Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53117 

1H.R. 6, Title XII, Subtitle A, 109th Cong. (2005). 

device to or from a testing, inspection, 

or maintenance facility. 

[FR Doc. 05–17605 Filed 9–6–05; 8:45 am] 

BILLING CODE 4910–62–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Part 38 

[Docket No. RM05–30–000] 

Rules Concerning Certification of the 

Electric Reliability Organization; and 

Procedures for the Establishment, 

Approval, and Enforcement of Electric 

Reliability Standards 

September 1, 2005. 

AGENCY: Federal Energy Regulatory 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: Pursuant to Subtitle A 

(Reliability Standards) of the Electricity 

Modernization Act of 2005, which 

added a new section 215 to the Federal 

Power Act (FPA), the Commission is 

proposing to amend its regulations to 

incorporate: 

(1) Criteria that an entity must satisfy 

in order to qualify to be the Electric 

Reliability Organization (ERO) that will 

propose and enforce Reliability 

Standards for the Bulk-Power System in 

the United States, subject to 

Commission approval; 

(2) Procedures governing enforcement 

actions by the ERO and the 

Commission; 

(3) Criteria under which the ERO may 

enter into an agreement to delegate 

authority to a Regional Entity for the 

purpose of proposing Reliability 

Standards to the ERO and enforcing 

Reliability Standards; 

(4) Procedures for the establishment 

of Regional Advisory Bodies that may 

provide advice to the Commission, the 

ERO or a Regional Entity on matters of 

governance, applicable Reliability 

Standards, the reasonableness of 

proposed fees within a region, and any 

other responsibilities requested by the 

Commission; 

(5) Regulations governing the issuance 

of periodic reliability reports by the 

ERO that assess the reliability and 

adequacy of the Bulk-Power System in 

North America; and 

(6) Regulations pertaining to the 

funding of the ERO. 

DATES: Comments are due October 7, 

2005. 

ADDRESSES: Comments may be filed 

electronically via the eFiling link on the 

Commission’s Web site at http:// 

www.ferc.gov. Commenters unable to 

file comments electronically must send 

an original and fourteen (14) copies of 

their comments to: Federal Energy 

Regulatory Commission, Office of the 

Secretary, 888 First Street, NE., 

Washington, DC 20426. Refer to the 

Comment Procedures section of the 

preamble for additional information on 

how to file comments. 

FOR FURTHER INFORMATION CONTACT: 

William Longenecker (Technical 

Information), Office of Markets, Tariffs 

and Rates, Federal Energy Regulatory 

Commission, 888 First Street, NE., 

Washington, DC 20426, (202) 502–8570. 

David Miller (Technical Information), 

Office of Markets, Tariffs and Rates, 

Division of Reliability, Federal Energy 

Regulatory Commission, 888 First 

Street, NE., Washington, DC 20426, 

(202) 502–6473. Jonathan First (Legal 

Information), Office of the General 

Counsel, Federal Energy Regulatory 

Commission, 888 First Street, NE., 

Washington, DC 20426, (202) 502–8529. 

Christy Walsh (Legal Information), 

Office of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street, NE., Washington, DC 20426, 

(202) 502–6523. 

SUPPLEMENTARY INFORMATION:

I. Introduction 

1. Pursuant to Subtitle A (Reliability 

Standards) of the Electricity 

Modernization Act of 2005,1 which 

added a new section 215 to the Federal 

Power Act (FPA), the Commission is 

proposing to amend its regulations to 

incorporate: 

(1) Criteria that an entity must satisfy 

in order to qualify to be the Electric 

Reliability Organization (ERO), which 

the Commission will certify as the 

organization that will propose and 

enforce Reliability Standards for the 

Bulk-Power System in the United States, 

subject to Commission approval; 

(2) Procedures under which the ERO 

may propose new or modified 

Reliability Standards and procedures to 

enforce such standards, for Commission 

review; 

(3) Procedures governing enforcement 

actions by the ERO and the 

Commission; 

(4) Criteria under which the ERO may 

enter into an agreement to delegate 

authority to a Regional Entity for the 

purpose of proposing Reliability 

Standards to the ERO and enforcing 

Reliability Standards; 

(5) Procedures for the establishment 

of Regional Advisory Bodies that may 

provide advice to the Commission, the 

ERO or a Regional Entity on matters of 

governance, applicable Reliability 

Standards, the reasonableness of 

proposed fees within a region, and any 

other responsibilities requested by the 

Commission; 

(6) Regulations governing the issuance 

of periodic reliability reports by the 

ERO that assess the reliability and 

adequacy of the Bulk-Power System in 

North America; and 

(7) Regulations pertaining to the 

funding of the ERO. 

II. Background 

A. Commission Reliability Activity Prior 

to the Electricity Modernization Act of 

2005 

2. The Electricity Modernization Act 

of 2005 was enacted into law by 

President George W. Bush on August 8, 

2005. Subtitle A of the Electricity 

Modernization Act amended the FPA by 

adding a new section 215, titled 

‘‘Electric Reliability.’’ Prior to 

enactment of section 215, the 

Commission had acted primarily as an 

economic regulator of wholesale power 

markets and the interstate transmission 

grid. In this regard, the Commission 

acted to promote a more reliable electric 

system by promoting regional 

coordination and planning of the 

interstate grid through regional 

independent system operators (ISOs) 

and regional transmission organizations 

(RTOs), adopting transmission pricing 

policies that provide price signals for 

the most reliable and efficient operation 

and expansion of the grid, and 

providing pricing incentives at the 

wholesale level for investment in grid 

improvements and assuring recovery of 

costs in wholesale transmission rates. 

Section 215 of the FPA buttresses the 

Commission’s efforts to strengthen the 

reliability of the interstate grid through 

the grant of new authority which 

provides for a system of mandatory 

Reliability Standards developed by the 

ERO and reviewed and approved by the 

Commission. The ERO can initiate an 

enforcement action and impose 

penalties for the violation of Reliability 

Standards, subject to Commission 

review; or the Commission can initiate 

its own enforcement action. 

B. Voluntary Reliability Standards 

3. In the aftermath of the 1965 

blackout in the northeast United States, 

the electric industry established the 

North American Electric Reliability 

Council (NERC), a voluntary reliability 

organization. Since its inception, NERC 

has developed Operating Policies and 

Planning Standards that provide 

53118 Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 

2The Electric Power Outages in the Western 

United States, July 2–3, 1996, at 76 (ftp:// 

www.nerc.com/pub/sys/all_updl/docs/pubs/ 

doerept.pdf) and WSCC Disturbance Report, For the 

Power System Outage that Occurred on the Western 

Interconnection August 10, 1996, at 4 (ftp:// 

www.nerc.com/pub/sys/all_updl/docs/pubs/ 

AUG10FIN.pdf). 

3 Maintaining Reliability in a Competitive U.S. 

Electricity Industry, Final Report of the Task Force 

on Electric System Reliability, Secretary of Energy 

Advisory Board, U.S. Department of Energy 

(September 1998), at 25–27, 65–67. 

4The joint team, known as the U.S.-Canada 

Power System Outage Task Force, issued a Final 

Report on the August 14, 2003 Blackout In the 

United States and Canada: Causes and 

Recommendations (Final Blackout Report) on April 

5, 2004, which presented an in-depth analysis of 

the causes of the blackout and recommendations for 

avoiding future blackouts. 

5 Final Blackout Report, at 140–42. 

6Policy Statement on Matters Related to Bulk 

Power System Reliability, 107 FERC ¶ 61,052, order 

on clarification, 108 FERC ¶ 61,288 (2004). 

7Reporting By Transmission Providers on 

Vegetation Management Practices Related To 

Designated Transmission Facilities, 107 FERC 

¶ 61,053 (2004). This order was issued pursuant to 

FPA section 311, which authorizes the Commission 

to secure information necessary or appropriate as a 

basis for recommending legislation. The 

Commission submitted a report to Congress in 

September 2004 that set forth the Commission’s 

findings and recommendations, including the need 

for mandatory, enforceable reliability rules. 

8A copy of these principles has been placed in 

the public record of this docket. We invite 

comments on these principles. 9 In addition, this proposed rule is consistent 

with many of the other bilateral principles, such as 

the requirement for the independence of the ERO’s 

board; the requirement that all owners, users and 

operators of the bulk-power system must comply 

with approved reliability standards; and a number 

of the suggested Enforcement Principles. Also, the 

fact that the statute does not authorize the U.S. 

Government to appoint members to the ERO’s board 

is consistent with the bilateral principles. Similarly, 

we propose to preclude Commission officials from 

serving on the board. 10See supra n. 3. 11S. 2071, 106th Cong. (2000). An identical bill, 

H.R. 4881, was not voted on by the House of 

Representatives. 12Report of the National Energy Policy 

Development Group, May 2001, at p. 7–6. 

voluntary guidelines for operating and 

planning the North American bulkpower system. In April 2005, NERC 

adopted ‘‘Version 0’’ reliability 

standards that translated the NERC 

Operating Policies, Planning Standards 

and compliance requirements into a 

comprehensive set of measurable 

standards. While NERC has developed a 

compliance enforcement program to 

ensure compliance with the reliability 

standards it has developed, industry 

compliance is still voluntary and not 

subject to mandatory enforcement 

penalties. Although NERC’s efforts have 

been important in maintaining the 

reliability of the nation’s bulk-power 

system, NERC itself has recognized the 

need for mandatory, enforceable 

reliability standards and has been a 

proponent of legislation to establish a 

Commission-jurisdictional ERO that 

would propose and enforce mandatory 

reliability standards. 

4. A common cause of the past three 

major regional blackouts was violation 

of NERC’s then Operating Policies and 

Planning Standards. During July and 

August 1996, the west coast of the 

United States experienced two 

cascading blackouts caused by 

violations of voluntary Operating 

Policies.2 In response to the outages, the 

Secretary of Energy convened a task 

force to advise the U.S. Department of 

Energy (DOE) on issues needed to be 

addressed to maintain the reliability of 

the bulk-power system. In a September 

1998 report, the task force 

recommended, among other things, that 

federal legislation should grant more 

explicit authority for the Commission to 

approve and oversee an organization 

having responsibility for bulk-power 

reliability standards.3 Further, the task 

force recommended that such legislation 

provide for Commission jurisdiction for 

reliability of the bulk-power system and 

Commission implementation of 

mandatory, enforceable reliability 

standards. 

5. On August 14, 2003, a blackout 

affected significant portions of the 

Midwest and Northeast United States, 

and Ontario, Canada. This blackout 

affected an area with an estimated 50 

million people and 61,800 megawatts of 

electric load. A joint U.S.-Canada task 

force studied the causes of the August 

14, 2003 blackout and determined that 

several entities violated NERC’s then 

Operating Policies and Planning 

Standards, and those violations directly 

contributed to the start of the blackout.4

The joint task force, in its 

recommendations to prevent or 

minimize the scope of future blackouts, 

identified the need for legislation to 

make reliability standards mandatory 

and enforceable, with penalties for noncompliance.5

6. In the wake of the August 14, 2003 

blackout, the Commission has taken a 

more direct and pro-active role in 

transmission reliability matters. 

Commission staff helped to lead and 

conduct the joint U.S.-Canada 

investigation of the August 2003 

blackout. In April 2004, the Commission 

issued a Reliability Policy Statement,6

which clarified its power grid reliability 

policies and objectives, and completed 

several Commission-designated 

recommendations of the 2003 Task 

Force. 

7. Also, as part of the Commission’s 

efforts to promote grid reliability, the 

Commission has created a new Division 

of Reliability within the Office of 

Markets, Tariffs and Rates. One task of 

this new division has been to participate 

in NERC’s Reliability Readiness 

Reviews of balancing authorities, 

transmission operators and reliability 

coordinators in North America to 

determine their readiness to maintain 

safe and reliable operations. The 

Commission also directed transmission 

owners to report, by June 2004, on the 

vegetation management practices they 

use for transmission lines and rights-ofway.7 The Commission’s Reliability 

Division has also engaged in studies and 

other activities to assess the longer-term 

and strategic needs and issues related to 

power grid reliability. The Commission 

has held several workshops and 

technical conferences to address 

reliability issues including transition to 

the NERC reliability standards, operator 

tools, and reactive power. 

8. Stakeholders in the electric utility 

industry have also participated in 

dialogues on the international 

implications of the ERO and CrossBorder Regional Entities during three 

public bilateral workshops held in the 

United States and Canada. On August 9, 

2005, the Federal-Provincial-Territorial 

(FPT) Working Group in Canada and 

DOE jointly submitted to the 

Commission ‘‘Principles for an Electric 

Reliability Organization that Can 

Function on an International Basis’’

(bilateral principles) based on these 

stakeholder dialogues 8 A number of 

bilateral principles are incorporated into 

the NOPR, and the Commission asks 

questions and seeks comment on the 

bilateral principles. In this regard, we 

note that the Commission’s proposed 

rule would allow the approved ERO or 

a Cross-Border Regional Entity to take 

appropriate steps to be recognized in 

Mexico or Canada as embedded in the 

principles. For example, in accordance 

with section 215(c)(2)(E) of the FPA, we 

expect the ERO and any Regional 

Entities to take such steps as relevant 

Mexican and Canadian authorities may 

require to have standing in those 

nations.9

C. Electric Reliability Legislation 

9. Electric reliability legislation was 

first proposed after issuance of the 

September 1998 task force report,10 and 

was a common feature of 

comprehensive electricity bills since 

that time. A stand-alone electric 

reliability bill was passed by the Senate 

unanimously in 2000.11 In 2001, 

President Bush proposed making 

electric Reliability Standards mandatory 

and enforceable as part of the National 

Energy Policy.12 On August 8, 2005, the 

Electricity Modernization Act of 2005 

Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53119 

13Section 201(f) of the FPA, 16 U.S.C. 824(f), as 

modified by Subtitle H, section 1291(c) of the 

Energy Policy Act of 2005, states that ‘‘[n]o 

provision in this Part shall apply to, or be deemed 

to include, the United States, a state or any political 

subdivision of a State, an electric cooperative that 

receives financing under the Rural Electrification 

Act of 1936 (7 U.S.C. 901 et seq.) or that sells less 

than 4,000,000 megawatt hours of electricity per 

year, or any agency, authority, or instrumentality of 

any one or more of the foregoing, or any corporation 

which is wholly owned, directly or indirectly, by 

any one or more of the foregoing, or any officer, 

agent, employee of any of the foregoing acting as 

such in the course of his official duty, unless such 

provision makes specific reference thereto.’’

was enacted into law by President Bush. 

