
[Federal Register: May 28, 2009 (Volume 74, Number 101)]
[Rules and Regulations]               
[Page 25413-25422]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28my09-12]                         

-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket No. RM08-16-000; Order No. 724]

 
Electric Reliability Organization Interpretations of Specific 
Requirements of Frequency Response and Bias and Voltage and Reactive 
Control Reliability Standards

Issued May 21, 2009.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: Pursuant to section 215 of the Federal Power Act, the Federal 
Energy Regulatory Commission hereby approves the North American 
Electric Reliability Corporation's (NERC) interpretation of one 
Commission-

[[Page 25414]]

approved Reliability Standard, BAL-003-0, Frequency Response and Bias; 
and remands NERC's proposed interpretation of VAR-001-1, Voltage and 
Reactive Control, for reconsideration consistent with this Final Rule.

DATES: Effective Date: The Final Rule will become effective June 29, 
2009.

FOR FURTHER INFORMATION CONTACT: Patrick Harwood (Technical 
Information), Office of Electric Reliability, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, Telephone: 
(202) 502-6125, Patrick.harwood@ferc.gov.
    Richard M. Wartchow (Legal Information), Office of the General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, Telephone: (202) 502-8744.

SUPPLEMENTARY INFORMATION: Before Commissioners: Jon Wellinghoff, 
Chairman; Suedeen G. Kelly, Marc Spitzer, and Philip D. Moeller.

Final Rule

Issued May 21, 2009

    1. Pursuant to section 215 of the Federal Power Act (FPA), the 
Commission hereby approves the interpretation proposed by the North 
American Electric Reliability Corporation (NERC) of Commission-approved 
Reliability Standard BAL-003-0, Frequency Response and Bias, but 
remands NERC's proposed interpretation of Reliability Standard VAR-001-
1, Voltage and Reactive Control, for additional clarification.\1\
---------------------------------------------------------------------------

    \1\ 16 U.S.C. 8240 (2006). The Commission is not adding any new 
or modified text to its regulations.
---------------------------------------------------------------------------

I. Background

A. EPAct 2005 and Mandatory Reliability Standards

    2. Section 215 of the FPA requires a Commission-certified Electric 
Reliability Organization (ERO) to develop mandatory and enforceable 
Reliability Standards, which are subject to Commission review and 
approval. Once approved, the Reliability Standards may be enforced by 
the ERO, subject to Commission oversight, or by the Commission 
independently.\2\
---------------------------------------------------------------------------

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

    3. Pursuant to section 215 of the FPA, the Commission established a 
process to select and certify an ERO \3\ and, subsequently, certified 
NERC as the ERO.\4\ On April 4, 2006, as modified on August 28, 2006, 
NERC submitted to the Commission a petition seeking approval of 107 
proposed Reliability Standards. On March 16, 2007, the Commission 
issued a Final Rule, Order No. 693, approving 83 of these 107 
Reliability Standards and directing other action related to these 
Reliability Standards.\5\ In addition, pursuant to section 215(d)(5) of 
the FPA, the Commission directed NERC to develop modifications to 56 of 
the 83 approved Reliability Standards.\6\
---------------------------------------------------------------------------

    \3\ Rules Concerning Certification of the Electric Reliability 
Organization; and Procedures for the Establishment, Approval and 
Enforcement of Electric Reliability Standards, Order No. 672, FERC 
Stats. & Regs. ] 31,204, order on reh'g, Order No. 672-A, FERC 
Stats. & Regs. ] 31,212 (2006).
    \4\ North American Electric Reliability Corp., 116 FERC ] 
61,062, order on reh'g & compliance, 117 FERC ] 61,126 (2006), 
appeal docketed sub nom. Alcoa, Inc. v. FERC, Case No. 06-1426 (DC 
Cir. Dec. 29, 2006).
    \5\ Mandatory Reliability Standards for the Bulk-Power System, 
Order No. 693, FERC Stats. & Regs. ] 31,242, order on reh'g, Order 
No. 693-A, 120 FERC ] 61,053 (2007).
    \6\ 16 U.S.C. 824o(d)(5). Section 215(d)(5) provides: ``The 
Commission* * * may order the Electric Reliability Organization to 
submit to the Commission a proposed reliability standard or a 
modification to a reliability standard that addresses a specific 
matter if the Commission considers such a new or modified 
reliability standard appropriate to carry out this section.''
---------------------------------------------------------------------------

    4. NERC's Rules of Procedure provide that a person that is 
``directly and materially affected'' by Bulk-Power System reliability 
may request an interpretation of a Reliability Standard.\7\ In response 
to a request, the ERO's standards process manager assembles a team with 
relevant expertise to address the requested interpretation and forms a 
ballot pool. NERC's Rules provide that, within 45 days, the team will 
draft an interpretation of the Reliability Standard, with subsequent 
balloting. If approved by ballot, the interpretation is appended to the 
Reliability Standard and filed with the applicable regulatory authority 
for approval.\8\
---------------------------------------------------------------------------

    \7\ NERC Rules of Procedure, Appendix 3A, Reliability Standards 
Development Procedure, Version 6.1, at 26-27 (2007).
    \8\ The NERC board of trustees approves Reliability Standard 
interpretations once they are posted and presented for adoption. Id. 
at 23-24, 26-27.
---------------------------------------------------------------------------

B. NERC Filing

    5. On July 28, 2008, NERC submitted a Petition for Approval of 
Formal Interpretations to Reliability Standards (Petition), seeking 
Commission approval of interpretations of BAL-003-0, Requirements R2 
and R5; and VAR-001-1, Requirement R4.
    6. For BAL-003-0, the Electric Reliability Council of Texas (ERCOT) 
requested clarification that the provision in BAL-003-0, Requirement 
R2, permitting use of a variable bias setting, did not conflict with 
BAL-003-0, Requirement R5, which states that the frequency bias setting 
for Balancing Authorities serving native load should be at least one 
percent of yearly peak demand. For VAR-001-1, Dynegy, Inc. (Dynegy) 
requested clarification whether there are implicit requirements that 
the voltage schedule and associated tolerance band to be provided by 
the transmission operator under Requirement R4 be technically based, 
reasonable and practical for a generator to maintain.
    7. Consistent with the NERC Rules of Procedure, a NERC-assembled 
ballot body, consisting of industry stakeholders, developed the 
interpretations using the NERC Reliability Standards Development 
Procedure,\9\ and the NERC Board of Trustees approved the 
interpretations.\10\ The interpretations do not modify the language 
contained in the requirements under review. NERC requested the 
Commission to approve the interpretations, effective immediately after 
approval, consistent with the Commission's procedures.
---------------------------------------------------------------------------

    \9\ See NERC's Rules of Procedures, Appendix 3A.
    \10\ NERC Petition at 3.
---------------------------------------------------------------------------

C. NOPR

    8. In Response, the Commission issued a Notice of Proposed 
Rulemaking and proposed to approve the ERO's formal interpretation of 
Requirements R2 and R5 of BAL-003-0 but remand the proposed 
interpretation of VAR-001-1, and requested comment on its 
proposals.\11\
---------------------------------------------------------------------------

    \11\ Electric Reliability Organization Interpretations of 
Specific Requirements of Frequency Response and Bias and Voltage and 
Reactive Control Reliability Standards, Notice of Proposed 
Rulemaking, 73 FR 71971 (Nov. 26, 2008), FERC Stats. & Regs. ] 
32,639 (2008) (NOPR).
---------------------------------------------------------------------------

II. Discussion

A. Procedural Matters

    9. NERC, Ameren Services Co. (Ameren), Edison Electric Institute 
(EEI), FirstEnergy Service Co. (FirstEnergy) and The Independent 
Electricity System Operator of Ontario (IESO) \12\ filed comments, 
largely addressing the Commission's proposal to remand the proposed 
interpretation of VAR-001-1.
---------------------------------------------------------------------------

    \12\ The IESO administers wholesale electricity markets and 
operates the integrated power system in Ontario, Canada and is 
subject to oversight by the Ontario Energy Board.
---------------------------------------------------------------------------

