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Version Two Facilities Design, Connections and Maintenance Reliability Standards

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Start Preamble Issued March 20, 2009.

AGENCY:

Federal Energy Regulatory Commission.

ACTION:

Final rule.

SUMMARY:

Pursuant to section 215 of the Federal Power Act, the Commission approves three revised Reliability Standards developed by the North American Electric Reliability Corporation (NERC), which the Commission has certified as the Electric Reliability Organization responsible for developing and enforcing mandatory Reliability Standards. The three revised Reliability Standards, designated by NERC as FAC-010-2, FAC-011-2 and FAC-014-2, set requirements for the development and communication of system operating limits of the Bulk-Power System for use in the planning and operation horizons. In addition, the Commission approves, with modifications, the violation severity levels for the three Reliability Standards.

DATES:

Effective Date: This rule will become effective April 29, 2009.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Cory Lankford (Legal Information), Office of the General Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-6711.

Cynthia Pointer (Technical Information), Office of Electric Reliability, Division of Reliability Standards, Federal Energy Regulatory Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-6069.

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

Table of Contents

Paragraph numbers
I. Background2
A. Mandatory Reliability Standards2
B. NERC's Proposed Version Two FAC Reliability Standards3
C. Notice of Proposed Rulemaking5
II. Discussion9
A. Load Greater Than Studied12
B. Cascading Outages17
C. Loss of Consequential Load21
D. Violation Severity Levels26
1. General Matters32
2. Assignment of Violation Severity Levels to Sub-Requirements NERC Filing37
3. Removal of Unnecessary Violation Severity Level Assignments NERC Filing47
4. Compliance With the Commission's Violation Severity Level Guidelines51
a. Requirement R1 of FAC-010-2 and FAC-011-2 NERC Filing54
b. FAC-010-2 Requirement R4 NERC Filing60
c. FAC-011-2, Requirement R3 NERC Filing66
d. FAC-011-2, Requirement R4 NERC Filing72
e. FAC-014-2, Requirements R1 Through R4 NERC Filing76
f. FAC-014-2, Requirement R5 NERC Filing82
g. FAC-014-2, Requirement R6 NERC Filing85
E. Violation Risk Factors90
F. WECC Regional Differences94
Start Printed Page 14009
G. Effective Date101
III. Information Collection Statement102
IV. Environmental Analysis104
V. Regulatory Flexibility Act105
VI. Document Availability108
VII. Effective Date and Congressional Notification111

Before Commissioners: Jon Wellinghoff, Chairman; Suedeen G. Kelly, Marc Spitzer, and Philip D. Moeller.

1. Pursuant to section 215 of the Federal Power Act,[1] the Commission approves three revised Reliability Standards concerning Facilities Design, Connections and Maintenance (FAC) that were developed by 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. The three revised Reliability Standards, designated by NERC as FAC-010-2, FAC-011-2, and FAC-014-2, set requirements for the development and communication of system operating limits of the Bulk-Power System for use in the planning and operation horizons. In addition, the Commission approves, with modifications, the violation severity levels for the three Reliability Standards.

I. Background

A. Mandatory Reliability Standards

2. Section 215 of the FPA 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 be enforced by the ERO, subject to Commission oversight, or by the Commission independently.[2]

B. NERC's Proposed Version Two FAC Reliability Standards

3. In Order No. 705, the Commission approved three “version one” FAC Reliability Standards, FAC-010-1, FAC-011-1, and FAC-014-1,[3] which require planning authorities and reliability coordinators to establish methodologies to determine system operating limits for the Bulk-Power System in the planning and operation horizons.[4] In addition, the Commission directed the ERO to develop modifications to the Reliability Standard; and remanded the ERO's proposed definition of “Cascading Outage.”

4. On June 30, 2008, in response to the Commission's directives in Order No. 705, NERC submitted for Commission approval three revised FAC Reliability Standards: [5] System Operating Limits Methodology for the Planning Horizon—FAC-010-2, System Operating Limits Methodology for the Operations Horizon—FAC-011-2, and Establish and Communicate System Operating Limits—FAC-014-2. NERC requests that FAC-010-2 be made effective on July 1, 2008, FAC-011-2 on October 1, 2008, and FAC-014-2 on January 1, 2009, consistent with the implementation dates of version one of these Reliability Standards.

C. Notice of Proposed Rulemaking

5. On October 16, 2008, the Commission issued a notice of proposed rulemaking (NOPR) proposing to approve the revised FAC Reliability Standards.[6] In addition, the Commission expressed concern with several of NERC's proposed assignments of violation severity levels and proposed modifications. Further, the Commission proposed to apply the violation risk factors associated with the version one FAC Reliability Standards to the version two Reliability Standards approved here.

6. In the NOPR, the Commission required that comments be filed within 30 days after publication in the Federal Register, or November 24, 2008. Five parties filed comments in response to the FAC NOPR: NERC, the Midwest Independent System Operator, Inc. (Midwest ISO), the Bonneville Power Administration (BPA), the United States Department of the Interior, Bureau of Reclamation (Bureau of Reclamation), and the Independent Electric System Operator of Ontario (IESO). The Commission addresses these comments below.

7. On October 15, 2008, NERC filed violation risk factors for the version two FAC Reliability Standards and a regional difference for the Western Interconnection. The violation risk factors filed by NERC are identical to the violation risk factors assigned to the version one FAC Reliability Standards.

8. Notice of NERC's October 15, 2008 filing was published in the Federal Register, 74 FR 8082 (2009), with comments due on March 5, 2009. None was filed.

II. Discussion

9. As discussed below, the Commission finds the three FAC Reliability Standards to be just, reasonable not unduly discriminatory or preferential, and in the public interest. Further, the proposed Reliability Standards are consistent with our directives in Order No. 705. The Commission therefore approves Reliability Standards FAC-010-2, FAC-011-2, and FAC-014-2, effective 30 days after publication of this final rule in the Federal Register.[7]

10. In addition, as discussed below, we approve the ERO's proposed violation severity levels and violation risk factors for the three FAC Reliability Standards and direct the ERO to make certain modifications to the violation severity levels within 30 days of the effective date of this final rule.

11. In the sections below, we address each of the proposed revisions to the FAC Reliability Standards as well as comments received in response to the FAC NOPR. Start Printed Page 14010

A. Load Greater Than Studied

12. Sub-requirement R2.3.2 of FAC-011-1 (the “version 1” standard) provided that the system's response to a single contingency may include, inter alia, “[i]nterruption of other network customers, only if the system has already been adjusted, or is being adjusted, following at least one prior outage, or, if the real-time operating conditions are more adverse than anticipated in the corresponding studies, e.g., load greater than studied.” NERC asserted that a significant gap between actual and studied conditions (such as a large error in load forecast) could be treated as though it were a contingency under the version 1 of FAC-011-1 Reliability Standard.

13. In Order No. 705, the Commission disagreed with NERC's explanation of FAC-011-1, sub-Requirement R2.3.2 and use of the phrase “load greater than studied.” [8] However, the Commission found that the meaning of Requirement R2.3 and sub-Requirement R2.3.2 was clear without the phrase. The Commission therefore approved FAC-011-1, but directed the ERO to revise the Reliability Standard through the Reliability Standards development process. The Commission suggested that NERC could address the Commission's concern by deleting the phrase, “e.g., load greater than studied.” [9]

NERC Filing

14. In response to the Commission's directive, NERC revised the Reliability Standard to remove the phrase “e.g. load greater than studied” from Requirement R2.3.2. NERC described the phrase as an example and stated that its removal does not materially change the requirement.

NOPR Proposal

15. In the NOPR, the Commission proposed to approve NERC's removal of the phrase “e.g., load greater than studied” from sub-requirement R2.3.2 of FAC-011-2. The Commission noted that NERC's revision in FAC-011-2 appeared reasonable and did not appear to change or conflict with the stated requirements set forth in the version one Reliability Standards approved in Order No. 705.

Commission Determination

16. The Commission approves the ERO's removal of the phrase “e.g., load greater than studied” from sub-requirement R2.3.2 of FAC-011-2. As we explained in the NOPR, while NERC described the phrase “load greater than studied” as simply an example and its removal does not materially change the requirement, Order No. 705 found that the operating conditions referred to in sub-Requirement R2.3.2 exacerbated circumstances that were distinct from the actual contingency to be addressed that is referred to in Requirement R2.3. Further, the Commission, in Order No. 705, did not support treating “load greater than studied” as a contingency.[10] Rather, correcting for load forecast error is not accomplished by treating the error as a contingency, but is addressed under other Reliability Standards.[11] The removal of the phrase “load greater than studied” resolves our concern and, accordingly, we approve the revision.

B. Cascading Outages

17. With the version one FAC Reliability Standards, NERC proposed to add the term “Cascading Outages” to its glossary. In Order No. 705, the Commission noted that, although the glossary did not include a definition of Cascading Outages, it included a previously-approved definition of “Cascading,” which seemed to describe the same concept. The Commission remanded NERC's proposed definition of Cascading Outages because NERC did not describe either the need for two definitions that seem to address the same matter or the variations between the two. The Commission also raised specific concerns with NERC's proposed definition of Cascading Outages. However, the Commission allowed NERC to file a revised definition that addresses the Commission's concerns.[12]

NERC Proposal

18. In response, NERC proposed to withdraw the definition of Cascading Outages. Further, NERC revised Reliability Standards FAC-010-2 and FAC-011-2 by removing the term Cascading Outages and replacing it with Cascading.

