143 FERC ¶ 61,053

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

18 CFR Part 40

[Docket Nos. RM12-6-001 and RM12-7-001; Order No. 773-A]

Revisions to Electric Reliability Organization Definition of Bulk Electric System and 

Rules of Procedure

(Issued April 18, 2013)

AGENCY: Federal Energy Regulatory Commission.

ACTION: Final rule; order on rehearing and clarification.

SUMMARY: The Commission denies rehearing in part, grants rehearing in part and 

otherwise reaffirms its determinations in Order No. 773. In addition, the Commission 

clarifies certain provisions of the Final Rule. Order No. 773 approved the modifications 

to the currently-effective definition of “bulk electric system” developed by the North 

American Electric Reliability Corporation (NERC), the Commission-certified Electric 

Reliability Organization. Order No. 773 also approved NERC’s revisions to its Rules of 

Procedure, which create an exception process to add elements to, or remove elements 

from, the bulk electric system on a case-by-case basis and established a process pursuant 

to which an entity can seek a determination by the Commission whether facilities are 

“used in local distribution” as set forth in the Federal Power Act.

EFFECTIVE DATE: This rule will become effective [insert date of publication in the

FEDERAL REGISTER].
Docket Nos. RM12-6-001 and RM12-7-001 - 2 -

FOR FURTHER INFORMATION CONTACT:

Susan Morris (Technical Information)

Office of Electric Reliability, Division of Reliability Standards and Security

Federal Energy Regulatory Commission 

888 First Street, NE 

Washington, DC 20426 

Telephone: (202) 502-6803

Nicholas Snyder (Technical Information)

Office of Energy Market Regulation, Division of Electric Power Regulation-Central

Federal Energy Regulatory Commission 

888 First Street, NE 

Washington, DC 20426 

Telephone: (202) 502-6408

Robert Stroh (Legal Information)

Office of the General Counsel

Federal Energy Regulatory Commission

888 First Street, NE 

Washington, DC 20426

Telephone: (202) 502-8473

SUPPLEMENTARY INFORMATION:
143 FERC ¶ 61,053

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Jon Wellinghoff, Chairman;

 Philip D. Moeller, John R. Norris,

Cheryl A. LaFleur, and Tony Clark. 

Revisions to Electric Reliability Organization Definition 

of Bulk Electric System and Rules of Procedure

Docket Nos. RM12-6-001

RM12-7-001

ORDER NO. 773-A

ORDER ON REHEARING AND CLARIFICATION

(Issued April 18, 2013)

I. Introduction 

1. On December 20, 2012, the Commission issued a Final Rule (Order No. 773) 

approving modifications to the currently-effective definition of “bulk electric system” 

developed by the North American Electric Reliability Corporation (NERC), the 

Commission-certified Electric Reliability Organization (ERO).1

 The Commission found 

that the modified definition of “bulk electric system” improves upon the currentlyeffective definition by establishing a bright-line threshold that includes all facilities 

operated at or above 100 kV and removing language that allows for broad regional 

discretion. The Commission also found that the revised definition provides improved 

clarity by identifying specific categories of facilities and configurations as inclusions and 

 1 Revisions to Electric Reliability Organization Definition of Bulk Electric System 

and Rules of Procedure, Order No. 773, 141 FERC ¶ 61,236 (2012). 
Docket Nos. RM12-6-001 and RM12-7-001 - 2 -

exclusions. The Commission also found that NERC’s case-by-case exception process to 

add elements to, and remove elements from, the definition of the bulk electric system 

adds transparency and uniformity to the determination of what constitutes the bulk 

electric system. The Final Rule found that, after notice and comment, the Commission 

can designate sub-100 kV facilities, or other facilities, as part of the bulk electric system. 

The Commission also established a process pursuant to which an entity can seek a 

determination by the Commission whether facilities are “used in local distribution” as set 

forth in the Federal Power Act (FPA).

2. In this order, the Commission denies in part and grants in part the requests for 

rehearing and clarification of the Final Rule, as discussed below. 

A. Background

1. Order Nos. 743 and 743-A

3. On November 18, 2010, in Order No. 743, the Commission directed that NERC, 

through NERC’s Reliability Standards Development Process, develop modifications to 

the currently-effective definition of the term “bulk electric system” to ensure that the 

definition encompasses all facilities necessary for operating the interconnected 

transmission network.2

 The Commission also directed NERC to address the 

Commission’s technical and policy concerns. Among the Commission’s concerns were 

 2 Revision to Electric Reliability Organization Definition of Bulk Electric System, 

Order No. 743, 133 FERC ¶ 61,150, at P 16 (2010), order on reh’g, Order No. 743-A, 

134 FERC ¶ 61,210 (2011).
Docket Nos. RM12-6-001 and RM12-7-001 - 3 -

inconsistencies in the application of the definition and a lack of oversight and exclusion 

of facilities from the bulk electric system required for the operation of the interconnected 

transmission network. In Order No. 743, the Commission concluded that the best way to 

address these concerns was to eliminate the Regional Entity discretion to define the bulk 

electric system without NERC or Commission review, maintain a bright-line threshold 

that includes all facilities operated at or above 100 kV except defined radial facilities, and 

adopt an exemption process and criteria for removing from the bulk electric system 

definition, those facilities that are not necessary for operating the interconnected 

transmission network. In Order No. 743, the Commission allowed NERC to “propose a 

different solution that is as effective as, or superior to, the Commission’s proposed 

approach in addressing the Commission’s technical and other concerns so as to ensure 

that all necessary facilities are included within the scope of the definition.”3

 The 

Commission directed NERC to file the revised definition of bulk electric system and its 

process to exempt facilities from inclusion in the bulk electric system within one year of 

the effective date of the final rule.

4

 

4. In Order No. 743-A, the Commission reaffirmed its determinations in Order 

No. 743. In addition, the Commission clarified that the issue the Commission directed 

NERC to rectify was the discretion the Regional Entities have under the current 

 3 Order No. 743, 133 FERC ¶ 61,150 at P 16.

4 Id. P 113.
Docket Nos. RM12-6-001 and RM12-7-001 - 4 -

definition to define the bulk electric system in their regions without any oversight from 

the Commission or NERC.5

 The Commission also clarified that the 100 kV threshold 

was a “first step or proxy” for determining which facilities should be included in the bulk 

electric system.6

 

5. The Commission further clarified that the statement in Order No. 743, 

“determining where the line between ‘transmission’ and ‘local distribution’ lies ... should 

be part of the exemption process the ERO develops,” was intended to grant discretion to 

NERC, as the entity with technical expertise, to develop criteria to determine how to 

differentiate between local distribution and transmission facilities in an objective, 

consistent, and transparent manner.7

 The Commission stated that the “Seven Factor 

Test” adopted in Order No. 888 could be relevant and possibly a logical starting point for 

determining which facilities are local distribution for reliability purposes.8

 However, the 

Commission left it to NERC to determine if and how the Seven Factor Test should be 

 5 Order No. 743-A, 134 FERC ¶ 61,210 at P 11.

6 Id. PP 40, 67, 102-103.

7 Id. P 68. 

8 Order No. 743-A, 134 FERC ¶ 61,210 at P 69. See Promoting Wholesale 

Competition Through Open Access Non-Discriminatory Transmission Services by Public 

Utilities; Recovery of Stranded Costs by Public Utilities and Transmitting Utilities, Order 

No. 888, FERC Stats. & Regs. ¶ 31,036, at 31,783-84 (1996), order on reh’g, Order 

No. 888-A, FERC Stats. & Regs. ¶ 31,048, order on reh’g, Order No. 888-B, 81 FERC 

¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), aff’d in 

relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667 

(D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002).
Docket Nos. RM12-6-001 and RM12-7-001 - 5 -

considered in differentiating between local distribution and transmission facilities for 

purposes of determining whether a facility should be classified as part of the bulk electric 

system.9

 Order No. 743-A re-emphasized that local distribution facilities are excluded 

from the definition of Bulk-Power System and, therefore, must be excluded from the 

definition of bulk electric system.10 In Order No. 743-A, the Commission also stated 

that, “although local distribution facilities are excluded from the definition, it still is 

necessary to determine which facilities are local distribution, and which are transmission. 

Whether facilities are used in local distribution will in certain instances raise a question 

of fact, which the Commission has jurisdiction to determine.”11

2. Order No. 773

6. On January 25, 2012, NERC submitted two petitions pursuant to the directives in 

Order No. 743: (1) NERC’s proposed revision to the definition of “bulk electric system” 

which includes provisions to include and exclude facilities from the “core” definition 

(Docket No. RM12-6-000); and (2) revisions to NERC’s Rules of Procedure to add a 

procedure (an exception process) to classify or de-classify an element as part of the “bulk 

electric system” (Docket No. RM12-7-000).12 

 9 Order No. 743-A, 134 FERC ¶ 61,210 at P 70.

10 Id. PP 25, 58.

11 Id. P 67. 

12 The Commission-approved core definition, inclusions and exclusions are 

included in Attachment A to this order on rehearing.
Docket Nos. RM12-6-001 and RM12-7-001 - 6 -

7. On December 20, 2012, the Commission issued Order No. 773, a final rule 

approving NERC’s modifications to the definition of “bulk electric system” and the 

exception process, in response to Order Nos. 743 and 743-A. The Commission found 

that the revised definition of “bulk electric system” establishes a bright-line threshold that 

includes all facilities operated at or above 100 kV and removed language from the prior 

definition that allows for broad regional discretion. Further, the Commission found that 

inclusions and exclusions in the definition that address typical system facilities and 

configurations such as generation and radial systems provide additional granularity that 

improves consistency and provides a practical means to determine the status of common 

system configurations.13

8. In the Final Rule, the Commission found that the modified definition is consistent, 

repeatable and verifiable and will provide clarity that will assist NERC and affected 

entities in implementing Reliability Standards. The Commission also found that NERC’s 

proposal satisfies the directives of Order No. 743 to develop modifications to the 

currently-effective definition of bulk electric system to ensure that the definition 

encompasses all facilities necessary for operating an interconnected transmission 

network.

 13 Order No. 773, 141 FERC ¶ 61,236 at PP 2, 4, 38-40, 51.
Docket Nos. RM12-6-001 and RM12-7-001 - 7 -

9. The Commission also approved NERC’s case-by-case exception process to add 

elements to, and remove elements from, the definition of the bulk electric system.14 In 

addition, the Final Rule established a process by which an entity can seek a determination 

by the Commission whether facilities are “used in local distribution” as set forth in the 

FPA on a case-by-case basis.

15 The Commission also directed NERC to (1) implement 

the exclusions for radial systems (exclusion E1) and local networks (exclusion E3) so that 

they do not apply to tie-lines, i.e. generator interconnection facilities, for bulk electric 

system generators; and (2) modify the local network exclusion to remove the 100 kV 

minimum operating voltage to allow systems that include one or more looped 

configurations connected below 100 kV to be eligible for the local network exclusion.16

B. Requests for Rehearing 

10. The following entities filed timely requests for rehearing and/or clarification of 

Order No. 773: NERC, American Public Power Association (APPA); American Wind 

Energy Association (AWEA); City of Holland, Michigan Board of Public Works 

(Holland); Dow Chemical Company (Dow); Electricity Consumers Resource Council 

(ELCON); National Association of Regulatory Utility Commissioners (NARUC); 

National Rural Electric Cooperative Association (NRECA); New York State Public 

Service Commission (NYPSC); Public Utility District No. 1 of Snohomish County, 

 14 Order No. 773, 141 FERC ¶ 61,236 at PP 251-262. 

15 Order No. 773, 141 FERC ¶ 61,236 at PP 66-73.

16 Order No. 773, 141 FERC ¶ 61,236 at PP 155, 164-169.
Docket Nos. RM12-6-001 and RM12-7-001 - 8 -

Washington (Snohomish); Transmission Access Policy study Group (TAPS); and Utility 

Services, Inc. (Utility Services).17

11. Exelon Corporation filed a response to the NERC request for clarification. The 

ITC Companies filed a motion for leave to answer and answer to the Holland rehearing 

request, and NERC filed a motion for leave to answer and answer in response to Exelon’s 

response. Holland filed an answer to the answer of the ITC Companies, and Exelon filed 

a response to NERC’s answer. 

II. Discussion

A. Procedural Matters

12. Rule 213(a)(2) of the Commission’s Rules of Practice and Procedure, 18 C.F.R. 

§ 213(a)(2) (2012), provides that answers are generally not permitted unless requested by 

the decisional authority. Rule 713(d) of the Commission’s Rules of Practice and 

Procedure, 18 C.F.R. § 713(d) (2012), prohibits answers to requests for rehearing. 

Accordingly, we will reject the answers filed by the parties in this proceeding.

 17 We find that Utility Services’ rehearing request is deficient because it fails to 

include a Statement of Issues section separate from its arguments, as required by Rule 

713 of the Commission’s Rules of Practice and Procedure. 18 CFR 385.713(c)(2) (2012). 

Rule 713(c)(2) requires that a rehearing request include a separate section entitled 

“Statement of Issues” listing each issue presented to the Commission in a separately 

enumerated paragraph that includes representative Commission and court precedent on 

which the participant is relying. Under Rule 713, any issue not so listed will be deemed 

waived. See Revision of Rules of Practice and Procedure Regarding Issue Identification, 

Order No. 663, FERC Stats. & Regs. ¶ 31,193 (2005), order on reh’g, Order No. 663-A, 

FERC Stats. & Regs. ¶ 31,211 (2006). Accordingly, we dismiss Utility Services’ 

rehearing request. However, we note that Utility Services’ rehearing request raises issues 

similar to those addressed in other petitions in this proceeding.
Docket Nos. RM12-6-001 and RM12-7-001 - 9 -

B. Challenges to Commission Approval of the Revised Bulk Electric 

System Definition and Use of a 100 kV Bright-Line Threshold 

13. NYPSC argues that the Commission's approval of the 100 kV bright-line threshold 

was arbitrary, capricious and unsupported by substantial evidence because the record 

lacks a technical justification for using the 100 kV threshold. NYPSC adds that the 

Commission failed to demonstrate a sufficient technical justification that the bright-line 

definition only encompasses facilities needed for the reliable operation of the Bulk-Power 

System. While NYPSC believes that the Commission's bright-line approach is designed 

to ensure consistency, NYPSC states the Commission cannot evade the jurisdictional 

limitations of the FPA to ensure consistency. NYPSC also argues that the Final Rule 

contains no factual basis for establishing 100 kV as the appropriate place to draw the line 

and contends that the Commission conceded that not all facilities operated at or above 

100 kV are necessary for operating the interconnected transmission network. 

14. NARUC and NYPSC also argue that the definition encompasses facilities that are 

used for local distribution and are not necessary for operating an interconnected 

transmission network. NYPSC contends that, through studies and functional testing, the 

New York Independent System Operator, Inc. (NYISO) has developed a list of facilities 

that have the potential to cause cascading problems on the system as well as facilities that 

can have an impact on the Bulk-Power System but whose main function is to serve load. 

NYPSC claims that the Commission ignored this information in establishing a bright-line 

definition.
Docket Nos. RM12-6-001 and RM12-7-001 - 10 -

15. NARUC argues that a 100 kV bright-line threshold sweeps into the bulk electric 

system elements that were previously classified as local distribution. According to 

NARUC, the Final Rule creates the possibility of entities having to engage in a costly 

analysis to seek an exception for facilities used in local distribution. NARUC states that 

neither the inclusions and exclusions in the definition, nor the exception process cure the 

jurisdictional overreach inherent in the bright-line rule set at 100 kV. 

16. Further, NYPSC argues that, even though the definition does not include facilities 

used for local distribution, the Commission “effectively acknowledged that such facilities 

would be placed under its jurisdiction by establishing an exception process whereby 

entities may seek to demonstrate that the facilities are not necessary for operating the 

interconnected transmission network, or are used in local distribution.”18 NYPSC argues 

that the Commission should not assume it has jurisdiction over facilities operated at 100 

kV and above until an entity demonstrates that the Commission does not have 

jurisdiction. According to NARUC and NYPSC, the approach adopted in the Final Rule 

inappropriately shifts the legal and technical burdens on the jurisdictional issue to the 

entity applying for an exception.19 NYPSC adds that the Commission improperly 

dismissed NYPSC’s evidence that there is a layer of "area" transmission facilities below 

the Bulk-Power System and above distribution facilities that move energy within a utility 

 18 NYPSC Request for Rehearing and Clarification at 11 (citing Order No. 773, 

141 FERC ¶ 61,236 at P 40). See also NARUC Request for Rehearing at 3-4. 

19 See, e.g., NYPSC Request for Rehearing and Clarification at 11-12. 
Docket Nos. RM12-6-001 and RM12-7-001 - 11 -

service territory and toward load centers and only a small subset of these “area” facilities 

assists in maintaining the reliability of the Bulk-Power System.

17. NYPSC contends that the bright-line definition is inconsistent with the FPA’s 

definition of the Bulk-Power System, which, according to NYPSC, recognizes that a 

functional test is needed to determine whether a facility is necessary for reliable 

operation. NYPSC claims that the Commission ignored a functional test for defining the 

Bulk-Power System, such as the one the Northeast Power Coordinating Council, Inc. 

