125 FERC ¶ 61,204 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 40 

Docket No. RM08-16-000 

Electric Reliability Organization Interpretations of Specific Requirements of Frequency 

Response and Bias and Voltage and Reactive Control Reliability Standards 

(Issued November 20, 2008) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Notice of Proposed Rulemaking. 

SUMMARY: Pursuant to section 215 of the Federal Power Act, the Federal Energy 

Regulatory Commission proposes to: approve NERC’s proposed interpretation of certain 

specific requirements of one Commission-approved Reliability Standard, BAL-003-0, 

Frequency Response and Bias; and remand NERC’s proposed interpretation of VAR001-1, Voltage and Reactive Control, for reconsideration consistent with this rulemaking. 

DATES: Comments are due [Insert_Date that is 30 days after publication in the

FEDERAL REGISTER]. 

ADDRESSES: You may submit comments, identified by docket number by any of the 

following methods: 

• Agency Web Site: http://ferc.gov. Documents created electronically using word 

processing software should be filed in native applications or print-to-PDF format 

and not in a scanned format. 

• Mail/Hand Delivery: Commenters unable to file comments electronically must 
Docket No. RM08-16-000 - 2 - 

mail or hand deliver an original and 14 copies of their comments to: Federal 

Energy Regulatory Commission, Secretary of the Commission, 888 First Street, 

N.E., Washington, D.C. 20426. 

FOR FURTHER INFORMATION CONTACT: 

Patrick Harwood (Technical Information) 

Office of Electric Reliability 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

Telephone: (202) 502-6125 

Patrick.harwood@ferc.gov 

Richard M. Wartchow (Legal Information) 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E., 

Washington, D.C. 20426 

Telephone: (202) 502-8744 

SUPPLEMENTARY INFORMATION:
125 FERC ¶ 61,204 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Joseph T. Kelliher, Chairman; 

 Suedeen G. Kelly, Marc Spitzer, 

 Philip D. Moeller, and Jon Wellinghoff. 

Electric Reliability Organization Interpretations of 

Specific Requirements of Frequency Response and Bias 

and Voltage and Reactive Control Reliability Standards 

Docket No. RM08-16-000 

NOTICE OF PROPOSED RULEMAKING 

(Issued November 20, 2008) 

1. Pursuant to section 215 of the Federal Power Act, the Federal Energy Regulatory 

Commission proposes to approve the interpretation proposed by the North American 

Electric Reliability Corporation (NERC) of certain specific requirements of Commissionapproved Reliability Standard BAL-003-0, Frequency Response and Bias, but remand 

NERC’s proposed interpretation of Reliability Standard VAR-001-1, Voltage and 

Reactive Control, for additional clarification.1

 

 1

 The Commission is not proposing any new or modified text to its regulations. As 

set forth in 18 CFR part 40, proposed Reliability Standards will not become effective 

until approved by the Commission, and the ERO must post on its website each effective 

Reliability Standard. The proposed interpretations would assist entities in complying 

with the Reliability Standards. 
Docket No. RM08-16-000 - 2 - 

I. Background

A. EPAct 2005 and Mandatory Reliability Standards

2. Section 215 of the FPA requires a Commission-certified Electric Reliability 

Organization (ERO) to develop mandatory and enforceable Reliability Standards, which 

are subject to Commission review and approval. Once approved, the Reliability 

Standards may be enforced by the ERO, subject to Commission oversight, or by the 

Commission independently.2

3. Pursuant to section 215 of the FPA, the Commission established a process to select 

and certify an ERO3

 and, subsequently, certified NERC as the ERO.4 On April 4, 2006, 

as modified on August 28, 2006, NERC submitted to the Commission a petition seeking 

approval of 107 proposed Reliability Standards. On March 16, 2007, the Commission 

issued a final rule, Order No. 693, approving 83 of these 107 Reliability Standards and 

directing other action related to these Reliability Standards.5

 In addition, pursuant to 

 2 See 16 U.S.C. 824o(e)(3). 

3 Rules Concerning Certification of the Electric Reliability Organization; and 

Procedures for the Establishment, Approval and Enforcement of Electric Reliability 

Standards, Order No. 672, FERC Stats. & Regs. ¶ 31,204, order on reh’g, Order 

No. 672-A, FERC Stats. & Regs. ¶ 31,212 (2006). 

4 North American Electric Reliability Corp., 116 FERC ¶ 61,062, order on reh’g 

& compliance, 117 FERC ¶ 61,126 (2006), appeal docketed sub nom. Alcoa, Inc. v. 

FERC, No. 06-1426 (D.C. Cir. Dec. 29, 2006).