NOPR Proposal

19. In the NOPR, the Commission proposed to approve NERC's substitution of Cascading for Cascading Outage in the FAC Reliability Standards.[13] The Commission noted that NERC's proposed revisions to FAC-010-2 and FAC-011-2 appeared reasonable and did not appear to change or conflict with the stated requirements set forth in the version one Reliability Standards approved in Order No. 705.

Commission Determination

20. The Commission approves the ERO's decision to withdraw the definition of Cascading Outage, and to remove the term Cascading Outage from the FAC Reliability Standards and replace it with the term Cascading. This approach is consistent with Order No. 705 and provides further clarity to the FAC Reliability Standards.

C. Loss of Consequential Load

21. Reliability Standard FAC-010-1 (version 1) Requirement R2.3, provided that the system's response to a single contingency may include, inter alia, “planned or controlled interruption of electric supply to radial customers or some local network customers connected to or supplied by the Faulted Facility or by the affected area.” [14] In response to a question raised by the Commission, NERC clarified that the provision in FAC-010-1, Requirement R2.3 is limited to loss of load that is directly connected to the facilities removed from service as a direct result of the contingency, i.e., consequential load loss.

22. In Order No. 705, the Commission reiterated its holding that addressed similar language on loss of load in Order No. 693, regarding Reliability Standard TPL-002-0. In Order No. 693, the Commission noted that “allowing for the 30 minute system adjustment period, the system must be capable of withstanding an N-1 contingency, with load shedding available to system operators as a measure of last resort to prevent cascading failures.” [15] Order No. 693 directed the ERO to clarify the planning Reliability Standard TPL-002-0 accordingly. The Commission reached the same conclusion in Order No. 705. In Order No. 705, the Commission approved Reliability Standard FAC-010-1, Requirement R2.3 and directed the ERO to ensure that the clarification developed in response to Order No. 693 is made to the FAC Reliability Standards as well.[16]

Start Printed Page 14011

NERC Filing

23. NERC, in its June 30, 2008 filing, stated its belief that revisions to the term “loss of consequential load” is best addressed in its ongoing project to modify the transmission planning (TPL) group of Reliability Standards. NERC explains that the term “loss of consequential load” is intrinsic to the scope of the project to revise the TPL Reliability Standards and will be addressed there.

NOPR Proposal

24. In the NOPR, the Commission proposed to allow the ERO to address revisions to the term “loss of consequential load” in the modification being made to the TPL Reliability Standards. The Commission advised that such revisions should be consistent with the Commission's prior determinations in Order Nos. 693 and 705.[17] The Commission preliminarily found that FAC-010-2 and FAC-011-2 were clearly understood as written and clarified in Order No. 705, including its holding with respect to “loss of consequential load,” [18] and that NERC's proposal to deal with “loss of consequential load” in a more related project was appropriate.

Commission Determination

25. The Commission adopts its NOPR proposal approving the ERO's proposal to address revisions to the term “loss of consequential load” in the modification being made to the TPL Reliability Standards.

D. Violation Severity Levels

26. In the event of a violation of a Reliability Standard, NERC will establish the initial value range for the corresponding base penalty amount. To do so, NERC will assign a violation risk factor for each requirement of a Reliability Standard that relates to the expected or potential impact of a violation of the requirement on the reliability of the Bulk-Power System. In addition, NERC will define up to four violation severity levels—Lower, Moderate, High, and Severe—as measurements for the degree to which the requirement was violated in a specific circumstance.

27. In Order No. 705, the Commission approved 63 of NERC's 72 proposed violation risk factors for the version one FAC Reliability Standards and directed NERC to file violation severity level assignments before the version one FAC Reliability Standards become effective.[19] Subsequently, NERC developed violation severity levels for each requirement of the Commission-approved FAC Reliability Standards, as measurements for the degree to which the requirement was violated in a specific circumstance.

28. On June 19, 2008, the Commission issued an order approving the violation severity level assignments filed by NERC for the 83 Reliability Standards approved in Order No. 693.[20] In that order, the Commission offered four guidelines for evaluating the validity of violation severity levels, and ordered a number of reports and further compliance filing to bring the remainder of NERC's violation severity levels into conformance with the Commission's guidelines. The four guidelines are: (1) Violation severity level assignments should not have the unintended consequence of lowering the current level of compliance; (2) violation severity level assignments should ensure uniformity and consistency among all approved Reliability Standards in the determination of penalties; [21] (3) violation severity level assignments should be consistent with the corresponding requirement; and (4) violation severity level assignments should be based on a single violation, not a cumulative number of violations.[22] The Commission found that these guidelines will provide a consistent and objective means for assessing, inter alia, the consistency, fairness and potential consequences of violation severity level assignments. The Commission noted that these guidelines were not intended to replace NERC's own guidance classifications, but rather, to provide an additional level of analysis to determine the validity of violation severity level assignments.

NERC Filing

29. In its initial filing, NERC identified violation severity levels for FAC-010-2, FAC-011-2, and FAC-014-2. NERC acknowledged that it developed these violation severity levels prior to the issuance of the Violation Severity Level Order. NERC asked the Commission to accept its violation severity levels, as filed, for the version two FAC Reliability Standards even though it has not yet assessed their validity using the four guidelines established in the Violation Severity Level Order. NERC committed to assessing the violation severity levels for the FAC Reliability Standards in the six-month compliance filing required by the Violation Severity Level Order.[23]

NOPR Proposal

30. The NOPR proposed to approve, with modification, NERC's proposed violation severity levels for FAC-010-2, FAC-011-2, and FAC-014-2.[24] The Commission acknowledged that NERC assigned its proposed violation severity levels before the Commission established the four guidelines for evaluating the validity of violation severity levels, and preliminarily found that certain proposed violation severity levels for the version two FAC Reliability Standards would not meet our guidelines. The Commission therefore proposed certain modifications to the violation severity levels to form a complete set of violation severity levels. The Commission acknowledged that NERC committed to assessing the violation severity levels in the compliance filing required by the Violation Severity Level Order and encouraged NERC to do so.[25] If, however, NERC did not include an assessment of its FAC violation severity levels in its six-month evaluation following the issuance of the Violation Severity Level Order, the Commission proposed to direct the ERO to submit an assessment of the FAC violation severity levels within six months of the effective date of the final rule in this docket.

31. In the sections below, the Commission addresses comments and approves, with modification, violation severity levels for FAC-010-2, FAC-011-2 and FAC-014-2. Start Printed Page 14012

1. General Matters

Comments

32. NERC requests clarification regarding the Commission's direction in paragraph 24 of the NOPR. In that paragraph, the Commission states that it is concerned with several of the proposed violation severity levels and then provides two examples. NERC asks the Commission to clarify whether or not this was intended as a generic statement to preface later paragraphs of the NOPR. NERC also asks if the Commission has identified additional violation severity levels that need revision beyond those identified in the body of the NOPR.

33. As a general matter, IESO supports the NERC's proposed modifications to the FAC Reliability Standards, including the associated violation risk factors and violation severity levels and asks the Commission to accept them as filed. IESO states that the violation risk factors and violation severity levels were developed in a stakeholder process with active industry participation through NERC's standards development process. IESO contends that the industry has the resources, technical capability, and the experience necessary to develop violation risk factors and violation severity levels that reflect the requirements embedded in the various reliability standards. IESO recommends that the Commission accept the industry developed and balloted violation risk factors and violation severity levels where these are established by NERC and the industry in adherence to a timely and due process.

34. By contrast, the Bureau of Reclamation advocates that because the violation severity levels require refinement, the Commission should not approve NERC's proposed Reliability Standards. The Bureau of Reclamation states that the Commission relies on NERC to develop Reliability Standards and in the event a standard is found to be inadequate, the Commission should remand the standard back to NERC. The Bureau of Reclamation asks the Commission to rely on the existing version until the proposed changes are made and resubmitted to the Commission for approval. Otherwise, the Bureau of Reclamation contends, it will be difficult for regulating entities to enforce uncertain Reliability Standards.

Commission Determination

35. In response to NERC's comment, we clarify that the Commission's statement in paragraph 24 of the NOPR that it is concerned with several of the proposed violation severity levels was intended as a generic statement to preface later paragraphs. In general, the Commission approves the violation severity levels proposed by NERC. As discussed in the NOPR, however, the Commission identified several violation severity levels that appeared either unclear or inconsistent with the Commission's guidelines for violation severity levels. In this final rule, the Commission approves certain violation severity levels as proposed by NERC and directs certain modifications, as discussed below.

