FERC Order 743 Revision to ERO Definition of BES

1. FERC Order 743 Revision to ERO Definition of BES Reliability Committee Meeting December 15, 2010 Richard W. Burke Principal Analyst, Reliability & Operations Compliance

2. Present Definition Of New England BPS • NE BPS elements derived from results obtained from applying NPCC A-10 Methodology • Examines results of Power System transient stability and steady state post contingency loading and voltage responses to fault conditions, given protection system failures. • Transmission buses are classified as BPS when analysis performed using the A-10 methodology shows a significant adverse impact outside the local area. • The NE BPS is part of the overall NPCC Bulk Power System that is comprised of all BPS elements identified by applying the A-10 methodology to the interconnected electrical systems within northeastern North America.

3. Historical Context – NERC Bulk Electric System (BES and NPCC Bulk Power System (BPS) • In Order 693 – FERC explained that the term “bulk power system” required interpretation, and for an initial period, NERC’s definition of the Bulk Electric System would be used. • Because NERC’s definition defers to the Regions, FERC also required NERC to make an informational filing specifying the regional definitions. • In Paragraph 75, FERC stated that, “for at least an initial period, the Commission will rely on the NERC definition of bulk electric system and NERC’s registration process to provide as much certainty as possible regarding the applicability to and the responsibility of specific entities to comply with the reliability Standards in the start-up phase of a mandatory Reliability regime.”

4. Historical Context – NERC Bulk Electric System (BES and NPCC Bulk Power System (BPS) continued • In Paragraph 77, the Commission directed NERC to file a “complete set of regional definitions of bulk electric system.” • FERC reiterated that regional interpretations of NERC’s definition of “bulk electric system” would be controlling for the “initial period” of standard enforcement. • In its June 14 filing, NERC confirmed that in the Northeast an “impact-based”, not a “voltage based”, methodology would be used to define which facilities are part of the “bulk electric system.” • Therefore, at this point in time, the NERC definition of Bulk Electric System recognizes, and defers to, the definition of Bulk Power System as provided and defined by NPCC’s Criteria (A-10) within the confines of northeastern North America. • For the NPCC Region [FERC BPS = NERC BES = NPCC BPS].

5. FERC Directs NERC to Revise Definition • Definition of Bulk Electric System • Establishes Bright-Line jurisdiction at 100kV • Requires NERC to develop a process for exempting facilities • Key dates: • FERC Order 743 becomes effective - January 25, 2011. • ERO (NERC) is required to file, with FERC, a revised definition within one year of the effective date of this Order - < January 25, 2012. • 18 months after FERC approves NERC filing (est. 4Q, 2013/1Q, 2014): Registered Entities required to be compliant.

6. FERC Order 743 - Highlights • Ultimate Goal – To eliminate inconsistencies across regions, eliminate the ambiguity created by the current characterization of the 100 kV threshold as a general guideline. • Best Way to Accomplish Goal – Eliminate Regional Discretion in the current definition and maintain the bright line threshold that includes all facilities operated at or above 100 kV (except defined radial facilities) and establish an exception process and criteria for excluding facilities that are not necessary for operating the interconnected transmission network. • Alternatively, FERC will allow the ERO to develop its own proposal to address the Commission’s concerns. • Any alternative proposal must be as effective, or more effective, than the Commission’s approach and may not result in a reduction in reliability,

7. FERC Order 743 – Highlights continued • Note: From the NERC Glossary - “Radial Transmission” = Facilities serving load with one transmission source”. • FERC accepts this and does not intend to seek a modification to this NERC definition • Distribution Facilities – Congress had specifically exempted “facilities used in the local distribution of electrical energy” from the definition stated in FPA Section 215 of the “Bulk Power System” – “encompassing the facilities and control systems necessary for operating an interconnected electric energy transmission network (or any portion thereof).” • However, FERC states, in Order 743, that several 115 and 138 kV facilities that some entities term as “distribution” may be needed to reliably operate the interconnected transmission system.

