D-5400

PRJ-1.10

The Honorable Magalie R. Salas

Office of the Secretary

Federal Energy Regulatory Commission

888 First Street, N.E.

Washington, D.C. 20426

Subject: Comments of the United States Bureau of Reclamation on Proposed
Rulemaking Docket No. RM01-12-000

Dear Ms. Salas:

The Bureau of Reclamation (Reclamation) is submitting these comments in
response to the Notice of Proposed Rulemaking (NOPR) on Standard Market
Design (SMD) issued by the Federal Energy Regulatory Commission
(Commission) on

July 31, 2002. Reclamation submitted earlier comments in its letter of

November 15, 2002.

Reclamation's core mission is the generation and delivery of water and
power from congressionally authorized Federal Reclamation projects
located in the seventeen western states. Reclamation is not a public
utility under the Federal Power Act, nor is Reclamation subject to
Commission jurisdiction. Reclamation is offering these comments in the
spirit of cooperation, recognizing that Reclamation's hydro generation
plays a major role in providing stability to the Western Interconnection
power system. The Commission has also recognized that the participation
of non-public utilities is important if the Commission is to achieve its
objectives. Reclamation believes that non-public utility participation
is best achieved through regional negotiations. Reclamation urges the
Commission to continue its support for such regional negotiations.
Reclamation also urges the Commission to allow flexibility with regard
to Regional Transmission Organization (RTO) or Independent Transmission
Provider (ITP) independence requirements in order to enable the
voluntary participation of non-public utilities that must retain final
reviewing authority as required by law.

Reclamation, as an agency of the Department of the Interior (Interior),
is the operator of 58 federally-owned powerplants which generate about
10 percent of the power in the western United States. In operating these
hydroelectric powerplants, Reclamation must adhere to the congressional
directives contained in Reclamation law as well as regulatory
constraints required in compliance with environmental statutes. It is in
light of our authorities and requirements that we offer the following
comments to the NOPR. We have identified several areas in the SMD
proposed by the Commission that appear to create conflicts with Federal
statutes. In general, our concerns focus on the following areas:

-   Requirement to retain Federal control of Federal generation

-   Retention of transmission rights to assure unencumbered delivery of
    Federal hydro generation in accordance with statutes and regulation
    for the life of the Federal project

-   Ability to continue flexible operation to meet project water and
    power delivery requirements and other project commitments for the
    life of the Federal project

-   Ability to continue to operate Federal hydro generation consistent
    with the prevailing hydrological conditions and environmental
    restrictions

-   Generation liability for Federal hydroelectric projects

-   Assure security of Reclamation facilities

The Commission must acknowledge the special project needs of Federal
water and power projects that led to the construction of more than
35,000 miles of transmission lines. Allowances must be made to protect
the needs of water project customers to be protected from unjustified
price increases. We suggested language in our November 15, 2002, filing
that if included in the rulemaking could resolve the above concerns. We
have slightly modified the language and request the Commission to
incorporate the following language in the SMD to resolve our concerns.

> *"The Standard Market Design is not intended to conflict with the
> mission of the Bureau of Reclamation, or the operation of its
> respective facilities or services it provides. The Commission will
> allow jurisdictional entities, through individual filings, to
> accommodate the exercising or execution of any administrative,
> executive authority, or power that has been conferred to the Secretary
> of the Interior."*

The specifics of how the Commission's initiatives will be implemented,
particularly in the West, are still being defined by the RTOs and other
stakeholders. Reclamation cannot support implementation of a market
design that could place Reclamation and the United States government at
risk of not meeting its statutory obligation to generate and deliver
Federal water and hydropower. Reclamation is heartened by the
Commission's willingness to consider regional differences and urges the
Commission to preserve the flexibility needed to accomplish its goals.
We also hope that the Commission will refrain from adopting a rigid
national standard that is insensitive to both institutional and regional
needs. Reclamation encourages the Commission to address undue
discrimination issues in each region, and allow regions to develop
practical solutions, focused on factual evidence. Regional solutions
must avoid possible adverse economic impacts to consumers associated
with a comprehensive approach. While we understand the Commission's
desire to expeditiously adopt SMD, we also believe the primary objective
must be to assure that the rules are workable for all parts of the
country. The physical rights model that exists in the Midwest and the
West has evolved over many years and serves each region well. Any
movement from a proven and well-functioning system to one based on
financial flow-based rights should take place carefully and in small
increments, to provide certainty to consumers, investors, and
marketplace participants.