B. BAL-003-0

1. NOPR Proposal
    10. BAL-003-0, Requirement 2 states that a ``Balancing Authority 
shall establish and maintain a Frequency Bias Setting that is as close 
as practical to, or greater than, the Balancing Authority's Frequency 
Response.'' BAL-003-0,

[[Page 25415]]

Requirement 5 states that ``Balancing Authorities that serve native 
load [such as ERCOT] shall have a monthly average Frequency Bias 
Setting that is at least one percent of the Balancing Authority's 
estimated yearly peak demand per 0.1 Hz change.'' ERCOT requested 
clarification whether there is a conflict between BAL-003-0, 
Requirement R2, and BAL-003-0, Requirement R5. In response, NERC 
proposed the following interpretation:

    Frequency Response and Bias Requirement 2 requires a Balancing 
Authority to analyze its response to frequency excursions as a first 
step in determining its frequency bias setting. The Balancing 
Authority may then choose a fixed bias (constant through the year) 
per Requirement 2.1, or a variable bias (varies with load, specific 
generators, etc.) per Requirement 2.2.
    Frequency Response and Bias Requirement 5 sets a minimum 
contribution for all Balancing Authorities toward stabilizing 
interconnection frequency. The 1% bias setting establishes a minimum 
level of automatic generation control action to help stabilize 
frequency following a disturbance. By setting a floor on bias, 
Requirement 5 also helps ensure a consistent measure of control 
performance among all Balancing Authorities within a multi-Balancing 
Authority interconnection. However, ERCOT is a single Balancing 
Authority interconnection. The bias settings ERCOT uses do produce, 
on average, the best level of automatic generation control action to 
meet control performance metrics. The bias value in a single 
Balancing Authority interconnection does not impact the measure of 
control performance.

    11. In the NOPR, the Commission proposed to find NERC's 
interpretation of BAL-003-0, Requirements R2 and R5 to be reasonable in 
providing consistency in frequency bias setting determinations, used in 
area control error (ACE) calculations.\13\ The Commission viewed the 
interpretation as consistent with an earlier, Order No. 693 finding 
that the requirements of BAL-003-0 do not conflict with one 
another.\14\ In Order No. 693, the Commission found that Requirement R2 
provides the relationship between frequency response and frequency 
bias, with frequency bias to be as close as practical to, or greater 
than, the balancing authority's frequency response. Requirements R5 and 
R5.1 require balancing authorities to establish frequency bias settings 
based on one percent of peak demand or maximum generation level, based 
on individual circumstances.\15\
---------------------------------------------------------------------------

    \13\ A frequency bias setting is a value expressed in MW per 0.1 
Hz, set into a balancing authority's ACE algorithm, which allows the 
balancing authority to contribute its frequency response to the 
Interconnection. NERC's glossary, which provides definitions of the 
relevant terms, defines ACE as ``The instantaneous difference 
between a balancing authority's net actual and scheduled 
interchange, taking into account the effects of frequency bias and 
correction for meter error.''
    \14\ NOPR, FERC Stats. & Regs. ] 32,639 at P 17; Order No. 693, 
FERC Stats. & Regs. ] 31,242 at P 370 (addressing the suggestion 
that Requirement R5 should be required in lieu of Requirement R2 for 
certain balancing authorities and finding that Requirements R2 and 
R5 do not conflict); BAL-003-0, Requirement R5.
    \15\ See id. P 362, 370.
---------------------------------------------------------------------------

    12. The Commission proposed to approve the interpretation, since 
the BAL-003-0, Requirement R5 minimum bias setting establishes a 
consistent methodology for an ACE determination input, and ensures that 
an adequate level of generation is set aside to provide frequency 
response.\16\ The Commission declined to address the issue whether the 
ERCOT methodology, reported to result in ``the best level of automatic 
generation control action to meet control performance metrics,'' may be 
a preferable methodology, noting that such an issue is better resolved 
through a proceeding to review a proposal to permit ERCOT to depart 
from the requirement. The Commission noted that while ERCOT is a 
single-balancing-authority Interconnection and, therefore, does not 
need to allocate automatic generation control responsibility among 
multiple balancing authorities within the Interconnection, the other 
justifications for Requirement R5, supporting a consistent ACE 
calculation methodology and providing a minimum standard for 
reliability, remain valid justifications for the minimum setting.\17\
---------------------------------------------------------------------------

    \16\ NOPR, FERC Stats. & Regs. ] 32,639 at P 16, 18.
    \17\ Id. P 18 n.19.
---------------------------------------------------------------------------

2. Comments
    13. No participant filed comments opposing the BAL-003-0 
interpretation.
3. Commission Determination
    14. The ERO's interpretation clarifies that the BAL-003-0 
Requirements R2 and R5 do not conflict with one another. In Order No. 
693, the Commission made clear that a frequency bias setting based only 
on the value set forth in Requirement R5 is insufficient and that a 
balancing authority must also follow Requirement R2.\18\ ERCOT presents 
the reverse question, whether a balancing authority that follows the 
variable bias setting under Requirement R2 must also follow Requirement 
R5. In response, NERC's interpretation affirms that a balancing 
authority that uses the variable bias option provided under Requirement 
R2 must also follow Requirement R5. In addition, no comments were filed 
opposing the Commission's proposal to approve NERC's BAL-003-0 
interpretation.
---------------------------------------------------------------------------

    \18\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 370 
(emphasizing the need to follow both Requirements R2 and R5).
---------------------------------------------------------------------------

    15. Accordingly, we approve NERC's BAL-003-0 interpretation. The 
Commission finds that the ERO's interpretation is just, reasonable, not 
unduly discriminatory or preferential, and in the public interest.

C. VAR-001-1

1. NOPR Proposal
    16. VAR-001-1, Requirement R4 directs each transmission operator to 
provide each generator with a voltage and reactive power output 
schedule, within a tolerance band. A second Reliability Standard, VAR-
002-1, Requirement R2, requires that each generator must meet the 
schedule (typically via automatic control) or provide an explanation 
why it cannot do so. The Requirements state:

    VAR-001-1--Voltage and Reactive Control.
    Requirement R4. Each Transmission Operator shall specify a 
voltage or Reactive Power schedule \19\ at the interconnection 
between the generator facility and the Transmission Owner's 
facilities to be maintained by each generator. The Transmission 
Operator shall provide the voltage or Reactive Power schedule to the 
associated Generator Operator and direct the Generator Operator to 
comply with the schedule in automatic voltage control mode (AVR 
[automatic voltage regulation] in service and controlling voltage). 
* * *
---------------------------------------------------------------------------

    \19\ The voltage schedule is a target voltage to be maintained 
within a tolerance band during a specified period. [Footnote in 
original.]
---------------------------------------------------------------------------

    VAR-002-1--Generator Operation for Maintaining Network Voltage 
Schedules.
    Requirement R2. Unless exempted by the Transmission Operator, 
each Generator Operator shall maintain the generator voltage or 
Reactive Power output (within applicable Facility Ratings) \20\ as 
directed by the Transmission Operator.
---------------------------------------------------------------------------

    \20\ When a Generator is operating in manual control, reactive 
power capability may change based on stability considerations and 
this will lead to a change in the associate Facility Ratings. 
[Footnote in original.]
---------------------------------------------------------------------------

    R2.1. When a generator's automatic voltage regulator is out of 
service, the Generator Operator shall use an alternative method to 
control the generator voltage and reactive output to meet the 
voltage or Reactive Power schedule directed by the Transmission 
Operator.
    R2.2. When directed to modify voltage, the Generator Operator 
shall comply or provide an explanation of why the schedule cannot be 
met.