This important new energy legislation 

adds to the FPA a new provision which 

buttresses the Commission’s efforts to 

strengthen the reliability of the 

interstate transmission grid. 

Specifically, the new section 215 of the 

FPA provides for a system of 

mandatory, enforceable Reliability 

Standards. Reliability Standards are to 

be developed by the ERO, subject to 

Commission review and approval; and, 

once approved, standards may be 

enforced by the ERO, subject to the 

Commission’s review. 

10. The statute directs the 

Commission to issue a final rule to 

implement the requirements of section 

215 no later than 180 days after 

enactment, or by February 5, 2006. 

Below, we summarize the provisions of 

Subtitle A of the Electricity 

Modernization Act of 2005: 

11. Section 215(a) defines relevant 

terms used in the Act. 

12. Section 215(b) (Jurisdiction and 

Applicability) provides that, for 

purposes of approving Reliability 

Standards and enforcing compliance 

with such standards, the Commission 

shall have jurisdiction over the certified 

ERO, any Regional Entities, and all 

users, owners and operators of the bulkpower system, including but not limited 

to the public and governmental entities 

described in section 201(f) of the FPA.13

Section 215(b)(2) requires the 

Commission to issue a final rule to 

implement the requirements of the 

section no later than 180 days after the 

date of enactment. 

13. Section 215(c) (Certification) 

authorizes the Commission to certify a 

person as an ERO, provided that the 

applicant meets specified criteria. 

14. Section 215(d) (Reliability 

Standards) provides the process for the 

ERO to propose Reliability Standards, 

subject to Commission review and 

approval. This subsection also directs 

the Commission to adopt rules to 

provide fair processes for the 

identification and timely resolution of 

any conflict between a Reliability 

Standard and any function, rule, order, 

tariff, rate schedule, or agreement 

accepted, approved, or ordered by the 

Commission applicable to a 

transmission organization. 

15. Section 215(e) (Enforcement) 

authorizes the ERO, after notice and 

opportunity for hearing, to impose a 

penalty for a violation of a Reliability 

Standard; subject to review by the 

Commission. This section also provides 

for enforcement initiated by the 

Commission on its own motion. This 

subsection also requires that the 

Commission issue regulations under 

which the ERO will be authorized to 

enter into an agreement to delegate 

authority to a qualified Regional Entity 

for the purpose of proposing Reliability 

Standards to the ERO and enforcing 

such standards. Further, section 215(e) 

requires that any penalty imposed shall 

bear a reasonable relation to the 

seriousness of the violation and take 

into consideration timely remedial 

efforts. 

16. Section 215(f) (Changes In Electric 

Reliability Organization Rules) requires 

Commission approval of any proposed 

ERO rule or proposed rule change. 

17. Section 215(g) (Reliability 

Reports) requires that the ERO conduct 

periodic assessments of the reliability 

and adequacy of the North American 

bulk-power system. 

18. Section 215(h) (Coordination With 

Canada and Mexico) urges the President 

to negotiate international agreements 

with the governments of Canada and 

Mexico to provide for effective 

compliance with Reliability Standards 

and the effectiveness of the ERO in the 

United States and Canada or Mexico. 

19. Section 215(i) (Savings Provisions) 

states that the ERO shall have authority 

to develop and enforce compliance with 

Reliability Standards for only the bulkpower system and makes clear that 

section 215 of the FPA shall not be 

construed to preempt any authority of 

any state to take action to ensure the 

safety, adequacy, and reliability of 

electric service within that state, as long 

as such action is not inconsistent with 

any Reliability Standard. 

20. Section 215(j) (Regional Advisory 

Bodies) requires the Commission to 

establish Regional Advisory Bodies 

upon petition of at least 2⁄3 of the states 

within a region that have more than 1⁄2

of their electric load served within the 

region; such Regional Advisory Bodies 

may provide advice to the ERO, a 

Regional Entity, or the Commission. 

21. Section 215(k) (Application to 

Alaska and Hawaii) provides that 

section 215 of the FPA does not apply 

to Alaska or Hawaii. 

22. Subtitle A of the Electricity 

Modernization Act of 2005 also includes 

two reliability-related provisions that 

are not part of new section 215 of the 

FPA. First, section 1211(b) of the Act 

provides that the ERO certified by the 

Commission as well as Regional Entities 

are not departments, agencies or 

instrumentalities of the United States 

Government. Second, section 1211(c) 

provides that federal agencies 

responsible for approving access to 

electric transmission or distribution 

facilities located on lands within the 

United States shall, in accordance with 

applicable law, expedite any federal 

agency approvals that are necessary to 

allow the owners or operators of such 

facilities to comply with a Commissionapproved Reliability Standard that 

pertains to vegetation management, 

electric service restoration, or resolution 

of situations that imminently endanger 

the reliability or safety of the facilities. 

III. Discussion 

A. The Commission’s Reliability 

Proposal 

23. The Commission’s proposed 

reliability regulation is entitled, Rules 

Concerning Certification of the Electric 

Reliability Organization; and 

Procedures for the Establishment, 

Approval and Enforcement of Electric 

Reliability Standards. The proposed 

regulation is generally limited to 

developing and implementing the 

processes and procedures that section 

215 of the FPA directs the Commission 

to develop and undertake with regard to 

the formation and functions of the ERO 

and Regional Entities. Section 215(b) 

obligates all users, owners and operators 

of the bulk-power system to comply 

with Reliability Standards that become 

effective pursuant to the processes set 

forth in the statute. The complete text of 

the proposed rule is provided in the 

Attachment to this notice of proposed 

rulemaking (NOPR). 

24. The proposed regulation is 

organized into twelve sections: 

Section 38.1—Definitions; 

Section 38.2—Jurisdiction and 

Applicability; 

Section 38.3—Electric Reliability 

Organization Certification; 

Section 38.4—Approval of Reliability 

Standards; 

Section 38.5—Enforcement of 

Reliability Standards; 

Section 38.6—Enforcement of 

Commission Rules and Orders; 

Section 38.7—Delegation of Certain 

Electric Reliability Organization 

Authority to Regional Entities; 

Section 38.8—Changes in Electric 

Reliability Organization Rules and 

Regional Entity Rules; 

Section 38.9—Process for Resolution of 

Conflicts With a Reliability Standard; 

53120 Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 

Section 38.10—Procedures for 

Establishment and Recognition of 

Regional Advisory Bodies; 

Section 38.11—Reliability Reports; 

Section 38.12—Review of State Action, 

and 

Section 38.13—Funding of the Electric 

Reliability Organization. 

B. Summary of the Commission’s 

Reliability Rule Proposal 

1. Definitions—Section 38.1 

25. Section 38.1 of the proposed 

regulations defines relevant terms used 

in the Act. Each definition is based on 

a corresponding definition contained in 

section 215 of the FPA, except as 

otherwise noted. 

26. The term ‘‘Bulk-Power System’’

means facilities and control systems 

necessary for operating an 

interconnected electric energy 

transmission network (or any portion 

thereof), and electric energy from 

generating facilities needed to maintain 

transmission system reliability. The 

term does not include facilities used in 

the local distribution of electric energy. 

27. The term ‘‘Cross-Border Regional 

Entity’’ means a Regional Entity for 

which the size and scope includes a 

portion of Canada or Mexico. 

28. The term ‘‘Cybersecurity Incident’’

means a malicious act or suspicious 

event that disrupts, or was an attempt to 

disrupt, the operation of those 

programmable electronic devices and 

communications networks including 

hardware, software and data that are 

essential to the Reliable Operation of the 

Bulk-Power System. 

29. The term ‘‘Electric Reliability 

Organization’’ or ‘‘ERO’’ means the 

organization certified by the 

Commission the purpose of which is to 

establish and enforce Reliability 

Standards for the Bulk-Power System, 

subject to Commission review. 

30. The legislation distinguishes 

between the terms ‘‘Reliability 

Standards’’ and ‘‘rules.’’ The former 

refers to Commission-approved, 

substantive standards that provide for 

Reliable Operation of the Bulk-Power 

System. In contrast, ‘‘rules’’ refer to the 

internal procedures of the ERO or any 

particular Regional Entity. Accordingly, 

to maintain this distinction, the 

Commission proposes the following 

definition of the term ‘‘ERO Rules’’ for 

purposes of this NOPR: the bylaws, 

rules of procedure and other 

organizational rules and protocols of the 

ERO. The Commission proposes to 

define the term ‘‘Regional Entity Rules’’

as the bylaws, rules of procedure and 

other organizational rules and protocols 

of a Regional Entity. 

31. The term ‘‘Interconnection’’

means a geographic area in which the 

operation of Bulk-Power System 

components is synchronized such that 

the failure of one or more of such 

components may adversely affect the 

ability of the operators of other 

components within the system to 

maintain Reliable Operation of the 

facilities within their control. 

32. The term ‘‘Regional Advisory 

Body’’ is used in the statute but not 

defined. For purposes of our 

regulations, the Commission proposes to 

define the term as follows: an entity 

established upon petition to the 

Commission pursuant to section 215(j) 

of the FPA that is organized to advise 

the ERO, a Regional Entity, or the 

Commission regarding certain 

reliability-related matters in accordance 

with section 38.9 of the proposed 

regulation. 

33. The term ‘‘Regional Entity’’ means 

an entity having enforcement authority 

pursuant to section 38.6 of the proposed 

regulation. 

34. The term ‘‘Reliable Operation’’

means operating the elements of the 

Bulk-Power System within equipment 

and electric system thermal, voltage, 

and stability limits so that instability, 

uncontrolled separation, or cascading 

failures of such system will not occur as 

a result of a sudden disturbance, 

including a Cybersecurity Incident, or 

unanticipated failure of system 

elements. 

35. The term ‘‘Reliability Standard’’

means a requirement, approved by the 

Commission under the instant proposed 

regulation, to provide for Reliable 

Operation of the Bulk-Power System. 

The term includes requirements for the 

operation of existing Bulk-Power 

System facilities, including 

cybersecurity protection, and the design 

of planned additions or modifications to 

such facilities to the extent necessary to 

provide for Reliable Operation of the 

Bulk-Power System. The term does not 

include any requirement to enlarge such 

facilities or to construct new 

transmission capacity or generation 

capacity. 

36. The term ‘‘Transmission 

Organization’’ means an RTO, ISO, 

independent transmission provider, or 

other Transmission Organization finally 

approved by the Commission for the 

operation of transmission facilities. 

2. Jurisdiction and Applicability—

Section 38.2 

37. Proposed regulation section 38.2 

provides for Commission jurisdiction 

over the ERO, any Regional Entities, and 

all users, owners and operators of the 

Bulk-Power System within the United 

States (other than Alaska and Hawaii) 

including, but not limited to, the 

entities described in section 201(f) of 

the FPA, for the purposes of approving 

and enforcing Reliability Standards 

established by the Commission in 

accordance with this new regulation. 

3. Electric Reliability Organization 

Certification—Section 38.3 

38. Proposed regulation section 38.3 

provides that any person may submit an 

application to the Commission for 

certification as the ERO within sixty 

(60) days following the issuance of a 

new final regulation. This provision 

provides for the Commission to certify 

one applicant as the ERO, if the 

Commission determines such applicant 

meets certain criteria. Paragraph (b)(1) 

of proposed section 38.3 provides that 

the applicant must demonstrate that it 

has the ability to develop and enforce 

Reliability Standards that provide for an 

adequate level of reliability of the BulkPower System. 

39. The Commission interprets 

section 215 of the FPA to mean that an 

ERO certified by the Commission shall 

comply with the certification criteria on 

an ongoing basis, and that a violation of 

the certification criteria constitutes a 

violation of the FPA. Accordingly, as 

discussed below with respect to section 

38.6(a) and (b), the Commission will 

conduct periodic compliance audits 

and, if it finds a violation of the ERO 

certification criteria, the Commission 

may suspend the ERO’s certification or 

decertify the ERO and solicit new 

applications for ERO certification. 

40. Section 38.3(b)(2) provides that 

the applicant must document that it has 

established rules that assure its 

independence of the users, owners and 

operators of the Bulk-Power System 

while assuring stakeholder 

representation in the selection of its 

directors and balanced decisionmaking 

in any ERO committee or subordinate 

organizational structure. Pursuant to 

section 215(c)(2)(B) of the FPA, section 

38.3(b)(2)also provides that such ERO 

rules allocate equitably reasonable dues, 

fees and charges among end users for all 

activities under this new reliability 

regulation. Section 38.3(b)(2) further 

provides that such ERO rules are to be 

fair and impartial procedures for 

enforcement of Reliability Standards 

through the imposition of penalties, 

including limitations on activities, 

functions or operations, or other 

appropriate sanctions. 

41. In addition, section 38.3(b)(2) 

provides that such ERO rules are to 

provide for reasonable notice and 

opportunity for public comment, due 

process, openness, and balance of 

Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53121 

interests in developing Reliability 

Standards, and otherwise exercising its 

duties. Paragraph (b)(2) of proposed 

section 38.3 provides that such ERO 

rules must include appropriate steps, 

after certification by the Commission as 

the ERO, to gain recognition in Canada 

and Mexico. 