36. The Commission disagrees with IESO's proposal that because the violation severity levels proposed by NERC in this proceeding were developed by industry participants through NERC's standard development process, the Commission should approve the violation severity levels as filed. The Commission has previously determined that, similar to violation risk factors, violation severity levels are not part of the Reliability Standard and, thus, are appropriately treated as an appendix to NERC's Rules of Procedure.[26] Revisions of violation severity levels do not modify the Reliability Standard. Accordingly, NERC is not required to comport with the Reliability Standards development provisions of Federal Power Act section 215 when revising a violation severity level assignment.[27] It is for this reason that the Commission also rejects the Bureau of Reclamation's request that the Commission not approve the proposed Reliability Standards because the proposed violation severity levels applicable to them require additional work.

2. Assignment of Violation Severity Levels to Sub-Requirements

NERC Filing

37. NERC did not propose any violation severity level assignments for sub-requirements.

NOPR Proposal

38. The Commission has directed NERC to develop violation severity levels for each requirement and sub-requirement of each Reliability Standard.[28] The Commission therefore proposed to direct the ERO to assign binary violation severity levels for all of the proposed sub-requirements.[29] In Order No. 705, the Commission found that the binary approach is appropriate for certain violation severity level assignments.[30] In this instance, the Commission determined that the binary approach is appropriate because the violation severity level of the base requirement is established by whether a sub-requirement is violated or not, not to the extent a sub-requirement is violated. Thus, the Commission preliminarily found that the proposed binary requirements satisfy guideline 3, which calls for consistency between the violation severity level assignments and their corresponding requirements. For example, FAC-010-2 Requirement R1.1 states that the planning authority's system operating limit methodology shall “[b]e applicable for developing system operating limits used in the planning horizon.” [31] Because NERC did not propose any violation severity levels for this sub-requirement, the Commission proposed a binary severe violation severity level that would be triggered when the planning authority system operating limit methodology is not applicable for developing system operating limits in the planning horizon. The Commission stated that this binary approach for sub-requirements provides clear criteria to determine the violation severity level for a violation of the sub-requirement. The Commission proposed to direct the ERO to file the revised violation severity levels within 30 days of the final rule in this proceeding.

Comments

39. NERC states that it did not intend to assign a penalty or sanction based on the violation of each sub-requirement of a Reliability Standard separate and distinct from the base requirement it supports. Where a sub-requirement is phrased like a requirement and addresses a different reliability objective from the base requirement, NERC agrees that it is appropriate to assign a violation risk factor to the primary requirement and to each sub-requirement that addresses differing reliability objectives. NERC contends, though, that the version two FAC Reliability Standards do not include any sub-requirements serving a reliability objective separate from the base requirement. NERC states that each of these sub-requirements is crafted as an integral component of the base requirement, and is not intended to be assessed for compliance independent of the base requirement. NERC states that each base requirement is assigned a Start Printed Page 14013violation risk factor and a set of violation severity levels that incorporates each sub-requirement, irrespective of the number of sub-requirements associated with the base requirement. Thus, NERC contends, the severity of violating the reliability objective of the base requirement and its associated sub-requirements is best assessed on the whole at the base requirement level rather than on the individual sub-requirement level.

40. NERC disagrees with the Commission's statement that NERC did not propose any violation severity level assignments for sub-requirements. NERC states that it proposed violation severity levels for each sub-requirement by reference in the associated base requirement of the related sub-requirement. NERC also disagrees with the Commission's proposal to direct the ERO to assign “Severe” binary violation severity levels for all of the proposed sub-requirements of the base requirement. NERC contends that the assignment of “Severe” binary violation severity levels for all of the proposed sub-requirements of a base requirement will create an overlap of violation severity levels between the base and sub-requirements that will have the unintended consequence of confusing the application of the NERC sanction guidelines to a particular set of circumstances that involves compliance with a particular sub-requirement as part of the base requirement. NERC further contends that its proposed application of violation severity levels relative to base and sub-requirements is consistent with the Commission's criterion for approving Reliability Standards.[32] NERC contends that the approach proposed by the Commission would create inconsistencies in the application of the violation severity levels, contrary to the Commission's guidelines in Order No. 672. NERC further contends that the Commission's proposed approach fails to acknowledge that the purpose of the sub-requirement is to support the singular reliability objective of, and is a component of, the total intent of the base requirement and, as such, is not to be assessed independently from the base requirement.

41. IESO and Midwest ISO agree with NERC that the application of violation severity levels should be consistent and that the Commission should not require the assignment of a violation severity level to every sub-requirement. Midwest ISO contends that, in the event a sub-requirement covers a different reliability objective than the base requirement and therefore does need its own violation severity level, the Commission should direct NERC to strike the sub-requirement and rewrite it as a separate base requirement. Midwest ISO also requests Commission confirmation that a penalty should be assessed through the main requirement rather than through the criteria in the sub-requirements. Further, Midwest ISO contends that, because the violation severity levels of these base requirements cover the violation of the criteria in the sub-requirements, the violation risk factors associated with the sub-requirements should be removed, eliminating the need for additional violation severity levels for sub-requirements.

Commission Determination

42. NERC's proposal to assign a penalty or sanction for a violation of a sub-requirement based on the violation severity level of the corresponding main requirement is not consistent with Commission precedent or with NERC's Sanction Guidelines. The Commission has directed NERC to develop violation severity levels for every requirement and sub-requirement.[33] In addition, the Violation Severity Level Order stated that each requirement assigned a violation risk factor also must be assigned at least one violation severity level.[34] As set forth in the NERC's Sanction Guidelines, the intersection of these two factors is the first step in the determination of a monetary penalty for a violation of a requirement of a Reliability Standard. The ERO and Regional Entities may assess penalties that relate to violations of particular sub-requirements of a requirement, where appropriate. For these reasons, the Commission disagrees with commenters who argue that the Commission should not require the assignment of violation severity levels to every sub-requirement.

43. The Commission understands that the Reliability Standards (Version 0 and Version 1) approved in Order No. 693 are, for the most part, a direct translation of the then voluntary NERC Operating Policies and Planning Standards, which employed a numbering hierarchy that does not consistently facilitate the assignment of violation risk factors and, consequently, violation severity levels. This numbering hierarchy, carried over during the translation, is at the heart of the distinction between “main” and “sub” requirements with respect to compliance with mandatory Reliability Standards.[35]

44. The Commission appreciates the ERO's initiative to develop an alternative approach to facilitate the assignment of factors necessary for its compliance and enforcement program. As NERC acknowledges, some Reliability Standards include requirements with sub-requirements that address a different reliability objective from the main requirement. The Commission understands that the varied nature of the relationship between the main requirements and sub-requirements throughout the Reliability Standards has created concern whether a violation of a sub-requirement is also a violation of the requirement itself. Due to these concerns, the Commission believes that it is premature to change its current policy in the current proceeding, which is limited to the three FAC Reliability Standards submitted by NERC.

45. Rather, the Commission encourages the ERO to develop a new and comprehensive approach that would better facilitate the assignment of violation severity levels and violation risk factors both prospectively and to existing, Commission-approved, Reliability Standards. The ERO could raise its proposal for an alternative approach in a separate filing. This would allow the Commission to better understand the implications of the proposed change in approach, as opposed to having to act on an ad hoc basis.

46. The Commission expects that the ERO's filing of its alternative approach would include a more detailed description of the proposal to assign violation severity levels for main requirements that would apply to sub-requirements, as well as the specific conditions under which its application Start Printed Page 14014would or would not be appropriate.[36] The Commission also expects that the ERO's filing would propose implementation of its approach comprehensively to all requirements of approved Reliability Standards and how that implementation would be accomplished. The ERO's filing of its alternative approach, however, must not postpone or preclude the Guideline 2b, 3, and 4 compliance filing which is due in September 2009. Therefore, until the Commission has an opportunity to review such a proposal, the Commission directs the ERO to submit violation severity levels for all requirements and sub-requirements at issue in this proceeding within 30 days from the effective date of this final rule, as discussed below and as indicated in Attachment A. In light of concerns raised in the comments, the Commission has also made minor clarifying edits to the violation severity levels for certain of the requirements and sub-requirements approved in this proceeding.[37] These clarifying edits are also reflected in Attachment A.

3. Removal of Unnecessary Violation Severity Level Assignments

NERC Filing

47. NERC submitted violation severity levels for Requirement R2 of FAC-010-2 and Requirement R2 of FAC-011-2. Requirements R2 of FAC-010-2 and FAC-011-2 require planning authorities and reliability coordinators to include in their system operating limit methodology a requirement that the system operating limits provide bulk electric system performance consistent with the terms established in the sub-requirements.

NOPR Proposal

48. In Order No. 705, the Commission found that Requirement R2 of FAC-010-1 and Requirement R2 of FAC-011-1, without their sub-requirements, include no required performance or outcome.[38] As such, no violation severity levels need to be assigned to these requirements. The Commission therefore proposed to delete the proposed violation severity levels for Requirement R2 of FAC-010-2 and FAC-011-2.

Comments

49. NERC disagrees with the Commission's proposal to remove the violation severity levels assigned to Requirement R2 of FAC-010-2 and Requirement R2 of FAC-011-2. NERC states that it did not intend to assign a penalty or sanction based on the violation of each sub-requirement of a Reliability Standard. NERC states that although it has assigned a violation risk factor to every base requirement and sub-requirement to comply with a Commission directive, it continues to expect that the compliance enforcement authority will assess each base requirement in total, irrespective of the number of sub-requirements associated with the base requirement.