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

FERC Stats. & Regs. ¶ 31,242, order on reh’g, Order No. 693-A, 120 FERC ¶ 61,053 

(2007). 
Docket No. RM08-16-000 - 3 - 

section 215(d)(5) of the FPA, the Commission directed NERC to develop modifications 

to 56 of the 83 approved Reliability Standards.6

4. NERC’s Rules of Procedure provide that a person that is “directly and materially 

affected” by Bulk-Power System reliability may request an interpretation of a Reliability 

Standard.7

 The ERO’s “standards process manager” will assemble a team with relevant 

expertise to address the requested interpretation and also form a ballot pool. NERC’s 

Rules provide that, within 45 days, the team will draft an interpretation of the Reliability 

Standard, with subsequent balloting. If approved by ballot, the interpretation is appended 

to the Reliability Standard and filed with the applicable regulatory authority for 

regulatory approval.8

 

B. NERC Filing

5. On July 28, 2008, NERC submitted a Petition for Approval of Formal 

Interpretations to Reliability Standards (Petition), seeking Commission approval of 

interpretations of two Commission-approved Reliability Standards: BAL-003-0, 

 6

 16 U.S.C. 824o(d)(5). Section 215(d)(5) provides, “The Commission . . . may 

order the Electric Reliability Organization to submit to the Commission a proposed 

reliability standard or a modification to a reliability standard that addresses a specific 

matter if the Commission considers such a new or modified reliability standard 

appropriate to carry out this section.” 

7

 NERC Rules of Procedure, Appendix 3A, Reliability Standards Development 

Procedure, Version 6.1, at 26-27 (2007). 

8

 We note that, while the NERC board of trustees approved the interpretations 

of the Reliability Standards submitted by NERC for approval in this proceeding, 

Appendix 3A of NERC’s Rules of Procedures is silent on the need for NERC board of 

trustees’ approval of interpretations before they are filed. NERC’s Rules of Procedures 

should expressly require such approval. 
Docket No. RM08-16-000 - 4 - 

Frequency Response and Bias, Requirements R2 and R5; and VAR-001-1, Voltage and 

Reactive Control, Requirement R4. 

6. For BAL-003-0, Electric Reliability Council of Texas (ERCOT) requested 

clarification that the provision in BAL-003-0, Requirement R2, permitting use of a 

variable bias setting, did not conflict with BAL-003-0, Requirement R5, which states that 

the frequency bias setting for Balancing Authorities serving native load should be at least 

one percent of yearly peak demand. For VAR-001-1, Dynegy, Inc. (Dynegy) requested 

clarification whether there are implicit requirements that the voltage schedule and 

associated tolerance band to be provided by the transmission operator under Requirement 

R4 be technically based, reasonable and practical for a generator to maintain. 

7. Consistent with the NERC Rules of Procedure, NERC assembled a team to 

respond to the requests for interpretation and presented the proposed interpretations to 

industry ballot, using a process similar to the process it uses for the development of 

Reliability Standards.9

 According to NERC, the interpretations were developed and 

approved by industry stakeholders using the NERC Reliability Standards Development 

Procedure and approved by the NERC Board of Trustees (Board).10 The interpretations 

do not modify the language contained in the requirements under review. NERC requests 

that the Commission approve the interpretations and make them effective immediately 

after approval, consistent with the Commission’s procedures. 

 9 Id. 

10 NERC Petition at 3. 
Docket No. RM08-16-000 - 5 - 

II. Discussion

A. BAL-003-0

8. Order No. 693 explains that the purpose of BAL-003-0 is to ensure that a 

balancing authority’s frequency bias setting is accurately calculated to match its actual 

frequency response.11 A frequency bias setting is a value expressed in MW/0.1 Hz, set 

into a balancing authority area control error (ACE) algorithm, which allows the balancing 

authority to contribute its frequency response to the Interconnection.12 The actual 

frequency response is the change in output or consumption from generators and nongeneration resources, respectively, after the loss of a generator and determines the 

frequency at which electric supply and demand return to balance. 

9. Requirement R2.2 states that a Balancing Authority may use a variable frequency 

bias value, which is calculated by analyzing frequency response taking into account 

factors such as load, generation, governor characteristics, and frequency. Requirement 

R5 states that balancing authorities that serve native load shall have a monthly average 

frequency bias setting that is at least one percent of estimated yearly peak demand 

per 0.1 Hz change. The BAL-003-0 Requirements at issue state: 

Requirement R2: Each Balancing Authority shall establish and maintain a 

Frequency Bias Setting that is as close as practical to, or greater than, the 

 11 Order No. 693 at P 357. 

12 NERC’s glossary, which provides definitions of the relevant terms, defines ACE 

as “The instantaneous difference between a balancing authority’s net actual and 

scheduled interchange, taking into account the effects of frequency bias and correction 

for meter error.” 
Docket No. RM08-16-000 - 6 - 

Balancing Authority’s Frequency Response. Frequency Bias may be 

calculated several ways: 

R2.2. The Balancing Authority may use a variable (linear or non-linear) 

bias value, which is based on a variable function of Tie Line deviation to 

Frequency Deviation. The Balancing Authority shall determine the 

variable frequency bias value by analyzing Frequency Response as it varies 

with factors such as load, generation, governor characteristics, and 

frequency. 

Requirement R5: Balancing Authorities that serve native load shall have a 

monthly average Frequency Bias Setting that is at least 1% of the Balancing 

Authority’s estimated yearly peak demand per 0.1 Hz change. 

R5.1. Balancing Authorities that do not serve native load shall have a 

monthly average Frequency Bias Setting that is at least 1% of its estimated 

maximum generation level in the coming year per 0.1 Hz change. 