(NPCC) has historically used to identify facilities having an adverse impact on the BulkPower System. NYPSC also argues that the Commission should not require utilities to 

upgrade facilities to comply with Commission-approved Reliability Standards where a 

timely request for an exception has been submitted and is still pending. NYPSC contends 

that compliance and the expenditure of ratepayer funds should not be required until after 

the Commission has made a final determination on the exception, which will ensure that 

the costs of compliance are not unnecessarily imposed upon ratepayers, and the 

Commission does not impermissibly exert jurisdiction.

Commission Determination

18. We deny rehearing and affirm the findings in the Final Rule. As described below, 

petitioners have previously raised, and the Commission has addressed and rejected, the 

arguments with respect to the Commission’s authority and technical justification for the 

100 kV bright-line threshold and the functional test. 

19. In Order No. 743, the Commission found sufficient justification for the finding 

that the current definition allows broad regional discretion without ERO or Commission 
Docket Nos. RM12-6-001 and RM12-7-001 - 12 -

oversight, which has resulted in reliability issues and has failed to ensure that all facilities 

necessary for operation of the interconnected transmission network are covered by the 

Reliability Standards.20 The Commission found that

many facilities operated at 100 kV and above have a significant 

effect on the overall functioning of the grid. The majority of 100 kV 

and above facilities in the United States operate in parallel with 

other high voltage and extra high voltage facilities, interconnect 

significant amounts of generation sources and operate as part of a 

defined flow gate, which illustrates their parallel nature and 

therefore their necessity to the reliable operation of the 

interconnected transmission system.21

The Commission also explained its concern with the application of the currently-effective

definition by illustrating examples of wide-scale cascading outages that NERC or the 

Commission did not have a chance to mitigate because the facilities were not considered 

part of the bulk electric system.22 As discussed in Order No. 743, the Commission found 

that failure of 100-200 kV facilities has caused cascading outages that would have been 

minimized or prevented if these facilities were operated in compliance with the NERC 

Reliability Standards.23

 20 Order No. 743, 133 FERC ¶ 61,150 at P 72.

21 Order No. 773, 141 FERC ¶ 61,236 at P 41 (citing Order No. 743, 133 FERC 

¶ 61,150 at P 73). 

22 Order No. 743, 133 FERC ¶ 61,150 at PP 72-96. 

23 Order No. 743, 133 FERC ¶ 61,150 at P 87.
Docket Nos. RM12-6-001 and RM12-7-001 - 13 -

20. The Commission also noted that NERC already applies a general 100 kV 

threshold, and all regions, with the exception of NPCC, also apply a 100 kV threshold.24 

The Commission stated that the best way to address its concerns “is to eliminate the 

regional discretion in the ERO’s current definition, maintain the bright-line threshold that 

includes all facilities operated at or above 100 kV except defined radial facilities, and 

establish an exemption process and criteria for excluding facilities the ERO determines 

are not necessary for operating the interconnected transmission network.”25 The 

Commission did not propose to change the existing threshold in the definition, but rather 

charged NERC with eliminating “the ambiguity created by the current characterization of 

that threshold as a general guideline.”26 In other words, while the Commission did not

mandate the 100 kV threshold, it directed NERC to develop a revised definition that 

addresses the inconsistency, lack of oversight and exclusion of facilities inherent in the 

current definition.27 

21. We disagree with NYPSC and NARUC that by establishing an exception process 

the Commission effectively acknowledged that local distribution facilities would be 

placed under its jurisdiction. As we explained in the Final Rule, the bright-line threshold 

 24 Order No. 743, 133 FERC ¶ 61,150 at P 56; Order No. 773, 141 FERC ¶ 61,236 

at P 42.

25 Order No. 743, 133 FERC ¶ 61,150 at P 30. 

26 Id. (footnotes omitted). 

27 See Order No. 743-A, 134 FERC ¶ 61,210 at P 53.
Docket Nos. RM12-6-001 and RM12-7-001 - 14 -

would be a “first step or proxy” in determining which facilities should be included in the 

bulk electric system. The Commission also explained that the “definition, coupled with 

the exception process will ensure that facilities not necessary for the operation of the 

interconnected transmission network will be properly categorized.”28 Thus, the exception 

process is not evidence that the “core” definition violates the FPA but instead is a means 

to ensure the application of the definition complies with the FPA. 

22. Further, as we explained in the Final Rule, the determination of whether an 

element or facility is “used in local distribution,” is a multi-step process that may require 

a jurisdictional analysis that is more appropriately performed by the Commission.29 The 

Commission stated:

application of the “core” definition and the four exclusions should 

serve to exclude most facilities used in local distribution from the 

bulk electric system. However, there may be certain circumstances 

that present a factual question as to whether a facility that remains in 

the bulk electric system after applying the “core” definition and the 

four exclusions should nonetheless be excluded because it is used in 

local distribution. In such circumstances, which we expect will be 

infrequent, an entity must petition the Commission seeking a 

determination that the facility is used in local distribution. Such 

petitions should include information that will assist the Commission 

in making such determination, and notice of the petition must be 

provided to NERC and relevant Regional Entities.30

 28 Id.

29 Order No. 773, 141 FERC ¶ 61,236 at P 69 (citations omitted). 

30 Order No. 773, 141 FERC ¶ 61,236 at P 72 (citations omitted). 
Docket Nos. RM12-6-001 and RM12-7-001 - 15 -

In other words, if a facility is classified as part of the bulk electric system by application 

of the definition but should be excluded because it is a facility used in local distribution, 

an entity may apply to the Commission for a local distribution determination. Thus, 

because application of the 100 kV threshold is the first step in the process of determining 

whether an element is part of the bulk electric system, we reject the argument that the 

definition will sweep in all elements above 100 kV in a manner inconsistent with the 

Commission’s jurisdiction.31 

23. In sum, we deny rehearing and affirm that approval of the 100 kV bright-line 

threshold was adequately supported with a technical justification. Petitioners raise 

arguments that the Commission has previously considered and rejected in this proceeding 

as well as previous Commission decisions with respect to the reasons for requiring 

revisions to the definition of bulk electric system. In all these cases, the Commission 

explained and justified the appropriateness of a 100 kV threshold. Therefore, we reject 

the requests for rehearing on these issues. 

24. We also reject the argument that a functional test is a more appropriate manner to 

determine which facilities are part of the bulk electric system. In Order No. 743, the 

Commission concluded that a material impact or functional test excludes facilities 

“without regard to whether they are necessary to operate the system, and instead seek to 

 31 Order No. 773, 141 FERC ¶ 61,236 at P 41. 
Docket Nos. RM12-6-001 and RM12-7-001 - 16 -

determine the impact of the loss of an element.”32 The Commission also concluded that 

these tests are subjective and result in an inconsistent process that excludes facilities from 

the bulk electric system.33 In the NOPR comments in this proceeding, these same issues 

were raised, and in the Final Rule the Commission again rejected them.34 Further, as 

discussed in detail in the Final Rule, the Commission found that NERC’s proposal 

adequately ensures that all facilities necessary for operating an interconnected electric 

energy transmission network are included under the bulk electric system. In the Final 

Rule, the Commission also relied on its finding in Order No. 743 that 

“[U]niform Reliability Standards, and uniform 

implementation, should be the goal and the practice, the rule 

rather than the exception, absent a showing that a regional 

variation is superior or necessary due to regional differences. 

Consistency is important as it sets a common bar for 

transmission planning, operation, and maintenance necessary 

to achieve reliable operation. . . . [W]e have found several 

reliability issues with allowing Regional Entities broad 

discretion without ERO or Commission oversight.35

 32 Order No. 743, 133 FERC ¶ 61,150 at P 76. 

33 Order No. 743, 133 FERC ¶ 61,150, at PP 73-86. 

34 Order No. 773, 141 FERC ¶ 61,236 at P 41. 

35 Order No. 773, 141 FERC ¶ 61,236 at P 39 (citing Order No. 743, 133 FERC 

¶ 61,150, at P 82 (footnote omitted)). Order No. 743 did not reject all material impact 

assessments but instead took issue with particular tests and outlined general problems 

with the material impact tests used to determine the extent of the bulk electric system. 

Order No. 743, 133 FERC ¶ 61,150 at PP 76-78; Order No. 743-A, 134 FERC ¶ 61,210 at 

PP 44-47. Indeed, the ERO had flexibility to develop alternative approaches, such as a 

functional test. However, the ERO, in applying its technical expertise, developed a 

revised definition that retained a 100 kV threshold. 
Docket Nos. RM12-6-001 and RM12-7-001 - 17 -

25. We also disagree with NYPSC’s claim that the Commission ignored the NYPSC 

evidence of NYISO studies and functional testing. As NYPSC states, the NYISO data is 

the result of a functional test.36 While the Commission did not reject all material impact 

tests, the Commission took issue with particular tests and outlined general problems with 

the material impact tests used to date because they exclude facilities without regard to 

whether they are necessary to operate the interconnected transmission network. In 

addition, as explained above, failure of 100-200 kV facilities has caused cascading 

outages that would have been minimized or prevented if these facilities were operated in 

compliance with the NERC Reliability Standards. Further, in the Final Rule the 

Commission noted that NYPSC cited specific examples of facilities that should be 

excluded, but found that determinations for treatment for specific facilities were “more 

appropriate for the exception process” and were beyond the scope of this proceeding.37 

26. With regard to NYPSC’s request for clarification about the need to upgrade 

facilities while an exception request is pending, in Order No. 743-A we agreed with 

petitioners “that currently unregistered entities that may be required to seek an exemption 

for facilities under the revised bulk electric system definition will not be required to 

register and thereafter comply with Reliability Standards until a final decision is made to 

deny the application for exemption,” stating that “entities should not be required to take 

 36 NYPSC Request for Rehearing at 10. 

37 Order No. 773, 141 FERC ¶ 61,236 at P 43. 
Docket Nos. RM12-6-001 and RM12-7-001 - 18 -

costly steps to comply with the Reliability Standards prior to the ERO’s initial 

determination on an exemption request.”38 NERC’s exception process is consistent with 

the approach in Order No. 743-A. According to NERC, elements that are newly-included 

in the bulk electric system due to the revised definition will only become subject to 

relevant Reliability Standards twenty-four months after the effective date of the revised 

definition.39 It is NERC’s expectation that during the twenty-four month transition 

period entities with newly-included elements will file exception requests and the 

Regional Entities and NERC will make determinations of the exception requests.

40 This 

transition period is sufficient to obtain a NERC ruling and avoid any compliance costs.41 

However, if an element that is already deemed part of the bulk electric system and subject 

to relevant Reliability Standards today is included by application of the revised definition 

of bulk electric system, but an entity seeks an exclusion exception of the element, the 

element will remain subject to the relevant Reliability Standards during the pendency of 

the exception process. Conversely, if an element is excluded from the bulk electric 

system by application of the revised definition, but a different entity with a reliability 

oversight obligation seeks to include the element in the exception process, the element 

 38 See Order No. 743-A, 134 FERC ¶ 61,210 at PP 91, 93. 

39 NERC Petition at 34.

40 See NERC BES Petition at 36. 

41 See Order No. 743-A, 134 FERC ¶ 61,210 at P 93. See also NERC BES 

Petition at 36. 
Docket Nos. RM12-6-001 and RM12-7-001 - 19 -

will not be subject to Reliability Standards during the exception process. If NERC 

determines the element is needed for operation of the interconnected transmission 

network and thus part of the bulk electric system, the entity can propose an appropriate 

implementation plan for compliance.42 

C. Order No. 773 Directives Regarding the Revised Definition

27. A number of entities request clarification and/or rehearing in connection with the 

Commission directives in the Final Rule. Specifically, they request clarification and/or 

rehearing of (1) the Commission decision for treatment of looped configurations 

connected below 100 kV and the corresponding directive to modify the local network 

exclusion (exclusion E3) to remove the 100 kV minimum operating voltage; and (2) the 

directive to implement the exclusions for radial systems (exclusion E1) and local 

networks (exclusion E3) so that they do not apply to tie-lines (generator interconnection 

facilities) for bulk electric system generators indentified in inclusion I2 (generating 

resources).43

 42 NERC ROP Petition, Att. 1 (“Proposed Appendix 5C to the Rules of Procedure, 

Procedure for Requesting and Receiving an Exception from the NERC Definition of Bulk 

Electric System, Section 10.1”) at 16: “In the case of an Element not included in the BES 

by application of the BES Definition but for which an Inclusion Exception is approved, 

the Owner shall submit a proposed implementation plan to the Regional Entity detailing 

the schedule for complying with any Reliability Standards applicable to the newly 

included Element. The Regional Entity and Owner shall confer to agree upon such 

schedule. 

43 The phrase generator tie-line means the same as generator interconnection 

facility as used 61,049 in the Notice of Proposed Rulemaking in Docket No. RM12-16-

000. Generator Requirements at the Transmission Interface, 143 FERC ¶ 61,049 (2013).
Docket Nos. RM12-6-001 and RM12-7-001 - 20 -

1. Looped Configurations Connected below 100 kV and Removing 

the 100 kV Minimum in Exclusion E3 

Order No. 773

28. In the Final Rule, the Commission held that radial systems with elements 

operating at 100 kV or higher in a configuration that emanate from two or more points of 

connection cannot be deemed “radial” if the configuration remains contiguous through 

elements that are operated below 100 kV. The Commission held that such a 

configuration is a networked configuration and does not qualify for exclusion E1. The 

Commission included a depiction of this configuration, shown below, in the Final Rule as 

Figure 3.44 However, the Commission also found that the facilities below 100 kV may or 

may not be necessary for the operation of the interconnected transmission network, and 

this decision can be made case-by-case in the exception process. 

 44 See Order No. 773, 141 FERC ¶ 61,236 at P 150.
Docket Nos. RM12-6-001 and RM12-7-001 - 21 -

Networked Configuration w/69 kV Loop

Requests for Rehearing

29. APPA, TAPS and ELCON argue that the Commission erred in holding that two 

radial lines at or above 100 kV connected by a sub-100 kV line are not eligible for 

exclusion E1.

45 They argue that the Commission lacks authority to redraft standards, but 

claim that the Final Rule does so by reinterpreting the exclusion contrary to its language 

and NERC’s interpretation. They claim that finding that exclusion E1 is inapplicable to 

such a configuration because the configuration is “networked” and not a “radial system” 

 45 See also Dow Request for Rehearing at 8-10. 
Docket Nos. RM12-6-001 and RM12-7-001 - 22 -

is unreasonable and constitutes an impermissible change to the NERC-filed definition. 

APPA, TAPS and ELCON state that, if radial systems connected by a sub-100 kV loop 

had not been intended to be eligible for exclusion E1, then exclusion E3 would have been 

drafted to allow such configurations to be covered. They contend that the fact that 

exclusion E1 is intended to encompass radial lines at or above 100 kV that are connected 

below 100 kV works in tandem with exclusion E3’s limitation to facilities 100 kV and 

above and reinforces the conclusion that the Final Rule’s interpretation of exclusion E1 is 

inconsistent with the language and structure of the definition. They also argue that the 

ruling on exclusion E1 and the corresponding directive to modify exclusion E3

improperly substituted the Commission’s own judgment for NERC’s which, they claim, 

violates the FPA section 215(d)(2) requirement for the Commission to give due weight to 

the technical expertise of the ERO.

30. APPA, TAPS and ELCON contend that the Final Rule’s identification of 

additional factors that NERC did not consider provides no support for second guessing 

the technical content of NERC’s definition. APPA states that the exception process 

exists to consider other factors, such as the factors the Commission indicated that may be

relevant in particular cases.46 According to APPA, TAPS and ELCON, NERC made a 

determination that loops below 100 kV generally do not impact the grid, but recognized

that those that do are more appropriately handled through the exception process. They 

 46 See Order No. 773, 141 FERC ¶ 61,236 at P 155 n.139. 
Docket Nos. RM12-6-001 and RM12-7-001 - 23 -

also argue that the Commission effectively changed the definition without giving NERC 

the opportunity to find an equally effective or superior solution to the Commission’s 

concern.

31. Further, TAPS and ELCON argue that the Commission should also reverse its 

directive to NERC to modify exclusion E3 to remove the 100 kV minimum threshold. 

They contend that the need to change exclusion E3 arises only if exclusion E1 is changed 

to foreclose exclusion of radials above 100 kV connected at lower voltages, resulting in 

the need for consideration of such configurations under exclusion E3. According to 

TAPS and ELCON, exclusion E3, as written, works well with the rest of the definition 

when exclusion E1 is construed as NERC intended. TAPS and ELCON state that, if the 

Commission is concerned that NERC’s process is not adequately including radial

facilities of 100 kV or more connected by sub-100 kV loops, the Commission should not 

revise exclusions E1 and E3 but should direct NERC to submit a report that provides 

information on how entities use this exclusion, similar to the Final Rule directive in 

connection with exclusion E3’s 300 kV voltage ceiling.47

32. APPA claims that, by not allowing exclusion E1 to apply to sub-100 kV loops 

between radial systems in conjunction with deletion of the 100 kV floor in exclusion E3, 

the Commission directive will create a disincentive for distribution providers from 

connecting their distribution systems to the bulk electric system at multiple points at 

 47 TAPS and ELCON Request for Rehearing and Clarification at 6 (citing Order 

No. 773, 141 FERC ¶ 61,236 at P 206). 
Docket Nos. RM12-6-001 and RM12-7-001 - 24 -

voltages greater than 100 kV. APPA also stated that distribution providers will be less 

likely to construct such distribution networks with built-in redundancy that provide 

multiple paths to provide continuous, high quality service, because of the concern that 

these distribution systems will be designated as bulk electric system elements.