42. Paragraph (c) of section 38.3 

requires an ERO certified by the 

Commission to periodically submit to 

the Commission an application to be 

recertified as the ERO. We seek 

comments on what would constitute a 

reasonable length of time for such 

periodic certification to be effective. For 

example, is a five-year certification 

period appropriate? How far in advance 

should an ERO be required to submit its 

application for recertification before its 

current certification period expires? 

43. In addition to seeking comment on 

the above proposal, we seek comments 

on whether the term ‘‘end users’’ should 

be defined for purposes of the ERO’s 

equitable allocation of reasonable dues, 

fees and charges among end users? 

Should ‘‘end users’’ be defined as 

customers using net energy for load? 

Should the term ‘‘end users’’ be defined 

in terms of those who directly or 

indirectly use the transmission system 

since ‘‘Bulk-Power System’’ is defined 

to exclude facilities used in local 

distribution of electric energy? Should 

‘‘end users’’ be limited to entities 

transmitting electricity through the 

transmission facilities of others? Or, 

might ‘‘end users’’ include the 

transmission facility owners and 

operators whose businesses depend on 

the reliable operations of the 

interconnected Bulk-Power System? 

4. Approval of Reliability Standards—

Section 38.4 

44. Paragraph (a) of proposed 

regulation section 38.4 provides that the 

ERO must consider and develop 

Reliability Standards and modifications 

to be applicable to the entire BulkPower System or a particular region or 

Interconnection. The ERO shall file each 

Reliability Standard or modification to a 

Reliability Standard that it proposes to 

be made effective under this section 

with the Commission. The ERO’s filing 

shall state the purpose of the standard 

and a summary of its development. 

45. Section 215(d)(2) of the FPA 

requires that the Commission give due 

weight to the technical expertise of the 

ERO with respect to the content of a 

proposed Reliability Standard or 

modification to a Reliability Standard. 

Likewise, the statute requires that the 

Commission give due weight to the 

technical expertise of a Regional Entity 

organized on an Interconnection-wide 

basis with respect to a Reliability 

Standard to be applicable within that 

Interconnection. Further, section 

215(d)(3) of the FPA provides for a 

rebuttable presumption that a Reliability 

Standard or a modification to a 

Reliability Standard to be applicable on 

an Interconnection-wide basis is just, 

reasonable, not unduly discriminatory 

or preferential, and in the public 

interest, if such proposal is from a 

Regional Entity organized on an 

Interconnection-wide basis. 

46. The statute, however, is silent 

regarding deference to Regional Entities 

not organized on an Interconnectionwide basis. Accordingly, the 

Commission interprets sections 

215(d)(2) and (3) as not requiring the 

Commission to give due weight to the 

technical determinations of Regional 

Entities not organized on an 

Interconnection-wide basis or creating a 

presumption with regard to the 

reasonableness of any Reliability 

Standard proposed by such Regional 

Entities for consideration by the ERO. In 

addition, the Commission expects a 

greater level of uniformity among 

Reliability Standards approved for 

Regional Entities not organized on an 

Interconnection-wide basis. 

47. Paragraph (b) provides that that 

the Commission may approve by rule or 

order a proposed Reliability Standard or 

a modification to a Reliability Standard 

if it determines that the standard is just, 

reasonable, not unduly discriminatory 

or preferential, and in the public 

interest. The Commission generally 

anticipates that it will provide notice 

and opportunity for hearing of any 

proposed Reliability Standard or a 

modification to a Reliability Standard. 

The Commission shall give due weight 

to the technical expertise of the ERO 

with respect to the content of a 

proposed Reliability Standard or 

modification to a Reliability Standard 

and give due weight to the technical 

expertise of a Regional Entity organized 

on an Interconnection-wide basis with 

respect to a Reliability Standard to be 

applicable within that Interconnection. 

48. Proposed Section 38.4(b)(3) 

provides that the Commission will not 

defer to the ERO or a Regional Entity 

with respect to the effect of a Reliability 

Standard or modification to a Reliability 

Standard on competition. How should 

the Commission define ‘‘competition’’

in this context? Commenters are asked 

to provide examples regarding the effect 

of a Reliability Standard on 

competition. 

49. Paragraph (c) provides that an 

approved Reliability Standard or a 

modification to a Reliability Standard 

shall take effect as approved by the 

Commission. Paragraph (d) provides 

that the ERO shall rebuttably presume 

that a proposal from a Regional Entity 

organized on an Interconnection-wide 

basis for a Reliability Standard or a 

modification to a Reliability Standard to 

be applicable on an Interconnectionwide basis is just, reasonable, not 

unduly discriminatory or preferential, 

and in the public interest, if such 

proposal is from a Regional Entity 

organized on an Interconnection-wide 

basis. 

50. Consistent with section 215(d)(4) 

of the FPA, paragraph (e) of proposed 

regulation section 38.4 provides that the 

Commission shall remand to the ERO 

for further consideration a proposed 

Reliability Standard or modification to a 

Reliability Standard that the 

Commission disapproves in whole or 

part. 

51. Paragraph (f) provides that the 

Commission may, upon its own motion 

or a complaint, order the ERO to submit 

a proposed Reliability Standard or 

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 section 215 of 

the FPA. 

52. Paragraph (g) provides that the 

Commission may, upon its own motion 

or complaint, review a previouslyapproved Reliability Standard. If, after 

notice and opportunity for hearing, the 

Commission determines that the 

Reliability Standard, or any provision of 

the Reliability Standard, no longer 

meets the statutory (and regulatory) 

standard for approval of Reliability 

Standards, i.e., it is found to be unjust 

or unreasonable, unduly discriminatory 

or preferential, or not in the public 

interest, the Commission may remand it 

to the ERO or the relevant Regional 

Entity. The statute allows us to order the 

ERO to submit a modification to a 

Reliability Standard, and we construe 

this authority as allowing a remand of 

a previously-approved Reliability 

Standard. 

53. Because the Commission’s options 

are limited by FPA section 215 to either 

accepting or remanding a proposed 

Reliability Standard, the Commission is 

concerned that, while a circumstance 

may arise where it is necessary to 

remand a proposed Reliability Standard 

to the ERO, this may result in a period 

of time in which there is no mandatory, 

enforceable standard in place for a 

particular area of bulk system reliability. 

Accordingly, to minimize this 

possibility, paragraph (h) provides that 

the Commission, when remanding a 

Reliability Standard, may state a 

deadline by which the ERO must 

53122 Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 

resubmit the proposed Reliability 

Standard with revisions that address the 

reasons for the remand. Failure to meet 

such a deadline would constitute a 

violation of the FPA. 

54. In addition to seeking comment on 

the above proposal, the Commission 

seeks comment on whether the 

Commission has authority to void a 

previously-accepted Reliability 

Standard. If the Commission has such 

authority, is it beneficial to have such a 

provision in the Commission’s 

regulations? 

55. Section 215(d) of the FPA and 

proposed regulation section 38.4 

provide that the Commission may 

approve a proposed Reliability Standard 

or modification to a proposed Reliability 

Standard if it determines that the 

standard is ‘‘just, reasonable, not unduly 

discriminatory or preferential, and in 

the public interest.’’ The Commission 

seeks comment on how this standard 

should be applied in the context of 

reviewing proposed Reliability 

Standards. 

56. We note that the bilateral 

principles specify that membership in 

the ERO should not be a condition for 

participation in the ERO’s reliability 

development process. We seek 

comments on whether membership in 

the ERO or a Regional Entity should not 

be a condition for participation in the 

ERO’s or a Regional Entity’s standards 

development processes. 

57. The Commission notes that the 

bilateral principles include a provision 

that if a standard is remanded by a 

regulatory authority, the ERO should 

notify all relevant regulatory authorities 

and should work to ensure that all 

concerns of such regulatory authorities 

are addressed prior to resubmission of 

the standard to the Commission and 

authorities in Canada. (1) Should the 

proposed rule specify this process? (2) 

What are the implications of the remand 

by a Canadian authority of a Reliability 

Standard that has been approved by the 

Commission? Also, should the ERO 

certification criteria specify that the 

number of board members representing 

each participating country in the ERO, 

and the opportunities for each country 

to have an equitable number of members 

on all committees, must be in rough 

proportion to total load? 

5. Enforcement of Reliability 

Standards—Section 38.5 

58. Paragraph (a) of proposed 

regulation section 38.5 provides that the 

ERO or a Regional Entity meeting the 

requirements of section 215(e)(4)(A), (B) 

and (C) may impose, subject to 

paragraph (d), a penalty on a user, 

owner or operator of the Bulk-Power 

System for a violation of a Reliability 

Standard approved by the Commission 

if the ERO or the Regional Entity, after 

notice and opportunity for hearing, 

finds that the user, owner or operator 

has violated a Reliability Standard 

approved by the Commission and files 

notice and the record of the ERO’s or the 

Regional Entity’s proceeding with the 

Commission. 

59. Paragraph (b) provides that a 

Regional Entity shall file notice with the 

ERO of any enforcement action it takes. 

Paragraph (c) provides that any notice of 

an enforcement action, whether by the 

ERO or a Regional Entity, shall consist 

of the name of the entity against whom 

the action was taken, and include 

statements describing the enforcement 

action and findings of fact with respect 

to the act or practice that led to the 

enforcement action, the sanction 

imposed, the record of the proceeding 

and other relevant matters. 

60. Paragraph (d) provides that a 

penalty imposed under paragraph (a) 

may take effect not earlier than the 

thirty-first (31st) day after the ERO files 

with the Commission notice of penalty 

and the record of the proceedings. Such 

penalty shall be subject to review by the 

Commission, either on its own motion 

or upon application by the user, owner 

or operator of the Bulk-Power System 

that is the subject of the penalty filed 

within thirty (30) days after the date 

such notice is filed with Commission. If 

the review process is not initiated 

during the 30-day period, the 

enforcement action will be confirmed by 

operation of law. 

61. Paragraph (d) also provides that an 

application to the Commission for 

review, or the initiation of review by the 

Commission on its own motion, shall 

not operate as a stay of such penalty 

unless the Commission otherwise orders 

upon its own motion or upon 

application by the user, owner or 

operator that is the subject of such 

penalty. In any proceeding to review a 

penalty imposed under paragraph (a), 

the Commission, after notice and 

opportunity for hearing (which hearing 

may consist solely of the record before 

the ERO and the opportunity for the 

presentation of supporting reasons to 

affirm, modify, or set aside the penalty), 

shall by order affirm, set aside or modify 

the penalty and, if appropriate, remand 

to the ERO for further proceedings. 

62. Section 215(e) of the FPA as well 

as proposed section 38.5 of our 

regulations regarding enforcement of 

Reliability Standards provides for 

public notice and opportunity for a 

hearing with respect to both the ERO (or 

Regional Entity) enforcement 

proceedings and proceedings before the 

Commission involving review of a 

proposed penalty. Paragraph (d)(8) of 

proposed section 38.5 would provide a 

limited exception to this notice 

requirement and allow non-public 

proceedings for enforcement actions 

that involve a Cybersecurity Incident, 

unless the Commission determines on a 

case-by-case basis that such protection 

is not necessary. The Commission has in 

place procedures to prevent the 

disclosure of sensitive information, such 

as the use of protective orders and rules 

establishing critical energy 

infrastructure information (CEII). 

However, the Commission believes that 

the specific, limited area of 

Cybersecurity Incidents requires 

additional protections because it is 

possible that system security and 

reliability would be further jeopardized 

by the public dissemination of 

information involving incidents that 

compromise the cybersecurity system of 

a specific user, owner or operator of the 

Bulk-Power System. The specific user, 

owner or operator would be notified of 

the enforcement action and provided an 

opportunity for a hearing. The 

Commission believes that this will 

provide acceptable due process to the 

specific owner, user or operator while 

preventing a further compromise in 

reliability. 

63. The Commission seeks comment 

on this proposal and, in addition, seeks 

comment on (1) whether the proposal 

provides sufficient due process and (2) 

the identification of other specific 

events that should be subject to nonpublic hearing procedures. 

64. Further, section 215(e)(2) of the 

FPA directs the Commission to 

implement expedited hearing 

procedures for the review of penalties 

imposed by the ERO or Regional 

Entities. Accordingly, paragraph (d), 

subparagraphs (5) through (7), set forth 

expedited procedures for Commission 

review of penalties. 

65. Paragraph (e) of proposed 

regulation section 38.5 provides that, on 

its own motion or upon complaint, the 

Commission may order compliance with 

a Reliability Standard and may impose 

a penalty against a user, owner or 

operator of the Bulk-Power System, if 

the Commission finds, after notice and 

opportunity for hearing, that the user, 

owner or operator of the Bulk-Power 

System has engaged or is about to 

engage in any acts or practices that 

constitute or will constitute a violation 

of a Reliability Standard. 

66. Paragraph (f) provides that any 

penalty imposed for the violation of a 

Reliability Standard shall bear a 

reasonable relation to the seriousness of 

the violation and shall take into 

Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53123 

14 Depending on the violation, the Sanction 

Guidelines provide for monetary sanctions up to 

$100,000, and in certain egregious cases, the NASD 

may consider a monetary sanction in excess of 

$100,000. Schedule A to the Sanction Guidelines 

specifies that violations are generally not subject to 

non-monetary sanctions when monetary sanctions 

of $5,000 or less are imposed. 

15The NFA Compliance rules provide for 

monetary fines not to exceed $250,000 per violation 

and the following non-monetary penalties: 

expulsion or suspension for a specified period from 

NFA membership; bar or suspension for a specified 

period from association with an NFA Member; 

censure or reprimand; order to cease and desist; and 

any other fitting penalty or remedial action not 

inconsistent with the NFA Compliance rules. 

