Results tagged “Bulk Electric System” from GTH Energy & Natural Resources Law Blog

FERC Refines "Bulk Electric System" Definition, Adopts New Cybersecurity Standards Proving Value of the Definition

April 26, 2013

At its April meeting, the Federal Energy Regulatory Commission ("FERC") issued Order No. 773-A, which generally reaffirms its December order (Order No. 773, discussed here) approving the definition of "Bulk Electric System" proposed by the North American Electric Reliability Corporation ("NERC"). The Commission also proposed to adopt Version 5 of NERC's Critical Infrastructure Protection ("CIP") standards. These standards incorporate the BES definition, demonstrating the importance of the BES definition to the regime of mandatory electric reliability standards.

Order No. 773 capped a years-long process to define one of the fundamental terms used in the mandatory electric reliability system adopted by Congress in the Energy Policy Act of 2005. By clarifying the legal landscape, Orders No. 773 and 773-A lay the groundwork for a number of different strategies regulated utilities may employ to reduce the sometimes daunting burdens of reliability compliance.

Similarly, the CIP proposal is an important way-point in a years-long effort to develop and improve cybersecurity standards. In the proposed rule, FERC proposes to skip directly from CIP version 3 to CIP version 5 standards, jumping over the version 4 standards it previously approved. The proposal demonstrates the importance of the BES definition approved in Orders No. 773 and 773-A because the new standards, if adopted, classify facilities based on whether they have "low," "medium," or "high" impact on the BES, and impose compliance obligations depending on this classification.

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Eric Christensen Publishes Article on Reducing NERC-WECC Regulatory Burdens in February Northwest Public Power Association Bulletin

February 13, 2013

Eric Christensen published an article in this month's Northwest Public Power Bulletin entitled "Electric Reliability and the Bulk Electric System Definition: Next Steps for Reducing Regulatory Burdens." The article is a follow-on to the article he published in the November 2012 Bulletin concerning the development of the keystone "Bulk Electric System" definition. We've reprinted the new article here:


Eric Christensen, Partner
Gordon Thomas Honeywell

On December 20, the Federal Energy Regulatory Commission ("FERC") issued Order No. 773, adopting a new "Bulk Electric System" ("BES") definition. The BES definition is foundational to FERC's reliability regime because it defines the universe of facilities over which FERC can exercise its reliability authority. Order No. 773 also includes new procedural tools for public power utilities seeking to reduce their reliability compliance burdens. The order represents a major victory for public power, but, to obtain its full benefits, utilities should consider additional steps. This article outlines the major options now available.

As reported in the November 2012 Bulletin, Order No. 773 culminates two years of work by the NERC Standards Drafting Team, with strong participation of Western public power coordinated through NWPPA, to develop a rational and workable BES definition. The new definition, developed with what FERC Commissioner Lafleur describes as "creativity and care," initially defines facilities operating above 100-kV as BES, but then refines this "core definition" with "a thoughtful and nuanced list of specifically included and excluded facilities, and an exception process to add or remove specific facilities." The new BES definition is a huge improvement over the disastrous approach originally proposed by FERC. As Commissioner LeFleur observed, the BES definition "illustrates the success" of FERC's "new paradigm" for reliability standards development, which employs NERC's industry-centered process rather than "unduly prescriptive" FERC mandates, to find the most efficient and effective solutions for meeting reliability goals.


Under Order No. 773 and existing NERC rules, public power agencies now have several options for reducing reliability compliance burdens. Choosing the best options will depend on each utility's specific circumstances. The available procedures include:

1. Phase II of the BES Definition Standards Development Process.
As it developed the new BES definition, the Standards Drafting Team identified many issues that could not be resolved in the limited time allowed by FERC. These issues were deferred to Phase II of the standards drafting process, which is now underway. Phase II will examine several questions of great importance to public power and refine the BES definition accordingly. These questions include, for example, how the new definition will affect functional registrations, the technical justification for the 100-kV threshold in the "core" definition, the appropriate capacity thresholds for classifying generators as BES, and the points of demarcation between BES and non-BES facilities. Western public power agencies should focus as closely on Phase II as they did on Phase I, and NWPPA should continue its critical coordination function.

2. Petition for Deregistration.
Entities are responsible for complying with reliability standards based on their registration in one or more of fifteen NERC-defined functional categories, ranging from "Distribution Provider" to "Balancing Authority." In the West, the initial registration process generally assumed a very broad definition of the BES, with the result that many purely local distribution utilities were inappropriately registered as Transmission Owners, Transmission Operators, or under other functions that assume ownership of BES facilities. If the new BES definition means that a utility no longer owns or operates BES facilities, the utility can, on the strength of the new BES definition, file a Petition for Deregistration with WECC seeking to deregister from transmission-related functions (e.g., "Transmission Owner" and "Transmission Operator") .