33. NERC seeks clarification of the Commission directive to revise exclusion E3. 

Specifically NERC requests clarification that it should remove the phrase “or above 100 

kV but” in the first sentence of exclusion E3 as shown below.

E3 - Local networks (LN): A group of contiguous 

transmission Elements operated at or above 100 kV but less 

than 300 kV that distribute power to Load rather than transfer 

bulk power across the interconnected system. LN’s emanate 

from multiple points of connection at 100 kV or higher to 

improve the level of service to retail customer Load and not 

to accommodate bulk power transfer across the 

interconnected system. The LN is characterized by all of the 

following:48

NERC contends that the Commission’s approach will entail the evaluation of 

significantly more facilities in applying exclusion E3 and is administratively burdensome, 

NERC requests that the Commission clarify the basis and intent of this directive to allow 

NERC to implement this directive appropriately.49

Commission Determination

 48 NERC Request for Clarification at 4.

49 Id.
Docket Nos. RM12-6-001 and RM12-7-001 - 25 -

34. The Commission denies rehearing and upholds the Final Rule. The Commission 

disagrees that it failed to give due weight to NERC. As explained below, the 

Commission considered NERC’s rationale, but after giving due weight found it 

unpersuasive. 

35. In the NOPR, the Commission agreed with NERC’s proposal that radial systems 

only serving load and emanating from a single point of connection of 100 kV or higher 

should be excluded from the bulk electric system. However, we expressed concern “that 

the exclusion could allow elements operating at 100 kV or higher in a configuration that 

emanates from two or more points of connection “to be deemed “radial” even though the 

configuration remains contiguous through elements that are operated below 100 kV.”50 

The Commission also requested comment on the appropriateness of examining elements 

below 100 kV to determine if the configuration (shown in the figure above) meets 

exclusion E1, i.e., whether the figure depicts “a system emanating from two points of 

connection at 230 kV and, therefore, the 230 kV elements above the transformers to the 

points of connection to the two 230 kV lines would not be eligible for the exclusion E1 

notwithstanding the connection below 100 kV.”51 In response to the NOPR, some 

commenters disagreed with the Commission’s characterization that the configuration 

 50 Revisions to Electric Relibaility Organization Definition of Bulk Electric System 

and Rules of Procedure, Notice of Proposed Rulemaking (NOPR), 139 FERC ¶ 61,247 at 

P 81. 

51 Id. 
Docket Nos. RM12-6-001 and RM12-7-001 - 26 -

depicts a loop, claiming that it represents two separate radial systems, while other 

commenters agreed with the NOPR that the configuration does not meet the definition of 

a radial system.52 The Commission considered NERC’s explanations, but in the Final 

Rule the Commission found that the configuration shown above is a networked 

configuration through a 69 kV loop and does not qualify for exclusion E1 because the 

load can be served by either 230 kV line.

53

36. The Commission disagrees that this decision is contrary to the language of 

exclusion E1. Instead, our interpretation of NERC’s wording reasonably construes the 

ambiguity, if any, in exclusion E1. Even apart from NERC’s wording of exclusion E1, it 

is difficult to envision any reasonable exclusion for radial lines that would cover the 

facilities in the configuration above. The looped systems have more than one path to the 

bulk electric system and, therefore, it is reasonable not to consider them “radial” in 

nature. Exclusion E1 provides a definition of “radial system” as “[a] group of contiguous 

transmission Elements that emanates from a single point of connection of 100 kV or 

higher...” (emphasis added).54 This definition of “radial system” only allows a single 

point of connection and does not limit operating voltage of the transmission elements 

connecting two such points to any minimum value. Therefore, “radial systems” as 

 52 Order No. 773, 141 FERC ¶ 61,236 at P 154.

53 Order No. 773, 141 FERC ¶ 61,236 at P 155.

54 Order No. 773, 141 FERC ¶ 61,236 at P 18. 
Docket Nos. RM12-6-001 and RM12-7-001 - 27 -

defined in exclusion E1 includes elements that cover the entire range of operating 

voltages. It strikes us as unreasonable to characterize lines as radial by ignoring 

connecting facilities below 100 kV. Rather the reasonable approach is to find these lines 

to be non-radial and then consider whether they should be excluded as a local network or 

through the exception process. Further, as we noted previously, many facilities operated 

at 100 kV and above have a significant effect on the overall functioning of the grid. The 

majority of 100 kV and above facilities in the United States operate in parallel with other 

high voltage and extra high voltage facilities, interconnect significant amounts of 

generation sources and operate as part of a defined flow gate, which illustrates their 

parallel nature and therefore their necessity to the reliable operation of the interconnected 

transmission system. The Final Rule also noted that NERC emphasized that radial 

systems cannot have multiple connections at 100 kV or higher.55 For these reasons, we 

believe it is important that these configurations be assessed for exclusion from the bulk 

electric system under the criteria in exclusion E3, to ensure that any excluded facilities do 

not contribute to the reliable operation of the interconnected system. Moreover, as noted 

in the Final Rule, the sub-100 kV elements comprising radial systems and local networks 

will not be included in the bulk electric system, unless determined otherwise in the 

exception process.56 

 55 Order No. 773, 141 FERC ¶ 61,236 at P 42.

56 Order No. 773, 141 FERC ¶ 61,236 at P 155. In the Final Rule the Commission 

states that it expects entities to identify and include sub-100 kV facilities necessary for 

(continued...)
Docket Nos. RM12-6-001 and RM12-7-001 - 28 -

37. We also deny rehearing on TAPS’ and ELCON’s argument that the Commission’s 

decision regarding exclusion E1 and the Final Rule directive to change the language in 

exclusion E3 (removing the 100 kV minimum operating threshold language) will no 

longer allow exclusions E1 and E3 to work together and will be administratively more 

burdensome. As we stated in the Final Rule, exclusion E3 as written applies to a local 

network that is contiguous and above 100 kV. Thus, the exclusion E3 language, as 

NERC initially proposed, did not apply to a configuration where the facilities in question 

are contiguous below 100 kV.57 Removing the 100 kV minimum operating voltage in 

exclusion E3 allows networked configurations below 100 kV, that may not otherwise be 

eligible for exclusion E1, to be eligible for exclusion E3. This modification also makes 

the “local network” exclusion language consistent with language in exclusion E3 

criterion (a), which limits generation on the local network and its underlying elements. 

 

the operation of the interconnected transmission network and found NERC’s approach to 

include such facilities in the bulk electric system to be reasonable. Order No. 773, 141 

FERC ¶ 61,236 at P 269. The Commission notes that the joint NERC and Commission 

staff report on the September 8, 2011, Arizona-Southern California blackout explains 

why facilities operating below 100 kV should not be ignored simply because the elements 

are below 100 kV. See Arizona-Southern California Outages on September 8, 2011 –

Causes and Recommendations at 96 (September 2011 Blackout Report), available at

http://www.ferc.gov/legal/staff-reports/04-27-2012-ferc-nerc-report.pdf. There, facilities 

below 100 kV were a significant factor in a major blackout, but their significance was not 

fully or widely recognized until after the blackout. 

57 Order No. 773, 141 FERC ¶ 61,236 at P 155.
Docket Nos. RM12-6-001 and RM12-7-001 - 29 -

As we stated in the Final Rule, the entire range of operating voltage elements must be 

examined when considering a local network.58 

38. In the Final Rule, the Commission concluded that removing the 100 kV floor in 

exclusion E3 will decrease the burden for some entities that would have otherwise been 

included in the bulk electric system because these entities may now apply exclusion E3. 

This is because many, if not most, of the configurations in question may still be excluded 

through application of the modified exclusion E3. 

39. We disagree with TAPS’s, ELCON’s and APPA’s contention that the Final Rule’s 

identification of other possible factors to be considered does not support dismissing the 

technical content of NERC’s definition. The Commission did not rely on these other 

factors as the basis for its decision.59 Instead, the Commission found that looped systems 

have more than one path to the bulk electric system. Therefore, the Commission 

concluded that it is reasonable not to consider them “radial” in nature.60 

40. With respect to NERC’s request for clarification, we agree that removing the

phrase “or above 100 kV but” from the definition of local networks in the first sentence 

of exclusion E3 is an appropriate way to meet the Commission’s directive to remove the 

100 kV minimum operating voltage in the local network definition. As we explained in 

 58 Id. 

59 See Order No. 773, 141 FERC ¶ 61,236 at P 155 n.139. 

60 Id. 
Docket Nos. RM12-6-001 and RM12-7-001 - 30 -

the Final Rule, this modification, together with satisfying the criteria outlined in 

exclusion E3, will appropriately exclude local network configurations that are not 

necessary to the reliable operation of the interconnected transmission network.61

41. While APPA claims that the Commission directive to not allow exclusion E1 to 

apply to sub-100 kV loops will create a disincentive for distribution providers to connect 

their distribution systems to the bulk electric system, our result derives directly from 

NERC’s own wording of exclusion E1. We cannot avoid the reasonable effect of these 

words based on an unsupported claim that concerns about jurisdiction will cause 

distribution providers to forgo the significant reliability benefits of an added connection. 

42. We do not agree with NERC that “the Commission’s approach will entail the 

evaluation of significantly more facilities in applying exclusion E3 and is 

administratively burdensome.” Exclusion E3 is one part of the bright-line definition of 

bulk electric system, and all asset owners must apply the definition as a whole in order to 

determine whether their elements are part of the bulk electric system. As we stated in the 

Final Rule, exclusion E3 as proposed by NERC requires the local network to be 

contiguous and above 100 kV. Thus, the exclusion E3 language, as NERC initially 

proposed, did not allow for the figure above to be eligible for the local network exclusion 

because it includes contiguous facilities below 100 kV and could have resulted in more 

 61 Order No. 773, 141 FERC ¶ 61,236 at P 155.
Docket Nos. RM12-6-001 and RM12-7-001 - 31 -

exception process decisions.62 However, as we explained, removing the 100 kV 

minimum operating voltage in the local network definition allows networked 

configurations comprised of facilities ranging from below 100 kV to multiple 

connections at 100 kV and above to be candidates for exclusion E3. In other words, 

removing the language from exclusion E3 will relieve the burden of addressing all 

configurations similar to the looped configuration described above in the exception 

process by first allowing entities that do not qualify for exclusion E1 to apply exclusion 

E3. We recognize that certain facilities that might have qualified for exclusion E1 as 

interpreted by NERC may now seek instead to qualify for exclusion E3 or, if 

unsuccessful there, may seek relief through the exception process. However, we expect 

that documenting a valid claim of exclusion E3 will not be particularly burdensome, 

consisting often of reviewing historic data or relying on information that entities already 

possess (such as the amount of generation connected to the facilities or whether the 

facilities contain a Flowgate or transfer path), not necessarily preparing new load flow 

studies or similar analyses, and retaining such records for possible future review by the 

Regional Entity. Also, certain entities that will not qualify even for exclusion E3 may 

seek relief under the exception process. While this possibility exists, we are not 

persuaded that there will be an inordinate number of such instances, particularly since 

 62 Order No. 773, 141 FERC ¶ 61,236 at P 155.
Docket Nos. RM12-6-001 and RM12-7-001 - 32 -

commenters have not submitted estimates of the number of facilities affected by the 

entirety of our changes to NERC's proposal. 

43. Thus, while we have carefully considered the concerns raised by petitioners, we 

are not persuaded that the Commission’s directives in the Final Rule will result in a 

significant increase in administrative and compliance burdens. Further, we reiterate that

elements that are newly-included in the bulk electric system due to the revised definition 

will only become subject to relevant Reliability Standards twenty-four months after the 

effective date of the revised definition.63 It is NERC’s expectation that during the 

twenty-four month transition period entities will file exception requests and the Regional 

Entities and NERC will make determinations on the exception requests.

64 We expect that 

this transition period will be sufficient for those few configurations that may need to seek 

an exception based on the Commission’s determinations regarding exclusions E1 and E3

to obtain a NERC ruling and avoid any compliance costs.65 However, if an element that 

is already deemed part of the bulk electric system and subject to relevant Reliability 

Standards today is included by application of the revised definition of bulk electric 

system, but an entity seeks an exclusion exception of the element, the element will 

remain subject to the relevant Reliability Standards during the pendency of the exception 

 63 NERC Petition at 34.

64 See NERC BES Petition at 36. 

65 See Order No. 743-A, 134 FERC ¶ 61,210 at P 93. See also NERC BES 

Petition at 36. 
Docket Nos. RM12-6-001 and RM12-7-001 - 33 -

process. Conversely, if an element is excluded from the bulk electric system by 

application of the revised definition, but a different entity with a reliability oversight 

obligation seeks to include the element in the exception process, the element will not be 

subject to Reliability Standards during the exception process. If NERC determines the 

element is needed for operation of the interconnected transmission network and thus part 

of the bulk electric system, the entity can propose an appropriate implementation plan for 

compliance.66

44. Notwithstanding the foregoing, we agree with petitioners that NERC has the 

flexibility to develop an equally effective and efficient alternative, provided that NERC 

addresses our concern to ensure elements at or above 100 kV in a looped configuration 

are not excluded from the bulk electric system under exclusion E1.

67 

 66 NERC ROP Petition, Att. 1 (“Proposed Appendix 5C to the Rules of Procedure, 

Procedure for Requesting and Receiving an Exception from the NERC Definition of Bulk 

Electric System, Section 10.1”) at 16: “In the case of an Element not included in the BES 

by application of the BES Definition but for which an Inclusion Exception is approved, 

the Owner shall submit a proposed implementation plan to the Regional Entity detailing 

the schedule for complying with any Reliability Standards applicable to the newly 

included Element. The Regional Entity and Owner shall confer to agree upon such 

schedule. 

67 See Mandatory Reliability Standards for the Bulk-Power System, Order No. 693, 

FERC Stats. & Regs. ¶ 31,242, at P 186 order on reh’g, Order No. 693-A, 120 FERC 

¶ 61,053 (2007).
Docket Nos. RM12-6-001 and RM12-7-001 - 34 -

2. Generator Interconnection Facilities Connected to Bulk Electric 

System Generators

Order No. 773

45. In the Final Rule, the Commission directed NERC to implement exclusion E1 

(radial systems) and exclusion E3 (local networks) so that they do not apply to generator 

interconnection facilities for bulk electric system generators identified in inclusion I2. 

The Commission stated that, if the generator is necessary for the operation of the 

interconnected transmission network, it is appropriate to have the generator 

interconnection facility operating at or above 100 kV that delivers the generation to the 

bulk electric system included as well. The Commission also stated that it is appropriate 

to have the bulk electric system contiguous, without facilities or elements “stranded” or 

“cut-off” from the remainder of the bulk electric system.68

Requests for Rehearing

46. NERC requests that the Commission clarify the directives to implement exclusions

E1 and E3 so that they do not apply to generator interconnection facilities for bulk 

electric system generators identified in inclusion I2. NERC states that the Commission 

does not state whether “implementation” applies to Phase 1 or Phase 2 or how the 

implementation would be effectuated without a change to the definition of bulk electric 

 68 Order No. 773, 141 FERC ¶ 61,236 at PP 164-165, 214.
Docket Nos. RM12-6-001 and RM12-7-001 - 35 -

system.

69 Specifically, NERC requests that the Commission clarify how these directives 

should be reconciled with the plain language of the exclusions. 

47. NERC opines that the Commission’s use of the term “tie-line” is potentially 

confusing for stakeholders and claims that it could create additional complications with 

the implementation of the Commission’s directive unless the Commission clarifies its use 

of this term. NERC also requests that the Commission reconcile the directives with the 

express language of the definition. NERC states that the Commission acknowledged in 

the Final Rule that exclusion E1 as written does not prevent the radial tie-line operating at 

or above 100 kV from the high side of the step-up transformer to the bulk electric system 

from being excluded. 

48. Similarly, NRECA requests that the Commission clarify that, when the 

Commission directed NERC to implement exclusion E1 it was not seeking to directly 

modify the definition or the exclusions with respect to generator tie-lines, but rather that 

it was directing that this issue be addressed in the Phase 2 process as required by FPA 

section 215(d)(4). NRECA states that the tie-line distinction is an important directive 

that must be evaluated under the Phase 2 process, and implemented only after the 

Commission rules on the further revision to the definition that is proposed by NERC at 

 69 NERC separated the development of the revised definition into two phases. 

Phase 1 culminated in the language of the proposed modified definition that is the 

primary subject of this Final Rule. Phase 2, which is ongoing, intends to focus on other 

industry concerns raised during Phase 1. Order No. 773, 141 FERC ¶ 61,236 at P 52 

n.46. 
Docket Nos. RM12-6-001 and RM12-7-001 - 36 -

the conclusion of the Phase 2 process. NRECA states that NERC should be given an

opportunity to address the Commission’s concern and present a response for 

consideration as part of a rule emanating from the Phase 2 process. NRECA adds that 

such a directive is consistent with the Commission’s obligation to remand to the ERO any 

proposed Reliability Standard or a modification to a Reliability Standard that the 

Commission disapproves in whole or in part.