16See NASD Rule 9311: Appeal by Any Party; 

NYSE Rule 476: Disciplinary Proceedings Involving 

Charges Against Members, Member Organizations, 

Allied Members, Approved Persons, Employees, or 

Others; NYMEX, NYMEX.com: Exchange Rule 

Book, Rule 8.13 Appeals; CBOT, Rules & 

Regulations: Chapter 5 Disciplinary Proceedings, 

540.05 Appeals from a Decision of a Disciplinary 

Committee. 

17A CBOT appellate committee’s decision can be 

appealed to the CBOT’s Board of Directors. 

consideration efforts of such user, 

owner or operator of the Bulk-Power 

System to remedy the violation in a 

timely manner. The Commission 

believes that the imposition of penalties 

should not be limited to monetary 

penalties and may include limitations 

on activities, functions, operations, or 

other appropriate sanctions, including 

the establishment of a publicly available 

reliability watch list composed of major 

violators. Monetary penalties shall be 

paid in a timely manner. The 

Commission may also consider 

intensive compliance audits for entities 

that have a high incidence of violations 

or whose violations are serious or the 

installation of Commission staff onsite 

to monitor entities that have a high 

incidence of violations or whose 

violations are particularly serious. 

67. In order that the Commission is 

able to perform its oversight function 

with regard to Reliability Standards that 

are proposed by the ERO and 

established by the Commission, it is 

essential that the Commission receive 

timely information regarding all 

potential violations of Reliability 

Standards. While section 215 of the FPA 

contemplates the filing of the record of 

an ERO or Regional Entity enforcement 

action, the Commission needs 

information regarding violations and 

potential violations at or near the time 

of occurrence. Accordingly, paragraph 

(g) of proposed section 38.5 requires 

that the ERO and all Regional Entities 

have in place procedures to notify the 

Commission of all violations and 

potential violations of Reliability 

Standards when the ERO or Regional 

Entity first notifies the user, owner or 

operator of the violation or potential 

violation. Such procedures must be 

submitted to the Commission within an 

application for certification as the ERO 

or an agreement to delegate authority to 

a Regional Entity. The Commission 

intends that notices of violations and 

potential violations will be filed 

electronically. All such reports of 

violations and potential violations shall 

include the entity’s name, when the 

violation or potential violation 

occurred, what standard was violated or 

potentially violated, and the name of a 

person knowledgeable about the 

violation or potential violation to serve 

as a point of contact to provide the 

Commission with further details on the 

matter, as they develop, on an ongoing 

basis. The Commission will provide 

more details on the format of such 

electronic filings in the final rule. 

Enforcement and Penalty Questions for 

Public Comment 

68. In addition to comment on the 

above proposed rules, the Commission 

seeks comment on a number of 

enforcement and penalty issues. The 

ERO’s and Regional Entities’

enforcement role under new section 215 

of the FPA is similar in some ways to 

the enforcement roles of existing selfregulatory organizations (SROs). For 

example, the National Association of 

Securities Dealers (NASD) and the 

National Futures Association (NFA), 

and securities and commodities 

exchanges, such as the New York Stock 

Exchange (NYSE), New York Mercantile 

Exchange (NYMEX), and the Chicago 

Board of Trade (CBOT), are SROs in the 

securities and commodities industries 

that are experienced in the enforcement 

of standards, assessment of penalties, 

and have penalty appeal processes, as 

summarized below. 

69. In general terms, individuals or 

firms doing securities business with the 

American public must register with 

NASD. Similarly, all persons and 

organizations that intend to do business 

as futures professionals must register 

with the NFA under the Commodity 

Exchange Act. The National 

Adjudicatory Council (NAC), the 

adjudicatory body of the NASD, has 

established the NASD Sanction 

Guidelines that provide direction for 

adjudicators in imposing sanctions 

consistently and fairly.14 The Sanction 

Guidelines also provide for nonmonetary sanctions including: 

suspensions, bars, and expulsions. The 

NFA Compliance Rules also provide for 

both monetary and non-monetary 

sanctions, which may be imposed at the 

conclusion of a disciplinary hearing or 

appeal.15

70. The NYSE, NYMEX, NASD, and 

the CBOT all have internal disciplinary 

procedures and rules, including the 

right to appeal a disciplinary decision.16

Following a plenary disciplinary 

proceeding, the appellate processes at 

the above-mentioned SROs are largely 

the same. First, the respondent files a 

notice of appeal to the SRO within a 

specified time which stays any penalty 

imposed pending the outcome of the 

appellate review. Second the matter 

goes before an appellate committee of 

the SRO comprised of at least two 

disinterested parties who evaluate the 

decision, evidence and penalty. Third, 

the appellate committee renders its 

decision in writing. With the exception 

of the CBOT, this decision is the final 

determination of the SRO.17 Fourth, the 

respondent may appeal the decision of 

the appellate committee (the Board of 

Directors in the case of CBOT) to the 

relevant federal regulatory body. The 

notice of appeal to the relevant 

regulatory body does not act as a stay of 

the complained of determination made 

by the self-regulatory organization 

unless the regulatory body otherwise 

orders. Finally, following a review by 

the relevant federal regulatory body, the 

respondent may pursue an appeal in the 

U.S. Courts of Appeals. 

71. With the above discussion in 

mind, the Commission invites public 

comment on the following questions 

regarding penalties or sanctions for 

violations of reliability rules: 

(1) What is the appropriate appeals 

process, if any, of an ERO or Regional 

Entity decision to impose a penalty? 

Would it be appropriate for the ERO or 

a Regional Entity with delegated 

enforcement authority to adopt 

enforcement, penalty and appeals 

processes similar to the SRO processes 

discussed above? Should appeals within 

the ERO be allowed before appeal to the 

Commission; should appeal of a penalty 

imposed by a Regional Entity be taken 

through the Regional Entity itself, with 

further appeal to the Commission; or 

should the appeal be through the ERO 

in the first instance, then to the 

Commission? 

(2) Should the Commission approve a 

penalty range or guidelines before the 

ERO can levy any penalty or sanction 

for violations, and, if so, should the 

penalty range or guidelines for a 

violation be submitted for Commission 

approval at the same time that the 

corresponding Reliability Standard is 

submitted to the Commission for 

approval? 

53124 Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 

18See http://www.eh.doe.gov/inpo/. 

(3) Should a single monetary penalty 

be prescribed for a violation of a 

particular standard or should a schedule 

of monetary penalties be prescribed 

from which to select at the time of an 

infraction depending upon relevant 

circumstances such as the number of 

repeat offenses or length of time before 

adequate corrections are made to bring 

the violator into compliance? 

(4) The Commission interprets section 

316A of the FPA, as amended by 

Congress in the Electricity 

Modernization Act of 2005, as 

establishing limits on monetary 

penalties for violation of Reliability 

Standards that may be imposed by the 

ERO, Regional Entities and the 

Commission. The Commission seeks 

comment on this interpretation. 

(5) Paragraph (d)(1) of proposed 

section 38.5 provides that the 

Commission will review a penalty on its 

own motion, or upon application of the 

entity that is the subject of the penalty. 

Should the Commission determine by 

rulemaking that certain categories of 

penalties should be automatically 

subject to Commission review? For 

example, should penalties above a 

certain dollar threshold automatically 

require Commission review? 

(6) What types of nonmonetary 

penalties, if any, are appropriate? 

(7) Who should receive, and what 

should be done with monies collected 

as monetary penalties? Should the 

monetary penalties collected by the ERO 

or Regional Entity be used to defray the 

cost of its enforcement program, or 

allocated to some other use? Would 

allowing the ERO or Regional Entity to 

use penalty money to fund an 

enforcement program create an 

appearance of impropriety? 

(8) The Commission notes that the 

bilateral principles include a provision 

calling for rigorous audits by the ERO 

and Regional Entities to ensure the 

capability to comply with and actual 

compliance with the Reliability 

Standards. The bilateral principles also 

provide for the ERO to take steps to 

ensure that auditors are properly trained 

and that the same audit standards apply 

to all audits conducted by the ERO and 

Regional Entities. Should the proposed 

rule specify these audits requirements 

as part of the ERO certification 

requirements and the Regional Entity 

certification and delegation 

requirements? 

(9) The Commission notes that the 

bilateral principles provide that RTOs 

and ISOs should not become Regional 

Entities, and that the Regional Entities 

should be distinct from the operators of 

the system, such as RTOs and ISOs. 

Should the proposed rule mandate this? 

What are the enforcement implications 

of an RTO or ISO that is a Regional 

Entity? Are there ways for an RTO or 

ISO to adequately separate its 

enforcement function from its 

ownership, use or operation of the BulkPower System to fully ensure the 

independence of the enforcement unit? 

What process should such an 

enforcement unit follow to insulate 

itself from its RTO or ISO organization 

so that it may undertake any 

enforcement actions that become 

necessary against the RTO or ISO? How 

would this comport with the 

requirements of section 215 of the FPA? 

(10) Paragraph (e) of proposed section 

38.5 states that the Commission may 

order compliance with a Reliability 

Standard and may impose a penalty if 

the Commission finds that the user, 

owner or operator of the Bulk-Power 

System has engaged or is about to 

engage in any acts or practices that 

constitute or will constitute a violation 

of a Reliability Standard. Should the 

Commission clarify in the rule that, in 

a situation where an entity is about to 

engage in an act that will constitute a 

violation of a Reliability Standard, 

Commission action will be in the form 

of a compliance order with the goal of 

preventing the violation from occurring; 

and further clarify that an entity that has 

engaged in an actual violation may be 

subject to both penalties and a 

compliance order? Are there situations 

that may warrant penalties where an 

entity is about to engage in activity that 

would violate a Reliability Standard but 

the activity was ultimately averted? 

(11) Paragraph (g) of proposed section 

38.5 requires that the ERO and all 

Regional Entities have in place 

procedures to notify the Commission of 

all violations and potential violations of 

Reliability Standards when the ERO or 

Regional Entity first notifies the user, 

owner or operator of the violation or 

potential violation. We seek comment 

on what confidentiality protections may 

be needed, particularly with regard to 

potential violations. For example, the 

Commission currently maintains 

confidential protection of other types of 

enforcement-related investigations 

pursuant to section 1b or our 

regulations, 18 CFR 1b (2005). Are 

similar protections needed here? 

72. The Commission recognizes that 

the Nuclear Regulatory Commission 

(NRC) has developed a nuclear power 

plant assessment program to enable it to 

arrive at objective conclusions about a 

licensee’s safety performance. The 

NRC’s assessments of plant performance 

are based on inspections, as well as 

analysis of certain performance 

indicators reported by the licensees. 

With this information, the NRC assigns 

each plant to one of five categories in an 

Action Matrix. A plant’s position in the 

Action Matrix determines the NRC’s 

response, which may include actions 

ranging from performing supplemental 

inspections, to meeting with 

management, to ordering a plant to be 

shut down. A summary of the Action 

Matrix is posted on the NRC website 

and is updated quarterly. In addition, 

the NRC communicates its assessment 

of plant performance in letters to 

licensees, typically semi-annually. 

These letters are also posted on the 

NRC’s website. The Commission seeks 

comment on the feasibility and 

appropriateness of adopting a reliability 

assessment program similar to the 

NRC’s nuclear power plant assessment 

program. Also, should the Commission 

establish a reliability watch list modeled 

on the NRC’s Action Matrix? What 

features of the NRC program should the 

Commission adopt? What other features 

might be added? 

73. The Commission also recognizes 

that the nuclear electric utility industry 

has formed the Institute of Nuclear 

Power Operations (INPO). The INPO is 

a technical organization whose mission 

is to promote the highest levels of safety 

and reliability—to promote excellence—

in the operation of nuclear electric 

generating plants.18 All U.S. utilities 

that operate commercial nuclear power 

plants are members of the INPO. The 

INPO complements the regulatory role 

of the NRC by providing a technical 

forum for the industry to collectively 

ensure reliable and safe nuclear 

operations. The INPO’s programs 

include an information sharing network, 

an equipment failure database, a 

national academy for nuclear training, 

events analysis, accreditation, 

operations evaluations, and monitoring 

of performance indicators. The 

Commission asks commenters to discuss 

which aspects of the INPO’s programs 

would serve as useful models for the 

ERO. What lessons can be drawn from 

INPO’s complementary role with the 

NRC? 

6. Enforcement of Commission Rules 

and Orders—Section 38.6 

74. Paragraph (a) of section 38.6 

provides that the Commission may take 

such action as is necessary and 

appropriate against the ERO or a 

Regional Entity to ensure compliance 

with a Reliability Standard or any 

Commission order affecting the ERO or 

a Regional Entity. The first clause of this 

provision tracks section 215(e)(5) of the 

FPA. In addition, paragraph (a) states 

Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53125 

that the possible remedial action taken 

pursuant to this provision includes, but 

is not limited to, suspension or 

rescission of the ERO’s certification or a 

Regional Entity’s delegation of 

authority, and violations of the FPA 

may mean possible imposition of civil 

penalties. Entities will be provided 

notice and opportunity for comment 

before the Commission takes such 

remedial action. 

75. Paragraph (b) of proposed section 

38.6 provides that the Commission will 

periodically audit and review the ERO’s 

and Regional Entities’ compliance with 

the statutory and regulatory criteria for 

certification and delegation of functions, 

respectively. 

76. What mechanism of review and 

methods of oversight should be used to 

assure the Commission that the ERO or 

a Regional Entity is meeting its 

responsibilities for monitoring 

compliance with the Reliability 

Standards? 

77. With respect to any monetary 

penalties levied directly by the 

Commission against the ERO or a 

Regional Entity for violation of the FPA, 

should the ERO or a Regional Entity be 

able to recover such penalties through 

dues, fees, or other charges? 