    17. Dynegy requested clarification whether there are implicit 
requirements that the voltage schedule and associated tolerance band to 
be provided by the transmission operator under VAR-001-1, Requirement 
R4 be technically based,

[[Page 25416]]

reasonable and practical for a generator to maintain. In response, NERC 
proposed the following interpretation:

    NERC Reliability Standard VAR-001-1 is only comprised of stated 
requirements and associated compliance elements. The requirements 
have been developed in a fair and open process, balloted and 
accepted by FERC for compliance review. Any ``implicit'' requirement 
would be based on subjective interpretation and viewpoint and 
therefore cannot be objectively measured and enforced. Any attempt 
at ``interpreting an implicit requirement'' would effectively be 
adding a new requirement to the standard.
    This can only be done through the [Standards Authorization 
Request] process.
    Since there are no requirements in VAR-001-1 to issue a 
``technically based, reasonable and practical to maintain voltage or 
reactive power schedule and associated tolerance band,'' there are 
no measures or associated compliance elements in the standard.
    The standard only requires that ``Each Transmission Operator 
shall specify a voltage or Reactive Power schedule. * * *'' and that 
``The Transmission Operator shall provide the voltage or Reactive 
Power schedule to the associated Generator Operator and direct the 
Generator Operator to comply with the schedule. * * *'' Also, 
Measure 1 and the associated compliance elements follow accordingly 
by stating that ``The Transmission Operator shall have evidence it 
provided a voltage or Reactive Power schedule * * *''
* * * * *
    Requirement 2 and Requirement 2.2 of VAR-002-1 relate somewhat 
to questions 2 and 3. R2 states that ``Unless exempted by 
the Transmission Operator, each Generator Operator shall maintain 
the generator voltage or Reactive Power output (within applicable 
Facility Ratings) as directed by the Transmission Operator.'' R2.2 
goes on to state ``When directed to modify voltage, the Generator 
Operator shall comply or provide an explanation of why the schedule 
cannot be met.'' [footnotes omitted.]

    18. NERC provided additional information in its transmittal letter 
accompanying the interpretation, noting that VAR-001-1, Requirement R2 
states, ``Each Transmission Operator shall acquire sufficient reactive 
resources within its area to protect the voltage levels under normal 
and Contingency conditions.'' NERC explained that, in order to fulfill 
Requirement R2, the transmission operator must perform a valid analysis 
of the system, using models that accurately represent equipment 
capabilities. Therefore, while NERC supported its interpretation of 
Requirement R4, including the finding that a requirement cannot 
establish implicit obligations, it stated that the issue that Dynegy 
raised for clarification is better resolved through an examination of 
Requirement R2.\21\
---------------------------------------------------------------------------

    \21\ NERC Petition at 14.
---------------------------------------------------------------------------

    19. In response, the Commission proposed to remand NERC's 
interpretation of VAR-001-1, Requirement R4, because the interpretation 
suggested that there is no requirement that a voltage schedule have a 
sound technical basis. The Commission noted that Order No. 693 stated 
that all Reliability Standards must be designed to achieve a specified 
reliability goal and must contain a technically sound means to achieve 
this goal.\22\ The Commission thus disagreed with NERC's proposed 
interpretation because it suggested that a transmission operator could 
deliver a voltage schedule that lacked any technical basis. The 
Commission, citing the NERC Rules of Procedure, section 302.5, 
concluded that a voltage schedule should reflect technical analysis, 
i.e., sound engineering, as well as operating judgment and 
experience.\23\
---------------------------------------------------------------------------

    \22\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 5 (``[A] 
Reliability Standard must provide for the Reliable Operation of 
Bulk-Power System facilities and may impose a requirement on any 
user, owner or operator of such facilities. It must be designed to 
achieve a specified reliability goal and must contain a technically 
sound means to achieve this goal. The Reliability Standard should be 
clear and unambiguous regarding what is required and who is required 
to comply. The possible consequences for violating a Reliability 
Standard should be clear and understandable to those who must 
comply. There should be clear criteria for whether an entity is in 
compliance with a Reliability Standard. While a Reliability Standard 
does not necessarily need to reflect the optimal method for 
achieving its reliability goal, a Reliability Standard should 
achieve its reliability goal effectively and efficiently.''); see 
also Order No. 672, FERC Stats. & Regs. ] 31,204 at P 324.
    \23\ NOPR, FERC Stats. & Regs. ] 32,639 at P 30 (citing Order 
No. 693 at P 5).
---------------------------------------------------------------------------

    20. The NOPR also highlighted the Commission's review in Order No. 
693 of each Reliability Standard and approval of those containing 
Requirements that are sufficiently clear as to be enforceable and that 
do not create due process concerns.\24\ The Commission noted that its 
approval in Order No. 693 of VAR-001-1 meant that VAR-001-1 is 
sufficiently clear to inform transmission operators what is required of 
them.\25\ The Commission acknowledged that it has elsewhere declined to 
specify in detail how a registered entity should implement a 
Reliability Standard, but countered that such actions do not mean that 
an entity seeking to comply with a Reliability Standard may act in a 
manner that is not technically sound, i.e., in a manner that is not 
grounded in sound engineering, and thus, not reasonable and 
practical.\26\ The Commission objected to NERC's proposed 
interpretation as implying that the voltage schedules provided under 
VAR-001-1, Requirement R4 need not have any technical basis, and thus 
need not be reasonable and practical.
---------------------------------------------------------------------------

    \24\ See Order No. 693, FERC Stats. & Regs. ] 31,242 at P 274. 
In reviewing specific Reliability Standards, the Commission 
identified for certain Reliability Standards implicit obligations 
that should be incorporated into those Reliability Standards and 
directed NERC to revise the standards to explicitly incorporate the 
obligations; see Mandatory Reliability Standards for Critical 
Infrastructure Protection, Order No. 706, 122 FERC ] 61,040, at P 75 
(2008) (directing the ERO to modify the CIP Reliability Standards to 
incorporate an obligation to implement plans, policies and 
procedures); Order No. 693 at P 1787 (``In the NOPR, the Commission 
identified an implicit assumption in the TPL Reliability Standards 
that all generators are required to ride through the same types of 
voltage disturbances and remain in service after the fault is 
cleared. This implicit assumption should be made explicit.''); 
Facilities Design, Connections and Maintenance Reliability 
Standards, Order No. 705, 121 FERC ] 61,296, at P 54 (2007) 
(``although the TPL Reliability Standards implicitly require the 
loss of a shunt device to be addressed, they do not do so 
explicitly'').
    \25\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 275.
    \26\ As noted above, Reliability Standards should reflect sound 
engineering principles. See id. P 5; Order No. 672, FERC Stats. & 
Regs. ] 31,204 at P 324; accord NERC Rules of Procedure, section 
302.5.
---------------------------------------------------------------------------

    21. The Commission proposed in the NOPR to remand NERC's proposed 
interpretation of VAR-001-1, Requirement R4 for reconsideration 
consistent with this rulemaking. In addition, the Commission rejected 
an additional proposal from Dynegy, asserting that NERC needs to 
develop evaluation measures to review the technical basis for voltage 
schedules, as beyond the scope of the interpretation process. The 
Commission proposed that such an effort would be better discussed 
pursuant to a Standards Authorization Request under the NERC 
Reliability Standards Development Procedures.
2. Comments
a. VAR-001-1, Requirement R4 Technical Basis
    22. No participant contests the Commission's determination that all 
Reliability Standards must be designed to achieve a specified 
reliability goal and must contain a technically sound means to achieve 
this goal.\27\ The parties, as discussed below, also largely agree or 
acknowledge that voltage schedules must have a technical basis.\28\
---------------------------------------------------------------------------

    \27\ See, e.g., IESO comments at 5 (``The IESO agrees with the 
Commission that standards should be technically sound'').
    \28\ See NERC comments at 5 (each requirement contributes to 
meeting a Reliability Standard objective; other Reliability 
Standards require the technical basis to be established for voltage 
schedules); Ameren comments at 5 (users, owners and operators must 
act in a technically sound manner in compliance with VAR-001-1, 
Requirement R4); EEI comments at 2 (however, EEI states that a 
transmission operator cannot be audited on the ``subjective 
interpretation'' that a voltage schedule be technically sound, 
because there are no associated compliance measures); FirstEnergy 
comments at 6 (noting that VAR-001-1 avoids overly prescriptive 
language defining the correct technical basis). IESO argues that 
other Reliability Standards require sound engineering principals and 
technical expertise, in order to meet reliability objectives and 
obligations, and that these Reliability Standards ``supplement'' the 
VAR-001-1 Reliability Standard. IESO comments at 5-6.