1. ERCOT Request 

10. ERCOT requested clarification from NERC that a balancing authority may use a 

variable bias value as authorized under Requirement R2.2, despite the fact that doing so 

could, according to ERCOT, cause a violation of Requirement R5.13 According to 

ERCOT, if a balancing authority uses a variable bias in conformance with Requirement 

R2.2, it would violate Requirement R5 if its analysis resulted in a value less than one 

percent of its yearly peak demand (or maximum generation). ERCOT states that 

Requirement R2.2 is only viable if Requirement R5 is interpreted to apply only to 

 13 On July 21, 2008, the Commission approved a previous interpretation of 

BAL-003-0, Requirement R3, which requires each balancing authority to operate its 

automatic generation control on tie line frequency basis, unless such operation would 

diminish system interconnection reliability. See Modification of Interchange and 

Transmission Loading Relief Reliability Standards; and Electric Reliability Organization 

Interpretation of Specific Requirements of Four Reliability Standards, Order No. 713, 73 

FR 43613 (July 28, 2008), 124 FERC ¶ 61,071 (2008). 
Docket No. RM08-16-000 - 7 - 

balancing authorities using a fixed bias setting. ERCOT proposes that an alternate 

method be used to calculate a floor setting for balancing authorities that utilize a variable 

bias setting. Under ERCOT’s proposal, the correct corresponding minimum setting for a 

balancing authority using a variable bias setting would be no less than one percent of 

estimated peak (or maximum generation) for the period in which the variable bias setting 

is active. ERCOT supported its interpretation as being consistent with a January 2003 

NERC Resources Subcommittee analysis, which stated “for Control Areas utilizing 

variable bias, the Control Area’s average Bias Setting for a month must be at least one 

percent of the Control Area’s estimated peak load for that month (or one percent of peak 

generation for a generation only Control Area forecast for that month).”14 ERCOT 

suggested that the failure to provide for a variable-bias option in Requirement R5 appears 

to be an oversight. Furthermore, according to ERCOT, failure to adopt its interpretation 

would force ERCOT to abandon its longstanding practice of using a variable bias setting, 

without any corresponding improvement in reliability. 

2. NERC Proposed Interpretation 

11. NERC rejected ERCOT’s proposal, finding that the variable bias setting under 

Requirement R2 does not conflict with the minimum setting required under 

Requirement R5. NERC found that its interpretation provides clarity and supports the 

reliability purpose of BAL-003-0, which it describes as providing a consistent 

 14 NERC Petition at 6 (citing ERCOT request for interpretation at 1-2, available at 

http://www.nerc.com/docs/standards/sar/Request_Interpretation_BAL003_ERCOT_27Jul07.pdf). 
Docket No. RM08-16-000 - 8 - 

methodology for calculating the frequency bias component of ACE. According to 

NERC, Requirement R2 requires a balancing authority to analyze its system as a first step 

in determining its frequency bias setting, which may be a fixed or variable bias setting. 

Requirement R5 establishes a minimum reliability threshold for an Interconnection and 

also a minimum contribution for all balancing authorities within an Interconnection. 

NERC states that the one percent minimum bias setting provides a minimum level of 

automatic generation control to stabilize frequency in response to a disturbance. As a 

second justification for the minimum setting, NERC states that the one percent minimum 

also helps ensure a consistent measure of control performance among balancing 

authorities within a multi-balancing authority Interconnection. 

12. NERC points out that ERCOT is a single balancing authority Interconnection. 

NERC supports its proposed interpretation stating: 

The bias settings ERCOT uses do produce, on average, the 

best level of automatic generation control action to meet 

control performance metrics. The bias value in a single 

Balancing Authority interconnection does not impact the 

measure of control performance. 

13. NERC notes that ERCOT is subject to a Regional Difference exempting it from 

certain requirements of a related Reliability Standard. ERCOT’s Regional Difference 

addresses Requirement R2 of the related BAL-001-0 Reliability Standard, Real Power 

Balancing Control Performance, which adopts one of NERC’s historical balancing 
Docket No. RM08-16-000 - 9 - 

control performance standards, known CPS2.15 The purpose of Reliability Standard 

BAL-001-0 is to maintain interconnection steady-state frequency within defined limits by 

balancing power demand and supply in real-time. BAL-001-0 uses two averages as 

compliance measures: Requirement R1 covers the one-minute ACE performance (CPS1) 

and Requirement R2 covers the 10-minute ACE performance (CPS2). Requirement R1 

obligates each balancing authority, on a rolling 12-month basis, to maintain its clockminute averages of ACE, modified by its frequency bias and the interconnection 

frequency, within a specific limit based on historic performance. Requirement R2 

obligates each balancing authority, on a monthly basis, to maintain an average ACE 

within a specific limit based on historical performance for at least 90 percent of 

10-minute periods within an hour. NERC presents two reasons supporting ERCOT’s 

Regional Difference for BAL-001-0, namely (1) to accommodate ERCOT’s 

asynchronous connections with other Interconnections; and (2) to recognize the fact that 

ERCOT employs a more stringent methodology to identify the frequency controls 

necessary to maintain reliable operations.16 

14. During the ballot process, NERC responded to comments raising two issues. 

NERC indicated that it was sympathetic to comments that Requirement R5 is vague, 

 15 See NERC, Approval of ERCOT Waiver Request – Control Performance 

Standard 2 (Nov. 21, 2002), available at http://www.nerc.com/commondocs.php?cd=2

(under “Links to Regional Differences” tab), which was approved in Order No. 693 at 

P 314. 