78. Section 215(e)(5) of the FPA 

provides that, ‘‘[t]he Commission may 

take such action as is necessary or 

appropriate against the ERO or a 

Regional Entity to ensure compliance 

with a Reliability Standard or any 

Commission order affecting the ERO or 

Regional Entity.’’ Since the ERO and 

Regional Entity provisions of the 

Electricity Modernization Act of 2005 

are modeled on the SRO provisions of 

the securities law, and under those 

provisions, the Securities and Exchange 

Commission can impose monetary and 

nonmonetary penalties on SRO board 

members, should the Commission adopt 

the same approach with respect to the 

board members of the ERO and Regional 

Entities? 

7. Delegation of Certain Electric 

Reliability Organization Authority to 

Regional Entities—Section 38.7 

79. Paragraph (a) of proposed 

regulation section 38.7 provides that the 

ERO may enter into an agreement to 

delegate authority to a Regional Entity 

for the purpose of proposing Reliability 

Standards to the ERO and enforcing 

Reliability Standards under section 

38.5. Paragraph (b) provides that a 

delegation agreement shall not be 

effective until it is approved by the 

Commission. Paragraph (c) provides that 

the ERO must file the delegation 

agreement with the Commission for 

approval. Such filing must also 

demonstrate that: the Regional Entity is 

governed by an independent board, a 

balanced stakeholder board, or a 

combination independent and balanced 

stakeholder board; the Regional Entity 

otherwise satisfies the ERO certification 

provisions of proposed regulation 

section 38.3; and the agreement 

promotes for effective and efficient 

administration of Bulk-Power System 

reliability. 

80. The Commission interprets 

Subtitle A as meaning the only 

delegated authority a Regional Entity 

would possess would be the authority to 

enforce Reliability Standards approved 

by the Commission in a specific region. 

That interpretation is consistent with 

section 215(a)(7). A Regional Entity may 

also propose Reliability Standards to the 

ERO, that, if ultimately approved by the 

Commission, would become regional 

variances in a specific region. Any such 

regional variances would be ERO 

variances, not Regional Entity 

Reliability Standards, since it would be 

the ERO, not the Regional Entity, that 

submits the proposed Reliability 

Standard to the Commission for its 

review. The Commission anticipates 

that any such regional variances would 

supplement ERO Reliability Standards, 

not substitute for them. The 

Commission seeks comment on this 

interpretation. 

81. The Commission interprets 

section 215 of the FPA to mean that a 

Regional Entity shall comply with the 

relevant ERO certification and 

delegation criteria on an ongoing basis, 

and that a violation of the certification 

or delegation criteria constitutes a 

violation of the FPA. Accordingly, as 

the Commission explained above with 

respect to the ERO in section 38.6(a) and 

(b), it will conduct periodic compliance 

audits of the Regional Entities and, if it 

finds a violation of the relevant ERO 

certification as it applies to the Regional 

Entities or the ERO delegation criteria, 

the Commission may suspend a 

Regional Entity’s certification or 

delegation agreement, or decertify a 

Regional Entity. In addition, the ERO 

may petition the Commission or file a 

complaint if it believes that a Regional 

Entity is no longer in compliance with 

the relevant ERO certification or 

delegation criteria. 

82. Paragraph (d) provides that the 

Commission may modify such 

delegation; however, the ERO and 

Commission shall rebuttably presume 

that a proposal for delegation to a 

Regional Entity organized on an 

Interconnection-wide basis promotes 

effective and efficient administration of 

Bulk-Power System reliability and 

should be approved. 

83. Paragraph (e) provides that, if an 

entity seeking to enter into a delegation 

agreement is unable within 180 days 

after proposing a delegation agreement 

to the ERO to reach an agreement with 

the ERO, and it can demonstrate that 

continued negotiations with the ERO 

would not likely result in a delegation 

agreement within a reasonable amount 

of time, such entity may request that the 

Commission assign the ERO’s authority 

to enforce Reliability Standards within 

a region to such entity. Paragraph (f) 

requires that an approved Regional 

Entity shall periodically submit to the 

Commission an application to be reapproved as a Regional Entity. 

84. In addition to seeking comments 

on the rules relating to the delegation of 

ERO authority to Regional Entities 

discussed above, the Commission seeks 

comment on the following related 

issues: 

(1) Should the Commission prescribe 

a size, scope, or configuration 

requirement for the Regional Entities? 

And, if so, what should it be? 

(2) What is the role of the Regional 

Entities in relationship to the ERO? 

(3) Beyond enforcement and the 

proposal of Reliability Standards to the 

ERO, what, if any, additional authority 

should the Regional Entities be given? 

(4) Should the ERO be required to 

submit a standardized form of 

delegation agreement concurrently with 

the ERO application that would 

delineate a uniform relationship 

between the ERO and all Regional 

Entities or should delegation agreements 

be tailored to the individual needs and 

circumstances of each region and the 

ERO and submitted for approval as they 

are executed by the parties? 

(5) To what extent should the ERO, 

when delegating responsibility to 

Regional Entities, require uniform 

processes in matters including, but not 

limited to, governance, collection of 

dues and fees, compliance monitoring, 

and enforcement action procedures? 

(6) What role, if any, should the ERO 

play in the approval or appeal of an 

enforcement action undertaken by a 

Regional Entity? 

(7) What, if any, responsibility or 

involvement should the ERO have with 

regard to the funding of the Regional 

Entities? 

(8) Should the certification and 

delegation criteria for a Cross-Border 

Regional Entity specify that each 

country represented in the region 

should have the opportunity to have 

members from the country on the board 

of the Regional Entity in numbers that 

reflect the country’s approximate 

percentage of net energy for load in that 

53126 Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 

region, similar to that provided in the 

bilateral principles? 

(9) Should the Commission set the 

standard by which Regional Entity 

applications to the ERO will be 

reviewed or should the ERO be allowed 

to determine this standard? Given that 

section 215(e)(4) of the FPA requires 

that the ERO and the Commission shall 

rebuttably presume that a proposal for a 

Regional Entity organized on an 

Interconnection-wide basis promotes 

effective and efficient administration of 

bulk-power reliability, should a higher 

standard apply to Regional Entities that 

are not organized on an Interconnectionwide basis? What should the higher 

standard specify? Should a Regional 

Entity not organized on an 

Interconnection-wide basis have the 

burden to demonstrate that it has 

appropriate regional scope and 

configuration to promote effective and 

efficient administration of Bulk-Power 

System reliability? 

(10) Paragraph (f) of section 38.7 

requires a Regional Entity approved by 

the Commission to periodically submit 

to the Commission an application to be 

re-approved as a Regional Entity. We 

seek comments on what would 

constitute a reasonable length of time 

for such periodic re-approval to be 

effective. For example, is a five-year 

approval period appropriate? How far in 

advance should a Regional Entity be 

required to submit its application for reapproval before its current approval 

period expires? What role, if any, 

should the ERO have in the re-approval 

process? Would the ERO have to 

resubmit a delegation agreement? 

(11) Section 215(e)(4) of the FPA and 

proposed regulation section 38.7(c)(3) 

require that the ERO, when filing a 

delegation agreement, include a 

statement demonstrating that the 

agreement promotes effective and 

efficient administration of Bulk-Power 

System reliability. What standards, 

guidelines, measures or criteria should 

the Commission apply in determining 

whether a delegation agreement 

promotes effective and efficient 

administration of Bulk-Power System 

reliability? If the primary function of a 

Regional Entity is enforcement of 

Reliability Standards, in what ways will 

Regional Entities bring effective and 

efficient administration in the 

enforcement function? 

8. Changes in Electric Reliability 

Organization Rules and Regional Entity 

Rules—Section 38.8 

85. Paragraph (a) of proposed 

regulation section 38.8 provides that the 

ERO shall file with the Commission for 

approval any proposed ERO rule or rule 

change, accompanied by an explanation 

of its basis and purpose. It also provides 

that a Regional Entity shall submit a 

Regional Entity Rule or rule change with 

the ERO and, upon approval by the 

ERO, the ERO shall file with the 

Commission for approval of any 

proposed Regional Entity Rule or rule 

change accompanied by an explanation 

of its basis and purpose. Paragraph (b) 

provides that the Commission, upon its 

own motion or complaint, may propose 

changes to the rules of the ERO or a 

Regional Entity. 

86. Paragraph (c) provides that a 

proposed ERO rule or rule change, or 

Regional Entity rule or rule change, 

shall take effect upon a finding by 

Commission, after notice and 

opportunity for comment, that the 

change is just, reasonable, not unduly 

discriminatory or preferential, is in the 

public interest, and satisfies the 

requirements of section 38.3. 

9. Process for Resolution of Conflicts 

With a Reliability Standard—Section 

38.9 

87. Section 215(d)(6) of the FPA 

requires that the Commission’s final 

rule include fair processes for the 

identification and timely resolution of 

any conflict between a Reliability 

Standard and any function, rule, order, 

tariff, rate schedule, or agreement 

accepted, approved, or ordered by the 

Commission applicable to a 

Transmission Organization. If a 

participant in the ERO’s standards 

development process perceives a 

potential conflict, the participant should 

inform the ERO of the potential conflict 

to help assure that proposed standards 

do not contain any such conflicts. 

However, if any person believes that a 

proposed standard that the ERO has 

submitted to the Commission for 

approval includes such a conflict, such 

person should inform the Commission 

of such conflict by intervening and 

commenting in the Commission 

proceeding to review the proposed 

Reliability Standard. 

88. If, after the Commission has 

approved a Reliability Standard, a 

Transmission Organization becomes 

aware of a conflict between a Reliability 

Standard and any function, rule, order, 

tariff, rate schedule, or agreement 

accepted, approved, or ordered by the 

Commission applicable to such 

Transmission Organization, the 

Transmission Organization would be 

required to utilize the process set forth 

in this proposed regulation to resolve 

the conflict. Specifically, paragraph (a) 

of proposed regulation section 38.9 

provides that, if a Transmission 

Organization determines that a 

Reliability Standard may conflict with a 

function, rule, order, tariff, rate 

schedule, or agreement accepted, 

approved, or ordered by the 

Commission with respect to such 

Transmission Organization, the 

Transmission Organization shall 

expeditiously notify the Commission, 

the ERO and the relevant Regional 

Entity of the conflict. If any person 

believes that an approved Reliability 

Standard includes such a conflict, such 

person should notify the Commission of 

such conflict. 

89. Paragraph (b) provides that, unless 

the Commission orders otherwise, after 

notice and opportunity for hearing, 

within sixty (60) days after the date that 

a notice was filed, the Commission will 

issue an order determining whether a 

conflict does, in fact, exist. If the 

Commission finds that there is a 

conflict, it will seek to resolve the 

conflict by either directing the 

Transmission Organization to file a 

modification to the conflicting function, 

rule, order, tariff, rate schedule, or 

agreement pursuant to section 206 of the 

FPA (as set forth in the statute) or, if 

appropriate, directing the ERO to 

develop for Commission review a 

proposed modification to the conflicting 

Reliability Standard. 

90. Paragraph (c) provides that, until 

a determination is made by the 

Commission and any ordered change 

becomes effective, the Transmission 

Organization shall continue to follow 

the function, rule, order, tariff, rate 

schedule, or agreement accepted, 

approved, or ordered by the 

Commission with respect to such 

Transmission Organization. 

91. The Commission seeks examples 

of situations or areas of concern in 

which commenters believe that conflicts 

between reliability standards and 

Transmission Organization tariffs exist 

or may arise. 

10. Procedures for Establishment and 

Recognition of Regional Advisory 

Bodies—Section 38.10 

92. Paragraph (a) of proposed 

regulation section 38.10 provides that 

the Commission shall consider a 

petition to establish a Regional Advisory 

Body that is submitted by at least twothirds of the states within a region that 

have more than one-half of their electric 

load served within the region. Paragraph 

(b) provides that a petition shall include 

all organizational documents and a 

statement that the Regional Advisory 

Body is composed of one member from 

each state in the region, appointed by 

the governor of each state, and may 

include representatives of agencies, 

Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53127 

states and provinces outside the United 

States. 

93. Paragraph (c) provides that a 

Regional Advisory Body may provide 

advice to the Commission, ERO or a 

Regional Entity with respect to the 

governance of an existing or proposed 

Regional Entity within the same region; 

whether a Reliability Standard proposed 

to apply within the region is just, 

reasonable, not unduly discriminatory 

or preferential, and in the public 

interest; whether fees for all activities 

under this section proposed to be 

assessed within the region are just, 

reasonable, not unduly discriminatory 

or preferential, and in the public 

interest; and any other responsibilities 

requested by the Commission. 

Paragraph (d) provides that the 

Commission may give deference to the 

advice of any such Regional Advisory 

Body if it is organized on an 

Interconnection-wide basis. 

94. In addition to comment on the 

proposed regulation discussed above, 

the Commission seeks comment on the 

scope of the term ‘‘region’’ as used in 

section 38.10. In particular, should the 

region represented by a Regional 

Advisory Body correspond to that of an 

existing or proposed Regional Entity? 

11. Reliability Reports—Section 38.11 

95. Paragraph (a) of section 38.11 of 

the proposed regulations provides that 

the ERO shall conduct periodic 

assessments of the reliability and 

adequacy of the Bulk-Power System in 

North America. This first phrase of this 

subsection tracks the statutory language 

of section 215(g) of the FPA. In addition, 

this subsection would set forth the 

frequency of such periodic assessments 

and identify the entities to which the 

ERO must report the results of the 

periodic assessments, including the 

Commission, DOE, Regional Entities, 

and Regional Advisory Bodies. 

Paragraph (b) of this subsection would 

require either annual or quarterly 

reporting by the ERO and Regional 

Entities on their enforcement actions 

and the associated penalties assessed, in 

a manner to be prescribed by the 

Commission. 

12. Review of State Action—Section 

38.12 

96. Consistent with section 215(i)(3) 

of the FPA, paragraph (a) of proposed 

regulation section 38.12 provides that 

nothing in this regulation shall be 

construed to preempt any authority of 

any state to take action to ensure the 

safety, adequacy, and reliability of 

electric service within that state, as long 

as such action is not inconsistent with 

any reliability standard. 