---------------------------------------------------------------------------

[[Page 25417]]

    23. FirstEnergy supports the Commission's proposal to remand NERC's 
interpretation for further consideration because NERC's proposed 
interpretation suggests that voltage schedules could lack a technical 
basis. However, FirstEnergy interprets the Commission's proposal in the 
NOPR as finding that there are ``implicit'' obligations in VAR-001-1, 
Requirement R4 that instead should be explicitly incorporated in the 
Reliability Standards. Therefore, FirstEnergy supports a remand, but 
states that the remand should incorporate a directive to consider 
evaluation measures and review the technical basis for voltage 
schedules pursuant to a Standards Authorization Request under the NERC 
Reliability Standards development process.\29\
---------------------------------------------------------------------------

    \29\ FirstEnergy comments at 5. See also Ameren comments at 9 
(comparing current proposal to directives in Order No. 693, FERC 
Stats. & Regs. ] 31,242 at P 1880, to address clarifying changes 
through the Reliability Standards development process); IESO 
comments at 5 (perceived deficiencies in the Reliability Standard 
should be addressed in the Reliability Standards development 
process).
---------------------------------------------------------------------------

    24. According to FirstEnergy, Requirement R4 is correctly written 
to avoid overly prescriptive language as to what constitutes the 
correct technical basis, since the determination of voltage schedules 
is unique to individual transmission systems.\30\
---------------------------------------------------------------------------

    \30\ FirstEnergy comments at 6.
---------------------------------------------------------------------------

    25. Despite acknowledging that the voltage schedules must have a 
technical basis, some participants object to the Commission's proposal 
to remand the interpretation in order that NERC may reflect that fact 
in the interpretation, solely because the requirement is not explicit, 
that is, not stated directly in the Reliability Standard and supported 
by compliance measures.\31\ EEI supports remand for the limited purpose 
to incorporate supporting material from NERC's pleadings and a 
reference to the Order No. 693 discussion that prompted the 
Commission's concern.\32\ However, EEI states that this material would 
not reflect an auditable requirement that voltage schedules be 
technically sound, due to the lack of measures and compliance 
elements.\33\ According to EEI, the issue raised in Dynegy's 
interpretation request was resolved in Order No. 693 when the 
Commission addressed requests that the Commission direct NERC to modify 
VAR-001-1 to include detailed and definitive requirements on 
established limits and sufficient reactive resources and identify 
acceptable voltage margins.\34\ Therefore, EEI views Dynegy's request 
as an attempt to circumvent the Reliability Standard development 
process.
---------------------------------------------------------------------------

    \31\ See NERC comments at 5, 9; Ameren comments at 6-9; IESO 
comments at 1-2, 3.
    \32\ EEI comments at 3-4.
    \33\ Id. at 2.
    \34\ Id. at 3 (citing Order No. 693, FERC Stats. & Regs. ] 
31,242 at P 1868).
---------------------------------------------------------------------------

    26. Ameren characterizes the Commission's proposed remand as 
effectively creating a new requirement outside the approved procedures, 
and suggests that the appropriate procedure is to initiate a Standards 
Authorization Request. Ameren cites the Commission's rejecting Dynegy's 
proposed evaluation measures as supporting its position.\35\ Ameren 
characterizes the Commission's proposal as resulting in an 
interpretation that would implement a requirement that is not 
understood to be part of the Reliability Standard, and cites the NERC 
balloting as evidence that the industry does not agree with the 
position that there is an implicit requirement.\36\
---------------------------------------------------------------------------

    \35\ Ameren comments at 10 (citing NOPR, FERC Stats. & Regs. ] 
32,639 at P 32).
    \36\ Id. at 7, 10.
---------------------------------------------------------------------------

b. Technical Basis in Other Reliability Standard Requirements
    27. Several participants claim that, while the scope of VAR-001-1, 
Requirement R4 is limited, other requirements create obligations which 
lead to technically sound voltage schedules or compliance with VAR-001-
1. According to NERC, each of the requirements in VAR-001-1 contributes 
to meeting the stated objective of the Reliability Standard, and it is 
the combination of requirements that provides a technically sound 
method to achieve the purpose of VAR-001-1. NERC states that, although 
Requirement R4 does not explicitly require a voltage schedule that is 
technically based, reasonable and practical, ``other requirements in 
VAR-001-1 do require the technical basis to be established.''\37\ NERC 
concludes that ``as a whole'' VAR-001-1 is technically sound.
---------------------------------------------------------------------------

    \37\ NERC comments at 5-6.
---------------------------------------------------------------------------

    28. NERC cites Requirements R2 and R8 through R12 as requiring a 
transmission operator to have a defensible technical basis to achieve 
the purpose of VAR-001-1.\38\ NERC states that these requirements 
direct a transmission operator to understand system dynamics to 
maintain voltage sufficiency and stability under normal and contingency 
conditions. According to NERC, to maintain the system within limits in 
real-time and to avoid voltage collapse in the operating time horizon, 
a transmission operator must study the system on a first contingency 
basis and must ``position the voltage and reactive profile of the 
system appropriately, including the voltage [schedules] provided to 
generator operators.'' \39\ NERC continues, indicating that a 
transmission operator possesses valuable insight into reactive ``weak 
spots'' where additional reactive support would be beneficial to help 
it achieve the performance expectations outlined in VAR-001-1.\40\
---------------------------------------------------------------------------

    \38\ Id. at 6-7. NERC lists Requirement R2 (discussing reactive 
sufficiency), Requirement R8 (requiring a transmission operator to 
operate reactive resources to maintain system voltage limits), 
Requirement R9 (requiring transmission operators to address reactive 
support under first contingency conditions), Requirement R10 
(addressing system operating limit (SOL) and interconnection 
reliability operating limit (IROL) violations), Requirement R11 
(providing for transformer tap settings) and Requirement R12 
(directing a transmission operator to take preemptive action to 
prevent voltage collapse).
    \39\ Id. at 7.
    \40\ Id. at 7-8.
---------------------------------------------------------------------------

    29. NERC also summarizes various planning actions that a 
transmission operator must take with respect to voltage support. NERC 
states that, to meet the planning obligations embodied in VAR-001-1, 
Requirements R2, R9.1 and R11, a transmission operator must rely on 
long-range and seasonal studies provided by the transmission planner. 
According to NERC, a combination of planning and operations analysis 
and feedback provides the technical foundation for voltage schedules to 
be maintained at buses across the transmission system, including 
generator buses. NERC concludes that ``there must be a technical basis 
for'' the voltage schedule provided for in Requirement R4.\41\
---------------------------------------------------------------------------

    \41\ Id. at 9-10.
---------------------------------------------------------------------------

    30. To remedy the perceived disconnect, NERC suggests that the 
interpretation could be improved by stating that it is VAR-001-1, 
Requirement R4 that lacks an explicit requirement for a technically-
based, reasonable, and practical voltage schedule, and ``not the entire 
VAR-001-1 standard.''\42\
---------------------------------------------------------------------------

    \42\ Id. at 9.
---------------------------------------------------------------------------

    31. EEI also indicates that, even though not part of the 
interpretation, the additional information in NERC's filing 
demonstrates that the requirements in VAR-001 are based on sound 
engineering principles, but because it is

[[Page 25418]]

not in NERC's official interpretation, a remand may be warranted.\43\
---------------------------------------------------------------------------

    \43\ EEI comments at 2.
---------------------------------------------------------------------------

    32. Ameren states that review of VAR-002-1a can answer Dynegy's 
concerns regarding the ``reasonable and practical'' generator voltage 
schedule. According to Ameren, the interpretation would not permit 
unsound practices or practices that threaten system reliability, but 
instead points to VAR-002-1, Requirement R2 as establishing procedures 
that accommodate ``actual generator capabilities'' and ``the 
transmission operator's need to maintain voltage schedules.''\44\ 
Ameren states that the interpretation addresses concerns whether a 
voltage schedule must accommodate ``reasonable'' and ``practical'' 
generator capabilities by reference to VAR-002-1a, the Reliability 
Standard that addresses the generators' obligations.\45\
---------------------------------------------------------------------------