16 NERC Petition at 8. 
Docket No. RM08-16-000 - 10 - 

finding that the requirement that each balancing authority have a monthly average bias 

greater than or equal to one percent of its projected annual peak load (or generation if it 

does not serve load), could be better drafted. However, NERC found that revising the 

requirement is beyond the scope of the interpretation process. Also, NERC states that it 

addressed a second comment by indicating that a balancing authority that is the sole 

balancing authority for an Interconnection must comply with Requirement R5 and also 

that a balancing authority that uses a variable bias setting must comply with Requirement 

R5 in BAL-003-0. 

15. The formal interpretation was approved by the ballot pool in September 2007 and 

by the NERC Board in February 2008. 

3. Commission Proposal

16. The Commission proposes to approve the ERO’s formal interpretation of 

Requirements R2 and R5 of BAL-003-0 and requests comment on its proposal. The 

ERO’s interpretation is reasonable in that it provides for consistent determination of 

frequency bias settings, used in calculating ACE. In addition, the one percent minimum 

set aside established by Requirement R5 ensures that an adequate level of generation will 

be set aside to provide frequency response in the event of system disturbances due to 

imbalances. 

17. Furthermore, the ERO’s interpretation is consistent with the Commission’s 

discussion in Order No. 693, which reviewed a similar objection, and found that the 
Docket No. RM08-16-000 - 11 - 

requirements of BAL-003-0 do not conflict with one another.17 Order No. 693 addressed 

the suggestion that Requirement R5 should be required in lieu of Requirement R2 for 

certain balancing authorities and found that Requirements R2 and R5 do not conflict. 

While, in this case, ERCOT is arguing the reverse, namely, that balancing authorities that 

meet the requirement of Requirement R2 should not have to meet Requirement R5, 

similar reasoning suggests no conflict in the two requirements. According to Order 

No. 693, Requirement R2 states that the frequency bias setting should be as close as 

practical to, or greater than, the balancing authority’s frequency response, while 

Requirement R5 and R5.1 provide minimum frequency bias values for specific types of 

balancing authorities.18 

18. As noted above, NERC’s interpretation states that ERCOT’s bias settings produce, 

on average, the best level of automatic generation control action to meet control 

performance metrics and the bias value in a single balancing authority interconnection 

does not impact the measure of control performance. We interpret this statement as 

providing that the second goal of the one percent minimum setting, to establish a 

consistent measure of control performance among balancing authorities, is not implicated 

by this interpretation. Nevertheless, the other justifications for the BAL-003-0, 

Requirement R5 minimum bias setting still apply namely, to establish a consistent 

 17 Order No. 693 at P 370. 

18 See id. at P 362, 370. 
Docket No. RM08-16-000 - 12 - 

methodology for one of the inputs into the ACE determination and to provide for a 

minimum threshold of reliability from frequency response.19 

19. The Commission invites comment on its proposal. 

B. VAR-001-1

20. VAR-001-1, Requirement R4 directs each transmission operator to provide each 

generator with a voltage and reactive power output schedule, within a tolerance band. A 

second Reliability Standard, VAR-002-1, Requirement R2, requires that each generator 

must meet the schedule (typically via automatic control) or provide an explanation why it 

cannot do so. Dynegy asked whether the voltage schedule, and associated tolerance 

band, provided by the transmission operator must be technically based, and reasonable 

and practical. In addition, Dynegy asked how a transmission operator would demonstrate 

compliance with such requirements. 

 19 The Commission notes that NERC’s statement above could arguably be 

interpreted to suggest that the ERCOT methodology, by using a methodology that results 

in “the best level of automatic generation control action to meet control performance 

metrics,” may be a preferable methodology. That question is not before us, and thus we 

need not and do not address it. Should ERCOT wish to demonstrate that its alternate 

methodology under its Regional Difference is a superior alternate measure to that 

established under BAL-003-0, Requirement R5, ERCOT should pursue a Regional 

Difference supporting a departure from the requirement. While ERCOT is a singlebalancing-authority Interconnection and does not need to allocate automatic generation 

control responsibility among balancing authorities, the other justifications for 

Requirement R5, supporting a consistent ACE calculation methodology and providing a 

minimum standard for reliability, remain valid justifications for the minimum setting. 
Docket No. RM08-16-000 - 13 - 

21. VAR-001-1, Requirement R4 and VAR-002-1, Requirement R2, which are at 

issue in this proceeding, state: 

VAR-001-1 – Voltage and Reactive Control. 