Federal statutes both define Reclamation's purpose and limit our ability
to fully embrace all aspects of the SMD NOPR. Reclamation has been
actively working with the Power Marketing Administrations (PMAs) and
others to explore RTO participation avenues that do not compromise our
ability to meet our statutory obligations.

**Background**

The Federal Reclamation program authorized by the Reclamation Act of
1902 was initially intended to reclaim the desert lands of the western
United States by conserving and supplying irrigation water to make those
lands more productive. Over time, Congress expanded Reclamation's
mission to include multi-purpose water development to meet diverse water
needs. Operations of Reclamation hydroelectric power facilities are to
meet congressionally mandated requirements to deliver project power to
facilitate those water needs. Generation for project power is utilized
for irrigation and other authorized purposes. These additional
authorized purposes and responsibilities are unique to Reclamation.
Under the general principles of Reclamation law, project use loads,
which are designated by Congress and carry out project purposes such as
pumping of irrigation water, are mandated to be met first. Power in
excess of the requirements of project use load is available for
marketing by the Bonneville and Western Area Power Marketing
Administrations. Western and Bonneville have built high voltage
transmission lines or entered into long-term transmission contracts for
widespread distribution of this generation to preference customers
(non-profit public bodies, such as rural electric cooperatives,
municipal utilities and Indian tribes). These PMAs are, in general, the
transmission providers for most Reclamation projects, although there are
some projects where the transmission provider is a jurisdictional entity
or a non-jurisdictional entity other than a PMA. The PMAs' statutory
obligation to market and deliver the Federal hydropower extends for the
life of the Federal project.

The marketing of Federal hydropower reflects the congressional policy of
not allowing profit to be made by private investors on Federal power
resources constructed with taxpayer dollars. By law, Bonneville and
Western market hydroelectric power pursuant to rate schedules that are
cost based. In general, these rates are the lowest possible consistent
with sound business principles and must meet the test of whether the
revenue levels generated by the rates are sufficient to recover the
costs of producing and transmitting electric energy. Rates are set to
recover all power costs as well as some authorized costs for other
project purposes such as irrigation. A bid-based or auction system may
be in conflict with these unique rate-making authorities.

Although the generation and marketing of Federal power is significant to
the debt recovery of a Reclamation project under most project
authorizations, power is deemed incidental to Reclamation's
water-oriented missions. Reclamation\'s hydroelectric power facilities
are part of congressionally authorized multipurpose water projects which
provide benefits such as irrigation, municipal and industrial water
supply, flood control, fish and wildlife protection, and recreation.
Federal power is, by statute for most projects, a project function
secondary to delivery of irrigation, municipal, and industrial water
supplies. This means that water deliveries, pursuant to contracts, take
precedence over electric power generation. Furthermore, many projects
are mandated to schedule water deliveries in accordance with interstate
apportionment decrees, compacts, and international treaties. In
authorizing the construction and operation of electric generation at
Federal dams, the Congress intended to assure the financial feasibility
of not only the dam but all associated project features. This
congressional direction cannot be compromised or diminished by the
implementation of a standard electricity market design.

Reclamation supports the comments and shares the concerns of the
Bonneville and Western Area Power Administrations. While Reclamation
cannot comment for other agencies, we believe there are other Federal
agencies which may require recognition of Federal requirements if SMD is
adopted.

**[Federal Control of Federal Generation]{.underline}**

Reclamation has major concerns with non-Federal control of Federal
assets under the SMD NOPR. This could occur if a non-Federal RTO or ITP
attempted to adjust generation levels at a Federal hydroelectric
facility to manage transmission line congestion. It could also occur if
an RTO or ITP attempted to directly order an action to take place at a
Federal generating project to protect the reliability of the power
system. However, if these functions are structured as a part of the sale
of power from the Federal facility through the PMAs, the legislative
direction in statute may be able to be met.