    \44\ Ameren comments at 6 (citing NERC Petition, Exhibit B-1 at 
2; NOPR, FERC Stats. & Regs. ] 32,639 at P 31 (proposing remand and 
rejecting Dynegy request for the development of compliance measures 
as beyond the scope of an interpretation proceeding)).
    \45\ Id. at 6 (citing NERC Petition, Transmittal Letter at 12-13 
and VAR-001-1a as providing that ``each Generator Operator shall 
maintain the generator voltage or Reactive Power output (within 
applicable Facility Ratings[]) as directed by the Transmission 
Operator'' and Requirement R2.2 as providing that ``the Generator 
Operator shall comply or provide an explanation of why the schedule 
cannot be met'').
---------------------------------------------------------------------------

    33. Ameren states that Reliability Standards VAR-001 and VAR-002, 
taken together, support a technically sound purpose of providing for 
safe and reliable Reactive Power and voltage control, as required by 
Order No. 693. Ameren asserts that these Reliability Standards as 
written and interpreted are sufficient to protect electric 
reliability.\46\
---------------------------------------------------------------------------

    \46\ Id. at 7 (citing Order No. 693, FERC Stats. & Regs. ]31,242 
at P 5, as explaining that ``a Reliability Standard does not 
necessarily need to reflect the optimal method for achieving its 
reliability goal, [but] a Reliability Standard should achieve its 
reliability goal effectively and efficiently,'' and should be 
``sufficient to adequately protect Bulk-Power System reliability'').
---------------------------------------------------------------------------

    34. According to FirstEnergy, both transmission operators and 
generator operators are responsible to confirm the technical basis for 
a voltage schedule. FirstEnergy continues, explaining that the stated 
purpose of VAR-001-1 provides the basis for Requirement R4, which 
requires a transmission operator to provide a technically sound voltage 
schedule that provides sufficient reactive support and respects bulk 
electric system facility ratings. Failure to do so, FirstEnergy 
submits, could adversely affect generator equipment and bulk electric 
system reliability. FirstEnergy states that VAR-002-1 requires 
generators to provide reactive support to meet this obligation; 
FirstEnergy suggests that a generator that cannot fulfill that purpose 
based on the voltage schedule received must coordinate an acceptable 
voltage schedule with the transmission operator in order to meet the 
explicit requirements of VAR-002-1.
    35. FirstEnergy agrees with the Commission's proposal rejecting 
Dynegy's request for more detailed specification of the technical 
requirements of the VAR-001-1 Reliability Standard, as beyond the scope 
of an interpretation proceeding. FirstEnergy claims that Dynegy's 
suggestions are already being considered in Project 2008-01, pursuant 
to NERC's 2009-11.\47\ Finally, FirstEnergy suggests that the addition 
of reliability coordinators as applicable entities would aid in 
mediating disputes between transmission operators and generator 
operators.
---------------------------------------------------------------------------

    \47\ FirstEnergy comments at 8.
---------------------------------------------------------------------------

    36. According to IESO, numerous Reliability Standards supplement 
VAR-001-1 and ensure that transmission operators develop plans and 
procedures that provide for reliability.\48\ IESO states that 
transmission operators would not be able to provide for system 
reliability, prevent system operating limit or interconnection 
reliability operating limit violations, or prevent cascading outages if 
they do not employ sound engineering principles and technical expertise 
during the development of plans and procedures.
---------------------------------------------------------------------------

    \48\ IESO comments at 5.
---------------------------------------------------------------------------

    37. IESO lists several Reliability Standards as supplementing VAR-
001-1, including TOP-002-2, Requirement R2 (requiring operations 
plans); TOP-004-2, Requirement R6 (requiring transmission operators to 
develop policies for transmission reliability, including controlling 
voltage levels); TOP-008-1, Requirement R2 (requiring transmission 
operator to limit potential for IROL or SOL violations). In addition, 
IESO objects to the Commission's view that NERC's interpretation fails 
to recognize that a voltage schedule issued under VAR-001-1 should 
reflect technical analysis, including sound engineering and operating 
judgment and experience, by noting that planners are required to 
include system operating personnel in the planning process under TOP-
002-2, Requirement R2.\49\
---------------------------------------------------------------------------

    \49\ Id. at 6 (citing NOPR, FERC Stats. & Regs. ] 32,639 at P 
30).
---------------------------------------------------------------------------

c. Enforceability
    38. EEI agrees with NERC that VAR-001-1 lacks an explicit 
requirement to issue a technically based, reasonable and practical 
voltage and reactive schedule and also lacks measures or associate 
compliance elements in the standard. Therefore, EEI concludes that a 
transmission operator cannot be audited on what EEI terms the 
``subjective interpretation'' that a voltage schedule must have a sound 
technical basis.\50\
---------------------------------------------------------------------------

    \50\ EEI comments at 2.
---------------------------------------------------------------------------

    39. According to Ameren, NERC's proposal correctly recognizes that 
a Reliability Standard cannot establish obligations implicitly, but 
instead must have stated obligations that can be objectively measured. 
Ameren states that nothing in VAR-001-1 specifies a technical basis for 
the transmission operator's voltage schedule and tolerance band or 
requires a transmission operator to issue its supporting methodology, 
as Dynegy proposed.\51\ IESO agrees with NERC that an implied 
requirement is not a stated requirement that can be objectively 
measured.
---------------------------------------------------------------------------

    \51\ Ameren comments at 5-6 (citing NERC Petition, Exhibit B-1 
and Dynegy Oct. 11, 2007 request for interpretation as stating: 
``Requirement 4 does not impose any explicit obligations on the 
Transmission Operator other than to provide the Generator Operator 
with a voltage or reactive power output schedule and an associated 
tolerance band.'').
---------------------------------------------------------------------------

    40. Ameren states that, since there are no implicit requirements, 
there are no measurements of compliance. According to Ameren, the 
Reliability Standard and interpretations drafting teams explained that 
any implicit requirement is subjective, and could not be objectively 
measured and enforced.\52\
---------------------------------------------------------------------------

    \52\ Ameren comments at 8 (citing NERC Petition at 11; NERC 
proposed VAR-001-1 interpretation at 1).
---------------------------------------------------------------------------

    41. Ameren cites the Order No. 672 factors for approving a 
Reliability Standard as mandatory and enforceable under the FPA.\53\ 
According to Ameren, an implied requirement, not contained

[[Page 25419]]

in the language of the Reliability Standard itself, is ambiguous both 
as to what is required and what measurements will be used to determine 
compliance. Ameren concludes that such a requirement cannot be enforced 
fairly, and should not be made part of a mandatory Reliability 
Standard.
---------------------------------------------------------------------------

    \53\ Id. at 7 (citing Order No. 672, FERC Stats. & Regs. ] 
31,204 at P 324, 327:
    The proposed Reliability Standard must be designed to achieve a 
specified reliability goal and must contain a technically sound 
means to achieve this goal. Although any person may propose a topic 
for a Reliability Standard to the ERO, in the ERO's process, the 
specific proposed Reliability Standard should be developed initially 
by persons within the electric power industry and community with a 
high level of technical expertise and be based on sound technical 
and engineering criteria. It should be based on actual data and 
lessons learned from past operating incidents, where appropriate. 
The process for ERO approval of a proposed Reliability Standard 
should be fair and open to all interested persons. * * *
    There should be a clear criterion or measure of whether an 
entity is in compliance with a proposed Reliability Standard. It 
should contain or be accompanied by an objective measure of 
compliance so that it can be enforced and so that enforcement can be 
applied in a consistent and non-preferential manner.
---------------------------------------------------------------------------

    42. Ameren states that disagreements may arise between transmission 
operators, NERC, generator operators and auditors over reasonableness 
of a technical basis or methodology or the practicality of a 
schedule.\54\ Ameren criticizes the proposed remand because it contains 
no instructions for how transmission operators could implement an 
implicit requirement.\55\ Ameren concludes that an implicit requirement 
is unacceptable and simply unworkable in the context of mandatory and 
enforceable electric Reliability Standards.
---------------------------------------------------------------------------