Requirement R4. Each Transmission Operator shall specify a voltage or 

Reactive Power schedule20 at the interconnection between the generator 

facility and the Transmission Owner's facilities to be maintained by each 

generator. The Transmission Operator shall provide the voltage or 

Reactive Power schedule to the associated Generator Operator and direct 

the Generator Operator to comply with the schedule in automatic voltage 

control mode (AVR [automatic voltage regulation] in service and 

controlling voltage). . . . 

VAR-002-1 – Generator Operation for Maintaining Network Voltage 

Schedules. 

Requirement R2. Unless exempted by the Transmission Operator, each 

Generator Operator shall maintain the generator voltage or Reactive Power 

output (within applicable Facility Ratings)21 as directed by the 

Transmission Operator. 

R2.1. When a generator’s automatic voltage regulator is out of service, the 

Generator Operator shall use an alternative method to control the generator 

voltage and reactive output to meet the voltage or Reactive Power schedule 

directed by the Transmission Operator. 

R2.2. When directed to modify voltage, the Generator Operator shall 

comply or provide an explanation of why the schedule cannot be met. 

1. Dynegy Request 

22. Dynegy requested clarification whether there are implicit requirements for the 

voltage schedule, and associated tolerance band, provided by the transmission operator to 

 20 The voltage schedule is a target voltage to be maintained within a tolerance 

band during a specified period. [Footnote in original.] 

21 When a Generator is operating in manual control, reactive power capability may 

change based on stability considerations and this will lead to a change in the associated 

Facility Ratings. [Footnote in original.] 
Docket No. RM08-16-000 - 14 - 

be technically based, reasonable and practical for a generator to maintain.22 According to 

Dynegy, the NERC Rules of Procedure require that each Reliability Standard be based on 

“sound engineering and operating judgment, analysis, or experience[.]”23 Dynegy asserts 

that Reliability Standards must be implemented to meet such a standard and that 

transmission owners must have a technical basis for the specified voltage or reactive 

power schedule and associated tolerance band. Dynegy predicts that generator operator 

compliance with the schedule and tolerance band will be improved if the generator 

understands the technical basis for the instructions. 

23. Dynegy argues that the lack of a technical basis could result in arbitrary target 

values or overly narrow or overly wide tolerance bands and that such flaws could reduce 

system reliability. For instance, Dynegy hypothesizes that overly narrow tolerance bands 

could cause a generator to make numerous short term responses to voltage fluctuations 

that do not improve system reliability, while overly broad tolerance bands could result in 

voltage fluctuations that jeopardize system reliability during system disturbances. 

Dynegy states that voltage schedules must be reasonable and that a tolerance band that 

fails to account for measurement error is unreasonable. Dynegy states that, if the 

voltages or reactive power schedule and associated tolerance band are to have a technical 

 22 Dynegy’s request is provided in the NERC Petition, Exhibit B-3, along with the 

VAR-001-1 interpretation development record. 

23 Dynegy request at 2 (citing NERC Rules of Procedure, section 302.5, “Each 

reliability standard shall be based upon sound engineering and operating judgment, 

analysis, or experience, as determined by expert practitioners in that particular field.”). 
Docket No. RM08-16-000 - 15 - 

basis and be reasonable, then NERC must develop measures to objectively evaluate 

compliance with the requirement.24 According to Dynegy, such a measure should state 

that the voltage schedule and tolerance band should either be (1) consistent with the 

historical variation of system voltage, normalized to eliminate abnormal voltage 

fluctuations such as those caused by system disturbances; or (2) consistent with the 

historical variation of system voltage when the plant/unit is not operating, which 

variation would be normalized to eliminate abnormal voltage fluctuations such as those 

caused by system disturbances. According to Dynegy, if either of these conditions is not 

met, a transmission operator should be required to have a technical study or analysis that 

justifies a different voltage or reactive power schedule and associated tolerance band. 

2. NERC Proposed Interpretation 

24. NERC’s proposed interpretation rejects the suggestion that there are implicit 

requirements within VAR-001-1, and finds, as well, that there are no requirements in 

VAR-001-1 to issue a technically based, reasonable and practical to maintain voltage or 

reactive power schedule and associated tolerance band, and, consequently, the Reliability 

Standard needs no measures to implement such requirements. According to NERC: 

Since there are no requirements in VAR-001-1 to issue a 

“technically based, reasonable and practical to maintain 

voltage or reactive power schedule and associated tolerance 

band”, there are no measures or associated compliance 

elements in the standard.25

 24 Id. at 4 (citing NERC Rules of Procedure, section 302.4). 

25 NERC proposed Interpretation of NERC Standard VAR-001-1 at 1. 
Docket No. RM08-16-000 - 16 - 

The interpretation concludes by citing VAR-002-1, Requirement 2, which provides that a 

generator must meet the voltage schedule or provide an explanation why it cannot do so. 