The concept of Scheduling Coordinators in RTO West and WestConnect was
based on the needs of the Federal agencies and in response to requests
from public agency customers to act as an intermediary between them and
the RTO. We urge the Commission to allow this type of flexibility in the
SMD final rule so that the Federal agencies can continue to perform
their congressionally mandated power missions.

The proposed rule states ". . . redispatch of a transmission provider's
generating units to relieve congestion is required . . ." Reclamation
sees this statement as contradictory to their statutory responsibilities
and legally mandated program requirements. Reclamation must maintain the
ability to ensure that their statutory requirements will be satisfied
and all relevant laws will be complied with prior to responding to a
request to assist in relieving congestion. Reclamation must maintain
operational control over their generation facilities.

Reclamation's authority to generate power is derived from and limited by
Federal law, including many unique statutes. Reclamation cannot support
SMD features that conflict with those legal responsibilities.
Reclamation believes that managing the high-voltage grid for the sole or
primary purposes of optimizing the economic efficiency of energy markets
or to relieve congestion may be to the detriment of public values
associated with rivers that generate Federal hydroelectricity in the
western United States.

Reclamation must retain the ownership, management, and control of its
hydro electric generation facilities. Reclamation cannot carry out its
mission by converting the character of its generation operation to meet
other than authorized project purposes.

**[Retention of Transmission Rights to Assure Delivery of Federal Hydro
Generation]{.underline}**

The Commission has proposed to refrain from granting native load
preferential treatment under the SMD NOPR. Unlike the transmission used
by jurisdictional utilities to serve native load, the Federal
transmission facilities and transmission rights carry out a Federal
program, authorized by Congress. The Commission should not equate native
load with the reservation of Federal transmission to carry out a
congressionally mandated water and power program.

In ¶ 249, 345, 378, and 380 the Commission requests comments on how
existing transmission rights should be determined and allocated.

Reclamation believes that existing and historic rights as well as both
explicit and implicit contracts must be fully recognized in the
transition to SMD. The PMAs must retain sufficient transmission rights
over their transmission facilities to meet their statutory duty to
market and deliver Federal power for the life of the Federal project.
Further, there are existing contracts in place that allow the
transmittal of Federal power over the transmission systems of others.
These contracts contain terms that provide for their extension beyond
the initial contract term. The Commission has no authority to abrogate
those contracts.

While Congestion Revenue Rights (CRRs) are being proposed as a solution
for offsetting the costs an entity has to pay for access, the revenue
rights will not be implemented immediately, nor is the time between
receipt of the revenue and invoice stipulated. The later can place most
publicly owned utilities into an anti-deficient mode preventing them
from participating. Reclamation is a self-sufficient entity and we are
requesting that allowances be made for dynamic load support. The rule
states ". . . the reservation of capacity for service is no longer
required, since a transmission customer pays the congestion cost for
transmission service." Congestion is not possible unless there is
inadvertent flow due to system disturbances or the transmission provider
has oversold the capacity of the line. The SMD states that payment is
required even if the customer did not contribute to the congestion. It
is inappropriate to require a customer with firm rights to pay for
congestion caused by customers with non-firm rights. The SMD as proposed
ensures that this can happen.

It is critical to Reclamation that the PMAs retain their current
transmission rights, or their equivalent, in order to meet statutory
obligations. The conversion from today's transmission rights which are
utilized to market the Federal hydropower output to the SMD CRRs is
critical in assuring both the quantity, quality, and term to be
equivalent to today's rights. The term for retention of CRRs should
coincide with the term of the firm transmission contracts over the
systems of others, and to the extent that those contracts can be renewed
or are evergreen the CRRs should follow. In light of these statutory and
contractual obligations, Reclamation suggests that the Commission's rule
allocate CRRs for the life of the Federal generating project when
Federal transmission is involved, rather than requiring the auction of
those rights.