    \54\ Ameren comments at 8.
    \55\ Id. at 9.
---------------------------------------------------------------------------

d. Miscellaneous
    43. Some participants are concerned that this interpretation could 
circumvent NERC's Standard development process or otherwise lacks due 
process.\56\ Ameren agrees with the Commission's acknowledgement in the 
NOPR upholding NERC's rejection of Dynegy's proposed evaluation 
measures. Ameren states that NERC's interpretation should be approved 
based on the results of the NERC ballot process. EEI states that the 
Commission provided an appropriate response in Order No. 693 by 
directing NERC to develop specific requirements for the issues 
addressed in the Final Rule through the NERC Reliability Standards 
development process, and questions whether Dynegy's request concerning 
voltage schedules is an attempt to circumvent the Reliability Standards 
development process.\57\ These participants claim that interpretations 
that put new measures in place or would implement new requirements are 
beyond the scope of the interpretation process.
---------------------------------------------------------------------------

    \56\ Ameren comments at 10 (suggesting that remand may 
circumvent the Reliability Standards development procedure by adding 
new requirements to the standard violating the principles of due 
process and deference); FirstEnergy comments at 5.
    \57\ EEI comments at 3.
---------------------------------------------------------------------------

    44. Finally, participants reason that the Commission must rely on 
the judgment of the ERO in areas involving technical expertise relating 
to the content of the Reliability Standard and that, if Dynegy wishes 
to seek new material or measures to be added to the Reliability 
Standards, it must be handled through a Standards Authorization Request 
under the NERC Reliability Standards development process.\58\ Ameren 
states that the technical content of the interpretation is entitled to 
deference. Ameren claims that a remand of VAR-00l-l, Requirement R4 
would add a new requirement to the Reliability Standard where the 
technical experts have acknowledged that one does not exist, without 
going through the required standards authorization process.\59\ Ameren 
states that such a revision would violate due process and demonstrate a 
lack of deference to the Reliability Standards development process.
---------------------------------------------------------------------------

    \58\ Ameren comments at 2; EEI comments at 2; FirstEnergy 
comments at 5; IESO comments at 4.
    \59\ Ameren comments at 10 (citing NERC Petition at Exhibit B-3 
(results of the ballot body vote) and stating ``Indeed, several 
members of the ballot pool for the VAR-001-1 interpretation 
indicated their belief that Dynegy's request for an interpretation 
should have been filed as a Standards Authorization Request because 
the proposed change is so obviously beyond the scope of the current 
content of the Reliability Standard'').
---------------------------------------------------------------------------

    45. On a similar note, FirstEnergy and EEI both suggest that this 
interpretation request would add requirements to the VAR-001-1 
Reliability Standard that are not otherwise required, and the proposed 
clarification would be more appropriately considered in the ongoing 
standards development proceedings. FirstEnergy states that changes to 
Reliability Standards to add more detail, such as the specific 
technical details sought by Dynegy, should be addressed in the ongoing 
Reliability Standards development process.
    46. EEI points out that Dynegy's request raises several process 
issues. EEI claims that NERC's narrow interpretation, that there are no 
implicit requirements with regard to the Reliability Standard's 
technical validity, could suggest that the Reliability Standard itself 
is useless. On the other hand, EEI claims that if NERC indicated that 
there was an implicit requirement, such a requirement must be made 
explicit in this and every other Reliability Standard, potentially 
necessitating an overhaul of the entire collection of Reliability 
Standards.\60\ EEI also warns that the Commission and NERC should be 
careful not to allow a single entity to change a Reliability Standard 
via interpretations and that any such ``backdoor'' device should be 
avoided.
---------------------------------------------------------------------------

    \60\ EEI comments at 4-5.
---------------------------------------------------------------------------

3. Commission Determination
    47. The Commission remands to the ERO the proposed interpretation 
of VAR-001-1, Requirement R4 and directs the ERO to revise the 
interpretation consistent with the Commission's discussion below.
a. Voltage Schedules Provided Under VAR-001-1, Requirement R4 Must Have 
a Sound Technical Basis
    48. Order No. 693 held that all Reliability Standards must be 
designed to achieve a specified reliability goal and must contain a 
technically sound means to achieve the goal.\61\ No participant 
disagrees with this assessment.\62\ Furthermore, no participant 
challenges the Commission's objection that the Reliability Standards 
should not permit delivery of a voltage schedule that lacks any 
technical basis.\63\ Instead, the participants suggest various ways in 
which other Reliability Standards requirements provide that technical 
basis or at least do not permit transmission operators to engage in 
unsound practices with respect to voltage schedules.\64\
---------------------------------------------------------------------------

    \61\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 5; see 
NOPR, FERC Stats. & Regs. ] 32,639 at P 30.
    \62\ See NERC comments at 5; Ameren comments at 5; EEI comments 
at 2; FirstEnergy comments at 3-4; IESO comments at 2-3.
    \63\ NOPR, FERC Stats. & Regs. ] 32,639 at P 30.
    \64\ NERC comments at 5-6; EEI comments at 2 (citing NERC 
petition at 12-14); FirstEnergy comments at 5-7; IESO comments at 5. 
See also Ameren comments at 6 (suggesting that procedures in VAR-
002-1 would accommodate actual generator capabilities and not permit 
unsound practices under VAR-001-1, Requirement R4).
---------------------------------------------------------------------------

    49. VAR-001-1, Requirement R4 requires each transmission operator 
to specify a voltage schedule to be maintained by each generator and 
explains that the voltage schedule is a target voltage to be maintained 
within a tolerance band during a specified period. Requirement R4 is 
part of the means by which a transmission operator achieves the goal of 
VAR-001-1, ``to ensure that voltage levels, reactive flows, and 
reactive resources are monitored, controlled, and maintained within 
limits in real time to protect equipment and the reliable operation of 
the Interconnection.'' Because Requirement R4 requires transmission 
owners to specify target voltages at each generator's interconnection 
with the system, while taking into account specific periods of use and 
facility tolerance bands, the Requirement is not merely a ministerial 
requirement, but, rather, presupposes the exercise of engineering 
judgment. These determinations are technical in nature, and, since they 
represent one of the means by which the VAR-001-1 Reliability Standard 
achieves its goal, they must be technically sound, that is, based on 
sound engineering. Actions

[[Page 25420]]

that do not reflect sound engineering would not be technically 
sound.\65\ Therefore, the Commission adopts its NOPR proposal, and 
finds that a voltage schedule should reflect sound engineering, as well 
as operating judgment and experience.\66\ The Commission remands NERC's 
proposed VAR-001-1, Requirement R4 interpretation, in order that NERC 
may reconsider its interpretation consistent with this order.
---------------------------------------------------------------------------

    \65\ NOPR, FERC Stats. & Regs. ] 32,639 at P 31.
    \66\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 5 (``a 
Reliability Standard must provide for the Reliable Operation of 
Bulk-Power System facilities and may impose a requirement on any 
user, owner or operator of such facilities. It must be designed to 
achieve a specified reliability goal and must contain a technically 
sound means to achieve this goal. The Reliability Standard should be 
clear and unambiguous regarding what is required and who is required 
to comply. The possible consequences for violating a Reliability 
Standard should be clear and understandable to those who must 
comply. There should be clear criteria for whether an entity is in 
compliance with a Reliability Standard. While a Reliability Standard 
does not necessarily need to reflect the optimal method for 
achieving its reliability goal, a Reliability Standard should 
achieve its reliability goal effectively and efficiently''); see 
also Order No. 672, FERC Stats. & Regs. ] 31,204 at P 324; accord 
NERC Rules of Procedure, section 302.5.
---------------------------------------------------------------------------

b. Whether Support for a Sound Technical Basis Is Found in Other 
Reliability Standards and Requirements
    50. Several participants, including NERC and Ameren, claim that, in 
the broader context of the Reliability Standards, there is already an 
obligation to use technically sound means to comply with VAR-001-1, 
Requirement R4.\67\ The Commission recognizes and appreciates, as part 
of the NERC filing, the additional information included to allay 
concerns that generator operators may receive a voltage schedule that 
is either unsafe or not technically feasible. However, if analysis of 
other Reliability Standard requirements provides the necessary 
clarification, such analysis should be made part of the formal 
interpretation. Thus, in this case, if the actions performed pursuant 
to other Reliability Standard requirements cited in the participants' 
comments describe actions that form the basis for development of 
voltage schedules, then the interpretation should reflect that fact.
---------------------------------------------------------------------------