97. Paragraph (b) of proposed 

regulation section 38.12 provides that, 

where a state takes action to ensure the 

safety, adequacy and reliability of 

electric service, the ERO, a Regional 

Entity or other party may apply to the 

Commission for an order determining 

whether such state action is inconsistent 

with a Reliability Standard. The 

Commission will, after notice and 

opportunity for hearing, and taking into 

consideration any recommendation of 

the ERO, issue a final order determining 

the matter within ninety (90) days. 

98. Paragraph (c) provides that the 

Commission, after consultation with the 

ERO and the state taking action, may 

stay the effectiveness of the state action, 

pending the Commission’s issuance of a 

final order. 

13. Funding of the Electric Reliability 

Organization—Section 38.13 

99. FPA section 215 does not contain 

any specific requirements regarding the 

mechanism for funding the ERO, other 

than stating that the Commission may 

certify an ERO if it determines that such 

ERO, inter alia, has established rules 

that ‘‘allocate equitably reasonable dues, 

fees, and other charges among end users 

***’’ (FPA section 215(c)(2)(B)). The 

Commission believes that certainty 

regarding the funding of the ERO is 

essential for the stability and ultimate 

success of the organization. 

Accordingly, proposed section 38.13 

provides requirements related to the 

funding and budget oversight of the 

ERO. In particular, paragraphs (a) and 

(b) of proposed regulation section 38.13, 

which are intended to make the ERO 

accountable to the Commission for its 

budget for activities within the United 

States, provide that the ERO must file its 

proposed annual budget for these 

activities and supporting materials in 

sufficient detail to justify the requested 

funding requirement 130 days in 

advance of the beginning of each fiscal 

year, and the Commission, after public 

notice and opportunity for comment, 

shall issue an order accepting, rejecting 

or remanding and modifying the 

proposed ERO budget no later than sixty 

(60) days in advance of the beginning of 

the ERO’s fiscal year. 

100. Paragraphs (c) and (d) of section 

38.13 are intended to provide a 

Commission-approved mechanism for 

mandatory ERO funding. However, 

rather than the Commission dictating a 

funding mechanism, the NOPR would 

allow an ERO applicant the discretion to 

propose the funding mechanism for 

Commission approval. Specifically, 

paragraph (c) states that any person who 

submits an application for certification 

as the ERO must include a plan, formula 

and/or methodology for the allocation 

and assessment of ERO dues, fees and 

charges; and the certified ERO may 

subsequently file with the Commission 

a request to modify the plan, formula 

and/or methodology from time-to-time 

in the ERO’s discretion. Paragraph (d) 

provides that all entities within the 

Commission’s jurisdiction as set forth in 

section 215(b) of the FPA are required 

to pay the ERO’s assessment of dues, 

fees and charges in a timely manner 

reasonably designated by the ERO. 

101. Finally, paragraph (e) provides 

that any person who submits an 

application for certification as the ERO 

may include a plan for a transitional 

funding mechanism that would allow 

such person, if certified as the ERO, to 

continue existing operations without 

interruption as it transitions from one 

method of funding to another. The 

maximum duration of any proposed 

transitional funding mechanism is not 

to exceed eighteen (18) months from the 

date of certification. 

102. The Commission notes that 

NERC currently is funded based on ‘‘net 

energy for load,’’ which represents the 

aggregate annual energy consumption of 

end use customers in a region, with 

costs of certain programs and tools 

which benefit only specific regions or 

parties billed only to the beneficiaries of 

the programs or tools. The Commission 

believes that a funding method based on 

net energy for load meets the standard 

of section 215(c)(3) of the FPA and 

would be appropriate for the allocation 

and assessment of ERO dues, fees and 

charges. 

103. In addition to comments on the 

proposed ERO funding regulations, the 

Commission asks for comments on the 

following questions: 

(1) Should the proposed funding 

requirements be extended to the 

Regional Entities? 

(2) The Commission notes the 

bilateral principles include several 

funding principles: (a) A principle 

specifying that net energy for load 

should be the primary basis upon which 

the costs of the ERO are assigned and 

that costs for one region or entity should 

be directly assigned to that region or 

entity; (b) a principle specifying that 

funding mechanisms, budget direction 

and budget levels should reflect 

consultations with appropriate 

stakeholders and authorities in each 

country; and (c) a principle specifying 

that the appropriate authorities in each 

country should be responsible for 

approving and ensuring cost recovery by 

the ERO and Regional Entities within 

their respective jurisdictions in a timely 

manner. Should the proposed rule 

address these types of funding-related 

53128 Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 

19Order No. 486, Regulations Implementing the 

National Environmental Policy Act, 52 Fed. Reg. 

47,897 (Dec. 17, 1987), FERC Stats. & Regs., 

Regulations Preambles 1986–1990 ¶ 30,783 (1987). 

20 18 CFR 380.4(a)(2)(ii) (2005). 

21 5 U.S.C. 601–12 (2000). 

details or should the ERO and CrossBorder Regional Entities have the 

discretion to address these matters at a 

later time? 

14. Other Matters 

104. While the Electricity 

Modernization Act of 2005 can be read 

to suggest a two-step process in which 

an applicant will apply for ERO 

certification and then submit proposed 

Reliability Standards after certification 

as the ERO, the Commission interprets 

the statute as allowing an applicant to 

simultaneously apply for ERO 

certification and submit proposed 

Reliability Standards for Commission 

review. The Commission believes that a 

one-step process would allow for 

quicker implementation of Reliability 

Standards. Although the Commission is 

allowing an applicant to submit 

multiple Reliability Standards at the 

same time, the Commission interprets 

section 215 of the FPA as allowing the 

Commission to review each Reliability 

Standard individually, rather than as a 

package. Therefore, the Commission 

interprets section 215 as allowing it to 

reject or require modification of some 

individual Reliability Standards while 

at the same time affirming other 

individual standards submitted 

concurrently. 

IV. Information Collection Statement 

105. The Commission estimates the 

number of applicants to be recognized 

by the Commission under the proposed 

rule as the single ERO or as a Regional 

Entity as up to three (3) and up to eight 

(8), respectively. As these entities are 

select, special purpose entities of the 

new federal law and do not yet exist, it 

is not feasible to survey candidate 

organizations to project the anticipated 

burden of complying with the proposed 

rule. 

Title: 

Action: Proposed Information 

Collection. 

OMB Control No: To be determined. 

The applicant will not be penalized 

for failure to respond to this information 

collection unless the information 

collection displays a valid OMB control 

number or the Commission has 

provided justification as to why the 

control number should not be 

displayed. 

Respondents: Non-profit service 

organizations. 

Necessity of the Information: The 

information collected from the ERO or 

Regional Entities under the 

requirements of FERC–725 is used by 

the Commission to implement the 

statutory provisions of section 215 of 

the FPA and implemented by the 

Commission in the Code of Federal 

Regulations under 18 Part 38. As noted 

above, prior to the enactment of section 

215 of the FPA under the Electricity 

Modernization Act of 2005, the 

Commission had acted primarily as an 

economic regulator of wholesale power 

markets and the interstate transmission 

grid promoting a more reliable 

electricity system by promoting regional 

coordination and planning of the 

interstate grid through ISOs and RTOs, 

adopting transmission pricing policies 

that provide price signals for the most 

reliable and efficient operation and 

expansion of the grid, and providing 

pricing incentives at the wholesale level 

for investment in grid improvements. 

The Electricity Modernization Act of 

2005 buttresses the Commission’s efforts 

to strengthen the interstate transmission 

grid through the grant of new authority 

pursuant to section 215 of the FPA 

which provides for a system of 

mandatory reliability rules developed 

by the ERO, established by the 

Commission, and enforced by the 

Commission, subject to Commission 

review. 

106. Section 215 of the FPA provides 

that all users, owners and operators of 

the Bulk-Power System are subject to 

the jurisdiction of the Commission for 

the purposes of approving Reliability 

Standards and enforcing compliance 

with such standards. However, the 

NOPR is limited to developing and 

implementing the processes and 

procedures which section 215 of the 

FPA directs the Commission to develop 

and undertake with regard to the 

formation and functions of the ERO and 

Regional Entities. 

Internal Review: The Commission has 

reviewed these requirements pertaining 

to the certification of an ERO, the 

establishment of Reliability Standards 

and Regional Entities and has 

determined the proposed requirements 

are necessary for the Commission to 

meet the statutory provisions of the 

Electricity Modernization Act of 2005. 

These requirements conform to the 

Commission’s plan for efficient 

information collection, communication, 

and management within the bulk power 

system. 

107. For submitting comments 

concerning the collection of information 

and the associated burden estimates, 

please send your comments to: (1) 

Federal Energy Regulatory Commission, 

888 First Street, NE., Washington, DC 

20426 [Attention: Michael Miller, Office 

of the Executive Director, Phone (202) 

502–8415, fax (202) 273–0873, e-mail: 

michael.miller@ferc.gov] and (2) the 

Office of Management and Budget 

[Attention: Desk Officer for the Federal 

Energy Regulatory Commission, fax 

(202) 395–7285, e-mail 

oira_submission@omb.eop.gov]. 

V. Environmental Analysis 

108. 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.19 The Commission 

concludes that neither an 

Environmental Assessment or an 

Environmental Impact Statement is 

required for this NOPR pursuant to 

section 380.4(a)(2)(ii) of the Commission 

regulations, which provides a 

‘‘categorical exclusion’’ for rules that do 

not substantively change the effect of 

legislation.20

VI. Regulatory Flexibility Act 

Certification 

109. The Regulatory Flexibility Act of 

1980 (RFA) 21 requires that a rulemaking 

contain either a description and analysis 

of the effect that the proposed rule will 

have on small entities or a certification 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. However, the 

RFA does not define ‘‘significant’’ or 

‘‘substantial’’ instead leaving it up to an 

agency to determine the impact of its 

regulations on small entities. 

110. In drafting this rule, the 

Commission has followed the 

provisions of both the RFA and the 

Paperwork Reduction Act to consider 

the potential impact of regulations on 

small business and other small entities. 

Specifically, the RFA directs agencies to 

consider four regulatory alternatives to 

lessen the impact on small entities: 

Tiering or establishment of different 

compliance or reporting requirements 

for small entities; classification, 

consolidation, clarification or 

simplification of compliance and 

reporting requirements; performance 

rather than design standards; and 

exemptions. 

111. As noted above, the Electricity 

Modernization Act of 2005 directs the 

Commission to issue a final rule to 

implement the requirements of section 

215 of the FPA within 180 days after the 

date of its enactment. In accordance 

with this directive, the proposed rule is 

intended to implement section 215 of 

the FPA. In particular, the proposed rule 

implements the statutory authority and 

responsibilities assigned to the ERO, 

Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53129 

Regional Entities, and Regional 

Advisory Bodies within the United 

States except Alaska and Hawaii. The 

Electricity Modernization Act specifies 

that the ERO and Regional Entities are 

not departments, agencies or 

instrumentalities of the United States 

Government. 

However, the ERO and Regional 

Entities will not be like most other 

businesses, profit or not-for-profit. 

Congress created the concept of the ERO 

and Regional Entities as the select, 

special purpose entities that will 

transition the oversight of Bulk-Power 

System reliability from voluntary, 

industry organizations to independent 

organizations subject to Commission 

jurisdiction and oversight. As such, the 

ERO and Regional Entities should not be 

considered a small entity under the 

RFA. Accordingly, the proposed 

reliability rule is not likely to impact 

certain small entities. 

VII. Comment Procedures 

112. 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 October 7, 2005. 

Comments must refer to Docket No. 

RM05–30–000, and must include the 

commenter’s name, the organization 

represented, if applicable, and the 

commenter’s address. Comments may be 

filed either in electronic or paper 

format. 

113. Comments may 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 

and commenters may attach additional 

files with supporting information in 

certain other file formats. Commenters 

filing electronically do not need to make 

a paper filing. Commenters that are not 

able to file comments electronically 

must send an original and fourteen (14) 

copies of their comments to: Federal 

Energy Regulatory Commission, Office 

of the Secretary, 888 First Street NE., 

Washington, DC 20426. 

114. 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. 

VIII. Document Availability 

115. In addition to publishing the full 

text of this document in the Federal 

Register, the Commission provides all 

interested persons an opportunity to 

view and/or print the contents of this 

document via the Internet through 

FERC’s Home Page (http://www.ferc.gov) 

and in FERC’s Public Reference Room 

during normal business hours (8:30 a.m. 

to 5 p.m. eastern time) at 888 First 

Street, NE., Room 2A, Washington, DC 

20426. 

116. From the Commission’s Home 

Page on the Internet, this information is 

available in the Commission’s document 

management system, 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. 

117. User assistance is available for 

eLibrary and the FERC’s Web site during 

normal business hours. For assistance, 

please contact FERC Online Support at 

1–866–208–3676 (toll free) or 202–502–

6652 (e-mail at 

FERCOnlineSupport@FERC.gov), or the 

Public Reference Room at 202–502–

8371, TTY 202–502–8659 (e-mail at 

public.referenceroom@ferc.gov). 

List of Subjects in 18 CFR Part 38 

Administrative practice and 

procedure, Electric power, Electric 

utilities, Reporting and recordkeeping 

requirements. 

By direction of the Commission. 

Magalie R. Salas, 

Secretary. 

In consideration of the foregoing, the 

Commission proposes to amend Chapter 

I, Title 18, Code of Federal Regulations, 

by adding Part 38 to read as follows: 

PART 38—RULES CONCERNING 

CERTIFICATION OF THE ELECTRIC 

RELIABILITY ORGANIZATION; AND 

PROCEDURES FOR THE 

ESTABLISHMENT, APPROVAL, AND 

ENFORCEMENT OF ELECTRIC 

RELIABILITY STANDARDS 

Sec. 