25. The NERC Board requested additional information to address a concern whether a 

generator operator could be in violation of VAR-001-1 if it deviated from its schedule in 

order to protect its equipment. NERC provided supplemental information, which is not 

part of the formal interpretation, pointing out that VAR-002-1 requires a generator to 

maintain the voltage directed by the transmission operator “within applicable Facility 

Ratings” and permits a generator to deviate from the voltage schedule with an 

explanation.26 NERC also cited VAR-002-1, section A(3), stating that the purpose of the 

Reliability Standard is “To ensure generators provide reactive and voltage control 

necessary to ensure voltage levels, reactive flows, and reactive resources are maintained 

within applicable Facility Ratings to protect equipment and the reliable operation of the 

Interconnection.”27 

26. Finally, NERC’s transmittal letter also provides additional instructive information, 

which is not part of the interpretation, noting that VAR-001-1, Requirement R2 states, 

“Each Transmission Operator shall acquire sufficient reactive resources within its area to 

protect the voltage levels under normal and Contingency conditions.” NERC states that, 

in order to fulfill Requirement R2, the transmission operator must perform a valid 

analysis of the system, using models that accurately represent equipment capabilities. 

 26 NERC Petition at 12-13. 

27 Id. at 12 (emphasis in original). 
Docket No. RM08-16-000 - 17 - 

Therefore, according to NERC, while it supports the formal interpretation of 

Requirement R4 including the finding that a requirement cannot establish implicit 

obligations, the issue on which Dynegy seeks clarification is better resolved through an 

examination of Requirement R2.28 

27. According to NERC, the interpretation supports the intent of the requirement and 

the goal of VAR-001-1, because it reinforces that the transmission operator is responsible 

for identifying voltage schedules and associated bandwidth necessary to meet the 

objectives of the Reliability Standard. 

28. In the ballot process, NERC responded to a negative comment arguing that the 

requirements of VAR-001-1 do imply that there will be a technical justification for a 

reactive power schedule. According to NERC, the drafting team responded that an 

implied requirement is not a stated requirement that can be objectively measured. 

29. The interpretation was approved by ballot in January 2008 and by the Board, upon 

receipt of the additional information, in March 2008. 

3. Commission Proposal

30. The Commission proposes to remand NERC’s interpretation of VAR-001-1, 

Requirement R4. The Commission disagrees with the interpretation’s suggestion that 

there is no requirement that a voltage schedule have a sound technical basis. On the 

contrary, in Order No. 693, the Commission stated that all Reliability Standards must be 

designed to achieve a specified reliability goal and must contain a technically sound 

 28 Id. at 14. 
Docket No. RM08-16-000 - 18 - 

means to achieve this goal.29 Therefore, the Commission disagrees with NERC’s 

proposed interpretation insofar as it suggests that a transmission operator could deliver a 

voltage schedule that lacked any technical basis. A voltage schedule should reflect 

technical analysis, i.e., sound engineering, as well as operating judgment and 

experience.30 

31. In Order No. 693, moreover, the Commission reviewed each Reliability Standard 

and approved those containing Requirements that are sufficiently clear as to be 

enforceable and that do not create due process concerns.31 In approving VAR-001-1 in 

 29 Order No. 693 at P 5 (“[A] Reliability Standard must provide for the Reliable 

Operation of Bulk-Power System facilities and may impose a requirement on any user, 

owner or operator of such facilities. It must be designed to achieve a specified reliability 

goal and must contain a technically sound means to achieve this goal. The Reliability 

Standard should be clear and unambiguous regarding what is required and who is 

required to comply. The possible consequences for violating a Reliability Standard 

should be clear and understandable to those who must comply. There should be clear 

criteria for whether an entity is in compliance with a Reliability Standard. While a 

Reliability Standard does not necessarily need to reflect the optimal method for achieving 

its reliability goal, a Reliability Standard should achieve its reliability goal effectively 

and efficiently.”); see also Order No. 672 at P 324. 

30 Id.; accord NERC Rules of Procedure, section 302.5. 

31 See Order No. 693 at P 274. In reviewing specific Reliability Standards, the 

Commission identified for certain Reliability Standards implicit obligations that should 

be incorporated into those Reliability Standards and directed NERC to revise the 

standards to explicitly incorporate the obligations; see Mandatory Reliability Standards 

for Critical Infrastructure Protection, Order No. 706, 73 FR 7368 (Feb. 7, 2008), 

122 FERC ¶ 61,040, at P 75 (2008) (directing the ERO to modify the CIP Reliability 

Standards to incorporate an obligation to implement plans, policies and procedures); 

Order No. 693 at P 1787 (“In the NOPR, the Commission identified an implicit 

assumption in the TPL Reliability Standards that all generators are required to ride 

through the same types of voltage disturbances and remain in service after the fault is 

cleared. This implicit assumption should be made explicit.”); Facilities Design, 

(continued) 
Docket No. RM08-16-000 - 19 - 

Order No. 693, the Commission included VAR-001-1 as among the Reliability Standards 

that are sufficiently clear to inform transmission operators what is required of them.32 

While the Commission has elsewhere declined to specify in detail how a registered entity 

should implement a Reliability Standard, this does not mean that an entity seeking to 

comply with a Reliability Standard may act in a manner that is not technically sound, i.e., 

in a manner that is not grounded in sound engineering, and thus, not reasonable and 

practical.33 NERC’s proposed interpretation, however, implies that the voltage schedules 

provided under VAR-001-1, Requirement R4 need not have any technical basis, and thus 

need not be reasonable and practical. 