**[Ability to Operate Federal Hydro Generation Consistent with the
Prevailing Hydrological Conditions, Law and Regulatory
Requirements]{.underline}**

In ¶ 274, the Commission recognizes the need for a special scheduling
option for hydroelectric resources. Reclamation supports the option of
flexible scheduling of hydroelectric energy. The Commission has also
asked for comment on whether other options or regional variations should
be allowed for hydropower in the SMD tariff.

Reclamation is encouraged by the Commission's sensitivity to regional
differences and needs. Business practices that meet the needs of a
centrally managed tight power pool such as that in PJM Independent
System Operator may not translate well to the western United States. The
West has a very different resource mix, a large reliance on hydropower,
and a different transmission configuration featuring extensive ownership
and operation by PMAs and not-for-profit entities such as public power
utilities and rural electric cooperatives.

The multipurpose Reclamation projects which generate Federal power are
located on different river systems. Hydro power generation in the
western United States is integrated and coordinated among numerous
Federal powerplants, the operation of which is largely dictated by
non-power priorities and constraints. Examples of non-power purposes are
irrigation, navigation, flood control, and the environment. The
locational marginal pricing in the SMD NOPR, which was premised on a
system of thermal generators that operate independently and compete with
each other, needs to recognize and accommodate coordinated hydro-system
operations.

Also, the day-to-day and hour-to-hour operation of the hydro-system
changes depending on non-power constraints and the availability of water
at specific hydro-projects. These changes are not always predictable and
flexible transmission rights are needed to account for these changes.
The SMD NOPR describes an initial allocation of CRRs based on a single
generation dispatch. We are concerned that CRRs allocated in this
fashion will not account for the flexibility of the hydro-system and
consequently Reclamation customers will be exposed to significant
congestion costs.

The hydro-system can encounter substantial changes within a day,
requiring changes in the transmission schedule. Existing transmission
contracts allow for changes between day-ahead scheduling and real-time
to account for these changes. Under the SMD NOPR, transmission customers
making changes after the day-ahead schedule will be exposed to the
volatility of the real-time market and will not have CRRs to protect
against congestion costs. This will result in a significant and
unintended cost shift.

Reclamation's need for transmission for project purposes varies as a
result of the hydrological conditions during a period. In low water
years, a rights holder may use his full transmission allocation to pump
water. In high water years, that same customer may use water from the
river, reducing its energy usage while other customers may take
increased usage on another path. Given the hydro variability in the West
and the need to utilize varying combinations of its existing
transmission rights (both implicit and explicit) to deliver the output
of the Federal resources to load, it is important to Reclamation
customers that the PMAs be allocated CRRs consistent with these existing
transmission rights rather than "recent historical usage of
transmission" to meet its obligations in the future. It is also
important to note that in the areas served by Western, that Western is
not responsible for load growth. There is the potential that the
transmission required to meet project purposes could be degraded in the
future because of an accommodation for load growth.

**[Multi Purpose Project and Environmental
Responsibilities]{.underline}**

As a Federal agency, Reclamation has environmental responsibilities
pursuant to statute that jurisdictional utilities typically do not have.
Reclamation believes that the Commission must consider how
non-jurisdictional Federal agencies involved in hydro-system operations
could continue to adequately meet these responsibilities if they choose
to voluntarily implement SMD. The Commission envisions that hydro-system
operators could submit seasonal or monthly schedules for time periods
when their projects would not be operating, which the Commission
believes would allow the operators to specify periods when they would
need to preserve or release water to satisfy environmental conditions.
Reclamation is concerned, however, that such scheduling does not allow
sufficient flexibility in operating the various Federal hydro generators
to meet the unique environmental responsibilities placed on the projects
by Congress and regulatory agencies.

One of Reclamation's and the PMAs' environmental responsibilities is
mandatory compliance with the Endangered Species Act (ESA) of 1973, as
amended. The ESA requires Federal agencies to protect and conserve
listed threatened and endangered species. Reclamation, along with the
PMAs (and in some instances, the Army Corps of Engineers (Corps)), is
also responsible for ensuring compliance with Biological Opinions
(Opinions) issued under the ESA for hydro system operations. These
Opinions require, among other things, that the Federal hydro systems be
operated to accommodate fish flows at proscribed times of the year,
which the Federal agencies must balance with the other varied purposes
of the projects including power generation, flood control, navigation,
irrigation, and recreation.

