United States: FERC Approves Revised Bulk Electric System Definition And Reserves Authority To Determine "Local Distribution" Facilities

On December 20, 2012, the Federal Energy Regulatory Commission ("FERC" or the "Commission") issued its Final Rule, Order No. 733, approving proposed modifications to the North American Electric Reliability Corporation's ("NERC's") currently-effective definition of Bulk Electric System ("BES")in NERC's Glossary of Terms.¹ The modified BES definition establishes a "bright-line" threshold that includes all facilities operated at or above 100 kV, eliminating the discretion that Regional Entities have under the previous definition. Among other things, FERC also approved NERC's proposed revisions to its Rules of Procedure that establish an exception procedure to add elements to, or remove elements from, the BES definition on a case-by-case basis. The Commission also reserved its authority to make a determination of whether a specific facility is used in "local distribution."

BES Definition and Specific Inclusions and Exclusions

The modified BES definition is composed of two parts—a "core" definition that establishes a "bright-line" threshold that includes all facilities operated at or above 100 kV and a list of configurations that are deemed to be, regardless of their voltage rating, included or excluded from the BES. Facilities that are deemed to be included in the BES are subject to compliance with NERC Reliability Standards.

The configuration inclusions are: i) transformers with primary terminals with at least one secondary terminal operated at 100 kV or above; ii) generation resources with gross individual nameplate rating greater than 20 MVA or gross plant aggregate nameplate rating greater than 75 MVA, including generator terminals through the highside of the step-up transformer(s) connected at 100 kV or above; iii) blackstart resources identified in a Transmission Operator's restoration plan; iv) dispersed power producing resources with aggregate capacity greater than 75 MVA connected at a common point with voltage 100 kV or greater; and v) devices (excluding generators) that supply or absorb reactive power that are connected at 100 kV or greater.

The four exclusions from the BES definition include: i) certain radial systems that consist of a group of contiguous transmission elements that have a single connection point of 100 kV or higher; ii) behind the meter generation sources that provide 75 MVA or less of net capacity to the BES and which obtains standby, back-up or maintenance power services from a third-party; iii) "local networks" which are comprised of contiguous transmission elements operated at or above 100 kV but less than 300 kV that distribute power to load rather than transfer bulk-power across the interconnected system; and iv) reactive power devices owned and operated by a retail customer solely for its own use.

Importantly, FERC's Final Rule directs NERC to implement the exclusion regarding radial systems so that the exclusion does not apply to tie-lines for BES generation resources with gross individual nameplate rating greater than 20 MVA, which are listed as an inclusion in the modified BES definition. The Commission notes, in the Final Rule, that the contiguous quality of the BES would have been lost under NERC's proposed exclusion regarding radial systems because it would have excluded generator tie-lines operated at 100 kV or greater from the BES when that tie-line connects the BES generator to the interconnected transmission network. FERC believes that 20 MVA or greater generators included in the modified BES definition should not be "stranded" by the exclusion of their tie-lines from the remainder of the BES. Without the generator being able to coordinate protective relays with transmission operators, the generator may have inadequate information to prevent a fault on the radial line from causing cascading outages.

"Local Distribution" Determination Process

The Commission, in the Final Rule, has established a process in which entities can seek a FERC determination regarding whether a specific facility is used in "local distribution," should there remain a factual question as to whether the facility is part of the BES after applying the "core" BES definition and the list of exclusions. An entity seeking such a determination must petition FERC and provide notice of the petition to NERC and relevant Regional Entities. In addressing such petitions, FERC will apply the Seven Factor Test set forth in Order No. 888 (regarding open access transmission service) to determine, on a case-by-case basis, whether the facility at issue is a local distribution facility or a transmission facility. This determination is critical because Section 215 of the Federal Power Act ("FPA") excludes "facilities used in the local distribution of electric energy" from NERC's jurisdiction.

Exception Process

FERC approved NERC's proposed revisions to its Rules of Procedure to create an exception process in which elements can be added to the BES should they fall outside of the BES definition (e.g., a sub-100 kV element that is necessary for operating the grid), or removed from the BES should they fall under the BES definition (e.g., an element of 100 kV or over that is not necessary for operating the grid). An entity, such as a registered entity or a planning authority, may submit a request to the applicable Regional Entity that a particular element be included, or removed, from the BES. As part of the exception request, the entity will submit a completed Detailed Information Form, which FERC approved in its Final Rule to ensure that all exception requests submitted to NERC will contain a consistent baseline of technical information. The Regional Entity will review the request and issue a recommendation to NERC. NERC, in turn, will evaluate that recommendation, supporting materials and any comments submitted before issuing a final determination. Entities may appeal NERC's final determination with FERC. This exception process may not be used for the determination of whether an element is used in local distribution; instead, such determination must be made by FERC according to the process described above.

FERC declared that it has the authority to designate facilities, including sub-100 kV facilities and other facilities, as part of the BES pursuant to Section 215 of the FPA. The Commssion reasoned that it has the authority to enforce compliance with Section 215 and, thus, it has the authority to ensure that the BES definition is "being implemented properly." FERC states that it "expects entities to identify and include sub-100 kV elements, and other elements, that should be included in the [BES]." FERC expects such circumstances to be rare. Before designating specific facilities as part of the BES, the Commission will provide public notice and an opportunity for public comment.

Obligation to Provide Notification of Facilities Deemed Outside of the Modified BES Definition

In the Final Rule, FERC agreed with NERC that registered entities have an obligation to inform the applicable Regional Entity when the registered entity deems a facility to fall outside of the modified BES definition. FERC noted that under Section 501 of the NERC Rules of Procedure, registered entities are required to notify the applicable Regional Entity of any self-determination that a facility is no longer part of the BES, in addition to all other matters affecting that entity's reliability obligations.

Implementation

FERC approved NERC's proposed effective date, which is the first day of the second quarter after NERC receives regulatory approval. Furthermore, FERC approved NERC's proposed implementation plan under which compliance obligations for newly-defined elements to be included in the BES based on the revised definition will begin twenty-four (24) months after the effective date of the modified BES definition. FERC's Final Rule will be effective on March 5, 2013, which is 60 days after publication in the Federal Register, which occurred on January 4, 2013.

Implications

The modified BES definition will bring consistency among the reliability regions with respect to what facilities are going to be deemed part of the BES and thus are subject to the NERC Reliability Standards. The "brightline" threshold of 100 kV or greater is not absolute in light of the list of inclusions and exclusions, the process for requesting inclusions and exclusions, and the process for seeking FERC determination of "local distribution" elements.

Registered entities should review their facility registrations in light of the modified BES definition and update their facility registrations as needed with the applicable Regional Entity (i.e., register newly added BES elements and de-classify elements no longer considered part of the BES).

Footnotes

1. For more information on NERC's petition proposing modifications to the BES definition, please refer to Blank Rome's client alert here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.