    \67\ NERC comments at 8-9 (discussing VAR-001-1, Requirements 
R2, R9.1 and R11); Ameren comments at 6 (discussing VAR-002-1a, 
Requirement R2). See also EEI comments at 2 (supporting NERC 
conclusion); IESO comments at 6 (discussing transmission operations 
Reliability Standards, TOP-002-2, et al.). However, participants 
also suggest that a failure to meet that obligation would not 
constitute an enforceable violation of VAR-001-1, Requirement R4. 
See EEI comments at 2.
---------------------------------------------------------------------------

    51. Some petitioners suggest that other Reliability Standard 
requirements may mitigate any negative impact of a voltage schedule 
that lacks a sound technical basis, and thus imply that Requirement R4 
need not reflect a sound technical basis, or they suggest that the 
clarification sought by the Commission is not necessary. The Commission 
does not agree. As discussed above, voltage schedules developed 
pursuant to VAR-001-1, Requirement R4 must have a sound technical 
basis, and failure to properly perform the task would constitute an 
independent violation of the Reliability Standard.
c. The Commission Is Not Imposing Implicit Requirements
    52. The Commission disagrees with participants claiming that the 
Commission's understanding of Requirement R4 would impermissibly create 
a new ``implicit'' requirement, or that such requirements would 
introduce an unworkable subjective analysis into Reliability Standard 
enforcement. As the NOPR stated, the Commission reviewed each 
Reliability Standard and, in Order No. 693, approved those containing 
Requirements that are sufficiently clear as to be enforceable and that 
do not create due process concerns.\68\ The Commission included VAR-
001-1 as among the Reliability Standards that are sufficiently clear to 
inform transmission operators what is required of them.\69\ Order No. 
693 declined to order more specificity on the technical basis in the 
current version of VAR-001-1, but instead found that the development of 
more detailed requirements to address such concerns are best addressed 
by the ERO through the Reliability Standards development process.\70\ 
However, that finding does not suggest that existing requirements may 
be performed without any technical basis.
---------------------------------------------------------------------------

    \68\ See Order No. 693, FERC Stats. & Regs. ] 31,242 at P 274.
    \69\ Id. P 275.
    \70\ Id. P 1869.
---------------------------------------------------------------------------

    53. FirstEnergy interprets the Commission's proposal as finding 
that there are ``implicit'' obligations in Requirement R4 that should 
be explicitly incorporated into the Reliability Standard. To the 
contrary, as noted in the NOPR, the Commission has elsewhere declined 
to specify in detail how a registered entity should implement a 
Reliability Standard,\71\ and so we do not direct NERC to modify VAR-
001-1, Requirement R4, at this time.\72\ The Commission affirms its 
approval in Order No. 693 of VAR-001-1, Requirement R4, and its finding 
that Requirement R4 is, as written, sufficiently clear to inform 
entities of what is required of them.
---------------------------------------------------------------------------

    \71\ NOPR, FERC Stats. & Regs. ] 32,639 at P 31; see also Order 
No. 672, FERC Stats. & Regs. ] 31,204 at P 260 (stating that 
implementation procedures should be included when inextricably 
linked to the Reliability Standard or when leaving out 
implementation features could: (1) Sacrifice necessary uniformity in 
implementation of the Reliability Standard; (2) create uncertainty 
for the entity that has to follow the Reliability Standard; (3) make 
enforcement difficult; and (4) increase the complexity of the 
Commission's oversight and review process).
    \72\ Requirement R4 does not prescribe any one particular method 
of achieving compliance, but instead permits transmission operators 
to implement Reliability Standards through a variety of technically 
sound means.
---------------------------------------------------------------------------

d. Requirement R4 Is Mandatory and Enforceable
    54. Several participants claim that any requirement under VAR-001-1 
to issue a technically based voltage schedule cannot be audited or 
enforced because VAR-001-1 lacks measures or compliance elements 
associated with such a requirement.\73\ We do not agree. In Order No. 
693, the Commission approved Reliability Standards without associated 
measures, stating that it disagreed with comments that a Reliability 
Standard cannot reasonably be enforced, or is otherwise not just and 
reasonable, solely because it does not include enforcement measures and 
compliance elements. The Commission reasoned that while such compliance 
elements and enforcement measures provided useful guidance, 
``compliance will in all cases be measured by determining whether a 
party met or failed to meet the Requirement given the specific facts 
and circumstances of its use, ownership or operation of the Bulk-Power 
System.'' \74\
---------------------------------------------------------------------------

    \73\ Ameren comments at 8; EEI comments at 2; IESO comments at 
3.
    \74\ Order No. 693, FERC Stats. & Regs. ] 31,242 at P 253.
---------------------------------------------------------------------------

    55. Ameren complains that a remand of the interpretation lacks 
specific instructions for transmission operators to implement an 
implicit Requirement. In addition, Ameren speculates that disagreements 
as to the sufficiency of a particular voltage schedule may arise 
between parties involved in implementation and enforcement. Again, the 
Commission affirms its finding in Order No. 693 that Requirement R4 is 
sufficiently clear; to be enforceable, Reliability Standards need not 
``spell out in minute detail all factual scenarios that might violate a 
Requirement and the precise consequences of that violation.'' \75\
---------------------------------------------------------------------------

    \75\ Id. P 274-75 (``the Commission finds that none of the 
Reliability Standards that we approve today contains an ambiguity 
that renders it unenforceable or otherwise unjust and 
unreasonable'').

---------------------------------------------------------------------------

[[Page 25421]]

e. Procedural Issues
    56. Several participants such as Ameren, FirstEnergy, and EEI are 
concerned that this interpretation could circumvent the Reliability 
Standards development process. In this remand, the Commission is not 
approving new Reliability Standards or Requirements. Such action would 
be better handled via the Reliability Standards development process. In 
remanding this interpretation, we are simply instructing NERC to 
provide a revised interpretation reflecting appropriate consideration 
of the Commission's ruling that a Reliability Standard ``must be 
designed to achieve a specified reliability goal and must contain a 
technically sound means to achieve this goal.'' \76\ Furthermore, the 
Commission, in considering the arguments and comments, has given due 
weight to the technical expertise of the ERO in deciding how to 
proceed; the ERO is directed to develop revisions to the Reliability 
Standard interpretation, consistent with this Final Rule, to address 
the Commission's concerns.\77\
---------------------------------------------------------------------------

    \76\ Order No. 672, FERC Stats. & Regs. ] 31,204 at P 324.
    \77\ See Order No. 693, FERC Stats. & Regs. ] 31,242 at P 165, 
167 (``NERC states that the requirement that a Reliability Standard 
be ``in the public interest'' provides the Commission with broad 
discretion to review and approve a Reliability Standard. According 
to NERC, implicit in the ``public interest'' test is that a 
Reliability Standard is technically sound and ensures an adequate 
level of reliability, and that the Reliability Standards provides a 
comprehensive and complete set of technically sound requirements 
that establish an acceptable threshold of performance necessary to 
ensure reliability of the Bulk-Power System.'').
    The Commission agrees with NERC that an open and transparent 
process is important in implementing section 215 of the FPA and 
developing proposed mandatory Reliability Standards. However, in 
Order No. 672, the Commission rejected the presumption that a 
proposed Reliability Standard developed through an ANSI-certified 
process automatically satisfies the statutory standard of review. 
Order No. 672, FERC Stats. & Regs. ] 31,204 at P 338. The Commission 
reiterates that simply because a proposed Reliability Standard has 
been developed through an adequate process does not mean that it is 
adequate as a substantive matter in protecting reliability. We, 
therefore, review each Reliability Standard to ensure that the 
Reliability Standard is just, reasonable, not unduly discriminatory 
or preferential, and in the public interest.
---------------------------------------------------------------------------

    57. EEI warns the Commission that Dynegy's request raises several 
process issues and cautions the Commission not to allow a single entity 
to change a Reliability Standard via an interpretation or any other 
``backdoor'' device. The Commission is mindful of EEI's concern, but we 
do not believe that we have decided the issues here in a way that 
allows an entity to change a standard through a ``backdoor'' effort.