49. APPA, TAPS and ELCON contend that the Commission’s interpretation will 

prevent radial systems and local networks from qualifying for exclusions E1 and E3, 

respectively, if they connect to bulk electric system generators identified in inclusion I2 

with gross nameplate ratings between 20 MVA and 75 MVA. They also argue that the 

Commission’s directive fails to give due weight to NERC’s expertise. APPA, TAPS and 

ELCON contend that the directive will force many more facilities into the exception 

process. They also argue that the Commission does not have the authority to direct 

NERC to implement the definition contrary to its plain meaning. Further, they contend 

that the Commission’s concern is already being addressed in the Phase 2 process. APPA, 

TAPS and ELCON state that, if the Commission determines it needs more information to 

address its concerns with respect to tie-lines for bulk electric system generators identified 

in inclusion I2, it should direct NERC to submit a report regarding how entities utilize 

this exclusion. 

Commission Determination

50. We grant rehearing to the extent that, rather than direct NERC to implement 

exclusions E1 and E3 as described above, we direct NERC to modify the exclusions 
Docket Nos. RM12-6-001 and RM12-7-001 - 37 -

pursuant to FPA section 215(d)(5) to ensure that generator interconnection facilities at or 

above 100 kV connected to bulk electric system generators identified in inclusion I2 are 

not excluded from the bulk electric system. We find that the Phase 2 standard 

development process is an appropriate means to address the Commission’s concern. If 

NERC chooses to propose a different solution, it must demonstrate that its proposal is 

equally effective or efficient to ensure that generator interconnection facilities that 

connect generators included in the bulk electric system to the grid, and that are at or 

above 100 kV, are included in the bulk electric system and must support any alternate 

proposal with a technical analysis sufficient for the Commission to make an informed 

decision. 

51. We deny rehearing regarding arguments that the Commission did not give due 

weight to NERC’s technical justification. As an initial matter, the Final Rule focused on 

a generator interconnection facility that connects the bulk electric system generator to the 

interconnected transmission network at a voltage of 100 kV or above.70 The language 

was accompanied by the following:

 70 Order No. 773, 141 FERC ¶ 61,236 at P 165.
Docket Nos. RM12-6-001 and RM12-7-001 - 38 -

Radial System with BES Generation71

In the Final Rule, the Commission found that NERC’s rationale did not support excluding 

generator interconnection facilities operated at or above 100 kV connecting bulk electric 

system generators to the bulk electric system.72 NERC based its proposal on the premise 

that a single point of failure causing the radial systems to separate from the bulk electric 

system results in a loss of a limited amount of generation that will not have an adverse 

impact on reliability. In the Final Rule, however, the Commission noted that there are 

other reliability concerns that NERC did not address. For example, the Commission 

noted that “both the radial line emanating from a generator and the portion of the bulk 

electric system to which it is connected have protective relays that require coordination to 

 71 In Order No. 773, the Commission included this diagram identified as “Radial 

System with BES Generation.” See Order No. 773, 141 FERC ¶ 61,236 at P 165.

72 Order No. 773, 141 FERC ¶ 61,236 at PP 165-168.
Docket Nos. RM12-6-001 and RM12-7-001 - 39 -

prevent the lines from tripping. The generator needs to coordinate the protective relays 

with transmission operators, otherwise there may not be adequate information to prevent 

a fault on the radial line from causing cascading outages on the bulk electric system.”73 

The Commission also relied on the fact that an “adverse reliability impact...is an extreme 

result that should not occur from the loss of a single tie-line for any sized generator” 

because a single event that results in an adverse reliability impact violates planning and 

operating criteria in Commission approved Reliability Standards.74 The Final Rule also 

explained that, in general, “it is appropriate to have the bulk electric system contiguous,” 

without facilities “stranded” or “cut off.”75 As shown in the diagram above, inclusion I2 

(generator resources) includes the generator and the generator terminals through the highside of the step-up transformer(s) connected at a voltage of 100 kV or above.76 However, 

NERC’s interpretation of exclusion E1 would have excluded the 230 kV generator 

interconnection facility from the high side of the step-up transformer to the 

interconnected transmission network. This would be inconsistent with the Commission’s

 73 Order No. 773, 141 FERC ¶ 61,236 at P 166 and n.150 (citing, Reliability 

Standards, TPL-002-0b and IRO-004-2). 

74 Id. 

75 Order No. 773, 141 FERC ¶ 61,236 at P 165.

76 Order No. 773, 141 FERC ¶ 61,236 at P 85. Inclusion I2 states “Generating 

resource(s) with gross individual nameplate rating greater than 20 MVA or gross 

plant/facility aggregate nameplate rating greater than 75 MVA including the generator 

terminals through the high-side of the step-up transformer(s) connected at a voltage of 

100 kV or above.” 
Docket Nos. RM12-6-001 and RM12-7-001 - 40 -

statement in the Final Rule that, if the generator is necessary for the operation of the 

interconnected transmission network, it is generally appropriate to include the generator 

interconnection facility radial tie-line operating at or above 100 kV that delivers the 

generation to the bulk electric system.77 

52. We disagree with APPA that the directive to include 100 kV and above generator 

interconnection facilities connected to bulk electric system generators will result in 

making the owners of these qualifying 100 kV and above generator interconnection 

facilities subject to the full range of transmission planner, transmission owner and 

transmission operator Reliability Standards and requirements. As we state above, in 

cases of generator interconnection facilities for bulk electric system generators where the 

generator owner also owns the generator interconnection facility, NERC has determined 

on a case-by-case basis which entities require registration as transmission 

owners/operators and identified sub-sets of applicable Reliability Standard requirements 

for these entities rather than automatically subjecting such generators to the full scope of 

standards applicable to transmission owners and operators.78

 77 Order No. 773, 141 FERC ¶ 61,236 at P 167.

78 In addition, in Docket No. RM12-16-000, NERC has submitted proposed 

revisions to certain Reliability Standards to assure that generator interconnection facilities 

are adequately covered rather than subjecting them to all of the requirements applicable 

to transmission owners and operators. 
Docket Nos. RM12-6-001 and RM12-7-001 - 41 -

D. Arguments Regarding the Need to Modify the Inclusions and 

Exclusions

53. In the NOPR, the Commission requested comment on certain aspects of NERC’s 

petition to better understand the application of the specific inclusions and exclusions. 

NERC and other entities filed comments that assisted in our understanding of the 

parameters of the definition. In the Final Rule, in addition to the “core” definition, the 

Commission adopted many of these explanations and approved without modification 

most of the specific inclusions and exclusions, finding that they add clarity regarding 

which elements are part of the bulk electric system as compared to the existing 

definition.79 Several entities request rehearing of the approval of specific inclusions and 

exclusions that the Commission approved without modification. On rehearing, entities 

argue that the Commission erred by failing to direct NERC to (1) eliminate inclusion I4 

(dispersed power producing resources); (2) modify or eliminate the generator thresholds 

in exclusions E1 and E3; and (3) eliminate exclusion E3(b), the criterion that power 

cannot flow out of a local network in order to be eligible for exclusion from the bulk 

electric system. 

1. Inclusion I4 (Dispersed Power Producing Resources)

Order No. 773

54. Inclusion I4 includes in the bulk electric system dispersed power producing 

resources with aggregate capacity greater than 75 MVA (gross aggregate nameplate 

 79 Order No. 773, 141 FERC ¶ 61,236 at P 39.
Docket Nos. RM12-6-001 and RM12-7-001 - 42 -

rating). In the Final Rule, the Commission approved inclusion I4 finding that it provides 

useful granularity in the bulk electric system definition. The Commission also found that 

the language in inclusion I4 regarding the collector system language is consistent with 

language in the Registry Criteria, section III.c.2 and agreed that it is appropriate “to 

expressly cover dispersed power producing resources utilizing a system designed 

primarily for aggregating capacity.”80

Requests for Rehearing

55. AWEA states that the Commission did not base its approval of inclusion I4 on 

sufficient evidence to show inclusion I4 would result in any material reliability benefit. 

AWEA contends that neither the Final Rule nor the record demonstrate that the inclusion 

of dispersed generation resources would help protect the reliable operation of the 

interconnected transmission network. AWEA contends that all evidence in the record 

indicates that dispersed generation resources are unlikely to affect the reliability of the 

interconnected transmission network. AWEA argues that the Commission’s decision “to 

modify the definition regardless of the record on dispersed generation resources shows 

the Commission’s decision was arbitrary and capricious...and not the result of reasoned 

decision-making.”81

 80 Order No. 773, 141 FERC ¶ 61,236 at P 112.

81 AWEA Request for Rehearing and Reconsideration at 3. 
Docket Nos. RM12-6-001 and RM12-7-001 - 43 -

56. AWEA argues that the electrical equipment at the point of interconnection with 

the bulk electric system is a more appropriate point for delineating between the bulk 

electric system and non-bulk electric system electrical components because the point of 

interconnection for a wind project comprised of more than 75 MVA of generation and 

operating at more than 100 kV is the only part of the wind project that could reasonably 

affect bulk electric system reliability.

57. AWEA adds that the Commission erred in agreeing with NERC’s suggestion to 

include individual dispersed generators and their collector systems in approving the 

modification because this inclusion was not based on evidence supported by the record. 

According to AWEA, the typical electrical layout of a wind plant will be aggregated onto 

an electrical string of the collector array that operates at voltages “well below” 100kV, so 

losing a single electrical string or even multiple electrical strings will typically only result 

in the loss of a few dozen MWs of generation.82 AWEA also states the capacity value 

contribution that grid operators typically assume for wind projects for meeting peak 

electricity demand is less than 20% of the nameplate capacity of the wind project. 

AWEA maintains that such minimal impacts fall well below the 75 MVA threshold that 

inclusion I4 seeks to establish, as well as any reasonable threshold for determining which 

electrical components are likely to cause a reliability problem on the bulk electric system. 

Alternatively, AWEA states that if the Commission does not modify the definition as 

 82 Id.
Docket Nos. RM12-6-001 and RM12-7-001 - 44 -

AWEA proposes it could recognize that all wind turbines installed in the United States 

are not subject to the modified definition.

Commission Determination

58. The Commission denies rehearing and confirms its finding that inclusion I4

provides useful granularity in the bulk electric system definition. 

59. The Commission’s approval of the bulk electric system definition including 

inclusion I4 is adequately supported by the evidence in the record in this proceeding. In 

the Final Rule, the Commission agreed with NERC’s statement that the purpose of this 

inclusion is to include variable generation (e.g., wind and solar resources).83 The 

Commission also agreed with NERC that, while such generation could be considered

subsumed in inclusion I2 (because the gross aggregate nameplate rating of the power 

producing resources must be greater than 75 MVA), it is appropriate for clarity to add 

 83 Order No. 773, 141 FERC ¶ 61,236 at P 115. See also NERC BES Petition, 

Exhibit D, August 19, 2011 Consideration of Comments, at 416: “Although dispersed 

power producing resources (wind, solar, etc.) can be intermittent suppliers of electrical 

generation to the interconnected transmission network, the [standard drafting team] has 

been made aware of geographical areas that depend on these types of generation 

resources for the reliable operation of the interconnected transmission network which has 

prompted the development of Inclusion I4....” See also NERC BES Petition, Exhibit D, 

“Consideration of Comments on Second Draft of the Definition of the Bulk Electric 

System” at 160: “The [standard drafting team] disagrees with excluding dispersed power 

producing sources such as wind and solar from the BES definition. These resources 

comprise a significant share of the North American resource mix.” 
Docket Nos. RM12-6-001 and RM12-7-001 - 45 -

this separately-stated inclusion to expressly cover dispersed power producing resources 

using a system designed primarily for aggregating capacity.84

60. The Commission further concluded that, although dispersed power producing 

resources (wind, solar, etc.) are typically variable suppliers of electrical generation to the 

interconnected transmission network, certain geographical areas depend on these 

generation resources for the reliable operation of the interconnected transmission 

network.85 In addition, having considered NERC’s rationale for adopting inclusion I4 in 

its petition and NOPR comments, the Commission concluded that owners and operators 

of dispersed power producing resources that meet the 75 MVA gross aggregate 

nameplate rating threshold are, in some cases, already registered and have compliance 

responsibilities as generator owners and generator operators. The threshold of 75 MVA 

for plants is well established in the NERC Statement of Compliance Registry Criteria and 

consistently applicable to all generating facilities.86 Therefore, the Commission denies 

rehearing that it did not adequately support its approval of inclusion I4.

 84 Order No. 773, 141 FERC ¶ 61,236 at P 115.

85 Order No. 773, 141 FERC ¶ 61,236 at P 115. See also the ERCOT daily wind 

integration reports at: http://www.ercot.com/gridinfo/generation/windintegration/.

86 Order No. 773, 141 FERC ¶ 61,236 at P 112.
Docket Nos. RM12-6-001 and RM12-7-001 - 46 -

2. Generator Thresholds in Exclusions E1 and E3

Order No. 773

61. In its petition, NERC explained that conditions “b” and “c” of exclusion E1 allow 

some generation to be connected to a radial system while still qualifying for the radial 

systems exclusion (aggregate capacity less than or equal to 75 MVA). Similarly, with 

respect to exclusion E3, NERC explained that the purpose of local networks is to provide 

local distribution service, not to provide transfer capacity for the interconnected 

transmission network, thus some generation within a local network would be 

appropriate.87 NERC stated, that the maximum amount of generation allowed on the 

radial facility per exclusion E1 conditions “b” and “c” is consistent with the aggregate 

capacity threshold presently provided in the Registry Criteria for registration as a 

generator owner or generator operator (75 MVA gross nameplate rating). In the Final 

Rule, the Commission found NERC’s explanations for limiting generation capacity 

reasonable because the amount of connected generation allowed by conditions “b” and 

“c” is intended to have limited benefit to the reliability of the interconnected transmission 

network and pose no reliability risk to the interconnected transmission network.88

 87 NERC Petition at 22. 

88 Order No. 773, 141 FERC ¶ 61,236 at PP 158, 164, 201, 207, 209, 211, 216. 
Docket Nos. RM12-6-001 and RM12-7-001 - 47 -

Requests for Rehearing

62. Holland raises three arguments on rehearing. First, Holland states that the 

Commission should have revised the generator thresholds in exclusion E1 for radial 

systems and in exclusion E3 for local networks to ensure that they do not inappropriately 

include local distribution facilities. Second, Holland argues that the Commission failed 

to respond to Holland’s alternative recommendation that the Commission modify the 

generation limits in exclusions E1 and E3 by basing the limit on net generation. Third, 

Holland argues that the Commission erred in its conclusion with respect to the meaning 

of “emanates from a single point of interconnection” in exclusion E1.

63. Holland states that it supports the exclusion of radial systems from the bulk 

electric system but that exclusion E1 will still capture facilities used in local distribution. 

Holland notes that in its NOPR comments, it recommended that the Commission revise 

exclusion E1 to remove the generation threshold from exclusion E1(c) but that the 

Commission failed to consider and respond to Holland’s comments. Holland also argues 

that the Commission erred by (1) failing to state a factual basis upon which the 

Commission reached its decision not to exclude from the bulk electric system radial 

systems that also serve load and (2) citing no record evidence to support its rejection of 

Holland’s comments. Holland maintains that the effect of approving exclusions E1 and 

E3 without the modification it proposed is that only those systems electrically isolated 

from the bulk electric system or those with no generation above the threshold size will 

meet the criteria for exclusion E1. Holland contends that the Commission’s approval of 

the exclusion prejudges the outcome of the Seven Factor Test by arbitrarily approving 
Docket Nos. RM12-6-001 and RM12-7-001 - 48 -

criteria without having the results of any such test, or without having a specific context in 

which to apply the criteria.

64. Similarly, Holland argues that the Commission erred by failing to remove or alter 

the generator thresholds from exclusion E3 local networks, and that approving exclusion 

E3 with the generator thresholds encroaches on facilities used in the local distribution of 

electric energy. Holland states that the Commission erred by not directing any changes to 

the connected generation limitation, and that the Commission erroneously relied on the 

fact that the generation limits were consistent with the NERC Registration Criteria. 

Holland argues that the Commission finding could make some local distribution facilities 

that do not meet exclusion E3 subject to Reliability Standards and Commission authority. 

According to Holland, the Commission must revise exclusion E3 regarding local 

networks to ensure that the definition does not conflict with the FPA section 215 

prohibition against regulating facilities used in the local distribution of electric energy. 

Holland states that the Commission did not address how local networks with internal 

generation consumed internally differ from local distribution facilities with lesser 

amounts of or no generation, or how this interpretation is consistent with the 

Commission’s determination that “local distribution” has a consistent meaning 

throughout the FPA. Holland also claims that, despite having decided to use the Seven 

Factor Test for local distribution determinations, the Commission made factual 

determinations without any application of the Seven Factor Test. 

65. Further, Holland argues that the Commission failed to consider Holland’s 

alternative comments that the Commission modify the generation limit in exclusion E3 
Docket Nos. RM12-6-001 and RM12-7-001 - 49 -

by basing the limit on net generation. Holland contends that exclusion E3(a) arbitrarily 

ignores the development and practice of local networks operated by municipal utilities. 

Holland maintains that, historically, municipal utilities with internal generation installed 

to meet the municipality’s distribution load sized the generation comparably to the local 

distribution load. Holland contends that the Commission disregarded that history and 

assumes that all internal generation, regardless of how remote, connects to and is 

exported to the bulk electric system. According to Holland, the Commission 

compounded its error by disregarding Holland’s comments stating that local networks 

should be able to deliver power to the bulk electric system. 