In addition to the ESA, the Pacific Northwest Electric Power Planning
and Conservation Act (Northwest Power Act) requires Reclamation,
Bonneville, and the Corps, to operate the Federal Columbia River Power
System to adequately protect fish species affected by the hydro system
in a manner that provides "equitable treatment" for fish with the other
purposes for which the system is operated. As a result of the need for
compliance with ESA and other provisions, Reclamation hydro projects are
operated during certain times of the year to spill or store water that
would otherwise be run through turbines to generate needed electricity.
At other times, water must be put through the turbines to avoid levels
of spill that cause nitrogen super saturation, a condition that is
harmful to fish. During these periods, otherwise unneeded electricity is
often generated, and this electricity must be transmitted. In addition,
there is an inherent level of uncertainty in advance planning for these
operations due to variability in water flows and the timing of fish
passage. Real-time variations and deviations in initial scheduling of
Reclamation generation thus must often occur to accommodate these
operations, particularly given the need to make sure that the other
purposes of the Reclamation projects can be simultaneously met.

Because of these unique operational requirements, clarification would be
useful. First, Reclamation believes that it would be helpful if the
Commission clarifies that Federal agencies would not be financially
penalized or operationally constrained if hydro-system operations
necessary to comply with environmental responsibilities contribute to
transmission congestion. Second, to ensure that Federal agencies
maintain full operational flexibility to meet their environmental
mandates, the Commission should clarify that ITPs must not require
Federal agencies to ensure that hydro-system outages would occur only
"when they are least disruptive to the markets." At times, Reclamation
generation must be operated in ways that could be disruptive to the
market to accommodate water delivery, flood control, and environmental
requirements, and Federal agencies must retain discretion to make
decisions regarding when it is appropriate to schedule outages to meet
all legal and regulatory obligations. Finally, Reclamation believes that
the Commission should clarify that Federal generators would not be
subject to the "must-offer" requirement for generators when spill or
storage is required to meet these legal and regulatory obligations. If
this "must-offer" requirement were applied to the Federal hydro electric
projects, it would require projects to generate (and thus reduce water
storage or spill) during times when storage or spill is required to meet
those responsibilities. Because the "must-offer" requirement could
substantially interfere with the ability of Reclamation operators to
comply with environmental obligations, the Commission should clarify
that it would not apply when storage or spill is required to meet other
project responsibilities. Finally, the Commission should clarify that
the PMAs' transmission of power generated to comply with the legal and
regulatory requirements would receive CRRs. As discussed above,
transmission is needed to transmit power generated when water must be
put through turbines at the Federal hydropower facilities to meet other
project purposes. Without the grant of CRRs, acquiring sufficient CRRs
under these circumstances may be cost prohibitive, or the necessary CRRs
simply may not be available when needed to transmit this power. If the
PMAs are unable to transmit this power and thus are forced to spill
rather than generate at these times, SMD could substantially interfere
with the ability of Reclamation operators to comply with the statutory
and regulatory needs of Reclamation projects.

# 

# [Penalty Mitigation]{.underline}

The Federal hydro system has legal and regulatory requirements that
place certain considerations before the generation of power. In
satisfying these laws and regulations Reclamation and the PMAs may be
impacted and could, under the tariff, incur penalties. Reclamation
strongly encourages the Commission to ensure that no penalties are
assessed when actions are taken to meet legal and regulatory
requirements. The peculiarities of a hydro system might result in the
assessment of penalties. Examples of such a situation include:

-   Real time changes in available generation to satisfy emergency water
    temperature restrictions, environmental, or water quality concerns.

-   Uninstructed deviations resulting from load swings attributable to
    environmental, temperature, or water quality requirements.

-   Failure to provide bid amount of ancillary services due to
    powerplant operations needed to satisfy emergency water temperature
    restrictions, environmental, or water quality concerns.