38.1 Definitions. 

38.2 Jurisdiction and Applicability. 

38.3 Electric Reliability Organization 

certification. 

38.4 Approval of Reliability Standards. 

38.5 Enforcement of Reliability Standards. 

38.6 Enforcement of Commission Rules and 

Orders. 

38.7 Delegation of certain Electric 

Reliability Organization Authority to 

Regional Entities. 

38.8 Changes in Electric Reliability 

Organization Rules and Regional Entity 

Rules. 

38.9 Process for Resolution of Conflicts 

With a Reliability Standard. 

38.10 Procedures for Establishment and 

Recognition of Regional Advisory 

Bodies. 

38.11 Reliability Reports. 

38.12 Review of State Action. 

38.13 Funding of the Electric Reliability 

Organization. 

Authority: Section 215 of the Federal 

Power Act. 

§ 38.1 Definitions. 

As used in this part: 

Bulk-Power System means facilities 

and control systems necessary for 

operating an interconnected electric 

energy transmission network (or any 

portion thereof), and electric energy 

from generating facilities needed to 

maintain transmission system 

reliability. The term does not include 

facilities used in the local distribution 

of electric energy. 

Cross-Border Regional Entity means a 

Regional Entity for which the size and 

scope includes a portion of Canada or 

Mexico. 

Cybersecurity Incident means a 

malicious act or suspicious event that 

disrupts, or was an attempt to disrupt, 

the operation of those programmable 

electronic devices and communications 

networks including hardware, software 

and data that are essential to the 

Reliable Operation of the Bulk-Power 

System. 

Electric Reliability Organization or 

‘‘ERO’’ means the organization certified 

by the Commission under § 38.3 the 

purpose of which is to establish and 

enforce Reliability Standards for the 

Bulk-Power System, subject to 

Commission review. 

ERO Rules means, for purposes of this 

section, the bylaws, rules of procedure 

and other organizational rules and 

protocols of the Electric Reliability 

Organization. 

Interconnection means a geographic 

area in which the operation of BulkPower System components is 

synchronized such that the failure of 

one or more of such components may 

adversely affect the ability of the 

operators of other components within 

the system to maintain Reliable 

Operation of the facilities within their 

control. 

Regional Advisory Body means an 

entity established upon petition to the 

Commission pursuant to section 215(j) 

of the FPA that is organized to advise 

the Electric Reliability Organization, a 

Regional Entity, or the Commission 

regarding certain matters in accordance 

with § 38.10. 

Regional Entity means an entity 

having enforcement authority pursuant 

to section 38.7. 

Regional Entity Rules means, for 

purposes of this Part, the bylaws, rules 

53130 Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 

of procedure and other organizational 

rules and protocols of a Regional Entity. 

Reliability Standard means a 

requirement approved by the 

Commission under this section, to 

provide for Reliable Operation of the 

Bulk-Power System. The term includes 

requirements for the operation of 

existing Bulk-Power System facilities, 

including cybersecurity protection, and 

the design of planned additions or 

modifications to such facilities to the 

extent necessary to provide for Reliable 

Operation of the Bulk-Power System, 

but the term does not include any 

requirement to enlarge such facilities or 

to construct new transmission capacity 

or generation capacity. 

Reliable Operation means operating 

the elements of the Bulk-Power System 

within equipment and electric system 

thermal, voltage, and stability limits so 

that instability, uncontrolled separation, 

or cascading failures of such system will 

not occur as a result of a sudden 

disturbance, including a Cybersecurity 

Incident, or unanticipated failure of 

system elements. 

Transmission Organization means a 

regional transmission organization, 

independent system operator, 

independent transmission provider, or 

other transmission organization finally 

approved by the Commission for the 

operation of transmission facilities. 

§ 38.2 Jurisdiction and applicability. 

Within the United States (other than 

Alaska and Hawaii), the Electric 

Reliability Organization, any Regional 

Entities, and all users, owners and 

operators of the Bulk-Power System, 

including but not limited to entities 

described in section 201(f) of the 

Federal Power Act, shall be subject to 

the jurisdiction of the Commission for 

the purposes of approving Reliability 

Standards established under this section 

and enforcing compliance with this 

section. 

§ 38.3 Electric Reliability Organization 

certification. 

(a) Any person may submit an 

application to the Commission for 

certification as an Electric Reliability 

Organization no later than sixty (60) 

days following Commission issuance of 

the final rule. Such application shall 

include a form of notice and an original 

and fourteen (14) copies of the 

application. 

(b) The Commission may certify one 

such applicant as an Electric Reliability 

Organization, if the Commission 

determines such applicant: 

(1) Has the ability to develop and 

enforce, subject to § 38.5, Reliability 

Standards that provide for an adequate 

level of reliability of the Bulk-Power 

System, and 

(2) Has established rules that: 

(i) Assure its independence of users, 

owners and operators of the Bulk-Power 

System while assuring fair stakeholder 

representation in the selection of its 

directors and balanced decisionmaking 

in any Electric Reliability Organization 

committee or subordinate organizational 

structure; 

(ii) Allocate equitably reasonable 

dues, fees and charges among end users 

for all activities under this section; 

(iii) Provide fair and impartial 

procedures for enforcement of 

Reliability Standards through the 

imposition of penalties in accordance 

with § 38.5, including limitations on 

activities, functions, operations, or other 

appropriate sanctions or penalties; 

(iv) Provide reasonable notice and 

opportunity for public comment, due 

process, openness, and balance of 

interests in developing Reliability 

Standards, and otherwise exercising its 

duties; and 

(v) Provide appropriate steps, after 

certification by the Commission as the 

Electric Reliability Organization, to gain 

recognition in Canada and Mexico. 

(c) The approved ERO is required to 

periodically submit an application to be 

recertified as the ERO, in accordance 

with any requirements the Commission 

issues in this regard. 

§ 38.4 Approval of Reliability Standards. 

(a) The Electric Reliability 

Organization must consider and develop 

Reliability Standards or modifications to 

Reliability Standards to be applicable to 

the entire Bulk-Power System or a 

particular region or Interconnection. 

The Electric Reliability Organization 

shall file each Reliability Standard or 

modification to a Reliability Standard 

that it proposes to be made effective 

under this section with the Commission. 

The filing shall include an original and 

fourteen (14) copies, a form of notice, a 

concise statement of the basis and 

purpose of the standard and a summary 

of the standard development 

proceedings conducted by the Electric 

Reliability Organization. 

(b) The Commission may approve by 

rule or order a proposed Reliability 

Standard or a modification to a 

Reliability Standard if it determines, 

after notice and opportunity for public 

hearing, that the standard is just, 

reasonable, not unduly discriminatory 

or preferential, and in the public 

interest. 

(1) The Commission shall give due 

weight to the technical expertise of the 

Electric Reliability Organization with 

respect to the content of a proposed 

Reliability Standard or modification to a 

Reliability Standard, 

(2) The Commission shall give due 

weight to the technical expertise of a 

Regional Entity organized on an 

Interconnection-wide basis with respect 

to a Reliability Standard to be 

applicable within that Interconnection, 

and 

(3) The Commission shall not defer to 

the Electric Reliability Organization or a 

Regional Entity with respect to the effect 

of a Reliability Standard or modification 

to a Reliability Standard on 

competition. 

(c) An approved Reliability Standard 

or a modification to a Reliability 

Standard shall take effect as approved 

by the Commission. 

(d) The Electric Reliability 

Organization shall rebuttably presume 

that a proposal for a Reliability Standard 

or a modification to a Reliability 

Standard to be applicable on an 

Interconnection-wide basis is just, 

reasonable, not unduly discriminatory 

or preferential, and in the public 

interest, if such proposal is from a 

Regional Entity organized on an 

Interconnection-wide basis. 

(e) The Commission shall remand to 

the Electric Reliability Organization for 

further consideration a proposed 

Reliability Standard or modification to a 

Reliability Standard that the 

Commission disapproves in whole or 

part. 

(f) The Commission may, upon its 

own motion or a complaint, order the 

Electric Reliability Organization to 

submit a proposed Reliability Standard 

or 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. 

(g) The Commission may, upon its 

own motion or a complaint, review a 

previously-approved Reliability 

Standard. If, after notice and 

opportunity for hearing, the 

Commission determines that the 

Reliability Standard, or any provision 

thereof, is unjust or unreasonable, 

unduly discriminatory or preferential, 

or not in the public interest, the 

Commission may remand the Reliability 

Standard to the Electric Reliability 

Organization. 

(h) The Commission, when remanding 

a Reliability Standard, may state a 

deadline by which the Electric 

Reliability Organization must submit a 

proposed revised Reliability Standard. 

§ 38.5 Enforcement of Reliability 

Standards. 

(a) The Electric Reliability 

Organization, or a Regional Entity, may 

Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53131 

impose, subject to paragraph (d) of this 

section, a penalty on a user, owner or 

operator of the Bulk-Power System for a 

violation of a Reliability Standard 

approved by the Commission under 

§ 38.4 if the Electric Reliability 

Organization or the Regional Entity, 

after public notice and opportunity for 

hearing: 

(1) Finds that the user, owner or 

operator has violated a Reliability 

Standard approved by the Commission 

under § 38.4; and 

(2) Files notice and the record of the 

Electric Reliability Organization’s or 

Regional Entity’s proceeding with the 

Commission. Simultaneously with the 

filing of a notice with the Commission, 

the Electric Reliability Organization or 

Regional Entity shall serve a copy of the 

notice on the entity that is the subject 

of the enforcement action. 

(b) A Regional Entity shall file notice 

with the Electric Reliability 

Organization of any enforcement action 

it takes. 

(c) Any notice of an enforcement 

action, whether by the Electric 

Reliability Organization or a Regional 

Entity, shall consist of: 

(1) The name of the entity against 

whom the enforcement action was 

taken; 

(2) A statement describing the 

enforcement action taken; 

(3) A statement setting forth findings 

of fact with respect to the act or practice 

that resulted in the enforcement action; 

(4) A statement describing any 

sanction imposed; 

(5) The record of the proceeding; 

(6) A form of notice suitable for 

publication; and 

(7) Other matters the Electric 

Reliability Organization or the Regional 

Entity, as appropriate, may find 

relevant. 

(d) A penalty imposed under 

paragraph (a) of this section may take 

effect not earlier than the thirty-first 

(31st) day after the Electric Reliability 

Organization or Regional Entity files 

with the Commission notice of the 

penalty and the record of the 

proceedings. 

(1) Such penalty shall be subject to 

review by the Commission, on its own 

motion or upon application by the user, 

owner or operator of the Bulk-Power 

System that is the subject of the penalty 

filed within thirty (30) days after the 

date such notice is filed with the 

Commission. In the absence of the filing 

of an application for review or motion 

or other action by the Commission, the 

enforcement action shall be affirmed by 

operation of law upon the expiration of 

the 30-day period for filing of an 

application for review. 

(2) Application to the Commission for 

review, or the initiation of review by the 

Commission on its own motion, shall 

not operate as a stay of such penalty 

unless the Commission otherwise orders 

upon its own motion or upon 

application by the user, owner or 

operator that is the subject of such 

penalty. 

(3) In any proceeding to review a 

penalty imposed under paragraph (a) of 

this section, the Commission, after 

public notice and opportunity for 

hearing (which hearing may consist 

solely of the record before the Electric 

Reliability Organization or Regional 

Entity and the opportunity for the 

presentation of supporting reasons to 

affirm, modify, or set aside the penalty), 

shall by order affirm, set aside or modify 

the penalty and, if appropriate, remand 

to the Electric Reliability Organization 

or Regional Entity for further 

proceedings. 

(4) An applicant shall file an original 

and fourteen (14) copies of an 

application for review and shall comply 

with the requirements set forth in the 

Commission’s Rules of Practice and 

Procedure, unless otherwise directed by 

the Commission. An application shall 

contain a complete and detailed 

explanation of the reasons why the 

applicant believes that the Electric 

Reliability Organization or Regional 

Entity erred when assessing the penalty, 

the amount of the penalty or the form 

of the penalty, and such application 

must provide any additional support for 

this contention that is not included in 

the record submitted by the Electric 

Reliability Organization or Regional 

Entity pursuant to this section. 

(5) Unless otherwise ordered by the 

Commission, answers, interventions, 

and comments to an application for 

review of a penalty imposed under 

paragraph (a) of this section must be 

filed within twenty (20) days after the 

application is filed. 

(6) One of the following procedures 

may be used to resolve application for 

review of a penalty imposed under 

paragraph (a) of this section: 

(i) The Commission may issue an 

order on the merits to affirm, set aside, 

reinstate or modify the penalty and, if 

appropriate, remand to the Electric 

Reliability Organization or Regional 

Entity based upon the pleadings; or 

(ii) The Commission may establish a 

hearing before an administrative law 

judge or initiate such further procedures 

as may be appropriate. 

(7) Expedited review. Unless 

determined otherwise by the 

Commission on a case by case basis, the 

Commission shall take action on an 

application for review of a penalty 

within sixty (60) days of the date the 

application is filed. Expedited 

procedures shall be established for any 

hearing before an administrative law 

judge on a case by case basis. 

(8) Unless the Commission 

determines otherwise, an enforcement 

action pursuant to § 38.5 that involves a 

Cybersecurity Incident will be nonpublic. The user, owner or operator of 

the Bulk-Power System that is the 

subject of the enforcement action will be 

given timely notice and an opportunity 

for hearing. The public will not be 

notified and the public will not be 

allowed to participate in an enforcement 

action before the Electric Reliability 

Organization, a Regional Entity or the 

Commission. 

(e) On its own motion or upon 

complaint, the Commission may order 

compliance with a Reliability Standard 

and may impose a penalty against a 

user, owner or operator of the BulkPower System, if the Commission finds, 

after public notice and opportunity for 

hearing, that the user, owner or operator 

of the Bulk-Power System has engaged 

or is about to engage in any acts or 

practices that constitute or will 

constitute a violation of a Reliability 

Standard. 