3. Exceptions Process.
In addition to approving the BES definition, Order No. 773 approved a new "Exception Process," which allows utilities inappropriately categorized as BES under the definition to file an "Exception Request." If the utility can demonstrate, based on technical studies, that its facilities are "not necessary for the Reliable Operation of the interconnected bulk-power transmission system," NERC will reclassify the facilities as non-BES. If the utility successfully pursues an Exception Request, it may then be able to deregister from transmission-related functions. The Exception Process can also be used to demonstrate that specific utility-owned facilities are non-BES, thereby removing those facilities from the obligation to comply with BES-related reliability standards.

4. Petition for Declaration That A System is "Used for Local Distribution."
In the most surprising aspect of Order No. 773, FERC imposed a new procedure requiring owners of local distribution facilities to petition FERC directly if they believe their facilities are "used in the local distribution of electric energy," and are therefore excluded from the BES under Section 215(a)(1) of the Federal Power Act. In making this determination, FERC will focus on the function of the system, in contrast to the system's material reliability impacts that would be examined in an Exception process. FERC will use, among other factors, the "Seven Factor Test," developed in the 1990s to distinguish local distribution from transmission as traditional industry structures were changing. This procedure gives local distribution utilities a chance to escape BES classification even if they cannot do so under the BES definition or the Exception process. The procedural path is likely to be less time-consuming and expensive than the Exception process because utilities can petition FERC directly rather than having to go first to WECC and NERC, and the issues to be resolved by FERC are likely to be less technical and fact-intensive than in the Exception process.

5. Facility-Specific Notification to WECC.
In addition, Order No. 773 allows a utility to notify WECC if it determines that specific facilities it owns are no longer classified as BES under the new BES definition. The procedure is simple - nothing more than a notification is required. Reclassification in this manner could significantly reduce a utility's compliance burden because removing facilities from the BES will reduce or eliminate the obligation to comply with reliability standards applicable to BES owner/operators.

6. Standard-by-Standard Negotiation.
Following earlier FERC precedent, Order No. 773 FERC invites utilities to bargain with NERC for exemption from reliability standards that do not make sense in a utility's specific circumstances, which could substantially reduce compliance burdens. NWPPA could serve a valuable function in this regard by organizing a group of its members to analyze and develop a list of reliability standards that should not apply to specific types of utilities (i.e, full-requirements customers of Bonneville Power Administration, utilities with no scheduling function) and assist in helping members seek exemptions from unnecessary requirements.

7. Agreed Transfer of Responsibilities.
Finally, individual utilities may be able to transfer compliance obligations to other entities by agreement. NERC rules allow reliability obligations to be transferred to, for example, joint action agencies, G&T cooperatives, or other entities with appropriate functional registrations. A utility transferring compliance responsibilities in this way could deregister from specific functions, or even completely deregister. NWPPA could render assistance in this area by, for example, exploring whether economies of scale can be achieved by transferring compliance responsibilities to a joint entity or negotiating with Bonneville Power Administration to take responsibility for its customers' transmission-related compliance obligations.

After Order No. 773, public power managers interested in reducing the cost of reliability compliance can choose from a menu of options. In making this choice, managers will need to carefully evaluate the specific circumstances of their utility. But Order No. 773 substantially increases the chances that meaningful reductions in compliance obligations can be achieved by NWPPA members.

FERC Leaves a Sugarplum for Reliability Compliance, Adopts NERC "Bulk Electric System" Definition

December 22, 2012

While the Federal Energy Regulatory Commission at its December meeting put Bonneville Power Administration on the "naughty" list, it awarded the North American Electric Reliability Corporation's ("NERC") industry-led "Bulk Electric System" Standards Drafting Team a place on the "nice" list. On December 20, FERC issued Order No. 773, which adopts a new definition of "Bulk Electric System." The new definition is fundamental to FERC's electric reliability enforcement regime because FERC's mandatory enforcement authority is limited by statute to elements of the "Bulk Electric System." In addition, Order No. 773 adds a couple of stocking-stuffers for the industry in the form of new procedures for regulated entities seeking to reduce their compliance burdens by excluding systems or elements from the Bulk Electric System.

As we have previously explained in greater detail, for several years after Congress adopted a mandatory electric reliability requirement in 2005, FERC relied on the pre-existing definition of "Bulk Electric System," despite its ambiguity. In March, 2010, however, FERC reversed course, proposing a new definition of "Bulk Electric System" that would classify all elements rated at 100 kV or above as "Bulk Electric System" with very limited exceptions. FERC's unexpected move provoked a fierce backlash from all sectors of the industry. In response, FERC again changed course, this time ordering NERC to develop a new Bulk Electric System definition using the NERC standards development process.