Commission Determination

50. As discussed above, each requirement that is assigned a violation risk factor also must be assigned at least one violation severity level. If the ERO does not assign a violation risk factor to a requirement, it should not assign violation severity levels. The NOPR identified requirements belonging to the proposed Reliability Standards that do not establish a required outcome or performance. In the Violation Risk Factor Order, the Commission described these types of requirements as explanatory statements, phrases and/or text, and determined that violation risk factors need not be assigned to such requirements.[39] The Commission finds that Requirements R2 and R2.6 of FAC-010-2 and Requirement R2 of FAC-011-2 are such explanatory statements as they include no required performance or outcome. Accordingly, the Commission adopts the NOPR proposal and directs the ERO to remove violation severity level assignments for Requirements R2 and R2.6 of FAC-010-2 and Requirement R2 of FAC-011-2. The ERO shall submit its revisions to the Commission within 30 days from the issuance of this final rule, as discussed above and as indicated in Attachment A.

4. Compliance With the Commission's Violation Severity Level Guidelines

51. The Commission offers the following clarifications regarding its proposals for compliance with the guidelines established in the Violation Severity Level Order. As an initial matter, it has come to the Commission's attention that, in the NOPR, certain discussions were based on a draft version rather than the filed version of the ERO's proposed violation severity levels. As a result, some of the Commission's proposed revisions would not be appropriate to adopt here. Upon further examination of the ERO's filed violation severity levels, the Commission revises its earlier statements where appropriate, as discussed below.

52. Since the Commission's concerns in these instances were not discussed in the NOPR for comment, the Commission approves the violation severity levels for those requirements as filed by the ERO. However, to ensure that the violation severity levels approved for those requirements are consistent with the guidelines established in the Violation Severity Level Order in a timely manner, the Commission directs the ERO to review those requirements for consistency with Violation Severity Level Order Guidelines 2b, 3, and 4 and submit the results of its review the earlier of six months of the effective date of the final rule or in its Violation Severity Level Order Guideline 2b, 3, and 4 compliance filing due in September 2009, whichever is earlier.

53. Not all of the Commission's proposed modifications of the violation severity levels were based on an unfiled draft of the violation severity levels. Where appropriate, the Commission clarifies its proposed modifications and adopts the NOPR proposal, as discussed below.

a. Requirement R1 of FAC-010-2 and FAC-011-2

NERC Filing

54. Requirement R1 of FAC-010-2 and FAC-011-2 require planning authorities and reliability coordinators to establish a documented system operating limit methodology that satisfies the elements detailed in the sub-requirements. NERC proposed violation severity levels for both of these requirements based on whether the applicable entity has a documented system operating limit methodology and, if it does, the number of elements, from the sub-requirements, the planning authority or reliability coordinator was missing from its system operating limit methodology.

NOPR Proposal

55. In the NOPR, the Commission commented on a lack of uniformity between FAC-010-2 Requirement R1 Start Printed Page 14015and FAC-011-2 Requirement R1. Accordingly, the Commission proposed to direct the ERO to modify the violation severity levels assigned to FAC-011-2 Requirement R1 to make them consistent with the violation severity levels proposed for FAC-010-2 Requirement R1. The Commission reasoned that this uniformity would assist in the compliance and enforcement of these Reliability Standards because it is logical that nearly identical requirements should have nearly identical violation severity level structures.

Comments

56. NERC states that the violation severity levels it filed with the Commission for FAC-010-2 Requirement R1 matched the set of violation severity levels balloted for FAC-011-2 Requirement R1. NERC therefore contends that the Commission's proposed modification to FAC-011-2 is unnecessary. Midwest ISO agrees that Requirement R1 of FAC-010-2 and Requirement R1 of FAC-011-2 were consistent as filed.

57. Midwest ISO also asks the Commission to direct the ERO to remove the violation risk factors associated with the sub-requirements of Requirement R1 of FAC-010-2 and Requirement R1 of FAC-011-2. Midwest ISO states that these sub-requirements represent criteria that the system operating limit methodology must contain that are already considered and encompassed in the violation severity levels associated with the main requirement. Removing the violation risk factors associated with the sub-requirements, Midwest ISO contends, would eliminate the need for additional violation severity levels that would be duplicative of the violation severity level associated with the main requirement. Further, Midwest ISO requests that the Commission confirm that a penalty should be assessed through the main requirement rather than through the criteria in the sub-requirements.

Commission Determination

58. FAC-010-2 Requirement R1 and FAC-011-2 Requirement R1 establish the same requirements for the planning authority and reliability coordinator, respectively. Accordingly, the Commission believes that the ERO should assign similar violation severity levels for these requirements, which it did. The Commission therefore approves the violation severity levels assigned to FAC-010-2 Requirement R1 and FAC-011-2 Requirement R1 as filed by the ERO.

59. Midwest ISO's request to eliminate violation severity levels for sub-requirements and assess a penalty through the violation severity level and violation risk factor assigned to the main requirements is similar to NERC's proposed alternative approach for assigning violation severity levels, which the Commission addresses above. For the same reasons discussed above, the Commission rejects Midwest ISO's request to remove violation risk factors for sub-requirements. Also, for the reasons discussed above, the Commission finds that Midwest ISO's request is a Reliability Standards compliance issue best addressed in the context of a Reliability Standards compliance proceeding.

b. FAC-010-2 Requirement R4

NERC Filing

60. FAC-010-2 Requirement R4 requires the planning authority to issue its system operating limit methodology, and any change to that methodology, to several identified entities prior to the effectiveness of the change. Sub-requirements R4.1 through R4.3 list the required entities to which the planning authority should provide the system operating limit methodology. NERC's proposed violation severity level assignments for FAC-010-2 Requirement R4 measure compliance based, in part, on the number of days the applicable entity failed to provide it system operating limit methodology to the required entities.

NOPR Proposal

61. The Commission stated that it is difficult to discern which conditions trigger specific violation severity levels assigned to FAC-010-2 Requirement R4. The Commission therefore proposed to direct the ERO to make modifications to clarify those conditions without changing the substance of the violation severity levels.

Comments

62. NERC does not oppose the Commission's proposed change to the violation severity levels for FAC-010-2 Requirement R4, because, NERC states, the proposed modifications do not change the intent of the categories of the violation severity levels. NERC contends, however, that the Commission's proposed revisions are inconsistent with other violation severity levels already approved by the Commission. NERC also questions why the Commission would identify the violation severity levels for FAC-010-2 in paragraph 23 of the NOPR among other proposed assignments that are consistent with the Commission's violation severity level guidelines, and then propose modification in the following paragraph.

63. IESO states that there is a time factor in question with respect to Requirement R4 of FAC-010-2 that requires a planning authority to issue to appropriate entities its system operating limit methodology, and any change to that methodology, prior to the effectiveness of the change. IESO contends that NERC's proposed violation severity level for Requirement R4 of FAC-010-2 accurately captures this requirement.

Commission Determination

64. The Commission approves the violation severity levels for Requirement R4, as filed by NERC because the NOPR was silent as to NERC's proposal. However, to ensure that the violation severity levels approved for Requirement R4 are consistent with the guidelines established in the Violation Severity Level Order in a timely manner, the Commission directs the ERO to review the violation severity levels assigned to Requirement R4 for consistency with Violation Severity Level Order Guidelines 2b, 3, and 4 within six months of the effective date of the final rule or in its Violation Severity Level Order Guideline 2b, 3, and 4 compliance filing, whichever is earlier.[40]

65. Although the Commission approves the violation severity levels assigned to Requirement R4 as filed by NERC, the Commission also adopts the NOPR proposal to direct the ERO to assign binary violation severity levels to each sub-requirement. Sub-requirements R4.1 through R4.3 are binary Start Printed Page 14016requirements and should be assigned a single violation severity level. The ERO shall submit its revisions to sub-requirements R4.1 though R4.3 to the Commission within 30 days from the issuance of this final rule, as discussed above and as indicated in Attachment A.

c. FAC-011-2, Requirement R3

NERC Filing

66. Requirement R3 of FAC-011-2 requires a reliability coordinator to include in its methodology for determining system operating limits a description of the elements listed in the sub-requirements, ranging from R3.1 through R3.7, along with any reliability margins applied for each. NERC proposed to assign a “Severe” violation severity level if the reliability coordinator's methodology for determining system operating limits is missing a description of three or more of the sub-requirements. At the same time, NERC proposed to assign a “High” violation severity level if the reliability coordinator's methodology for determining system operating limits includes a description for all but three sub-requirements within the same range.

NOPR Proposal

67. In the NOPR, the Commission pointed out that, under NERC's proposed violation severity level assignments, if a reliability coordinator's methodology for determining system operating limits is missing a description of three sub-requirements, the resulting violation could be assigned both a “High” and a “Severe” violation severity level. To eliminate this overlap, the Commission proposed to direct the ERO to assign a “Severe” violation severity level to Requirement R3 of FAC-011-2 where the reliability coordinator is missing a description of four or more sub-requirements, within the range of R3.1 through R3.7, from its methodology for determining system operating limits.