8. FERC Order 743 – Highlights continued • FERC disagrees with comments that appear to assert that the Commission’s jurisdiction extends only to facilities that could cause cascading outages, uncontrolled separation or instability. • FERC rejects using an Impact-Based Methodology and Regional Variation to ensure that the proper facilities are included in the bulk electric system. • NERC is allowed to consider delegating responsibilities for the exemption process to Regional Entities (NPCC, etc.), so long as the process is clear and capable of being applied consistently. • FERC believes it would be worthwhile for NERC to consider formalizing the criteria for inclusion of critical facilities below 100 kV in developing the exemption process.

9. Transition Process/Non-Compliances • FERC expects NERC to work with the Regional Entities to submit transition plans that allow a reasonable period of time for the affected entities in each Region to achieve compliance with respect to facilities that are subject to the Standards for the first time. • Expects that only NPCC will be significantly affected. • Expects transition periods to not exceed 18 months from the time that the Commission approves a revised definition and exemption process, unless the Commission approves a longer transition period based on a specific jurisdiction. • Non-Compliances during the Transition Period • FERC will not provide a trial period, as they declined to do in Order 693, with respect to those facilities that are subject to the Standard for the first time. • The ERO and Regional Entities may exercise their enforcement discretion during the transition period.

10. NERC Actions – Note Preliminary & Subject to Change • NERC to use its Standards Development Process to revise the definition to address the Commission’s technical concerns. • The Regional Bulk Electric System Definition Coordination Group (CG) has developed a Standard Authorization Request (SAR) for approval by the NERC Standards Committee (SC) based on a draft BES Framework and Principles: • Note: FRCC, NPCC and WECC staffs (a/k/a the current BES Coordination Group (CG)) have been working toward the development of a consistent 100 kV based definition prior to FERC’s recent action (Order 743). • The CG has proposed a BES Framework developed for a NERC BES definition that includes a uniform NERC-wide 100 kV based definition, a common set of BES principles, and allows for application of Regional methodologies, consistent with the principles, to technically assess whether or not an element should be excluded from the BES.

11. NERC Actions – Note Preliminary & Subject to Change continued • CG Proposed BES Principles • Transmission elements operated at voltages of 100 kV or higher to be included in the BES; • Transformers, other than GSU transformers, including Phase Angle Regulators, with both primary and secondary windings of 100 kV or higher to be included in the BES; • Individual generation resources greater than 20 MVA (gross nameplate rating) and are directly connected via a step-up transformer(s) to designated BES Transmission facilities by a designated BES transmission path to be included in the BES;

12. NERC Actions – Note Preliminary & Subject to Change continued • CG Proposed BES Principles continued • Generation plants with aggregate capacity greater than 75 MVA (gross nameplate rating) and are directly connected via a step-up transformer(s) to designated BES Transmission facilities by a designated BES transmission path to be included in the BES; • Generator step-up transformers and the generator interconnecting line lead associated with BES generators connected at 100 kV or higher to be included in the BES; and, • Black start Generators and Black start cranking paths will be included in the BES.

13. Standard Authorization Request (SAR) -Note Preliminary & Subject to Change • SAR contains proposed continent-wide definition of Bulk Electric System • “Bulk Electric System”: All Transmission and Generation Elements and Facilities operated at voltages of 100 kV or higher necessary to support bulk power system reliability. Elements and Facilities operated at voltages of 100 kV or higher, including Radial Transmission systems, may be excluded and Elements and Facilities operated at voltages less than 100 kV may be included if approved through the BES definition exemption process.” • NERC to solicit and form Standard Drafting Team to develop the BES Definition Standard based on the approved SAR.

14. NERC Rules of Procedure - Note Preliminary & Subject to Change • The development, approval and application of the BES definition exemption process (including periodic review of exempted facilities) will be governed by revision to the NERC Rules of Procedure, in close coordination with the revision of the BES definition. • It is envisioned that the Standard Drafting Team (SDT) will work closely with the team developing the BES definition exemption process. • It is also envisioned, that the team working to develop the BES definition exemption process will solicit input from drafting teams, stakeholders, and RROs in identifying physical and operational characteristics for consideration in developing the BES exemption process. • The resultant draft Standard and the newly proposed Rules of Procedure must be filed with the Commission in January 2012.