66. Holland also contends that the Commission dismissed its comment that the 

Commission should interpret the phrase “emanates from a single point of 

interconnection” for radial systems to mean a single electrical point, such as a single bus 

or normally connected bus work within a substation, without citing any record evidence 

equating electrical points with physical locations.

Commission Determination

67. The Commission denies rehearing on these issues raised by Holland. Pursuant to 

section 215(d)(2) of the FPA, the Commission gives due weight to the technical expertise 

of the ERO with respect to the content of a Reliability Standard or definition.89 In this 

instance, NERC explained that exclusion E1(c) addresses limited amounts of generation 

 89 16 U.S.C. 824o(d)(2). 
Docket Nos. RM12-6-001 and RM12-7-001 - 50 -

that are installed within a radial system and are intended to serve local load within that 

radial system.90 In the NOPR, the Commission requested comment about the delivery or 

injection of power from the radial systems described in these exclusions. NERC 

responded that, “because of the limitation of the generation in exclusion E1(c), the power 

generated on the radial system would be delivered to the embedded load within the radial 

system and injected into the bulk electric system in very limited quantities...” and 

“subjecting the elements associated with this type of radial system to all the Reliability 

Standards has limited benefit to the reliability of the interconnected transmission 

network.”91 Further, NERC found that “it is more appropriate to identify these elements 

through the ‘the applicability in specific standards where a reliability benefit can be 

identified.’”92 Holland’s arguments were directed to unlimited generation for radial 

systems and local networks, but the Commission found NERC’s explanations for the 

limitations reasonable and approved this aspect of the exclusion.93 Removing the 

generator limitation or using net generation in excess of load would also be inconsistent 

with the bright-line concept and NERC’s approach that the definition should be based on 

physical characteristics and not based on function. Also, the NERC standards drafting 

team concluded the following regarding generator size thresholds:

 90 Order No. 773, 141 FERC ¶ 61,236 at P 159. 

91 NOPR, 139 FERC ¶ 61,247 at P 160.

92 Id. at P 161 (citing NERC’s NOPR Comments at 21-22). 

93 Order No. 773, 141 FERC ¶ 61,236 at P 164. 
Docket Nos. RM12-6-001 and RM12-7-001 - 51 -

[t]he vast array of functional qualities of generation does not lend 

itself to a ‘bright-line’ concept of identifying BES Elements. 

Therefore the SDT has opted for the size threshold designation of 

generating facilities and allows for use of the Exception Process 

for further analysis of the facility and potential exclusion from or 

inclusion to the BES.94

 

68. Holland raised the same argument with respect to the generating limits in 

exclusion E3. NERC provided ample justification for its selection of generator 

thresholds. As NERC stated in its “LN Technical Justification” paper in Exhibit G of its 

petition, including a restriction on generation in a local network “minimizes the 

contribution and influence the local network may have over the neighboring [e]lements of 

the [bulk electric system] by limiting both the magnitude and the function of the 

connected generation. NERC chose the threshold of 75 MVA to provide consistency 

with the criteria applied in the ERO’s [Registry Criteria] regarding the registration for 

entities owning and operating generation plants in aggregate.”95 In the Final Rule, the 

Commission found reasonable NERC’s rationale for limiting both the magnitude and the 

function of a local network by limiting the amount of connected generation and that use 

of the generator thresholds was consistent with the existing thresholds in the 

Commission-approved NERC Registry Criteria.

96 Thus, the Commission disagrees that it 

 94 NERC BES Petition, Exhibit D, August 19, 2011, Consideration of Comments 

at 439. 

95 NERC BES Petition, Exhibit G at 3.

96 Order No. 773, 141 FERC ¶ 61,236 at P 216. 
Docket Nos. RM12-6-001 and RM12-7-001 - 52 -

did not provide adequate explanation for rejecting Holland’s NOPR arguments on this 

issue. 

69. Holland also argues that the Commission did not consider that exclusion E3 has 

the possibility of encompassing local distribution facilities. As stated in the Final Rule as 

well as elsewhere in this order on rehearing, determining whether a facility is part of the 

bulk electric system is a multi-step process and applying the definition is just one step in 

that process.97 If an entity believes its facility is a local distribution facility but after 

applying the definition and its exclusions the facility is not excluded, the entity may 

apply to the Commission to determine whether a facility is used for local distribution. 

The Commission disagrees, however, that it made factual determinations in the Final 

Rule without application of the Seven Factor Test, or arbitrarily adopted criteria that 

prejudge that test. The Commission approved NERC’s bright-line approach to the 

definition, and the definition by itself is not intended to resolve all bulk electric system 

determinations. An entity’s application of the definition as a whole, inclusive of the 

inclusions and exclusions, is the first step in determining whether the element is part of 

the bulk electric system and is a separate inquiry from the Commission’s use of the 

factors in the Seven Factor Test in a local distribution determination. Further, as we

stated in the Final Rule, the Commission will apply the factors in the Seven Factor Test, 

plus other factors, as the starting point for making local distribution determinations on a 

 97 Order No. 773, 141 FERC ¶ 61,236 at P 216. 
Docket Nos. RM12-6-001 and RM12-7-001 - 53 -

case-by-case basis.

98 In sum, the Commission’s approval of NERC’s process establishes 

a process for determining whether a facility is part of the bulk electric system and is not 

making specific determination about particular facilities. 

70. Further, in the Final Rule, the Commission addressed Holland’s argument about 

the meaning of “emanates from a single point of connection.” Specifically, in the Final 

Rule the Commission dismissed Holland’s contention that the phrase can refer to multiple 

buses. The Commission noted that NERC, in the standard development process, 

considered the issue and concluded that radial systems “cannot have multiple connections 

at 100 kV or higher. Networks that have multiple connections at 100 kV or higher may 

qualify under exclusion E3.”99

3. Exclusion E3(b) and Power Flows

Order No. 773

71. Exclusion E3 criterion (b) specifies that, to qualify for the local network exclusion, 

power can only flow into the local network and the local network does not transfer 

energy originating outside the local network for delivery through the local network. In its 

NOPR comments NERC elaborated by stating that, to be considered for exclusion 

pursuant to criterion (b), generation produced inside a local network cannot be 

 98 Order No. 773, 141 FERC ¶ 61,236 at P 71.

99 Order No. 773, 141 FERC ¶ 61,236 at P 142 (citing NERC BES Petition, 

Exhibit E, “Complete Development Record of the Proposed Revised Definition of ‘Bulk 

Electric System,’ Consideration of Comments on Initial Ballot - Definition of BES,” at 

259).
Docket Nos. RM12-6-001 and RM12-7-001 - 54 -

transported to other markets outside the local network. NERC also stated that criterion 

(b) applies in both normal and emergency operating conditions. In the Final Rule the 

Commission found NERC’s explanation reasonable and approved exclusion E3 criterion 

(b).100 

Requests for Rehearing

72. Holland and Dow state that the Commission erred by not modifying exclusion E3 

to allow it to apply even if some power flowed from the local network to the bulk electric 

system. Holland notes that the Commission’s explanation that, if facilities are capable of 

supplying power when needed under any normal or emergency operating condition these 

facilities would forfeit their designation as local networks under exclusion E3, is 

premised incorrectly “on a presumption that the facilities in question perform a 

transmission function, rather than a distribution function.”101 Holland states that courts 

have held that the Commission does not have authority over facilities used in local 

distribution, not just over those facilities used solely in local distribution. Accordingly, 

Holland states that simply because the “facilities are capable of being called upon to 

support the bulk electric system, does not mean that is how those facilities are used in the 

normal course of business.”102 

 100 Order No. 773, 141 FERC ¶ 61,236 at P 228.

101 Holland Request for Rehearing at 16.

102 Holland Request for Rehearing at 15-16 (citing Detroit Edison v. FERC, 

334 F.3d 48, 54 (D.C. Cir. 2003)).
Docket Nos. RM12-6-001 and RM12-7-001 - 55 -

73. Dow states that the Commission’s resolution regarding the requirement that power 

may only flow into and not out of a local network requires clarification. Dow notes that,

in its NOPR comments, it requested that the Commission clarify that exclusion E3(b) 

only prohibits energy originating outside the local network from being transferred 

through the network and into the bulk electric system, and does not prohibit energy 

generated by resources connected to the local network for delivery into the bulk electric 

system. Dow states this understanding is consistent with exclusion E3(a) allowing up to 

75 MVA of non-retail generation to be attached to a local network. Dow maintains that it 

would not make sense to permit non-retail generation resources to be attached to local 

networks if output from such resources could not be delivered into the bulk electric 

system for purposes of making non-retail sales to downstream buyers. Dow asserts that, 

while the Commission suggested that the issue be addressed further in Phase 2, the 

Commission appears to have adopted an interpretation of the local network exclusion that 

is inconsistent with Dow’s requested clarification. According to Dow, for the local 

network exclusion to be applicable, the Commission stated that “generation produced 

inside a local network should not transport power to other markets outside the local 

network,” but that the Commission indicated it could be addressed further in Phase 2. 

According to Dow, it is not clear whether and to what extent the Commission intended to 

resolve this issue in the Final Rule and, if it did, what additional issues would be eligible 

for further consideration in the Phase 2 process. Dow also requests that the Commission 

clarify which of Dow’s concerns it can raise in the Phase 2 process. 
Docket Nos. RM12-6-001 and RM12-7-001 - 56 -

74. Snohomish agrees with the Commission’s conclusion that the “no outflow” 

condition in exclusion E3 applies in both normal and emergency circumstances. 

However, Snohomish notes that, in the Phase 2 process, NERC is examining the types of 

“emergency” that should be considered in examining the flow conditions in a local 

network. Snohomish requests that the Commission clarify that the appropriate, 

technically justified definition of “emergency” should be based upon the technical 

analysis now being performed as part of Phase 2 and that the Final Rule does not restrict 

the examination of this question. Snohomish also requests that the Commission clarify 

that, in Phase 2, NERC is free to develop a technically justified threshold for outflow that 

would not disqualify a local network under exclusion E3. 

75. In addition, while agreeing that historical records of power flow on a local 

network form an appropriate evidentiary basis for demonstrating that power only flows 

into a local network, Snohomish requests that the Commission clarify (1) that entities can 

establish power flows through more than just historical records and (2) a local network 

will remain eligible for exclusion if it contains temporary reversals of flows resulting 

from extreme and unlikely emergency conditions. Otherwise, according to Snohomish, 

local networks that rely on historical flow data could, if an unusual event happens 

causing a temporary outflow, suddenly become part of the bulk electric system. 

Commission Determination

76. We deny the requests for rehearing of Dow and Holland on the power flow issue. 

As part of its rationale for developing the local network exclusion, NERC explained that 

power always flows in the direction from the interconnected transmission network into 
Docket Nos. RM12-6-001 and RM12-7-001 - 57 -

the local network.103 NERC also explained that “[l]ocal networks provide local electrical 

distribution service and are not planned, designed or operated to benefit or support the 

balance of the interconnected transmission network.”104 Further, NERC explained that 

the reliability of the interconnected transmission network is not impacted by the existence 

or absence of a local network. Exclusion E3 will satisfy this principle because NERC 

crafted exclusion E3 to ensure reliability is not adversely impacted by the disconnection 

of the local network.105 NERC confirmed that, pursuant to criterion (b), exclusion E3 

applies if generation produced inside a local network is not transported to other markets 

outside the local network. NERC stated that prohibitions on outbound power flow and 

transportation of power to other markets beyond the local network apply in all conditions, 

both normal and contingent, and will not exclude facilities which may contribute power 

flow into the bulk electric system under contingent or unusual circumstances. NERC’s 

Local Network (LN) Technical Paper further explains these statements:

By restricting the flow direction to be exclusively into the network 

at its connection points to the BES and precluding the network from 

providing transmission wheeling service, this exclusion

characteristic further ensures that the local network is providing 

only a distribution service, and is not contributing to, nor is 

necessary for, the reliable operation of the interconnected electric

transmission network.106

 103 NERC BES Petition at 22.

104 Id. 

105 See Order No. 773, 141 FERC ¶ 61,236 at P 189.

106 NERC BES Petition, Exhibit G at 3.
Docket Nos. RM12-6-001 and RM12-7-001 - 58 -

77. In approving exclusion E3, the Commission found NERC’s explanations for the 

applicability of exclusion E3(b) to be reasonable.107 The Commission also agreed with 

NERC’s explanation that, with respect to exclusion E3(b), generation produced inside a 

local network should not be transported to other markets outside the local network.108 

78. The Commission rejects Holland’s contention that the Commission’s finding is 

premised on a presumption that “the facilities in question perform a transmission 

function.”109 One of NERC’s overarching principles in revising the definition was to 

establish a bright-line definition that will eliminate discretion in application of the revised 

definition, and the local network exclusion is consistent with that principle.110 If an 

entity applies the definition and the exclusions to an element and finds that the element is 

included by application of the definition of the bulk electric system, it may avail itself of 

the exception process for a determination that the element should be excluded from the 

bulk electric system or seek a determination from the Commission that the element is 

used in local distribution. 

79. In its request for rehearing, Dow seeks clarification regarding what issues were 

resolved in the Final Rule and what it may raise in Phase 2. As stated above, NERC 

 107 Order No. 773, 141 FERC ¶ 61,236 at P 193. 

108 Order No. 773, 141 FERC ¶ 61,236 at P 231. 

109 Holland Request for Rehearing at 15.

110 See, e.g., NERC BES Petition at 15. 
Docket Nos. RM12-6-001 and RM12-7-001 - 59 -

developed exclusion E3 with the bright-line concept in mind and its conclusion that 

power may not be delivered from a local network to the bulk electric system. The 

Commission approved exclusion E3 with this understanding.111 Thus, if power flows out 

of a local network to the bulk electric system, it is not eligible for the exclusion, no 

matter the type of generation. However, we recognize that in crafting the revised 

definition to be responsive to Order No. 743, entities raised additional issues that, due to 

time constraints in meeting the compliance deadline set in Order No. 743, NERC 

postponed to Phase 2 in which it is focusing on other industry concerns raised during 

Phase 1. Thus, if Dow believes that a local network should be allowed to have some nonretail generation that delivers power to the bulk electric system, we believe that this issue 

is better suited for vetting through the NERC standard development process, including 

the Phase 2 process.

112

80. With regard to the Snohomish request for clarification of additional terms in the 

Phase 2 process, the standard development process allows NERC to develop new or 

revised Reliability Standards or definitions to address any issues and the Final Rule does 

 111 Order No. 773, 141 FERC ¶ 61,236 at PP 201, 205, 218, 228.

112 Indeed, this issue is one that the NERC standard drafting team is considering in 

Phase 2. See the NERC Standard Authorization Request at 3: “[d]etermine if there is a 

technical justification to support allowing power flow out of the local network under 

certain conditions....” Available at: 

http://www.nerc.com/docs/standards/sar/SAR_BES_Definition_Phase_2_final_071012_c

lean.pdf.
Docket Nos. RM12-6-001 and RM12-7-001 - 60 -

not restrict this process. NERC may propose changes to the bulk electric system 

definition with supporting technical justification for submission to the Commission.

81. Snohomish requests that the Commission clarify that entities can establish power 

flows through more than just historical records. Snohomish also seeks clarification that a 

local network will remain eligible for exclusion if it contains temporary reversals of 

flows resulting from extreme conditions. We clarify that historical records are not the 

only basis for establishing power flows. However, we deny clarification that temporary 

reversals of flows should not disqualify a local network from being treated as a local 

network because, as written and presented to us in this proceeding, exclusion E3(b) does 

not permit power flows from the local network in any circumstances.113 Nevertheless, 

similar to our response to Dow above, Snohomish can raise its concerns through the 

NERC standards development process in Phase 2.

E. NERC Exception Process and Commission Local Distribution

Determinations 

Order No. 773

82. In the Final Rule, the Commission approved NERC’s exception process to add 

elements to, and remove elements from, the bulk electric system, on a case-by-case 

basis.114 However, the Commission determined that the Commission, rather than NERC, 

 113 See Order No. 773, 141 FERC ¶ 61,236 at P 228.

114 Order No. 773, 141 FERC ¶ 61,236 at P 251 (citing Order No. 743, 133 FERC 

¶ 61,150 at P 16). 
Docket Nos. RM12-6-001 and RM12-7-001 - 61 -

will determine on a case-by-case basis whether an element or facility is used in local 

distribution and will apply the conditions set forth in the Seven Factor Test.115

Requests for Rehearing

1. Jurisdictional and Due Process Issues

83. A number of entities claim that, or are unsure of whether, the Commission has 

imposed duplicative processes (the NERC exception process and the Commission process 

for making local distribution determinations) for determining whether particular facilities 

are part of the bulk electric system.116 TAPS and ELCON question whether NERC 

would be bound by prior Commission determinations on local distribution and whether 

the Commission would reopen NERC determinations, and they request that on rehearing 

the Commission state that it will make local distribution determinations only in 

connection with review of NERC exception decisions. TAPS and ELCON state that the 

Commission should clarify that it will address local distribution issues if raised in 

connection with review of NERC exception determinations, so a full record can be 

developed through a single process. Alternatively, TAPS and ELCON request 

clarification (1) of how the Commission intends the process for making local distribution 

determinations to interact with the NERC exception process, especially when similar 

 115 Order No. 773, 141 FERC ¶ 61,236 at P 252.

116 E.g., NRECA, TAPS, ELCON and NYPSC.
Docket Nos. RM12-6-001 and RM12-7-001 - 62 -

facts are at issue, and (2) that entities are not foreclosed from making all applicable 

arguments to NERC in the exception process. 