Comments

68. NERC states that it agrees with the Commission's proposed modification to the violation severity level for Requirement R3 of FAC-011-2.

69. Although Midwest ISO states that the Commission's proposal is reasonable, Midwest ISO requests that the Commission direct the ERO to assign violation severity levels for Requirement R3 based on the quartile approach.[41] Midwest ISO argues that NERC's internal violation severity level development guidelines encourage a multi-component or quartile methodology for assigning violation severity levels where the requirement has multiple sub-components or sub-requirements that direct the responsible entity to comply with a multiple number of sub-requirements or sub-sub-requirements. Accordingly, Midwest ISO requests that the Commission direct the ERO to modify the violation severity levels for Requirement R3 of FAC-011-2 as detailed in the table below.

RequirementLowerModerateHighSevere
FAC-011-2 R3The Reliability Coordinator has a methodology for determining [system operating limits] that includes a description for all but one or two of the following: 3.1 through R3.7The Reliability Coordinator has a methodology for determining [system operating limits] that includes a description for all but three of the following: 3.1 through R3.7The Reliability Coordinator has a methodology for determining [system operating limits] that includes a description for all but four or five of the following: 3.1 through R3.7The Reliability Coordinator has a methodology for determining [system operating limits] that includes a description for all but six or seven of the following: 3.1 through R3.7.

Commission Determination

70. The Commission directs the ERO to modify Requirement R3 of FAC-011-2 to assign a “Severe” violation severity level to Requirement R3 of FAC-011-2 where the reliability coordinator is missing a description of four or more sub-requirements, within the range of R3.1 through R3.7, from its methodology for determining system operating limits.

71. The Commission finds that Midwest ISO proposed violation severity levels are not appropriate for this requirement. In the Violation Severity Level Order, the Commission expressed concern that, in some instances, although consistent with NERC's guidelines, the quartile approach could result in the arbitrary assignment of violation severity levels and a reduction of the current levels of compliance.[42] The assignment of violation severity levels is arbitrary when based on nothing other than ensuring an even distribution of the full range of missed sub-requirements to each of the four violation severity level categories under the premise of applying NERC's quartile approach. The Commission therefore adopts the NOPR proposal agreed to by NERC and directs the ERO to file revised violation severity levels for FAC-011-2, Requirement R3 within 30 days of the issuance of this final rule, as discussed above and as indicated in Attachment A.

d. FAC-011-2, Requirement R4

NERC Filing

72. Requirement R4 requires the reliability coordinator to issue its system operating limit methodology and any changes to that methodology, prior to the effectiveness or change of the methodology to all of the required entities identified in sub-requirements R4.1 through 4.3. NERC's proposed violation severity levels for the subject requirement incorporate as a measure of compliance the number of days the applicable entity failed to issue its system operating limits methodology and any changes to that methodology, prior to the effectiveness or change of the methodology to the required entities.

NOPR Proposal

73. The Commission did not discuss this requirement in the NOPR.

Commission Determination

74. The Commission approves the violation severity levels for Requirement R4, as filed by the ERO because the NOPR was silent as to NERC's proposal. However, to ensure that the violation severity levels approved for Requirement R4 are consistent with the guidelines established in the Violation Severity Level Order in a timely manner, the Commission directs the ERO to review the violation severity levels assigned to Requirement R4 for consistency with Violation Severity Level Order Guidelines 2b, 3, and 4 and Start Printed Page 14017submit the results of the review either within six months of the effective date of the final rule or in its Violation Severity Level Order Guideline 2b, 3, and 4 compliance filing, whichever is earlier.[43]

75. Although the Commission approves the violation severity levels assigned to Requirement R4 as filed by NERC, the Commission also adopts the NOPR proposal to direct the ERO to assign binary violation severity levels to each sub-requirement. Sub-requirements R4.1 through R4.3 are binary requirements and should be assigned a single violation severity level. The ERO shall submit its revisions to sub-requirements R4.1 through R4.3 to the Commission within 30 days from the issuance of this final rule, as discussed above and as indicated in Attachment A.

e. FAC-014-2, Requirements R1 Through R4

NERC Filing

76. Requirements R1 through R4 of FAC-014-2 address the development of system operating limits and interconnection reliability operating limits consistent with the methodologies outlined in FAC-010-2 and FAC-011-2. NERC proposed to assign violation severity levels to these requirements based on a quartile division of the total number of inconsistencies between the assigned system operating limits and the system operating limits that would be produced using the methodologies outlined in FAC-010-2 and FAC-011-2. For example, NERC proposed to assign a “Lower” violation severity level where 1 to 25 percent of a registered entity's system operating limits are inconsistent with the applicable entity's system operating limit methodology.

NOPR Proposal

77. In the NOPR, the Commission expressed its belief that each time a system operating limit is inconsistent with the applicable entity's system operating limit methodology, the applicable entity violates the pertinent requirement of FAC-014-2. The Commission stated that its fourth guideline for evaluating violation severity levels makes clear that violation severity level assignments should be based on a single violation, not on a cumulative number of violations. To remedy this deficiency, the Commission proposed to direct the ERO to modify its violation severity levels for FAC-014-02 Requirement R1 through R4 based on the percentage of deviation from the system operating limit methodology for each violation.

Comments

78. NERC contends that the Commission's application of Guideline 4 is confusing and inconsistent. NERC points to the approved violation severity levels for Reliability Standard VAR-001-1, where the Commission allowed NERC to use percentage ranges relating to the number of violations of system operating limits to define the violation severity levels. By contrast, NERC states, the Commission proposed in the NOPR to require every single violation of system operating limit to have a single penalty.

79. Midwest ISO agrees with NERC that referencing percentage ranges relating to the number of violations of system operating limits is consistent with Guideline 4. Midwest ISO also contends that the use of percentage ranges facilitates enforcement. Because an entity may have tens of thousands of system operating limits, Midwest ISO contends that it is not practical to set a single penalty for every single violation of a system operating limit. Midwest ISO contends that a requirement with multiple sub-components or requirements should have a quartile approach applied to the violation severity levels, considering the full range of missed sub-components or requirements possibilities.

80. In addition, NERC states that the Commission's proposed modifications to the violation severity levels for Requirements R1 through R4 of FAC-014-02 are inconsistent with the modifications indicated in Attachment A to the NOPR. NERC states that the Commission's proposed modifications to the violation severity levels, set forth in Attachment A to the NOPR, includes some typographical errors. For example, NERC states that there appears to be an errant “75%” in the text of the “Severe” category for Requirement R1. NERC also points out that the “Severe” category for Requirement R4 includes both the NERC-proposed text and the Commission-inserted text. NERC requests that the Commission clarify its direction on these points. If the Commission decides to direct the ERO to modify its violation severity levels for FAC-014-2 Requirements R1 through R4 based on the percentage of deviation from system operating limit methodology for each violation, NERC requests additional clarification on the specific methodology to be used to determine the percentage of deviation from the system operating limit.

Commission Determination

81. The Commission approves the violation severity levels for Requirement R1 through R4, as filed by the ERO because the NOPR was silent as to NERC's proposal. However, to ensure that the violation severity levels approved for Requirement R1 through R4 are consistent with the guidelines established in the Violation Severity Level Order in a timely manner, the Commission directs the ERO to review the violation severity levels assigned to the subject requirements for consistency with Violation Severity Level Order Guidelines 2b, 3, and 4 and submit the results of its review either within six months of the effective date of the final rule or in its Violation Severity Level Order Guideline 2b, 3, and 4 compliance filing, whichever is earlier.[44]

Start Printed Page 14018

f. FAC-014-2, Requirement R5

NERC Filing

82. Requirement R5 requires that the reliability coordinator, planning authority, and transmission planner shall each provide its system operating limits and interconnection reliability operating limits to those entities that have a reliability related need for those limits and provide a written request that includes a schedule for delivery of those limits as described in sub-Requirements 5.1 through 5.4. NERC's proposed violation severity levels for the subject requirements factor in, as measure of compliance, the number of days the applicable entity failed to issue its system operating limits methodology and any changes to that methodology, prior to the effectiveness or change of the methodology to the required entities.

NOPR Proposal

83. The Commission did not comment on this requirement in the NOPR.

Commission Determination

84. The Commission finds that the consideration of the time period for which an entity failed to issue its system operating limits methodology, as it relates to Requirement R5 of FAC-014-2, is not consistent with the text of the requirement and, thus, not consistent with Guideline 3. The Commission believes that the violation severity levels for Requirements R5 should be assigned based on the number of required elements, as identified in the relevant sub-requirements, with which the applicable entity did not comply. Sub-requirements R4.1 through R4.3 and sub-requirements R5.1 through R5.4 are binary requirements and should be assigned a single violation severity level. Since the Commission's proposals for this requirement were not discussed in the NOPR for comment, the Commission approves the violation severity levels for Requirement R4, as filed by the ERO. To ensure that the violation severity levels approved for Requirement R4 are consistent with the guidelines established in the Violation Severity Level Order in a timely manner, the Commission directs the ERO to review the violation severity levels assigned to Requirement R4 for consistency with Violation Severity Level Order Guidelines 2b, 3, and 4 and submit the results of its review either within six months of the effective date of the final rule or in its Violation Severity Level Order Guideline 2b, 3, and 4 compliance filing, whichever is earlier.

g. FAC-014-2, Requirement R6

NERC Filing

85. Requirement R6 of FAC-014-2 requires a planning authority to identify the subset of multiple contingencies (if any) from Reliability Standard TPL-003, which results in stability limits. Sub-requirements R6.1 and R6.2 require that the planning authority provide the list to the reliability coordinator, or if no multiple contingencies exist, to notify the reliability coordinator, respectively. NERC assigned violation severity levels based on a combination of compliance scenarios relevant to sub-requirements R6.1 and R6.2.