In response, NERC formed the BES Standards Development Team which conducted a standards development process over the course of 2011. Utilities from across the country, including a large coalition of public power entities from the West, devoted a great deal of time and talent to developing a workable "Bulk Electric System" definition. These efforts culminated in a revised "Bulk Electric System" submitted by the Standards Drafting Team for approval by FERC in January of this year. The new definition starts with a 100-kV threshold, but adds several specific inclusions and exclusions. For example, exclusions for "Local Networks" and radial systems will cover most local distribution systems, allowing them to escape the considerably more burdensome reliability requirements that would apply if they are classified as part of the Bulk Electric System. The NERC proposal also includes an "Exceptions" process that allows case-by-case variations from the Bulk Electric System definition based upon system-specific technical information.

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Eric Christensen Publishes "A Guide To The Byzantine" in November Northwest Public Power Association Bulletin

December 12, 2012

Eric Christensen published an article concerning the new "Bulk Electric System" definition and how it is likely to aid Northwest utilities in complying with the FERC/NERC electric reliability regime in the November 2102 issue of the Northwest Public Power Bulletin. We've reprinted the text (without footnotes) here:


Eric Christensen, Partner
Gordon Thomas Honeywell

The ancient Byzantine Empire was famous for "bureaucratic overelaboration bordering on lunacy." In modern times, "Byzantine" has come to describe a system with "so many labyrinthine internal interconnections" that it is impossible to simplify or clarify. For power managers struggling to cope with the mind-numbing complexities of mandatory electric reliability standards, "Byzantine" seems a useful description.

For example, although many reliability standards have been mandatory since 2007, basic terms such as "Bulk Electric System" ("BES") and "Local Distribution" have yet to be defined. These terms are critical in determining a utility's compliance obligations because, if a utility owns or operates BES facilities, it will be obligated to comply with a much larger set of standards than otherwise.

Fortunately, interpretative assistance is at last on the way, in the form of the "Bulk Electric System" definition currently under consideration by the Federal Energy Regulatory Commission ("FERC"). NWPPA played a major role in developing the definition, helping leverage the expertise of its members by coordinating public power participation in the development of the BES definition from its inception. Public power's persistence helped produce a definition that will promote reliable operation of the backbone high-voltage transmission system while avoiding unnecessary and expensive regulation of local distribution systems.

After Congress launched the mandatory reliability regime in 2005, regulators muddled along for several years, using an old and ambiguous BES definition from the era of non-mandatory reliability standards. This changed suddenly in March 2010, when FERC proposed its own BES definition, which would have declared any facility rated above 100 kV to be BES, with exceptions granted only by petition to FERC.

If adopted, FERC's proposal would have resulted in systematic over-regulation, especially in the West. Western utilities frequently operate 115-kV distribution facilities, and, under FERC's 100-kV test, these facilities would have been classified as BES. If this occurred, compliance costs for the distribution-only systems often operated by public power would skyrocket, but with no improvement in reliability. To give one example, classifying 115-kV distribution systems as BES transmission would have required public owners of these systems to spend tens or even hundreds of thousands of dollars to obtain training for system operators from the North American Electric Reliability Corporation ("NERC"). But these distribution system operators generally have no access to the bulk system controls NERC would train them to operate. Money spent on training would, therefore, simply be wasted.

Fortunately, after strong industry reaction to the March 2010 proposal, FERC modified its approach. Rather than simply imposing a 100-kV test, FERC directed NERC to develop a new definition, challenging NERC to find an approach that would more effectively meet FERC's objectives. Public power representatives, including many from the West, devoted countless hours to the Standards Development Process that followed. The resulting proposal is vastly superior to FERC's original hard-line proposal and, if adopted, should improve bulk system reliability while avoiding the needless expense and overregulation that would have resulted from FERC's initial approach.

For example, the new definition makes clear that radial systems and local networks are not BES, even if operated above 100-kV. Both configurations are commonly employed by Western public power agencies to provide local distribution service. These exceptions should therefore allow most public power agencies operating local distribution to avoid inappropriate categorization as BES operators. Even if this does not occur, the new proposal includes an "Exceptions Process," whereby public power systems inappropriately classified under the definition as BES may be reclassified based upon technical analysis demonstrating that a system has no meaningful impact on the reliability of the backbone transmission system.

In June, FERC proposed adopting the NERC-developed definition but expressed a number of concerns, suggesting it may require additional changes to the NERC proposal. In order to reassure FERC, and thereby promote FERC adoption of the NERC proposal without modifications, NWPPA helped coordinate extensive comments from public power experts across the West addressing FERC's concerns and demonstrating that the proposed definition satisfies them.

In the next few months, FERC is expected to issue a final order concerning the BES definition. Public power's concerted efforts to develop a reasonable definition, and to support that definition at FERC, substantially increase the likelihood FERC will issue a favorable decision. The NWPPA's efforts should serve as a model for future public power involvement in developing reliability standards and in improving the operation of the reliability system.