84. NRECA states that the Commission’s role as primary arbiter of a local distribution 

decision and its reliance on the Seven Factor Test raises ambiguity and must be clarified. 

NRECA questions whether the process runs concurrently with the NERC exception 

process and, if not, which process will be conducted first. NRECA also questions 

whether “an entity that is currently registered and seeks to remove itself from the registry 

based on the local distribution distinction, or, conversely, the ERO that desires to include 

an entity not currently on the registry based on the absence of local distribution facilities, 

would first have to engage a proceeding before the Commission....”117 NRECA states 

that a multi-tiered process will be expensive and unnecessarily time consuming for the 

Commission, NERC and the affected entities. NRECA further questions what rules and 

timeframe the Commission will use and whether the Commission considered the greater

expense of running two processes for small entities. 

85. Holland argues that applying the definition and exception process unlawfully 

subjects facilities used in the local distribution of electric energy to NERC authority 

through the exception process before a determination is made on whether those facilities 

 117 NRECA Motion for Clarification, or in the Alternative, Request for Rehearing 

at 5-6. 
Docket Nos. RM12-6-001 and RM12-7-001 - 63 -

serve a local distribution function.118 Holland claims that the Final Rule is internally 

inconsistent because it directs entities to seek an exception from NERC before the 

Commission will apply the Seven Factor Test to determine whether the facilities are 

subject to regulation under the FPA. Holland states that the Commission must prohibit 

NERC from exercising any authority over any facilities while the owners and operators 

of such facilities petition the Commission for a determination that they are used in the 

local distribution of electric energy. 

86. NYPSC contends that the exception process is an impermissible approach to 

exercising jurisdiction. NYPSC claims that, although the definition states that it “does 

not include facilities used in the local distribution of electric energy,” the Commission 

effectively acknowledged that such facilities would be placed under its jurisdiction by 

establishing a process whereby entities may seek to demonstrate that the facilities are not 

necessary for operating the interconnected transmission network, or are used in local 

distribution. 

87. NYPSC and NARUC claim that the Commission failed to provide adequate notice 

and comment regarding the decision to use the Seven Factor Test and the Commission’s 

decision to itself make determinations of whether a facility is used in local distribution. 

They state the Final Rule is the first time the Commission established a process for 

 118 For example, Holland argues that the limitations on exclusion E1 conditions 

(b) and (c) will still capture facilities used in local distribution and is tantamount to 

making a factual determination without any application of the Seven Factor Test. 
Docket Nos. RM12-6-001 and RM12-7-001 - 64 -

petitioning for a local distribution determination and argue that the Commission has not 

substantiated its decision to apply the Seven Factor Test. NARUC states that the 

Commission should develop a full record to determine what criteria “would be lawfully 

applied if the Commission were to make case-by-base local distribution determinations 

under section 215.”119 NYPSC states that the Commission failed to comply with the 

Administrative Procedure Act (APA) requirement that agencies provide notice of a 

proposed rule and a meaningful opportunity for parties to comment. 

Commission Determination

88. The Commission denies rehearing on the issues related to the exception process 

and the Commission making local distribution determinations. The Commission believes 

that entities misconstrue the function of the NERC exception process and the 

Commission’s local distribution determinations. Accordingly, we reiterate and expand 

on those functions below. 

89. As explained below, the two processes are separate, not concurrent and will be 

used for different determinations. In the Final Rule, the Commission found that 

“NERC’s case-by-case exceptions process is appropriate to determine the technical issue 

of whether facilities are part of the bulk electric system” and that “the jurisdictional 

 119 NARUC Request for Rehearing at 7.
Docket Nos. RM12-6-001 and RM12-7-001 - 65 -

question of whether facilities are used in local distribution should be decided by the 

Commission.”120

90. The Commission also stated that we expect that the “core” definition together with 

the exclusions “should provide a reasonable means to accurately and consistently 

determine on a generic basis whether facilities are part of the bulk electric system.”121 

Also, the Commission explained that most local distribution facilities will be excluded by 

the 100 kV threshold or exclusion E3 without needing to seek a Commission 

jurisdictional determination. However, if after applying the definition and exclusions, an 

entity believes its facility is used in local distribution, it must petition the Commission for 

a determination, and the Commission will apply the factors in the Seven Factor Test, plus

other factors, as the starting point for making local distribution determinations.

122 This 

inquiry is a distinct process not made in connection with review of NERC exception 

process decisions. In response to NRECA’s question regarding what process an entity or 

NERC would use with respect to a local distribution determination, as stated above, the 

Commission will decide all local distribution determinations. 

91. All inquiries that do not involve a question of whether a facility is used in local 

distribution (i.e., whether the facility is or is not part of the bulk electric system) are to be 

 120 Order No. 773, 141 FERC ¶ 61,236 at P 66. 

121 Order No. 773, 141 FERC ¶ 61,236 at P 67.

122 Order No. 773, 141 FERC ¶ 61,236 at P 69.
Docket Nos. RM12-6-001 and RM12-7-001 - 66 -

presented through the NERC exception process. In other words, if an entity believes its 

facilities are non-local distribution facilities but nevertheless are incorrectly included by 

application of the bulk electric system definition and its inclusions and exclusions, it 

should use the NERC exception process to determine whether the facilities in question 

should be excluded from the bulk electric system. In response to the questions about 

appeals to the Commission, as stated in the Final Rule, an entity may appeal a final 

NERC exceptions process decision to the Commission.123 In response to TAPS and 

ELCON’s request, we clarify that, in the exception process, entities have the option of 

making all applicable arguments that a facility should not be included in the bulk electric 

system. 

92. With regard to NRECA’s question about the rules and timeframe the Commission 

will apply, as the Commission stated in the Final Rule, the Commission will assign local 

distribution inquiries “RC” dockets and the determinations will be public proceedings 

subject to notice and comment requirements which will allow NERC and interested 

parties to provide input on a petition. We decline to establish a specific timeframe within

which we will act because such decisions will be based on the specific facts of each case. 

93. In response to Holland’s arguments that the Commission improperly included or 

excluded local distribution facilities in the definition, the Commission notes that,

although the bulk electric system definition excludes local distribution facilities, it still 

 123 Order No. 773, 141 FERC ¶ 61,236 at P 251. 
Docket Nos. RM12-6-001 and RM12-7-001 - 67 -

may be necessary to factually determine which facilities are used for local distribution or 

transmission.

124 The Commission stated in the Final Rule that applying the definition 

and its exclusions is not necessarily the end of the inquiry, and the Commission 

ultimately determines whether facilities are used in local distribution and thus excluded 

from the bulk electric system.125 Thus, if an entity believes its facility is a local 

distribution facility but after applying the bulk electric system definition including 

inclusions and exclusions the facility is not excluded, the entity may apply to the 

Commission to determine whether the facility is used for local distribution. Thus, as 

explained above, the Final Rule contemplates two separate and distinct processes and 

does not direct entities to seek an exception from NERC before seeking a local 

distribution determination from the Commission. 

94. We disagree with Holland’s argument that all facilities that NERC reviews 

through the exception process that the Commission later finds are used in local 

distribution will have been unlawfully regulated by NERC. NERC, in applying the bulk 

electric system definition and exception process, established an implementation period 

for newly identified elements in the bulk electric system before compliance enforcement 

is initiated. This should provide ample time for the affected entity to request a local 

 124 Order No. 743-A, 134 FERC ¶ 61,210 at P 67. 

125 Order No. 773, 141 FERC ¶ 61,236 at P 70. 
Docket Nos. RM12-6-001 and RM12-7-001 - 68 -

distribution determination from the Commission before any compliance obligations are 

imposed. 

95. NYPSC and NARUC take issue with the Commission’s decision to apply the 

factors set forth in the Seven Factor Test when determining whether a facility is used in 

local distribution. NYPSC and NARUC contend that the Commission deprived them of 

their due process rights and violated the APA because the Commission stated it will 

apply the Seven Factor Test without providing entities an opportunity to comment on the 

Commission’s decision.

126 As explained below, we deny rehearing on this issue. 

96. Due process requires certain procedural safeguards, including the requirement that 

a party affected by government action be given “notice reasonably calculated, under all 

the circumstances, to apprise interested parties of the pendency of the action,”127 and also 

“the opportunity to be heard at a meaningful time and in a meaningful manner.”128 

However, circumstances vary and the sufficiency of the procedures supplied must be 

 126 The APA requires agencies to give interested parties an opportunity for “the 

submission and consideration of facts, arguments, offers of settlement, or proposals of 

adjustment when time, the nature of the proceeding, and the public interest permit . . . .” 

5 U.S.C. 554(c)(1) (2006).

127 Jones v. Flowers, 547 U.S. 220, 226 (2006) (citation and quotation omitted). 

128 Mathews v. Eldridge, 424 U.S. 319, 333 (1976) (citations and quotation 

omitted). 
Docket Nos. RM12-6-001 and RM12-7-001 - 69 -

decided in light of the circumstances of each case.129 The Commission assesses due 

process claims case-by-case based on the totality of the circumstances.130 In this case, 

the Commission expressed its concerns with respect to treatment of local distribution 

facilities in Order Nos. 743 and 743-A and suggested that the Seven Factor Test could be 

relevant and a possible starting point for local distribution determinations.131 In addition, 

in the NOPR in this proceeding, the Commission expressed its concern with NERC’s 

approach by requesting additional explanation from NERC on its proposal regarding how 

the exception process would handle local distribution facilities. These instances gave fair 

notice of the Commission’s concerns and positions on this issue. 

97. Under these circumstances, an additional comment period on the local distribution 

determination is unnecessary. The Commission has wide discretion in selecting its 

procedures.132 The Commission thus rejects NYPSC’s claim that the Commission’s 

 129 Id. 334 (“[D]ue process, unlike some legal rules, is not a technical conception 

with a fixed content unrelated to time, place and circumstances.”) (citation and quotation 

omitted). 

130 See Morrissey v. Brewer, 408 U.S. 471, 481 (1972) (“[D]ue process is flexible 

and calls for such procedural protections as the particular situation demands.”). 

131 Order No. 743, 133 FERC ¶ 61,150 at PP 37-38, Order No. 743-A, 134 FERC 

¶ 61,210 at PP 25, 55, 58, 67-72.

132 Pacific Gas and Electric Co. v. FERC, 746 F.2d 1383, 1386 (9th Cir. 1984) 

(“We must allow the [Commission] wide discretion in selecting its own procedures . . . 

and must defer to the [Commission] interpretation of its own rules, unless the 

interpretation is plainly erroneous.”) (citations omitted).
Docket Nos. RM12-6-001 and RM12-7-001 - 70 -

decision to determine whether facilities are used in local distribution on a case-by-case 

basis and apply the factors of the Seven Factor Test violated due process. 

2. State Involvement in Local Distribution Determinations and the 

NERC Exception Process; Application of the Seven Factor Test 

98. NYPSC, NARUC, NRECA and APPA argue that the Commission did not explain 

how it will apply the Seven Factor Test or properly acknowledge state involvement in the 

local distribution process as contemplated by Order No. 888. NYPSC and NARUC 

request clarification or rehearing on whether, in adopting the Seven Factor Test, the 

Commission intended to apply the Order No. 888 finding that gives deference to state 

determinations as to which facilities are transmission and which are local distribution. 

NYPSC states that the Commission “indicated in Order No. 888 that it would entertain 

proposals by public utilities, filed under section 205 of the Federal Power Act, containing 

classifications for transmission and local distribution facilities” but required consultation 

with state regulatory authorities as a prerequisite to making such filings.133 NRECA 

maintains the Seven Factor Test should not be determinative in the context of section 215 

jurisdiction decisions because the test involves coordination with state regulators and 

proceedings involving the affected parties and wholesale and retail interests. NARUC 

and APPA contend that the Commission ignored the circumstances under which a local 

distribution test would be employed as described in Order No. 888.134 NARUC states 

 133 NYPSC Request for Rehearing at 5.

134 Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,783-84 (1996).
Docket Nos. RM12-6-001 and RM12-7-001 - 71 -

that in Order No. 888, the Commission acknowledged that in making case-by-case 

determinations concerning local distribution, it would “take advantage of state regulatory 

authorities’ knowledge and expertise concerning the facilities of the utilities that they 

regulate...defer[ring] to the recommendations by state regulatory authorities concerning 

where to draw the jurisdictional line under the Commission’s technical test for local 

distribution facilities.”135 According to NARUC and APPA, rather than deferring to the 

state’s expertise, as it did when it developed the Seven Factor Test, the Commission is 

relegating the states to commenter status. 

99. APPA, NARUC and NRECA express concern that use of the Seven Factor Test 

may not translate well into the reliability context. NRECA requests clarification that, 

because of the differences between FPA sections 201 and 215, the Commission will 

review significantly more than the Seven Factor Test components and will not apply the 

Seven Factor Test in the same manner it has in section 201 analyses.136 NRECA argues 

that section 215 states that NERC and the Commission lack reliability jurisdiction over 

facilities used in local distribution, which is a different inquiry from the one made in rate 

cases, where the “predominant use” of the facilities may be of significance.137 NRECA 

claims it is also different from the determination made when evaluating the Commission's 

 135 NARUC Request for Rehearing at 7 (citing Order No. 888, FERC Stats. 

& Regs. ¶ 31,036 (1996)). 

136 NRECA Request for Rehearing at 6.

137 NRECA Request for Rehearing at 6.
Docket Nos. RM12-6-001 and RM12-7-001 - 72 -

jurisdiction over a facility for purposes of sections 205 and 206 of the FPA. NRECA 

states that under those analyses, facilities used for both distribution and transmission are 

treated as Commission-jurisdictional transmission facilities. NRECA contrasts that with 

section 215 which states that any use of the facility for distribution removes it from 

NERC’s and the Commission's reliability jurisdiction. APPA, NARUC and NRECA 

claim that, while some of the seven factors may apply, others seem less appropriate to 

consider when determining whether facilities are local distribution, and the Commission 

does not define the other factors it may use nor explain how its criteria will adequately 

differentiate between local distribution and transmission facilities. Similarly, TAPS and 

ELCON state that several of the seven factors are very similar to components of the core 

definition and exclusions and to items on the “Detailed Information to Support an 

Exception Request” form. TAPS and ELCON thus contend that NERC’s exception 

process analysis and the Commission’s local distribution analysis will likely overlap each 

other. 

100. NYPSC, NARUC and APPA state that the NERC exception process does not 

explicitly provide for state involvement.138 NYPSC and NARUC believe that, because 

the states have a unique interest and jurisdictional role, the exceptions process must allow 

 138 APPA states that the Commission could consider forming a standing federalstate joint board, pursuant to section 209(a) of the FPA, to address local distribution 

determinations, given that its changes to exclusions E1 and E3 will substantially increase 

the need for and frequency of such determinations.
Docket Nos. RM12-6-001 and RM12-7-001 - 73 -

for direct state participation, including the right to submit comments and contribute to the 

development of the record prior to any preliminary or final determinations being made. 

Commission Determination

101. The Commission denies rehearing on these issues. In the Final Rule, the 

Commission acted consistent with legal precedent that the question of whether facilities 

are used in local distribution is a question of fact to be decided by the Commission.139 

The Final Rule stated that the Commission would apply the factors in the Seven Factor 

Test, plus other factors as the starting point for making local distribution 

determinations.

140 The Commission, however, did not adopt Order No. 888 for use in 

this process. 

102. We disagree with arguments questioning the suitability of the factors in the Seven 

Factor Test for use in the reliability context or that some of the factors seem less 

appropriate to consider when determining whether facilities are used in local distribution. 

FPA sections 201(b)(1) and 215 both use the legal term “local distribution.” As we stated 

in the Final Rule, the determination whether an element or facility is “used in local 

distribution,” as the phrase is used in the FPA, requires a jurisdictional analysis and use 

of the factors in the Seven Factor Test, among others, “comports with relevant legal 

 139 See, e.g., California Pacific Electric Company, LLC, 133 FERC ¶ 61,018, at 

n.59 (2010) (“The Supreme Court has determined that whether facilities are used in local 

distribution is a question of fact to be decided by the Commission”) (citing FPC v. 

Southern California Edison Co., 376 U.S. 205, 210 n.6 (1964)). 

140 Order No. 773, 141 FERC ¶ 61,236 at PP 69, 71.
Docket Nos. RM12-6-001 and RM12-7-001 - 74 -

precedent.”141 Therefore, we are not persuaded that the factors in the Seven Factor Test 

are an unsuitable means to determine whether a facility is used in local distribution. The 

question of whether all the factors are relevant in each case is one for the Commission to 

determine in specific circumstances. With regard to NRECA’s argument that NERC and 

the Commission lack reliability jurisdiction over dual use facilities, the Commission will 

address that issue when relevant to a specific case.