NOPR Proposal

86. In the NOPR, the Commission expressed concern that the violation severity levels assigned to FAC-014-2 Requirement R6 do not address a scenario where the planning authority fails to provide a complete subset of contingencies to the reliability coordinator and proposed a revision of the violation severity level assignments. The Commission expressed concern that this omission could prevent the reliability coordinator from having the information it needs for its situational awareness that system operating limits and interconnection reliability operating limits that impact the reliable operation of the Bulk-Power System are being exceeded. The Commission therefore proposed to direct the ERO to add the following “Lower” violation severity level: “The Planning Authority failed to provide a complete subset of contingencies to the reliability coordinator in accordance with R6.” The Commission also proposed to direct the ERO to reassign NERC's current “Lower” violation severity level as the new “Moderate” violation severity level to emphasize the need to notify the reliability coordinator.[45] The Commission stated that the proposed revisions would make the violation severity level assignments for Requirement R6 consistent with NERC's own guidelines for the development of violation severity levels related to communication or coordination requirements.[46]

Comments

87. NERC disagrees with the Commission's assertion that the proposed violation severity levels for Requirement R6 of FAC-014-2 do not identify a situation where a planning authority fails to provide a complete subset of contingencies to the reliability coordinator. NERC contends that the “High” and “Severe” violation severity levels for Requirement R6 of FAC-014-2 satisfy the Commission's concerns by stating that the planning authority identified the subset of multiple contingencies which result in stability limits but did not provide the list of multiple contingencies and associated limits to one or more reliability coordinators that monitor the facilities associated with these limits. NERC contends that a planning authority will fail to comply with sub-requirement R6.1 of FAC-014-2 if they do not provide the complete set of contingencies to the reliability coordinator.

88. The Bureau of Reclamation and IESO separately take issue with the Commission's proposed revisions to violation severity levels applicable to Requirement R6 of FAC-014-2. The Bureau of Reclamation contends that the Commission's proposal would require auditors to perform studies independent from the planning authority in order to determine whether all contingencies were considered. IESO contends that both the “High” and “Severe” violation severity levels address the planning authority's failure to communicate multiple contingency scenarios to the reliability coordinator. IESO, however, agrees with the Commission that there Start Printed Page 14019should not be a gap in the violation severity levels and states that the “Lower” violation severity level for FAC-014-2 Requirement R6 should be assigned a “Moderate” violation severity level.

Commission Determination

89. The Commission agrees with NERC that a planning authority's requirement to provide the reliability coordinator with a complete set of contingencies is addressed in the “High” and “Severe” violation severity levels assigned to Requirement R6 of FAC-014-2. However, the Commission also believes that it is appropriate to apply a binary, pass/fail approach to the violation severity levels because a planning authority either will or will not satisfy this requirement. As proposed by NERC, violations of the sub-requirements are addressed only in the violation severity levels assigned to the main requirement. In keeping with the Commission's decision that the ERO must assign a violation severity level to every sub-requirement, the Commission adopts the NOPR proposal and directs the ERO to assign binary violation severity levels to Requirement R6 and sub-requirements R6.1 and R6.2. Although the enforcement of Requirement R6, and its sub-requirements, may require the use of auditors, this is a compliance issue best addressed on a case-by-case basis in the context of a compliance proceeding. The Commission directs the ERO to file revised violation severity levels for Reliability Standard FAC-014-2 Requirement R6 within 30 days of the effective date of this final rule, as discussed above and indicated in Attachment A.

E. Violation Risk Factors

90. NERC did not submit violation risk factors for the version two FAC Reliability Standards in its original filing. On October 15, 2008, NERC filed violation risk factors for the version two FAC Reliability Standards.

NOPR Proposal

91. In the NOPR, the Commission noted that the Commission approved the majority of NERC's proposed violation risk factors for the version one FAC Reliability Standards in Order No. 705.[47] On April 1, 2008, NERC filed revised violation risk factors for the version one FAC Reliability Standards. These were accepted by delegated authority on May 29, 2008. The Commission proposed to direct the ERO to apply those same violation risk factors to the version two FAC Reliability Standards approved in the final rule in this proceeding. With respect to the Western Interconnection regional difference, the Commission proposed to direct Western Electricity Coordinating Council (WECC) to apply the NERC violation risk factors to the Western Interconnection regional difference until after WECC develops its own violation risk factors and they are approved by the ERO and the Commission.

NERC's Violation Risk Factor Filing

92. On October 15, 2008, NERC filed violation risk factors for the proposed version two FAC Reliability Standards. These violation risk factors were identical to the version one violation risk factors. NERC asked the Commission to apply the violation risk factors and violation severity levels filed for FAC-010-2, Requirements R2.4 and R2.5, and FAC-011-2, Requirement R3.3, to the Western Interconnection regional differences for these same requirements.

Commission Determination

93. The Commission approves the violation risk factors filed by NERC for the version two FAC Reliability Standards. Because these violation risk factors are identical to the violation risk factors approved for the version one FAC Reliability Standards, this approval is consistent with our direction in the NOPR.

F. WECC Regional Differences

NERC Filing

94. Although NERC submitted requirements for FAC-010-2 and FAC-011-2 that address the Western Interconnection regional difference, NERC did not submit violation severity levels or violation risk factors for these requirements in its initial filing. On October 15, 2008, NERC filed violation risk factors for the version two FAC Reliability Standards and asked the Commission to accept the violation risk factors and violation severity levels filed for FAC-010-2, Requirements R2.4 and R2.5, and FAC-011-2, sub-requirement R3.3, to apply to the WECC regional difference.

NOPR Proposal

95. The Commission proposed to adopt the proposed regional differences for FAC-010-2 and FAC-011-2. The Commission also proposed to direct NERC to modify the violation severity levels assigned to the national versions of FAC-010-2 and FAC-011-2 to accommodate the regional differences. The Commission noted that, in Order No. 705, the Commission approved version one of the FAC Reliability Standards and directed WECC to develop and submit violation risk factors and violation severity levels that apply to the Western Interconnection regional difference.[48] In the interim, the Commission approved WECC's proposal to assign the same violation risk factors to the WECC regional difference as are assigned to NERC sub-requirement R2.4 and R2.5 in FAC-010-1 and sub-requirement R3.3 in FAC-011-1. The Commission directed WECC to file its violation risk factors and violation severity levels no later than the effective date of the applicable version one Reliability Standard. FAC-010-1 became effective on July 1, 2008 and FAC-011-1 became effective on October 1, 2008 without violation severity levels or violation risk factors.

96. To remedy this deficiency, the Commission proposed modifications to the violation severity level assignments assigned to FAC-010-2 and FAC-011-2 that address the Western Interconnection regional differences. Consistent with our decision in Order No. 705, the Commission also proposed to direct WECC to apply the NERC violation risk factors to the Western Interconnection regional difference until after WECC develops its own violation risk factors for the difference and they are approved by the ERO and the Commission.[49] The Commission noted that WECC is still obligated to comply with the Commission's directives in Order No. 705 to file violation risk factors and violation severity levels addressing the Western Interconnection regional difference.

Comments

97. BPA requests that the Commission direct the ERO to designate the regional differences section of FAC-011-2 as section “E.” BPA points out that the requirement makes multiple references to the regional differences section for the Western Interconnection as section “E,” but there is no corresponding designation of the regional differences section as section “E.”

Commission Determination

98. The Commission agrees with BPA's comment relevant to designating the Regional Differences section of FAC-011-2 as section “E” and directs the ERO to file this revision within 30 days of the effective date of this final rule. Start Printed Page 14020

99. As discussed above, the Commission approves the violation risk factors filed by NERC for the version two FAC Reliability Standards. These violation risk factors are identical to those approved for the version one FAC Reliability Standards. The Commission also adopts the NOPR proposal with respect to the Western Interconnection regional difference and directs WECC to apply the violation risk factors approved for FAC-010-1 Requirements R2.4 and R2.5 and FAC-011-1 Requirement R3.3 to the WECC regional difference version of FAC-010-2 Requirements 1.1 through 1.3 and FAC-011-2 Requirement 1.1 through 1.3.[50] With regard to the WECC regional differences FAC-010-2 Requirement 1 and Requirement 1.4 and FAC-011-2 Requirement 1 and 1.4, the Commission believes that these requirements are explanatory statements and that a violation risk factor need not be assigned.