32. Based on this analysis, the Commission proposes to remand NERC’s proposed 

VAR-001-1, Requirement R4 interpretation, in order that NERC may reconsider its 

interpretation consistent with this order. With regard to Dynegy’s assertion that NERC 

needs to develop evaluation measures to review the technical basis for voltage schedules, 

in the Commission’s view, this proposal is beyond the scope of the interpretation process 

and would be better discussed pursuant to a standards authorization request under the 

NERC Reliability Standards Development Procedures. 

 

Connections and Maintenance Reliability Standards, Order No. 705, 73 FR 1770 (Jan. 9, 

2008), 121 FERC ¶ 61,296, at P 54 (2007) (“although the TPL Reliability Standards 

implicitly require the loss of a shunt device to be addressed, they do not do so 

explicitly”). 

32 Order No. 693 at P 275. 

33 As noted above, Reliability Standards should reflect sound engineering. See id. 

at P 5; Order No. 672 at P 324; accord NERC Rules of Procedure, section 302.5. 
Docket No. RM08-16-000 - 20 - 

33. The Commission invites comment on its proposal. 

III. Information Collection Statement

34. The Office of Management and Budget (OMB) regulations require that OMB 

approve certain reporting and recordkeeping (collections of information) imposed by an 

agency.34 The information contained here is also subject to review under section 3507(d) 

of the Paperwork Reduction Act of 1995.35 

35. As stated above, the Commission previously approved, in Order No. 693, each of 

the Reliability Standards that are the subject of the current rulemaking. This NOPR 

proposes to approve one interpretation to a previously approved Reliability Standard 

developed by NERC as the ERO, and to remand another interpretation. The proffered 

interpretations relate to existing Reliability Standards and do not change these standards; 

therefore, they do not add to or otherwise increase entities’ current reporting burden. 

Thus, the current proposal would not materially and adversely affect the burden estimates 

relating to the currently effective version of the Reliability Standards presented in Order 

No. 693. The BAL-003-0 Reliability Standard that is the subject of the approved 

interpretation was approved in Order No. 693, and the related information collection 

requirements were reviewed and approved, accordingly.36

36. For example, the proposed interpretation of BAL-003-0 does not modify or 

otherwise affect the collection of information already in place. With respect to 

 34 5 CFR 1320.11. 

35 44 U.S.C. 3507(d). 

36 See Order No. 693 at P 1901-07. 
Docket No. RM08-16-000 - 21 - 

BAL-003-0, the interpretation clarifies that the minimum frequency bias setting applies to 

systems that employ a variable bias methodology. Incorporating a minimum frequency 

bias setting into the determination of frequency response under automatic generation 

control does not change the information that a balancing authority reports because the 

same logs, data, or measurements would be maintained. The Commission is proposing to 

remand the interpretation of VAR-001-1. As a result, information collection 

requirements for that Reliability Standard will not change at this time. Thus, the 

proposed interpretations of the current Reliability Standards at issue in this proposed rule 

will not increase the reporting burden nor impose any additional information collection 

requirements. 

37. However, we will submit this proposed rule to OMB for informational purposes. 

Title: Electric Reliability Organization Interpretations of Frequency Response and Bias 

and Voltage and Reactive Control Reliability Standards. 

Action: Proposed Collection 

OMB Control No.: 1902-0244 

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

Frequency of Responses: On Occasion 

Necessity of the Information: This proposed rule would approve an interpretation of the 

specific requirements of one Commission-approved Reliability Standard. The proposed 

rule would find the interpretation just, reasonable, not unduly discriminatory or 

preferential, and in the public interest. In addition, this proposed rule would remand an 

additional proposed interpretation for further consideration. 

Internal Review: The Commission has reviewed the proposed Reliability Standard 

interpretations and made a determination that the proposed BAL-003-1 interpretation is 

necessary to implement section 215 of the FPA. The interpretation conforms to the 
Docket No. RM08-16-000 - 22 - 

Commission’s policy for frequency response and bias within the energy industry as 

reflected in BAL-003-1. 

38. Interested persons may obtain information on the reporting requirements by 

contacting the following: Federal Energy Regulatory Commission, 888 First Street, N.E. 

Washington, D.C. 20426 [Attention: Michael Miller, Office of the Executive Director, 

Phone: (202) 502-8415, fax: (202) 273-0873, e-mail: michael.miller@ferc.gov]. 

39. For submitting comments concerning the collection(s) of information and the 

associated burden estimate(s), please send your comments to the contact listed above and 

to the Office of Information and Regulatory Affairs, Office of Information and 

Regulatory Affairs, Washington, D.C. 20503 [Attention: Desk Officer for the Federal 

Energy Regulatory Commission, phone (202) 395-7345, fax: (202) 395-7285, e-mail: 

oira_submission@omb.eop.gov]. 

IV. Environmental Analysis

40. The Commission is required to prepare an Environmental Assessment or an 

Environmental Impact Statement for any action that may have a significant adverse effect 

on the human environment.37 The Commission has categorically excluded certain 

actions from this requirement as not having a significant effect on the human 

environment. Included in the exclusion are rules that are clarifying, corrective, or 

procedural or that do not substantially change the effect of the regulations being 

 37 Regulations Implementing the National Environmental Policy Act, 

Order No. 486, FERC Stats. & Regs. ¶ 30,783 (1987). 
Docket No. RM08-16-000 - 23 - 

amended.38 The actions proposed herein fall within this categorical exclusion in the

Commission’s regulations.