103. We are not persuaded by the argument that the Commission needs to define at this 

time the additional factors it may use or explain how its criteria will adequately 

differentiate between local distribution and transmission facilities. The Final Rule stated 

that local distribution determinations are factual in nature and the Commission will make 

decisions on a case-by-case basis. We anticipate that applicants will take the seven 

factors into account and, to the extent other factors are relevant, they are free to raise 

them as part of their inquiry and the Commission will address them at that time. Further, 

we find that TAPS’ and ELCON’s contention that the similarity between the seven 

factors, the core definition and the Detailed Information Form will cause significant 

overlap between NERC’s analysis of an exception request and the Commission’s analysis 

of a request for a finding that a facility is used in local distribution is premature and 

speculative. 

 141 See Order No. 773, 141 FERC ¶ 61,236 at P 69.
Docket Nos. RM12-6-001 and RM12-7-001 - 75 -

104. With regard to state involvement in Commission local distribution determinations, 

the Final Rule only stated the Commission would apply the factors in the Seven Factor 

Test and did not adopt Order No 888 for use here.142 The Commission notes that state 

regulators are not excluded from involvement in a Commission proceeding involving a 

local distribution determination and will have the opportunity to participate in the local 

distribution determination process at the Commission. As part of that participation, they 

may support their position with evidence that a state commission determined that the 

facilities in question are local distribution facilities. 

105. Similarly, with regard to state involvement in the exception process, we deny 

rehearing. Petitioners essentially repeat their arguments from the NOPR and we are not 

persuaded that our finding in the Final Rule was unreasonable. In the Final Rule, the 

Commission found that the exception process “should be one based on the technical 

reliability issues of the specific case presented.... [A] procedure that encouraged or even 

invited multi-party filings would unduly complicate the process....”143 Nevertheless, to 

provide transparency and opportunity for participation, NERC’s exception process 

provides that “(1) detailed notice of any request would be provided to every Registered 

Entity with reliability oversight obligation for the Element subject to the Request and 

(2) general information about the request will be publicly posted,” thereby allowing third 

 142 Order No. 773, 141 FERC ¶ 61,236 at P 71.

143 Order No. 773, 141 FERC ¶ 61,236 at P 257.
Docket Nos. RM12-6-001 and RM12-7-001 - 76 -

parties including state regulators “adequate opportunity to provide comments regarding 

the request without formally participating in the process.”144 

F. Designation of Bulk Electric System Elements

106. In the Final Rule, the Commission concluded that registered entities must inform 

the Regional Entity of any self-determination that an element is no longer part of the bulk 

electric system. We noted that section 501 of NERC’s Rules of Procedure provides that 

each registered entity must notify its Regional Entity of any matters that affect the 

registered entities’ responsibilities with respect to Reliability Standards. Section 501 also 

requires entities to inform the Regional Entity of any self-determination that an element 

is no longer part of the bulk electric system.145 We further stated that this requirement 

does not involve a justification of why the element is being excluded but rather as one 

that involves nothing more than notification.146 The Commission also concluded that it 

has the authority to designate an element as part of the bulk electric system pursuant to 

our authority set forth in sections 215(a)(1) and (b)(1) of the FPA. 

107. Entities request clarification and/or rehearing on three aspects of these 

determinations: (1) how must a registered entity inform a Regional Entity that it has 

 144 Order No. 773, 141 FERC ¶ 61,236 at P 257 citing NERC ROP Petition, Att. 9 

(“The Development Process and Basis for the ROP Team’s Recommended Provisions -

How Stakeholder Comments were Considered and Addressed”) at 7.

145 Order No. 773, 141 FERC ¶ 61,236 at P 317. 

146 Order No. 773, 141 FERC ¶ 61,236 at P 318. 
Docket Nos. RM12-6-001 and RM12-7-001 - 77 -

excluded an element from the bulk electric system; (2) what process a Regional Entity 

must use to include a facility if it disagrees with a registered entity’s declaration that a 

specific facility is not part of the bulk electric system; and (3) if the Commission decides 

on its own to designate an element as part of the bulk electric system, it should consult 

state regulatory authorities.

1. Regional Entity Role

108. Snohomish requests clarification, or in the alternative rehearing, with respect to 

several aspects of the process for removing specific elements from the bulk electric 

system. Snohomish notes that the Commission specifies that a registered entity may 

remove specific elements from the bulk electric system by simply notifying its Regional 

Entity, and Snohomish believes that notifying its Regional Entity by a simple written or 

electronic notification satisfies the notification requirement. Snohomish also states that 

the Final Rule does not explain what would occur if the Regional Entity disagrees with 

the registered entity’s determination that an element is not part of the bulk electric 

system. Snohomish requests clarification that, in the absence of bad faith on the part of 

the registered entity providing a notification that an element is not a bulk electric system

element, that element should not be treated as part of the bulk electric system unless and 

until a contrary determination is made by NERC. Snohomish states that this clarification 

will help ensure that registered entities clearly understand their reliability compliance 

obligations at a facility-by-facility level, and that, if they apply the bulk electric system 

definition in good faith, they will not be subject to retroactive liability if that good faith 
Docket Nos. RM12-6-001 and RM12-7-001 - 78 -

determination is later successfully challenged by the Regional Entity and overturned by 

NERC. 

109. Snohomish also requests clarification that, in the event that a Regional Entity 

disagrees with a registered entity’s determination that an element is not part of the bulk 

electric system, the Regional Entity must use the exception process to include the 

element. Snohomish asserts that this clarification will ensure that there is a wellunderstood and consistent procedure for inclusion of elements in the bulk electric system. 

In the alternative, Snohomish states that the Commission should clarify that the existing 

appeals process in Appendix 5A of the NERC Rules of Procedure, which Snohomish 

states “provides for appeals only from entity registration decisions and from decisions 

regarding entity certification,” should govern when the Regional Entity disagrees with a 

registered entity’s designation of an element as not part of the bulk electric system.

147 

Commission Determination

110. The Commission agrees with Snohomish that, in the absence of bad faith, if a 

registered entity applies the bulk electric system definition and determines that an 

element no longer qualifies as part of the bulk electric system, upon notifying the 

appropriate Regional Entity that the element is no longer part of the bulk electric system 

the element should not be treated as part of the bulk electric system unless NERC makes 

a contrary determination in the exception process. If the Regional Entity disagrees with 

 147 Snohomish Request for Clarification, or in the Alternative, Petition for 

Rehearing at 5 (footnotes omitted). 
Docket Nos. RM12-6-001 and RM12-7-001 - 79 -

the classification of the element and believes the element is necessary for reliable 

operation, the Regional Entity should initiate an exception request to include the element 

in the bulk electric system. If NERC agrees with the Regional Entity and determines that 

the element should be included in the bulk electric system, the registered entity should 

not be subject to retroactive liability for the time period the element was not included in 

the bulk electric system.

2. Designation of Facilities 

111. APPA argues that, if the Commission decides on its own to designate an element 

as part of the bulk electric system, it should consult state regulatory authorities in this 

process and not simply relegate them to notice and opportunity for comment. 148 

Additionally, APPA states that “a full evidentiary hearing, with opportunities for 

discovery and cross-examination, as opposed to a paper hearing may be required in such 

circumstances because of the fact-based nature of these issues, and because the 

Commission would be making precedent-setting policy determinations that could affect 

many public utilities and registered entities.”149 APPA requests that, consistent with the 

Commission’s approval of NERC’s implementation plan, the Commission clarify that 

entities subject to Commission-designated bulk electric system facility determinations 

 148 APPA Request for Rehearing at 29.

149 Id.
Docket Nos. RM12-6-001 and RM12-7-001 - 80 -

will be given an appropriate amount of time to become compliant with reliability 

standards.

Commission Determination

112. We deny rehearing with respect to the APPA’s request that the Commission 

consult state regulatory authorities when the Commission elects to designate an element 

as part of the bulk electric system. We are not persuaded by APPA’s justification for 

why the Commission should provide a greater role to state regulators than is already 

provided to all interested parties through notice and opportunity for comment. As we 

stated in the Final Rule, we expect that registered entities, Regional Entities, and NERC 

will proactively identify and include elements in the bulk electric system. However, if no 

other entity initiates the process to include in the bulk electric system an element 

necessary for the operation of the interconnected transmission network, the Commission 

has the authority to do so. If the Commission finds it necessary to initiate this authority, 

it would make a final determination after providing interested parties notice and 

opportunity for comment.150 For the same reasons stated above in connection with a state 

role in a local distribution determination and the exception process, we are not persuaded 

by APPA’s argument that state regulators need additional process other than that already 

afforded to all interested parties provided notice and opportunity for comment. 

Accordingly, we deny APPA’s request for rehearing on this matter. 

 150 Order No. 773, 141 FERC ¶ 61,236 at P 285. 
Docket Nos. RM12-6-001 and RM12-7-001 - 81 -

113. In response to APPA’s contention that a full evidentiary hearing is necessary when 

the Commission proposes to designate an element as part of the bulk electric system, the 

Commission will not require or preclude use of a full evidentiary hearing. The 

Commission will provide due process as required by the APA which in appropriate 

instances the Commission can accomplish through a paper hearing.

114. In response to APPA’s comments regarding the implementation schedule when the 

Commission determines an element should be part of the bulk electric system, we agree 

that an entity will have an appropriate amount of time to become compliant with 

applicable Reliability Standards.

G. Other Requested Clarifications

1. Meaning of “Non-Retail Generation” 

115. Snohomish requests that the Commission provide clarification concerning the 

meaning of the term “non-retail generation” in exclusion E3. Snohomish requests that 

the Commission clarify that “non-retail generation” includes both customer-owned, 

behind-the-meter generation that is not resold on the Bulk-Power System to wholesale 

purchasers and generation that a load-serving utility uses solely to provide power to its 

own customers and does not sell to other wholesale purchasers. Snohomish maintains 

that this result is consistent with FPA section 201(b)(1), which excludes generation 

facilities and facilities used for the intrastate sale of electric energy from the 

Commission’s jurisdiction. 
Docket Nos. RM12-6-001 and RM12-7-001 - 82 -

Commission Determination

116. We decline to make the requested clarification. In the Final Rule several entities 

requested clarification of various terms including the term “non-retail.” The Commission 

found that the phrase was sufficiently clear.151 We reiterate our statement in the Final 

Rule that entities may pursue further clarification from NERC in an appropriate forum 

such as NERC’s Phase 2 project. 

2. Effective Date

117. Snohomish requests that the Commission clarify that the revised definition will 

become effective for NERC compliance purposes on July 1, 2013, and that the transition 

period discussed in the Final Rule will extend twenty-four months from that date. 

Commission Determination

118. The Commission grants Snohomish’s clarification. NERC stated that the revised 

definition become effective on the first day of the second calendar quarter after receiving 

applicable regulatory approval, or, in those jurisdictions where no regulatory approval is 

required, on the first day of the second calendar quarter after its adoption by the NERC 

Board of Trustees. Order No. 773 was published in the Federal Register on January 4, 

2013 with the Final Rule becoming effective 60 days thereafter, or March 5, 2013. Thus, 

the first day of the second calendar quarter after March 5 is July 1, 2013. 

 151 Order No. 773, 141 FERC ¶ 61,236 at P 215. 
Docket Nos. RM12-6-001 and RM12-7-001 - 83 -

H. Requests for Revised Information Collection Burden and Regulatory 

Flexibility Act Analysis 

119. In the Final Rule, the Commission stated that it did not need to reassess the 

reporting burden estimates and Regulatory Flexibility Act (RFA) certification. NARUC 

requests that the Commission clarify its RFA analysis in light of its decision to rule on 

jurisdictional questions and to direct NERC to not permit certain 100 kV and above 

facilities that are looped with sub-100 kV facilities to qualify for exclusion E1. NARUC 

maintains that the Commission modified the definition by changing language contained 

in exclusions E1 and E3, the net effect of which would be to increase the number of 

entities that might choose to use the exception process. Therefore, according to NARUC, 

it is likely that the Commission’s actions will impose unjustified regulatory burdens and 

costs. 

120. NRECA also states that the public reporting burden and information collection 

requirement section of the Final Rule did not discuss additional costs associated with the 

Commission making local distribution determinations or entities having to apply for an 

exception as a result of the Commission’s interpretation of exclusion E1. NRECA also 

states that the Commission erred by not modifying the RFA certification that the Final 

Rule will not have a significant economic impact on a substantial number of small 

entities. NRECA seeks clarification of the Final Rule because it believes that the 

jurisdiction determination process and the exclusion E1 directive will affect other small 

entities that were not identified previously, and the Commission must identify affected 

entities before it can certify the determination. NRECA states that the RFA requires that 
Docket Nos. RM12-6-001 and RM12-7-001 - 84 -

all effects of a rule on small entities must be considered, not just initial compliance costs 

or only the costs associated with small entities that identify, for the first time, facilities 

that are subject to the bulk electric system definition. NRECA requests that the 

Commission revisit the impact of the Final Rule on small entities, and thereafter clarify 

and provide greater detail with respect to its RFA certification. 

121. Similarly, APPA states that the Commission’s modifications to the definition will 

substantially increase the public reporting burden, necessitating a new analysis. APPA 

argues that the Commission’s changes to exclusions E1 and E3 would substantially 

increase the number of required studies and exception requests, which necessarily affect 

the associated paperwork burden estimates. Yet, according to APPA, the Commission 

has failed to reassess its burden calculations and adjust its estimates which will result in 

the imposition of unjustified regulatory burdens and costs. 

122. APPA also states that the Commission must reassess its RFA analysis to account 

for the Commission’s changes to exclusions E1 and E3. According to APPA, many of 

the entities filing these requests might not currently be on the NERC Compliance 

Registry or might only be listed as distribution providers or load serving entities. In 

addition, APPA argues that the Commission estimate of 418 small entities is too low. 

APPA states that it alone has approximately 330 members on the NERC registry, about 

290 of which fall within the definition of a small utility under the relevant Small Business 

Administration definition.
Docket Nos. RM12-6-001 and RM12-7-001 - 85 -

Commission Determination

123. The Commission grants rehearing in part and denies rehearing in part. The 

Commission grants rehearing on the need to reassess the burden estimates relative to the 

Final Rule modifications regarding exclusions E1 and E3. In revising the information 

cost estimates, the Commission also included additional costs associated with the local 

distribution determinations. However, because the Commission grants rehearing on 

implementing exclusions E1 and E3 to instead direct NERC to modify the definition 

pursuant to FPA section 215(d)(5) in the Phase 2 process, the Commission will address 

estimates in connection with that change after NERC submits its proposal. 

1. Information Collection Statement

124. In the Final Rule, the Commission estimated the reporting burden for entities to 

apply the revised bulk electric system definition to all elements to determine if those 

elements are included in the bulk electric system pursuant to the revised definition. The 

Commission also estimated the burden for entities’ use of the exception process as well 

as the costs for Regional Entities and NERC to process exception requests. In addition, 

the Commission estimated the public reporting burden for entities to identify new 

elements under the revised bulk electric system definition. 

125. While the Commission is providing revised information collection estimates, we 

disagree with NARUC and APPA that the Commission’s modifications to NERC’s 

proposal will substantially increase the public reporting burden or will impose unjustified 

regulatory burdens and costs. None of the petitioners provide data to quantify or

substantiate their claims. With regard to the alleged increase in case-specific exceptions 
Docket Nos. RM12-6-001 and RM12-7-001 - 86 -

applications, APPA cites to one large entity that claimed that it would have to file dozens 

of exception requests to have looped configurations excluded. However, we are not 

persuaded by APPA and others that the Commission’s discussion of exclusion E1 (radial 

systems) pertaining to sub-100 kV looped systems with multiple connections at 100 kV 

and above and the corresponding modification to exclusion E3 will result in a substantial 

increase in exception applications. Rather, as explained in the Final Rule, as well as this 

order on rehearing, the Commission directed NERC to develop a modification to 

exclusion E3 (local networks) that would eliminate the 100 kV “floor” to be eligible for 

the exclusion. As a result, by design, we anticipate that many entities with sub-100 kV 

looped configurations that are not eligible for exclusion E1 may avoid submitting an 

exception request and be eligible for the E3 exclusion as revised by the Final Rule. As 

explained elsewhere, an entity may apply the E3 exclusion without having to submit an 

application to NERC for a case-specific ruling.152

126. With regard to applications submitted to the Commission for local distribution 

determinations, we expect the number of local distribution determinations to be small.153 

Petitioners have not provided information in their rehearing requests that persuade us to 

change our expectation. Thus, the Commission estimates that there will be 

approximately eight local distribution determinations per year. 

 152 See supra P 42. 

153 See Order No. 773, 141 FERC ¶ 61,236 at P 70. 
Docket Nos. RM12-6-001 and RM12-7-001 - 87 -

127. Although we believe that the burden estimates set forth in the Final Rule are 

generally sound, we nonetheless revise certain aspects to provide more accurate 

estimates. To account for the Final Rule directive for exclusions E1 and E3, the 

Commission has increased by five the number of engineering hours needed for “System 

Review and List Creation” for transmission owners. The Commission increased the 

number of engineering hours by three for the same review by distribution providers. 

System Review and List Creation corresponds to step 1 of NERC’s proposed transition 

plan, which requires each U.S. asset owner to apply the revised bulk electric system 

definition to all elements to determine if those elements are included in the bulk electric 

system pursuant to the revised definition.154 The Commission added these hours to 

recognize the additional time needed for an entity that has a looped configuration 

operating below 100 kV with multiple connections at 100 kV and above that is not 

eligible for exclusion E1 to analyze whether the configuration is eligible for exclusion 

E3. 