100. The Commission finds that each of the WECC regional difference requirements is a binary requirement and, therefore, a single violation severity level is appropriate. Accordingly, until such time as WECC develops and submits violation severity levels for the version two FAC Reliability Standards, the Commission adopts the NOPR proposal and directs WECC to assign a “Severe” violation severity level to the WECC regional difference FAC-010-2 Requirement 1.1 and FAC-011-2 Requirement 1.1. In addition, the Commission directs WECC to apply a “Severe” violation severity level to the WECC regional difference FAC-010-2 Requirement 1.2 through 1.3 and FAC-011-2 Requirements 1.2 through 1.3. These revisions will create a complete and consistent penalty setting mechanism for the WECC regional difference requirements. The Commission directs the ERO to file revised violation risk factors and violation severity levels for the regional difference within 30 days of the effective date of this final rule, as discussed above and indicated in Attachment A.

G. Effective Date

101. NERC requested that the Commission make the version two FAC Reliability Standards effective according to a staggered schedule, consistent with the implementation dates of the version one FAC Reliability Standards. NERC's proposed effective dates have all since passed. Accordingly, the version two FAC Reliability Standards shall become effective April 29, 2009.

III. Information Collection Statement

102. The Office of Management and Budget (OMB) regulations require that OMB approve certain reporting and recordkeeping (collections of information) imposed by an agency.[51] The information contained here is also subject to review under section 3507(d) of the Paperwork Reduction Act of 1995.[52] As stated above, the Commission previously approved, in Order No. 705, each of the Reliability Standards that are the subject of the current rulemaking. The modifications to the Reliability Standards are minor and, therefore, they do not add to or increase entities' reporting burden. Thus, the modified Reliability Standards do not materially affect the burden estimates relating to the earlier version of the Reliability Standards presented in Order No. 705.

Title: Version Two Facilities Design, Connections and Maintenance Reliability Standards.

Action: Proposed Collection.

OMB Control No.: 1902-0247.

Respondents: Businesses or other for-profit institutions; not-for-profit institutions.

Frequency of Responses: On Occasion.

Necessity of the Information: This final rule approves three modified Reliability Standards that pertain to facilities design, connections and maintenance. The Reliability Standards will require planning authorities and reliability coordinators to establish methodologies to determine system operating limits for the Bulk-Power System in the planning and operation horizons. This final rule finds the Reliability Standards and interpretations just, reasonable, not unduly discriminatory or preferential, and in the public interest.

103. Interested persons may obtain information on the reporting requirements by contacting: Federal Energy Regulatory Commission, Attn: Michael Miller, Office of the Executive Director, 888 First Street, NE., Washington, DC 20426, Tel: (202) 502-8415, Fax: (202) 273-0873, e-mail: michael.miller@ferc.gov, or by contacting: Office of Information and Regulatory Affairs, Attn: Desk Officer for the Federal Energy Regulatory Commission (Re: OMB Control No. 1902-0247), Washington, DC 20503, Tel: (202) 395-4650, Fax: (202) 395-7285, e-mail: oira_submission@omb.eop.gov.

IV. Environmental Analysis

104. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment.53 The Commission has categorically excluded certain actions from this requirement as not having a significant effect on the human environment. The actions directed here fall within the categorical exclusion in the Commission's regulations for rules that are clarifying, corrective or procedural, for information gathering, analysis, and dissemination.54 Accordingly, neither an environmental impact statement nor environmental assessment is required.

V. Regulatory Flexibility Act

105. The Regulatory Flexibility Act of 1980 [55] generally requires a description and analysis of final rules that will have significant economic impact on a substantial number of small entities. Most of the entities, i.e., planning authorities, reliability coordinators, transmission planners and transmission operators, to which the requirements of this final rule apply do not fall within the definition of small entities.[56]

106. As indicated above, based on available information regarding NERC's compliance registry, approximately 250 entities will be responsible for compliance with the three revised Reliability Standards. It is estimated that one-third of the responsible entities, about 80 entities, would be municipal and cooperative organizations. The approved Reliability Standards apply to planning authorities, transmission planners, transmission operators and reliability coordinators, which tend to be larger entities. Thus, the Commission believes that only a portion, approximately 30 to 40 of the municipal and cooperative organizations to which the approved Reliability Standards apply, qualify as small entities.[57] The Commission does Start Printed Page 14021not consider this a substantial number. Moreover, as discussed above, the approved Reliability Standards will not be a burden on the industry since most if not all of the applicable entities currently perform system operating limit calculations and the approved Reliability Standards will simply provide a common methodology for those calculations. Accordingly, the Commission certifies that the approved Reliability Standards will not have a significant adverse impact on a substantial number of small entities.

107. Based on this understanding, the Commission certifies that this rule will not have a significant economic impact on a substantial number of small entities. Accordingly, no regulatory flexibility analysis is required.

VI. Document Availability

108. In addition to publishing the full text of this document in the Federal Register, the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington, DC 20426.

109. From FERC's Home Page on the Internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.

110. User assistance is available for eLibrary and the FERC's Web site during normal business hours from FERC Online Support at 202-502-6652 (toll free at 1-866-208-3676) or e-mail at ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room at public.referenceroom@ferc.gov.

VII. Effective Date and Congressional Notification

111. These regulations are effective April 29, 2009. The Commission has determined, with the concurrence of the Administrator of the Office of Information and Regulatory Affairs of OMB, that this rule is not a “major rule” as defined in section 351 of the Small Business Regulatory Enforcement Fairness Act of 1996.

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By the Commission.

Nathaniel J. Davis, Sr.,

Deputy Secretary.

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Footnotes

3.  NERC designates the version number of a Reliability Standard as the last digit of the Reliability Standard number. Therefore, version one Reliability Standards end with “-1” and version two Reliability Standards end with “-2.”

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4.  Facilities Design, Connections and Maintenance Reliability Standards, Order No. 705, 73 FR 1770 (Jan. 9, 2008), 121 FERC ¶ 61,296 (2007), order on reh'g and clarification, 123 FERC ¶ 61,239 (2008).

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5.  The FAC Reliability Standards are not codified in the CFR and are not attached to the Final Rule. They are, however, available on the Commission's eLibrary document retrieval system in Docket No. RM08-11-000 and are available on the ERO's Web site, http://www.nerc.com.

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6.  Version Two Facilities Design, Connections and Maintenance Reliability Standards, 73 FR 63105 (Oct. 23, 2008), FERC Stats. & Regs. ¶ 32,637 (2008) (NOPR).

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7.  Reliability Standards cannot become effective before the effective date of a Commission order approving them. See, e.g., Mandatory Reliability Standards for Critical Infrastructure Protection, Order No. 706, 73 FR 7368 (Feb. 7, 2008), 122 FERC ¶ 61,040 (2008) at n.190.

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8.  Order No. 705, 121 FERC ¶ 61,296 at P 70.

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10.  NOPR, FERC Stats. & Regs. ¶ 32,637 at P 10 (citing Order No. 705, 121 FERC ¶ 61,296 at P 69).

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11.  Id. (citing Order No. 705, 121 FERC ¶ 61,296 at P 68, which states that “transmission operators are required to modify their plans whenever they receive information or forecasts that are different from what they used in their present plans. Furthermore, variations in weather forecasts that result in load forecast errors are more properly addressed through operating reserve requirements.”).

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12.  Order No. 705, 121 FERC ¶ 61,296 at P 111.

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13.  NOPR, FERC Stats. & Regs. ¶ 32,637 at P 13.

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14.  Identical language appears in FAC-011-1, Requirement R2.3.

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15.  Mandatory Reliability Standards for the Bulk-Power System, Order No. 693, 72 FR 16416 (Apr. 4, 2007), FERC Stats. & Regs. ¶ 31,242 at P 1788, order on reh'g, Order No. 693-A, 120 FERC ¶ 61,053 (2007).

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16.  Order No. 705, 121 FERC ¶ 61,296 at P 53.

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17.  See NOPR, FERC Stats. & Regs. ¶ 32,637 at P 17 (citing Order No. 705, 121 FERC ¶ 61,296 at P 53); Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 1788 & n.461.

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18.  See id. P 53.

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19.  Order No. 705, 121 FERC ¶ 61,296 at P 137.

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20.  North American Electric Reliability Corp., 123 FERC ¶ 61,284 (Violation Severity Level Order), order on reh'g, 125 FERC ¶ 61,212 (2008) (Violation Severity Level Order on Rehearing and Clarification).

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21.  Guideline 2 contains two sub-parts: (a) The single violation severity level assignment category for binary requirements should be consistent and (b) violation severity levels assignments should not contain ambiguous language.

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22.  Id. P 17.

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23.  NERC June 30, 2008 Filing, Docket No. RM07-3-000 at 5 (citing Violation Severity Level Order, 123 FERC ¶ 61,284 at P 42 (requiring NERC, within six months from the issuance of the Violation Severity Level Order, to conduct a review of the approved violation severity levels pursuant to the Commission guidelines, and submit a compliance filing)).

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24.  NOPR, FERC Stats. & Regs. ¶ 32,637 at P 22.

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25.  The Violation Severity Level Order also, among other things, directed that the ERO submit a compliance filing within six months certifying that it had reviewed each of the violation severity levels for consistency with Guidelines 2b, 3, and 4, validating the assignments that meet those guidelines and proposing revisions to those that do not. The Violation Severity Level Order on Rehearing and Clarification extended the submission of ERO's compliance filing by six months to September 18, 2009.