(f) Any penalty imposed for the 

violation of a Reliability Standard shall 

bear a reasonable relation to the 

seriousness of the violation and shall 

take into consideration efforts of such 

user, owner or operator of the BulkPower System to remedy the violation 

in a timely manner. The imposition of 

penalties is not limited to monetary 

penalties and may include, but is not 

limited to, limitations on activities, 

functions, operations, or other 

appropriate sanctions, including the 

establishment of a reliability watch list 

composed of major violators. Monetary 

penalties shall be paid in a timely 

manner. 

(g) Reporting of Violations and 

Potential Violations: The Electric 

Reliability Organization and all 

Regional Entities shall have in place 

procedures to immediately notify the 

Commission of all violations and 

potential violations of Reliability 

Standards when the Electric Reliability 

Organization or Regional Entity first 

notifies the user, owner or operator of 

the violation or potential violation. 

(1) Any person that submits an 

application to the Commission for 

certification as an Electric Reliability 

Organization shall include in such 

application a proposal for the 

notification and reporting to the 

Commission of all violations and 

potential violations of Reliability 

Standards. 

53132 Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 

(2) Any agreement for the delegation 

of authority to a Regional Entity shall 

include a proposal for the notification 

and reporting to the Commission of all 

violations and potential violations of 

Reliability Standards. 

(3) All reports of violations and 

potential violations shall include the 

entity’s name, when the violation or 

potential occurred, what standard was 

violated or potentially violated and the 

name of a person knowledgeable about 

the violation or potential violation to 

serve as a point of contact to provide the 

Commission with further details on the 

matter, as they develop, on an ongoing 

basis. 

(4) All reports of violations and 

potential violations shall be filed 

electronically with the Commission. 

§ 38.6 Enforcement of Commission Rules 

and Orders. 

(a) The Commission may take such 

action as is necessary and appropriate 

against the Electric Reliability 

Organization or a Regional Entity to 

ensure compliance with a Reliability 

Standard or any Commission order 

affecting the Electric Reliability 

Organization or a Regional Entity, 

including, but not limited to: 

(1) Upon notice and opportunity for 

hearing, suspension or rescission of the 

Commission’s grant of certification to 

the Electric Reliability Organization, if 

the Electric Reliability Organization no 

longer meets the statutory standards for 

certification. 

(2) Upon notice and opportunity for 

hearing, suspension or rescission of the 

Commission’s approval of an agreement 

to delegate certain Electric Reliability 

Organization authority to a Regional 

Entity. 

(3) Imposition of civil penalties under 

the Federal Power Act. 

(b) The Commission will periodically 

audit and review the Electric Reliability 

Organization’s and Regional Entities’

compliance with the statutory and 

regulatory criteria for certification and 

delegation of functions. 

§ 38.7 Delegation of certain Electric 

Reliability Organization authority to 

Regional Entities. 

(a) The Electric Reliability 

Organization may enter into an 

agreement to delegate authority to a 

Regional Entity for the purpose of 

proposing Reliability Standards to the 

Electric Reliability Organization and 

enforcing Reliability Standards under 

§ 38.5(a). 

(b) A delegation agreement shall not 

be effective until it is approved by the 

Commission. 

(c) The Electric Reliability 

Organization shall file an original and 

fourteen (14) copies of a delegation 

agreement. In addition, such filing shall 

include a detailed statement 

demonstrating that: 

(1) The Regional Entity is governed by 

an independent board, a balanced 

stakeholder board, or a combination 

independent and balanced stakeholder 

board, 

(2) The Regional Entity otherwise 

satisfies the provisions of § 38.3, and 

(3) The agreement promotes effective 

and efficient administration of BulkPower System reliability. 

(d) The Commission may modify such 

delegation; however, the Electric 

Reliability Organization and 

Commission shall rebuttably presume 

that a proposal for delegation to a 

Regional Entity organized on an 

Interconnection-wide basis promotes 

effective and efficient administration of 

Bulk-Power System reliability and 

should be approved. 

(e) If an entity seeking to enter into a 

delegation agreement is unable to reach 

an agreement with the Electric 

Reliability Organization within 180 days 

after proposing a delegation agreement 

to the Electric Reliability Organization, 

and it can demonstrate that continued 

negotiations with the Electric Reliability 

Organization would not likely result in 

a delegation agreement within a 

reasonable period of time, such entity 

may request that the Commission assign 

the Electric Reliability Organization’s 

authority to enforce Reliability 

Standards within a region to such 

entity. 

(f) An approved Regional Entity shall 

be required to periodically submit an 

application to be re-approved as a 

Regional Entity, in accordance with any 

requirements the Commission issues in 

this regard. 

§ 38.8 Changes in Electric Reliability 

Organization Rules and Regional Entity 

Rules. 

(a) The Electric Reliability 

Organization shall file with the 

Commission for approval any proposed 

Electric Reliability Organization Rule or 

rule change. A Regional Entity shall 

submit a Regional Entity Rule or rule 

change with the Electric Reliability 

Organization and, upon approval by the 

Electric Reliability Organization, the 

Electric Reliability Organization shall 

file with the Commission for approval of 

any proposed Regional Entity Rule or 

rule change. Such filing by the Electric 

Reliability Organization shall be 

accompanied by an explanation of the 

basis and purpose for the rule or rule 

change, together with a description of 

the proceedings conducted by the 

Electric Reliability Organization or 

Regional Entity to develop the proposal. 

(b) The Commission upon its own 

motion or complaint may propose 

changes to the Electric Reliability 

Organization rules or Regional Entity 

rules. 

(c) A proposed Electric Reliability 

Organization rule or rule change or 

Regional Entity rule or rule change shall 

take effect upon a finding by 

Commission, after notice and 

opportunity for public comment, that 

the change is just, reasonable, not 

unduly discriminatory or preferential, is 

in the public interest, and satisfies the 

requirements of § 38.3. 

§ 38.9 Process for resolution of conflicts 

with a Reliability Standard. 

(a) If a Transmission Organization 

determines that a Reliability Standard 

may conflict with a function, rule, 

order, tariff, rate schedule, or agreement 

accepted, approved, or ordered by the 

Commission with respect to such 

Transmission Organization, the 

Transmission Organization shall 

expeditiously notify the Commission, 

the Electric Reliability Organization and 

the relevant Regional Entity of the 

conflict. 

(b) Unless the Commission orders 

otherwise, after notice and opportunity 

for hearing, within sixty (60) days of the 

date that a notice was filed under 

paragraph (a) of this section, the 

Commission shall issue an order 

determining whether a conflict exists 

and, if so, resolve the conflict by 

directing 

(i) The Transmission Organization to 

file a modification of the conflicting 

function, rule, order, tariff, rate 

schedule, or agreement pursuant to 

section 206 of the Federal Power Act or 

(ii) The Electric Reliability 

Organization to propose a modification 

to the conflicting Reliability Standard 

pursuant to § 38.4 of the Commission’s 

regulations. 

(c) The Transmission Organization 

shall continue to follow the function, 

rule, order, tariff, rate schedule, or 

agreement accepted, approved, or 

ordered by the Commission until the 

Commission finds that a conflict exists, 

the Commission orders a change to such 

provision pursuant to section 206 of the 

Federal Power Act, and the ordered 

change becomes effective. 

§ 38.10 Procedures for establishment and 

recognition of Regional Advisory Bodies. 

(a) The Commission shall consider a 

petition to establish a Regional Advisory 

Body that is submitted by at least twothirds of the states within a region that 

have more than one-half of their electric 

load served within the region. 

Federal Register / Vol. 70, No. 172 / Wednesday, September 7, 2005 / Proposed Rules 53133 

(b) A petition to establish a Regional 

Advisory Body shall include all 

organizational documents and a 

statement that the Regional Advisory 

Body is composed of one member from 

each participating state in the region, 

appointed by the governor of each state, 

and may include representatives of 

agencies, states and provinces outside 

the United States. 

(c) A Regional Advisory Body 

established by the Commission may 

provide advice to the Commission, 

Electric Reliability Organization or a 

Regional Entity with respect to: 

(1) The governance of an existing or 

proposed Regional Entity within the 

same region; 

(2) Whether a Reliability Standard 

proposed to apply within the region is 

just, reasonable, not unduly 

discriminatory or preferential, and in 

the public interest; 

(3) Whether fees for all activities 

under this section proposed to be 

assessed within the region are just, 

reasonable, not unduly discriminatory 

or preferential, and in the public 

interest; and 

(4) Any other responsibilities 

requested by the Commission. 

(d) The Commission may give 

deference to the advice of a Regional 

Advisory Body established by the 

Commission if it is organized on an 

Interconnection-wide basis. 

§ 38.11 Reliability reports. 

(a) The Electric Reliability 

Organization shall conduct periodic 

assessments of the reliability and 

adequacy of the Bulk-Power System in 

North America and report its findings to 

the Commission, the Secretary of 

Energy, Regional Entities, and Regional 

Advisory Bodies annually or more 

frequently if so ordered by the 

Commission. 

(b) The Electric Reliability 

Organization and Regional Entities shall 

report on their enforcement actions and 

associated penalties to the Commission, 

the Secretary of Energy, relevant 

Regional Entities, and relevant Regional 

Advisory Bodies annually or quarterly, 

in a manner to be prescribed by the 

Commission. 

§ 38.12 Review of state action. 

(a) Nothing in this regulation shall be 

construed to preempt any authority of 

any state to take action to ensure the 

safety, adequacy, and reliability of 

electric service within that state, as long 

as such action is not inconsistent with 

any reliability standard. 

(b) Where a state takes action to 

ensure safety, adequacy, and reliability 

of electric service, the Electric 

Reliability Organization, Regional Entity 

or other affected party may apply to the 

Commission for a determination of 

consistency with a Commissionapproved Reliability Standard. 

(1) The application shall: 

(i) Identify the state action 

complained of; 

(ii) Identify the Reliability Standard(s) 

with which the state action is claimed 

to be inconsistent; 

(iii) State the basis for the claim that 

the state action is inconsistent with a 

Reliability Standard; and 

(iv) Include a form of notice. 

(2) Within ninety (90) days of the 

application of the Electric Reliability 

Organization or other affected party, and 

after notice and opportunity for public 

comment, the Commission shall issue a 

final order determining whether the 

state action is inconsistent with a 

Reliability Standard, taking into 

consideration any recommendation of 

the Electric Reliability Organization. 

(c) The Commission, after 

consultation with the Electric Reliability 

Organization and the state taking action, 

may stay the effectiveness of the state 

action, pending the Commission’s 

issuance of a final order. 

§ 38.13 Funding of the Electric Reliability 

Organization. 

(a) The Electric Reliability 

Organization shall file with the 

Commission its proposed annual budget 

for activities within the United States 

and supporting materials in sufficient 

detail to justify the requested funding 

requirement 130 days in advance of the 

beginning of each fiscal year. 

(b) The Commission, after public 

notice and opportunity for comment, 

shall issue an order either accepting, 

rejecting or remanding or modifying the 

proposed Electric Reliability 

Organization budget and business plan 

no later than sixty (60) days in advance 

of the beginning of the Electric 

Reliability Organization’s fiscal year. 

(c) Any person who submits an 

application for certification as the 

Electric Reliability Organization 

pursuant to the rules set forth in this 

section shall include in such 

application a plan, formula and/or 

methodology for the allocation and 

assessment of Electric Reliability 

Organization dues, fees and charges. 

The certified Electric Reliability 

Organization may subsequently file with 

the Commission a request to modify the 

plan, formula and/or methodology from 

time-to-time in the Electric Reliability 

Organization’s discretion. 

(d) All entities within the 

Commission’s jurisdiction as set forth in 

section 215(b) of the Federal Power Act 

are required to pay the Electric 

Reliability Organization’s assessment of 

dues, fees and charges in a timely 

manner reasonably designated by the 

Electric Reliability Organization . 

(e) Any person who submits an 

application for certification as the 

Electric Reliability Organization 

pursuant to the rules set forth in this 

section may include in such application 

a plan for a transitional funding 

mechanism that would allow such 

person, if certified as the Electric 

Reliability Organization, to continue 

existing operations without interruption 

as it transitions from one method of 

funding to another. The maximum 

duration of any proposed transitional 

funding mechanism is not to exceed 

eighteen (18) months from the date of 

certification. 

[FR Doc. 05–17752 Filed 9–6–05; 8:45 am] 

BILLING CODE 6717–01–P 

DEPARTMENT OF JUSTICE 

28 CFR Part 16 

[AAG/A Order No. 009–2005] 

Justice Management Division; Privacy 

Act of 1974; Implementation 

AGENCY: Justice Management Division, 

Justice. 

ACTION: Proposed rule. 

SUMMARY: The Department of Justice 

(DOJ), Justice Management Division 

(JMD), proposes to exempt from certain 

subsections of the Privacy Act, a new 

Privacy Act system of records entitled 

‘‘Federal Bureau of Investigation 

Whistleblower Case Files, JMD–023,’’ as 

described in today’s notice section of 

the Federal Register. The system 

maintains all documents and evidence 

filed with the Director of the Office of 

Attorney Recruitment and Management 

(OARM), JMD, pertaining to requests for 

corrective action by employees of, or 

applicants for employment with, the 

Federal Bureau of Investigation (FBI) (or 

recommendations for corrective action 

by the Office of the Inspector General or 

Office of Professional Responsibility) 

brought under the FBI’s whistleblower 

regulations. 

DATES: Submit any comments by 

October 17, 2005. 

ADDRESSES: Address all comments in 

writing to Mary Cahill, Management and 

Planning Staff, Justice Management 

Division, Department of Justice, 

Washington, DC 20530 (1400 National 

Place Building), Facsimile Number (202) 

307–1853. To ensure proper handling, 

please reference the AAG/A Order No.