128. In addition, the Commission is increasing the estimate of the number of exception 

requests in the first two years by approximately ten percent, from 260 per year to 285 

requests per year. The original estimate of 260 requests per year considered all requests 

for exceptions, undifferentiated by whether the applicant’s request is based on exclusions 

E1 and E3 or any other part of the definition. Here, we estimate an additional 25 

 154 See NERC BES Petition at 38.
Docket Nos. RM12-6-001 and RM12-7-001 - 88 -

exception requests that may be submitted by entities with looped configurations operating 

below 100 kV that, based on the Final Rule, do not qualify for the E1 radial system 

exclusion. However, as discussed above, we are not persuaded that a greater increase of 

exception requests is warranted because the directive that NERC modify the local 

network E3 exclusion by eliminating the 100 kV floor should allow many, if not most, of 

the entities that operate systems with a sub-100 kV loop to exclude those 100 kV and 

above facilities that connect them to the interconnected transmission network (without an 

exception request) based on the E3 exclusion (noting that the elements operating below 

100 kV are already excluded from the bulk electric system by the core definition).

129. The revised estimates are shown as follows:

Requirement

Number and 

Type of 

Entity155

(1)

Number of 

Responses 

Per Entity

(2)

Average

Number of 

Hours per 

Response

(3)

Total 

Burden 

Hours

(1)*(2)*(3)

System Review 

and List Creation

333 

Transmission 

Owners

1 response 85 (engineer 

hours)

28,305 Yr 1

843 Generator 

Owners

1 response 16 (engineer 

hours)

13,488 Yr 1

554 

Distribution 

Providers

1 response 27 (engineer 

hours)

14,958 Yr 1

 155 The “entities” listed in this table are describing a role an entity is registered for 

in the NERC registry. For example, a single entity may be registered as a transmission 

owner and generator owner. The total number of entities applicable to this rule is 1,522, 

based on the NERC registry. The total number of estimated roles is 1,730.
Docket Nos. RM12-6-001 and RM12-7-001 - 89 -

Exception 

Requests156

1,730 total 

Transmission 

Owners, 

Generator 

Owners and 

Distribution 

Providers

285 responses 

each in Yrs 1 

and 2 (total 

for all entities, 

i.e., not per 

entity)

94 (60 

engineer hrs, 

32 record 

keeping hrs, 

2 legal hrs) 

26,790 hrs in 

Yrs 1 and 2

20 responses 

in Yr 3 and 

ongoing (total 

for all entities, 

i.e., not per 

entity)

94 (60 

engineer hrs, 

32 record 

keeping hrs, 

2 legal hrs)

1,880 hrs in 

Yr 3 and 

ongoing

Local 

Distribution 

Determinations157

8 entities 1 response 92 (60 

engineer hrs, 

8 record 

keeping hrs, 

24 legal hrs)

40,704 hrs

Costs to Comply:

• Year 1: $13,841,400 ($367,400 increase from the initial estimate)

• Year 2: $10,436,340 ($167,780 increase from the initial estimate)

 156 From the total 1,730 estimated roles, we estimate an average of 285 requests 

per year in the first two years. See Order No. 773 at n. 225. Therefore, the estimated 

total number of hours per year for years 1 and 2, using an average of 285 requests per 

year, is 26,790 hours. We estimate 20 requests per year in year 3 and ongoing.

157 The Commission estimates 92 hours for a local distribution request comprised 

of 60 engineer hours, 8 record keeping hours and 24 legal hours. For the local 

distribution burden category, the loaded (salary plus benefits) costs are: $60/hour for an 

engineer; $27/hour for recordkeeping; and $106/hour for legal. The breakdown of cost 

by item and year follows: (sum of hourly expense per request * number of local 

distribution determinations) = ((60 hrs * $60/hr) + (8 hrs * $27/hr) + (24 hrs * $106/hr)) * 

8 requests) = $50,880. Hourly costs are loaded (wage plus benefits) and are based on 

Commission staff study and industry data from the Bureau of Labor Statistics.
Docket Nos. RM12-6-001 and RM12-7-001 - 90 -

• Year 3 and ongoing: $4,310,624 ($50,704 increase from the initial 

estimate)

158

For the burden categories above, the loaded (salary plus benefits) costs are: $60/hour for 

an engineer; $27/hour for recordkeeping; and $106/hour for legal. The revised 

breakdown of cost by item and year follows:

• System Review and List Creation (year 1 only): (28,305 hrs + 13,488 

hrs + 14,958 hrs) =56,751 hrs * 60/hr = $3,405,060. 

• Exception Requests (years 1 and 2): (sum of hourly expense per request 

* number of exception requests) = ((60 hrs * $60/hr) + (32 hrs * $27/hr) + 

(2hrs * $106/hr)) * 285 requests) = $1,332,660.

• Local Distribution (each year): (sum of hourly expense per request * 

number of exception requests) = ((60 hrs * $60/hr) + (8 hrs * $27/hr) + 

(24 hrs * $106/hr)) * 8 requests) = $50,880.

Title: FERC-725-J “Definition of the Bulk Electric System”

Action: Proposed Collection of Information

OMB Control No: 1902-0259 

Respondents: Business or other for profit, and not for profit institutions.

Frequency of Responses: On Occasion 

 158 See NOPR, 139 FERC ¶ 61,247 at P 135 for the initial estimates. In the 

summary costs for years 1-3 displayed in the NOPR and final rule, due to a arithmetic 

error, the Years 1-3 cost estimates should have been $13,474,000, $10,268,560 and 

$4,259,920, respectively. 
Docket Nos. RM12-6-001 and RM12-7-001 - 91 -

Necessity of the Information: The proposed revision to NERC’s definition of the term 

bulk electric system, if adopted, would implement the Congressional mandate of the 

Energy Policy Act of 2005 to develop mandatory and enforceable Reliability Standards to 

better ensure the reliability of the nation’s Bulk-Power System. Specifically, the proposal

would ensure that certain facilities needed for the operation of the nation’s bulk electric 

system are subject to mandatory and enforceable Reliability Standards.159

Internal review: The Commission has reviewed the proposed definition and has assured 

itself, by means of its internal review, that there is specific, objective support for the 

burden estimate associated with the information requirements.

130. Interested persons may obtain information on the reporting requirements by 

contacting the Federal Energy Regulatory Commission, Office of the Executive Director, 

888 First Street, NE, Washington, DC 20426 [Attention: Ellen Brown, e-mail: 

DataClearance@ferc.gov, phone: (202) 502-8663, fax: (202) 273-0873]. 

131. For submitting comments concerning the collection of information and the 

associated burden estimate, please send your comments to the Office of Management and 

Budget, Office of Information and Regulatory Affairs, Washington, DC 20503 

[Attention: Desk Officer for the Federal Energy Regulatory Commission, phone: 

(202) 395-4718, fax: (202) 395-7285]. For security reasons, comments to OMB should 

 159 For more information regarding the necessity of the information collected, 

disclosed or retained, see Revisions to Electric Reliability Organization Definition of Bulk 

Electric System and Rules of Procedure, Order No. 773, 141 FERC ¶ 61,236 (2012). 
Docket Nos. RM12-6-001 and RM12-7-001 - 92 -

be submitted by e-mail to: oira_submission@omb.eop.gov. Comments submitted to 

OMB should include Docket Number RM12-6 and OMB Control Number 1902-0259.

2. Regulatory Flexibility Analysis

132. The Commission grants rehearing in part, and denies rehearing in part, with 

regard to the impact of the Final Rule on small entities’ applying for local distribution 

determinations at the Commission and the Final Rule directive regarding implementation 

of exclusions E1 and E3 for looped configurations. The Commission provides revised 

estimates below. 

133. In the NOPR, the Commission estimated that approximately 418 of the 1,730 

registered transmission owners, generator owners and distribution service providers may 

fall within the definition of small entities.160 The Commission estimated that, of the 418 

small entities affected, 50 small entities within the NPCC region would have to comply 

with the rule. The Commission assumed that the rule would affect more small entities in 

the NPCC Region than those outside NPCC because there are more elements in NPCC 

that would be added to the bulk electric system based on the new definition than 

elsewhere. The Commission estimated the first year effect on small entities within the 

NPCC region to be $39,414.

161 The Commission based this figure on information 

collection costs plus additional costs for compliance. The Commission estimated the 

 160 NOPR, 139 FERC ¶ 61,237 at P 138. 

161 NOPR, 139 FERC ¶ 61,237 at P 139. 
Docket Nos. RM12-6-001 and RM12-7-001 - 93 -

average annual effect per small entity outside of NPCC will be less than for the entities 

within NPCC. The Commission concluded that there would not be a significant

economic impact for small entities within or outside of NPCC because it should not 

represent a significant percentage of the operating budget. In Order No. 773, the 

Commission affirmed its analysis and certified that the Final Rule will not have a 

significant impact on a substantial number of small entities.162

134. While we affirm our certification that the Final Rule will not have a significant 

impact on a substantial number of small entities, we grant rehearing in part to adjust our 

estimates on the impact of the Final Rule on small entities. In particular, we adjust our 

initial estimate to recognize the approximately $6,360 cost incurred by a small entity that 

petitions the Commission for a local distribution determination. As stated above, the 

Commission estimates eight local distribution requests per year. The Commission does 

not believe that small entities will account for all local distribution requests, but even if 

they do, this estimate will not have a significant economic impact on a substantial 

number of small entities. 

135. We recognize that an entity may have some facilities that do not qualify for 

exclusions E1 or E3 as revised by the Final Rule and may choose to use the exception 

process. As stated above, the Commission estimates that the total number of entities with 

looped configurations that do not qualify for exclusions E1 or E3 who choose to use the 

 162 Order No. 773, 141 FERC ¶ 61,236 at P 338.
Docket Nos. RM12-6-001 and RM12-7-001 - 94 -

exception process to be approximately 25, based on an approximately ten percent 

increase in the estimated number of exception requests (i.e., an estimated 260 requests 

revised to 285 requests) submitted during the first year after implementation. Of those, 

the Commission estimates that ten of the entities could be small entities, with the effect 

on those small entities to be $4,676 per entity. The Commission bases this figure on the 

result of the exception request calculation total above, $1,332,660, divided by the number 

of total estimated exception requests, 285, resulting in the cost per exception request 

equal to $4,676. We do not assume additional costs of compliance for these ten small 

entities requesting exceptions because looped systems connected at multiple connections 

of 100 kV and above are already part of the bulk electric system. If the elements remain 

in the bulk electric system as a result of the exception process, they will not be newly 

identified elements and thus the compliance costs associated with these elements are 

already accounted for in other rulings approving Reliability Standards.

163

136. Based on the above, as many as 18 small entities may experience an economic 

impact upwards of approximately $50,000 per year.164 The Commission does not 

consider 18 out of 418 small entities (4.3%) to be a substantial number of small entities. 

 163 See, e.g., Order No 693, FERC Stats, & Regs. ¶31,242 at PP 1899-1907. 

164 This is based on a conservative assumption that the eight local distribution 

determination requests and the ten additional entities to use the exception process all are 

part of the NPCC region. Under this assumption, the total estimated annual cost per 

entity is $50,450 ($39,414 + $6,360 + $4,676). 
Docket Nos. RM12-6-001 and RM12-7-001 - 95 -

Accordingly, the Commission certifies that the Final Rule will not have a significant 

economic impact on a substantial number of small entities. 

137. APPA argues that their members’ burdens will change by virtue of being included 

on the NERC Compliance Registry. We disagree with APPA on this issue. First, it is 

important to understand that NERC registers entities, not facilities, in the NERC 

Compliance Registry. We do not expect that NERC’s revised BES definition, as well as 

our determinations in the Final Rule and on rehearing, will have Compliance Registry 

implications for a significant number of entities. As we have indicated consistently 

throughout this proceeding, small entities in the NPCC region are most likely to be 

substantively impacted by the Final Rule, and we have previously recognized the costs of 

compliance for that sub-group of small entities. APPA has not provided any information 

to persuade us that NERC will register a significant number of small entities as a result of 

the Final Rule. 

138. APPA also argues that the Commission’s estimate that a total of 418 small entities 

may be affected by the Final Rule is too low and that the Commission did not justify this 

estimate. We disagree with APPA on this matter. The Commission justified the estimate 

in the NOPR stating that we started with the Order No. 693 estimate that all the 

Reliability Standards approved in Order No. 693 would apply to approximately 682 small 

entities.165 The Commission concluded that the bulk electric system rulemaking would 

 165 NOPR, 139 FERC ¶ 61,247 at P 139 n.156 (citing Order No 693, FERC Stats, 

& Regs. ¶31,242 at P 1940). 
Docket Nos. RM12-6-001 and RM12-7-001 - 96 -

affect a smaller subset of the categories of registered entities and thus our estimate was 

lower in this proceeding than cited in Order 693.166 Therefore, we deny rehearing on this 

issue. 

III. Document Availability

139. 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 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A, 

Washington DC 20426. 

140. 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. 

141. User assistance is available for eLibrary and the FERC’s website during normal 

business hours from FERC Online Support at (202) 502-6652 (toll free at 1-866-208-

3676) or email at ferconlinesupport@ferc.gov, or the Public Reference Room at 

 166 Id.
Docket Nos. RM12-6-001 and RM12-7-001 - 97 -

(202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov. 

By the Commission.

( S E A L )

Kimberly D. Bose,

Secretary.
Docket Nos. RM12-6-001 and RM12-7-001 - 98 -

Note: Attachment A will not appear in the Code of Federal Regulations.

ATTACHMENT A

Definition of Bulk Electric System

Unless modified by the lists shown below, all Transmission Elements operated at 

100 kV or higher and Real Power and Reactive Power resources connected at 100 kV or 

higher. This does not include facilities used in the local distribution of electric energy

Inclusions:

I1 - Transformers with the primary terminal and at least one secondary 

terminal operated at 100 kV or higher unless excluded under Exclusion E1 

or E3. 

I2 - Generating resource(s) with gross individual nameplate rating greater 

than 20 MVA or gross plant/facility aggregate nameplate rating greater than 

75 MVA including the generator terminals through the high-side of the 

step-up transformer(s) connected at a voltage of 100 kV or above.

I3 - Blackstart Resources identified in the Transmission Operator’s 

restoration plan.

I4 - Dispersed power producing resources with aggregate capacity greater 

than 75 MVA (gross aggregate nameplate rating) utilizing a system 

designed primarily for aggregating capacity, connected at a common point 

at a voltage of 100 kV or above.

I5 - Static or dynamic devices (excluding generators) dedicated to 

supplying or absorbing Reactive Power that are connected at 100 kV or 

higher, or through a dedicated transformer with a high-side voltage of 100 

kV or higher, or through a transformer that is designated in Inclusion I1.

Exclusions:

E1 - Radial systems: A group of contiguous transmission Elements that 

emanates from a single point of connection of 100 kV or higher and:

a) Only serves Load. Or,
Docket Nos. RM12-6-001 and RM12-7-001 - 99 -

b) Only includes generation resources, not identified in Inclusion 

I3, with an aggregate capacity less than or equal to 75 MVA (gross 

nameplate rating). Or,

c) Where the radial system serves Load and includes generation 

resources, not identified in Inclusion I3, with an aggregate capacity 

of non-retail generation less than or equal to 75 MVA (gross 

nameplate rating).

Note – A normally open switching device between radial systems, as 

depicted on prints or one-line diagrams for example, does not affect this 

exclusion.

E2 - A generating unit or multiple generating units on the customer’s side 

of the retail meter that serve all or part of the retail Load with electric 

energy if: (i) the net capacity provided to the BES does not exceed 75 

MVA, and (ii) standby, back-up, and maintenance power services are 

provided to the generating unit or multiple generating units or to the retail 

Load by a Balancing Authority, or provided pursuant to a binding 

obligation with a Generator Owner or Generator Operator, or under terms 

approved by the applicable regulatory authority.

E3 - Local networks (LN): A group of contiguous transmission Elements 

operated at or above 100 kV but less than 300 kV that distribute power to 

Load rather than transfer bulk-power across the interconnected system. 

LN’s emanate from multiple points of connection at 100 kV or higher to 

improve the level of service to retail customer Load and not to 

accommodate bulk-power transfer across the interconnected system. The 

LN is characterized by all of the following:

a) Limits on connected generation: The LN and its underlying

Elements do not include generation resources identified in Inclusion 

I3 and do not have an aggregate capacity of non-retail generation 

greater than 75 MVA (gross nameplate rating);

b) Power flows only into the LN and the LN does not transfer 

energy originating outside the LN for delivery through the LN; and

c) Not part of a Flowgate or transfer path: The LN does not 

contain a monitored Facility of a permanent Flowgate in the Eastern 

Interconnection, a major transfer path within the Western 

Interconnection, or a comparable monitored Facility in the ERCOT or 
Docket Nos. RM12-6-001 and RM12-7-001 - 100 -

Quebec Interconnections, and is not a monitored Facility included in 

an Interconnection Reliability Operating Limit (IROL).

E4 – Reactive Power devices owned and operated by the retail customer 

solely for its own use.

Note - Elements may be included or excluded on a case-by-case basis 

through the Rules of Procedure exception process.