-   Operational changes based on Office of Homeland Security threat
    levels or at Reclamation's discretion

**[Generation Liability for Federal Hydroelectric
Projects]{.underline}**

The Commission asks in ¶ 385-389 whether liability language is needed in
the SMD Open Access Transmission Tariff, and if so, what liability
protection is needed. The Commission is seeking comments on whether the
liability language should be generic or region-specific, whether it
should reflect state law, and how it should be addressed in the
multi-state context of an RTO or an Independent System Operator (ISO).

Reclamation has observed that there are differences among liability
provisions included in or proposed for each of the existing and emergent
RTOs and ISOs. It is important to note that in the West, there are the
federal generators, PMAs and many municipal utilities, which are subject
to different types of liabilities than public utilities. Federal
agencies are subject to liability only for negligence on the part of
their officers and employees, in accordance with the terms of the
Federal Tort Claims Act. Federal agencies cannot, under Federal law,
indemnify and hold harmless some other entity, such as an ITP, RTO or
ISO.

Reclamation believes that liability provisions should set forth
reasonable limits on the liability of ITPs/RTOs/ISOs. Typically, these
new entities may have no financial or physical assets which could be
used to pay for liability judgments against them and any costs would
have to be passed through to their members and customers. Without
liability limitations, SMD costs may rise to unreasonable levels. The
WECC (Western Electric Coordinating Council) has long-standing practices
to deal with these issues that have worked well. The liability
provisions should include the flexibility to address this issue on a
regional basis.

In the case of Reclamation's hydroelectric projects, generation
liability includes property damage caused by ITP's actions or failure to
act to one of the Federal hydroelectric projects. Generator liability
could also include interruptions to delivery caused by the ITP to
Reclamation and the PMAs. There is not much included in the SMD
proposal, however absent that knowledge, the costs of \$100 to \$200
million for interruption to deliveries and damage to federal property
could be quite likely. In the case of a major disruption causing damage
to the Federal hydroelectric facility which causes the facility to be
unable to generate power, the PMAs would have to purchase power in the
market to replace the power. These liabilities can be mitigated against
through a variety of financial mechanisms.

The issue for the Federal entities is the cost of such mitigation. The
PMAs, working with Reclamation, would have to establish the requisite
level of risk mitigation which would decrease cost risks to customers
receiving Federal power. If power costs increase dramatically for
project use customers, this could cause operation and maintenance costs
to rise above the irrigators' ability to pay. This jeopardizes the
agricultural economic base in the West.

There is also the issue of third-party liability. This includes property
damage and business interruption expenses caused by the ITP to an
end-user of power such as a large industrial facility. The potential
damages could again be very large. In the case of a major outage, the
damages could reach the hundreds of millions of dollars. Reclamation
believes that the liability issues will be complicated during a major
system outage due to the overlapping responsibilities for system
reliability. Any major outage is likely to involve multiple entities
including the ITP, the Security Coordinator, the Scheduling
Coordinator(s), the generator(s), the load(s) and so forth

It appears to Reclamation that currently there may be a gap in the
financial mechanisms which could provide coverage for third party
liability damages caused by the ITP. The ITP would not have the same
type of coverage that a Federal agency has through the Federal Tort
Claims Act or the doctrine of sovereign immunity. It also seems that the
ITP would not have the same or similar protections that the Investor
Owned Utilities have through their state laws and tariffs or through the
Investor Owned Utilities have through an ability to create subsidiary
companies which limit their liability exposure. The issue of liability
is of concern given the complicated responsibilities and large potential
liability. We suggest using the long-standing WECC practices for the
Western Interconnection.

**[Emergency Situations, Load Shedding and Curtailments]{.underline}**

It is not appropriate to FERC to exert jurisdiction over intrastate
transmission articulated in voluntary agreements between a
jurisdictional entity and a non-jurisdictional entity. In essence, the
proposed regulations make all entities jurisdictional and regulated by
FERC. Such an action is far beyond the Federal Power Act intent. The
regulation will negatively impact the intent of Congress in the
operation Reclamation projects, including the Central Valley Project in
California and the contracts authorized by the Congress. The
jurisdictional claim must recognize that certain parties are not bound
by the actions of FERC and that bilateral or voluntary contracts entered
into by those parties that do not impact interstate electrical
transmission service are exempt from FERC jurisdiction. With regard to
curtailment discussed in the proposed regulation, the curtailment should
be biased to support local stability first and prioritized based on the
source and sink. It is reasonable to first curtail those transactions
that do not have transmission rights.