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26.  Violation Severity Level Order, 123 FERC ¶ 61,284 at P 15.

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27.  See North American Electric Reliability Corporation, 120 FERC ¶ 61,145, at P 16 (2007).

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28.  North American Electric Reliability Corp., 119 FERC ¶ 61,248 at P 80 (June 2007 Order), order on clarification, 120 FERC ¶ 61,239 (2007).

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29.  Binary requirements of Reliability Standards define compliance in terms of “pass” or “fail.”

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30.  Order No. 705, 121 FERC ¶ 61,296 at P 24.

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31.  NERC June 30, 2008 Filing, Docket No. RM07-3-000, ex. A.

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32.  See 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 (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). Order No. 672 states that “[t]he possible consequences, including range of possible penalties, for violating a proposed Reliability Standard should be clear and understandable by those who must comply.” Order No. 672, FERC Stats. & Regs. ¶ 31,204 at P 326.

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33.  June 2007 Order, 119 FERC ¶ 61,248 at P 80.

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34.  Violation Severity Level Order, 123 FERC ¶ 61,284 at P 3 (citing June 2007 Order, 119 FERC ¶ 61,248 at P 74).

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35.  NERC November 24, 2008 Comments at 6. As NERC points out in its comments, some requirements assigned to Version 0 Reliability Standards included sub-requirements that were phrased like a separate requirement and, in fact, addressed a separate reliability objective.

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36.  The Commission understands that this approach would also be applied in the assignment of violation risk factors to requirements of Reliability Standards.

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37.  In particular, the Commission directs clarifying revisions to the violation severity levels that the Commission proposed to assign to sub-requirements R2.1, R2.2 and R2.5 of FAC-010-2 and R2.1 and R2.2 of FAC-011-2. In addition, the Commission has made several typographical revisions to the violation severity levels the Commission proposed to assign to other sub-requirements. As noted above, these revisions are set forth in full in Attachment A to this order.

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38.  Order No. 705, 121 FERC ¶ 61,296 at P 159.

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39.  North American Electric Reliability Corporation, 119 FERC ¶ 61,145 at P 45 (Violation Risk Factor Order), order on reh'g, 120 FERC ¶ 61,145 (2007) (Violation Risk Factor Order on Rehearing and Clarification); Order No. 705, 121 FERC ¶ 61,296 at P 159.

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40.  Based on the record to date, the Commission believes that NERC's proposed violation severity level assignment may not be consistent with Guideline 3, which requires that violation severity levels be consistent with the text of the corresponding requirement. The text of Requirement R4 states that, “[t]he planning authority shall issue its system operating limit methodology, to all of the following prior to the effectiveness of the change.” To whom the methodology must be issued is described in each of the sub-requirements R4.1 through R4.3. The violation severity levels NERC proposes, however, would base compliance, in part, on the number of days the planning authority failed to deliver its system operating limit methodology to the required entities. The Commission believes that, consistent with Guideline 3, violation severity levels for Requirement R4 should be assigned based on the number of R4 sub-requirements that are not met. For example, since there are three sub-requirements, a “Moderate” violation severity level would be triggered if the applicable entity did not comply with one of the three required sub-requirements; a “High” violation severity level if the applicable entity did not comply with two of the three sub-requirements; and, a “Severe” violation severity level if the applicable entity did not comply with any of the sub-requirements.

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41.  In general, a quartile approach measures compliance in 25 percent intervals by either using straight percentages around a determined value or 100 percent or by defining a minimum value and applying quartiles between the minimum value and 100 percent. NERC, Violation Severity Level Guidelines Criteria, Project 2007-23 at 18 (2008), available at: http://www.nerc.com/​docs/​standards/​sar/​VSLDT_​Guidelines_​Final_​Draft_​08Jan08.pdf.

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42.  Violation Severity Level Order on Rehearing and Clarification, 125 FERC ¶ 61,212 at P 25.

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43.  Based on the record to date, the Commission believes that NERC's proposed violation severity level assignment for FAC-011-2 Requirement R4 may not be consistent with Guideline 3, which requires that violation severity levels be consistent with the text of the corresponding requirement. The text of Requirement R4 states that, “[t]he planning authority shall issue its system operating limit methodology, to all of the following prior to the effectiveness of the change.” To whom the methodology must be issued is described in each of the sub-requirements R4.1 through R4.3. The violation severity levels NERC proposes, however, would base compliance, in part, on the number of days the reliability coordinator failed to deliver its system operating limit methodology to the required entities. The Commission believes that, consistent with Guideline 3, violation severity levels for Requirement R4 should be assigned based on the number of R4 sub-requirements that are not met. For example, since there are three sub-requirements, a “Moderate” violation severity level would be triggered if the applicable entity did not comply with one of the three required sub-requirements; a “High” violation severity level if the applicable entity did not comply with two of the three sub-requirements; and, a “Severe” violation severity level if the applicable entity did not comply with any of the sub-requirements.

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44.  Based on the record to date, the Commission believes that the violation severity levels assigned by NERC to Requirement R1 through R4 of FAC-014-2 may not be consistent with Guideline 4 because they evaluate compliance based on a cumulative number of violations instead of on a single violation. Since the Commission believes compliance with this requirement hinges on whether or not the applicable entity established its system operating limits and interconnection reliability operating limits consistent with its methodology (“pass”) or did not do so (“fail”), a binary approach is most appropriate for this requirement. By contrast, Requirement R10 of Reliability Standard VAR-001-1 requires each transmission operator to correct violations of interconnection reliability operating limits or system operating limits resulting from reactive resources deficiencies (interconnection reliability operating limit violations must be corrected within 30 minutes) and complete the required interconnection reliability operating limit or system operating limit violation reporting.

In the Violation Severity Level Order, the Commission directed revisions to VAR-001-1 Requirement R10 that assigned violation severity levels based on the percentage of interconnection reliability operating limit and system operating limit violations that the applicable entity did not correct and/or report. Since a reactive resource deficiency may result in more than one violation of an interconnection reliability operating limit and system operating limit, the Commission believes the aggregate treatment, in this instance, of interconnection reliability operating limit and system operating limit violations attributable to a single deficiency in reactive resources for the purpose of assigning violation severity levels is appropriate. This treatment is consistent with the provisions of NERC's Sanction Guidelines, which states at section 3.21, “[s]ome Reliability Standards may not support the assessment of penalties on a `per day, per violation' basis, but instead should have penalties calculated based on an alternative penalty frequency or duration.” With regard to Reliability Standard FAC-014-2 Requirements R1 through R4, the Commission believes that each instance that the applicable entity did not establish a system operating limit or interconnection reliability operating limit consistent with the applicable entity's methodology would be a violation. Thus, the Commission's adherence to Guideline 4 has been consistent as applied to the Commission's revisions of violation severity levels assigned to VAR-001-1 Requirement R10 and its concerns with the violation severity levels NERC assigned to FAC-014-2 Requirement R1 through R4.

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45.  NERC did not propose a “Moderate” violation severity level for requirement R6.

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46.  NERC, Violation Severity Level Guidelines Criteria, Project 2007-23 at 19 (2008), available at: http://www.nerc.com/​docs/​standards/​sar/​VSLDT_​Guidelines_​Final_​Draft_​08Jan08.pdf. The NERC Guidelines indicate that a Moderate violation severity level should be selected when the responsible entity's coordination/communication is non-compliant with respect to at least one significant element within the requirement. In this case, the significant element is the failure to notify the Reliability Coordinator.

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47.  NOPR, FERC Stats. & Regs. ¶ 32,637 at P 31 (citing Order No. 705, 121 FERC ¶ 61,296 at P 137).

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48.  NOPR, FERC Stats. & Regs. ¶ 32,637 at P 32 (citing Order No. 705, 121 FERC ¶ 61,296 at P 146).

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50.  This direction is consistent with NERC's October 15, 2008 proposal.

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53.  Regulations Implementing the National Environmental Policy Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs. ¶ 30,783 (1987).

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56.  The definition of “small entity” under the Regulatory Flexibility Act refers to the definition provided in the Small Business Act, which defines a “small business concern” as a business that is independently owned and operated and that is not dominant in its field of operation. See 15 U.S.C. 632.

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57.  According to the Department of Energy's (DOE) Energy Information Administration (EIA), there were 3,284 electric utility companies in the United States in 2005, and 3,029 of these electric utilities qualify as small entities under the SBA definition. Among these 3,284 electric utility companies are: (1) 883 cooperatives of which 852 are small entity cooperatives; (2) 1,862 municipal utilities, of which 1842 are small entity municipal utilities; (3) 127 political subdivisions, of which 114 are small entity political subdivisions; and (4) 219 privately owned utilities, of which 104 could be considered small entity private utilities. See Energy Information Administration Database, Form EIA-861, DOE (2005), available at http://www.eia.doe.gov/​cneaf/​electricity/​page/​eia861.html.

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BILLING CODE 6717-01-P

[FR Doc. E9-6823 Filed 3-27-09; 8:45 am]

BILLING CODE 6717-01-P