V. Regulatory Flexibility Act Analysis

41. The Regulatory Flexibility Act of 1980 (RFA)39 generally requires a description 

and analysis of final rules that will have significant economic impact on a substantial 

number of small entities. The RFA mandates consideration of regulatory alternatives that 

accomplish the stated objectives of a proposed rule and that minimize any significant 

economic impact on a substantial number of small entities. The Small Business 

Administration’s Office of Size Standards develops the numerical definition of a small 

business. (See 13 CFR 121.201.) For electric utilities, a firm is small if, including its 

affiliates, it is primarily engaged in the transmission, generation and/or distribution of 

electric energy for sale and its total electric output for the preceding twelve months did 

not exceed four million megawatt hours. The RFA is not implicated by this proposed 

rule because the interpretations discussed herein will not have a significant economic 

impact on a substantial number of small entities. 

42. In Order No. 693, the Commission adopted policies to minimize the burden on 

small entities, including approving the ERO compliance registry process to identify those 

entities responsible for complying with mandatory and enforceable Reliability Standards. 

The ERO registers only those distribution providers or load serving entities that have a 

 38 18 CFR 380.4(a)(2)(ii). 

39 5 U.S.C. 601-12. 
Docket No. RM08-16-000 - 24 - 

peak load of 25 MW or greater and are directly connected to the bulk electric system or 

are designated as a responsible entity as part of a required under-frequency load shedding 

program or a required under-voltage load shedding program. Similarly, for generators, 

the ERO registers only individual units of 20 MVA or greater that are directly connected 

to the bulk electric system, generating plants with an aggregate rating of 75 MVA or 

greater, any blackstart unit material to a restoration plan, or any generator that is material 

to the reliability of the Bulk-Power System. Further, the ERO will not register an entity 

that meets the above criteria if it has transferred responsibility for compliance with 

mandatory Reliability Standards to a joint action agency or other organization. The 

Commission estimated that the Reliability Standards approved in Order No. 693 would 

apply to approximately 682 small entities (excluding entities in Alaska and Hawaii), but 

also pointed out that the ERO’s Compliance Registry Criteria allow for a joint action 

agency, generation and transmission (G&T) cooperative or similar organization to accept 

compliance responsibility on behalf of its members. Once these organizations register 

with the ERO, the number of small entities registered with the ERO will diminish and, 

thus, significantly reduce the impact on small entities.40 

 40 To be included in the compliance registry, the ERO determines whether a 

specific small entity has a material impact on the Bulk-Power System. If these small 

entities should have such an impact then their compliance is justifiable as necessary for 

Bulk-Power System reliability. 
Docket No. RM08-16-000 - 25 - 

43. Finally, as noted above, this proposed rule addresses an interpretation of the 

BAL-003-0 Reliability Standard, which was already approved in Order No. 693, and, 

therefore, does not create an additional regulatory impact on small entities.41

VI. Comment Procedures

44. The Commission invites interested persons to submit comments on the matters and 

issues proposed in this notice to be adopted, including any related matters or alternative 

proposals that commenters may wish to discuss. Comments are due [Insert Date that is 

30 days after publication in the FEDERAL REGISTER]. Comments must refer to 

Docket No. RM08-16-000, and must include the commenters’ name, the organization 

they represent, if applicable, and their address in their comments. 

45. The Commission encourages comments to be filed electronically via the eFiling 

link on the Commission’s web site at http://www.ferc.gov. The Commission accepts 

most standard word processing formats. Documents created electronically using word 

processing software should be filed in native applications or print-to-PDF format and not 

in a scanned format. Commenters filing electronically do not need to make a paper 

filing. 

46. Commenters that are not able to file comments electronically must send an 

original and 14 copies of their comments to: Federal Energy Regulatory Commission, 

Secretary of the Commission; 888 First Street, N.E.; Washington, D.C. 20426. 

 41 The Commission proposes to remand the interpretation of the VAR-001-1 

Reliability Standard, 
Docket No. RM08-16-000 - 26 - 

47. All comments will be placed in the Commission’s public files and may be viewed, 

printed, or downloaded remotely as described in the Document Availability section 

below. Commenters on this proposal are not required to serve copies of their comments 

on other commenters. 

VII. Document Availability

48. 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 the Commission’s Home Page 

(http://www.ferc.gov) and in the Commission’s Public Reference Room during normal 

business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, N.E., Room 2A, 

Washington, D.C. 20426. 

49. From the Commission’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. 

50. User assistance is available for eLibrary and the Commission’s website during 

normal business hours from FERC Online Support at (202) 502-6652 (toll free at 1-866- 
Docket No. RM08-16-000 - 27 - 

208-3676) or e-mail at ferconlinesupport@ferc.gov, or the Public Reference Room at 

(202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov. 

By direction of the Commission. 

Kimberly D. Bose, 

Secretary.