Reclamation will not load shed because of economic or market
emergencies. Its long-standing practice is to comply with system
operator or security coordinator requests for load shedding during
system emergencies.

It should also be noted that the SMD approach to curtailments is to
curtail those that did not develop sufficient capacity resources to
allow schedules to be accepted. In a hydro-thermal system, surplus
capacity does not necessarily mean surplus energy.

**[System Security]{.underline}**

In response to ¶ 575-579 of the NOPR, Reclamation concurs that system
security is critical to the reliable operation of the high voltage
transmission grid. Reclamation is actively implementing a security
program that covers both physical security and Information Technology
(IT) security for its hydro generation. Reclamation is an industry
leader in both planning and implementation of physical and IT security
and is collaborating with other utilities and industry groups to create
and implement common security standards. Consequently, Reclamation has
concerns about the timing of any security requirements (physical and IT)
in the proposal. For example, the physical security requirements of the
SMD NOPR (Appendix G) may be premature since NERC (North American
Electric Reliability Council) committees are working diligently to
create risk-based physical security methodology for utilities similar to
the proposal. Reclamation believes that development and implementation
of software meeting national standards for IT may require more time.

Significant investments in security equipment, staffing, and training
for Reclamation could be necessary for both physical and IT security as
they are described in the Commission's proposal. The Commission's
proposal assumes that cyber and physical security are a single
management function. Reclamation believes that participants should have
the option to manage the functions separately because they are very
complex and require different kinds of expertise.

Reclamation believes that NERC should further develop cyber-focused
security standards, and that such standards should be subject to NERC\'s
standards setting process before they are implemented. Cyber security
standards should consider relevant laws, statutes and recommendations
issued from the Federal government, such as those from the Office of
Management and Budget, the National Institute of Science and
Technology's (NIST) Special Publication 800 Guidelines on Computer
Security, the General Accounting Office, and other applicable sources.

The NERC process for developing industry reliability standards has
served the electric utility industry well for many years. Reclamation
suggests that the Commission allow the development and implementation of
these security standards in a similar fashion with due regard for the
NIST guidelines noted above. The Commission should allow the NERC
standards and development process to move forward.

**Conclusion**

The Commission faces many challenges in meeting its objective of
establishing a workable SMD. Many of the concepts that have been
proposed by the Commission will help move the nation towards greater
open access to area transmission systems. Our summary caution is to
allow provisions to be made in the SMD for Federal agencies, such as
Reclamation, so that congressionally mandated missions can still be
achieved while at the same time meeting the intent of the SMD.

Thank you for your willingness to accept these comments and suggestions.
Should you have any questions or needs for additional information,
please let me know as I will be very glad to accommodate those requests.

Sincerely,

Michael R. Gabaldon

> Director, Policy, Management
>
> and Technical Services

bc: SOL-6421 (John Bezdek)

W-1000, W-2000, W-5000, W-6000, W-1125

D-5000, D-5400

PN-1000, PN-3200

CVO-600

MP-100

LC-1000

BCOO-4800

UC-100, UC-600,

GP-1000, GP-2000

Mr. Ronald K. Rodewald

Bonneville Power Administration

P.O. Box 3621

Portland, Oregon 97208-3621

> Mr. Robert Fullerton
>
> Western Area Power Administration
>
> P.O. Box 281213
>
> Lakewood, Colorado 80228-8213

Mr. Patrick Rooney

Office of Market, Tariffs and Rates

Federal Energy Regulatory Commission

888 First Street, N.E.

Washington, D.C. 20426

WBR: DLinke/DDaughety:SLink:01/08/03:303-445-2926:PRJ-1.10

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