions about how they should be applied in specific fact patterns. For example, one of the inclusions addressing generator terminals appeared to FERC as being somewhat inconsistent with NERC’s Registration Criteria for generators. Although a complete description of the proposed inclusions and exclusions is not possible in this short article, the inclusions in general address facilities related to transformers, real power resources, and reactive power devices. The exclusions address radial systems, local networks, and customer-owned real and reactive power resources.

FERC states that it has no basis to determine how many entities would be affected by this change in BES definition. For purposes of its required information collection statement, FERC estimates that 186 entities would have new compliance requirements. The NOPR asks for comments on how many entities may be affected by the revised definition.

The Exception Process
FERC proposes to adopt NERC’s case-specific exception process for entities who believe that the revised definition of BES improperly includes or excludes facilities. An entity seeking an exception must submit a “Detailed Information Form” to its Regional Entity to support the request. NERC’s procedure would require a technical panel to review the exception request whenever the Regional Entity recommends denial, but FERC seeks comment on whether the process should be modified to require all exception requests be submitted to a technical review panel. The decision on the exception request by the Regional Entity may be appealed to NERC. The NOPR proposes to require NERC to maintain a list of exceptions granted and denied, and develop a process for making the list available to FERC and potentially other interested persons.

FERC emphasizes that Regional Entities, reliability coordinators, balancing authorities and others are expected to evaluate their sub-100kV facilities and other facilities that do not literally fall within the definition of BES to determine whether they should be added. If so, the exception process should be used by them to request their inclusion, and FERC asks for comments on how this process should work. FERC also seeks comments on whether NERC and FERC itself should be able to initiate the exception process to include additional elements in the BES.

In this NOPR, FERC is trying to walk two fine lines: the line between clear rules to define the BES and required flexibility for non-standard situations, and the line between necessary regulation for ensuring reliability and costly over-regulation. Congress and others have focused much attention on the reliability of the electric grid given its tremendous importance for national security and economic well-being. FERC knows that it will be held accountable if a reliability breakdown occurs due to factors within its jurisdiction. In past decisions, FERC has erred on the side of inclusiveness when deciding what facilities should be subject to reliability standards, and that bias will likely continue.

Implementation of the BES Definition Revision
The revised BES definition will be “effective” on the first day of the second calendar quarter after receiving FERC’s approval in this NOPR proceeding. The new compliance responsibilities created by the revised definition will be required to be in place 24 months after the effective date. Although FERC desired a shorter compliance period, NERC convinced FERC that the extra time was needed to allow entities to apply for exceptions and train personnel for new compliance obligations.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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