III. Information Collection Statement

    58. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting and recordkeeping (collections of 
information) requirements imposed by an agency.\78\ The information 
contained here is also subject to review under section 3507(d) of the 
Paperwork Reduction Act of 1995.\79\
---------------------------------------------------------------------------

    \78\ 5 CFR 1320.11.
    \79\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    59. As stated above, the Commission previously approved, in Order 
No. 693, each of the Reliability Standards that are the subject of the 
current rulemaking. This Final Rule approves one interpretation to a 
previously approved Reliability Standard developed by NERC as the ERO, 
and remands another interpretation. The proffered interpretations 
relate to existing Reliability Standards and do not change these 
standards; therefore, they do not add to or otherwise increase 
entities' current reporting burden. Thus, the Final Rule does not 
materially and adversely affect the burden estimates relating to the 
currently effective version of the Reliability Standards presented in 
Order No. 693.
    60. The BAL-003-0 Reliability Standard that is the subject of the 
approved interpretation was approved in Order No. 693, and the related 
information collection requirements were reviewed and approved, 
accordingly.\80\ The approved interpretation of BAL-003-0 does not 
modify or otherwise affect the collection of information already in 
place. With respect to BAL-003-0, the interpretation clarifies that the 
minimum frequency bias setting applies to systems that employ a 
variable bias methodology. Incorporating a minimum frequency bias 
setting into the determination of frequency response under automatic 
generation control does not change the information that a balancing 
authority reports because the same logs, data, or measurements would be 
maintained.
---------------------------------------------------------------------------

    \80\ See Order No. 693, FERC Stats. & Regs. ] 31,242 at P 1901-
07.
---------------------------------------------------------------------------

    61. The Commission is remanding the interpretation of VAR-001-1. As 
a result, information collection requirements for that Reliability 
Standard will not change at this time.
    62. Thus, the interpretations of the current Reliability Standards 
at issue in this rulemaking will not increase the reporting burden nor 
impose any additional information collection requirements.
    63. However, we will submit this Final Rule to OMB for 
informational purposes.
    Title: Electric Reliability Organization Interpretations of 
Specific Requirements of Frequency Response and Bias and Voltage and 
Reactive Control Reliability Standards.
    Action: Final Rule.
    OMB Control No.: 1902-0244.
    Respondents: Businesses or other for-profit institutions; not-for-
profit institutions.
    Frequency of Responses: On Occasion.
    Necessity of the Information: This Final Rule approves an 
interpretation of the specific requirements of one Commission-approved 
Reliability Standard. The Final Rule finds the interpretation just, 
reasonable, not unduly discriminatory or preferential, and in the 
public interest. In addition, this rule remands an additional proposed 
interpretation for further consideration.
    Internal Review: The Commission has reviewed the proposed 
Reliability Standard interpretations and made a determination that the 
proposed BAL-003-1 interpretation is necessary to implement section 215 
of the FPA. The interpretation conforms to the Commission's policy for 
frequency response and bias within the energy industry as reflected in 
BAL-003-1.
    64. Interested persons may obtain information on the reporting 
requirements by contacting the following: 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].
    65. For submitting comments concerning the collection(s) of 
information and the associated burden estimate(s), please send your 
comments to the contact listed above and to the Office of Information 
and Regulatory Affairs, Office of Information and Regulatory Affairs, 
Washington, DC 20503 [Attention: Desk Officer for the Federal Energy 
Regulatory Commission, phone: (202) 395-4638, fax: (202) 395-7285, e-
mail: oira_submission@omb.eop.gov].

IV. Environmental Analysis

    66. 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

[[Page 25422]]

environment.\81\ The Commission has categorically excluded certain 
actions from this requirement as not having a significant effect on the 
human environment. Included in the exclusion are rules that are 
clarifying, corrective, or procedural or that do not substantially 
change the effect of the regulations being amended.\82\ The actions 
proposed herein fall within this categorical exclusion in the 
Commission's regulations.
---------------------------------------------------------------------------

    \81\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, FERC Stats. & Regs. ] 30,783 (1987).
    \82\ 18 CFR 380.4(a)(2)(ii).
---------------------------------------------------------------------------

V. Regulatory Flexibility Act Analysis

    67. The Regulatory Flexibility Act of 1980 (RFA) \83\ generally 
requires a description and analysis of final rules that will have 
significant economic impact on a substantial number of small entities. 
The RFA mandates consideration of regulatory alternatives that 
accomplish the stated objectives of a proposed rule and that minimize 
any significant economic impact on a substantial number of small 
entities. The Small Business Administration's Office of Size Standards 
develops the numerical definition of a small business.\84\ For electric 
utilities, a firm is small if, including its affiliates, it is 
primarily engaged in the transmission, generation and/or distribution 
of electric energy for sale and its total electric output for the 
preceding twelve months did not exceed four million megawatt hours. The 
RFA is not implicated by this Final Rule because the interpretations 
discussed herein will not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \83\ 5 U.S.C. 601-12.
    \84\ See 13 CFR 121.201.
---------------------------------------------------------------------------

    68. In Order No. 693, the Commission adopted policies to minimize 
the burden on small entities, including approving the ERO compliance 
registry process to identify those entities responsible for complying 
with mandatory and enforceable Reliability Standards. The ERO registers 
only those distribution providers or load serving entities that have a 
peak load of 25 MW or greater and are directly connected to the bulk 
electric system or are designated as a responsible entity as part of a 
required under-frequency load shedding program or a required under-
voltage load shedding program. Similarly, for generators, the ERO 
registers only individual units of 20 MVA or greater that are directly 
connected to the bulk electric system, generating plants with an 
aggregate rating of 75 MVA or greater, any blackstart unit material to 
a restoration plan, or any generator that is material to the 
reliability of the Bulk-Power System. Further, the ERO will not 
register an entity that meets the above criteria if it has transferred 
responsibility for compliance with mandatory Reliability Standards to a 
joint action agency or other organization. The Commission estimated 
that the Reliability Standards approved in Order No. 693 would apply to 
approximately 682 small entities (excluding entities in Alaska and 
Hawaii), but also pointed out that the ERO's Compliance Registry 
Criteria allow for a joint action agency, generation and transmission 
(G&T) cooperative or similar organization to accept compliance 
responsibility on behalf of its members. Once these organizations 
register with the ERO, the number of small entities registered with the 
ERO will diminish and, thus, significantly reduce the impact on small 
entities.\85\
---------------------------------------------------------------------------

    \85\ To be included in the compliance registry, the ERO 
determines whether a specific small entity has a material impact on 
the Bulk-Power System. If these small entities should have such an 
impact then their compliance is justifiable as necessary for Bulk-
Power System reliability.
---------------------------------------------------------------------------

    69. Finally, as noted above, this Final Rule addresses an 
interpretation of the BAL-003-0 Reliability Standard, which was already 
approved in Order No. 693, and, therefore, does not create an 
additional regulatory impact on small entities.\86\
---------------------------------------------------------------------------

    \86\ The Commission remands the interpretation of the VAR-001-1 
Reliability Standard.
---------------------------------------------------------------------------

VI. Document Availability

    70. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through the Commission's Home Page (http://www.ferc.gov) and 
in the Commission's Public Reference Room during normal business hours 
(8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, 
Washington, DC 20426.
    71. From the Commission's Home Page on the Internet, this 
information is available on eLibrary. The full text of this document is 
available on eLibrary in PDF and Microsoft Word format for viewing, 
printing, and/or downloading. To access this document in eLibrary, type 
the docket number excluding the last three digits of this document in 
the docket number field.
    72. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or e-mail at 
ferconlinesupport@ferc.gov, or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. E-mail the Public Reference Room at 
public.referenceroom@ferc.gov.

VII. Effective Date and Congressional Notification

    73. These regulations are effective June 29, 2009. The Commission 
has determined, with the concurrence of the Administrator of the Office 
of Information and Regulatory Affairs of OMB, that this rule is not a 
``major rule'' as defined in section 351 of the Small Business 
Regulatory Enforcement Fairness Act of 1996.

List of Subjects in 18 CFR Part 40

    Electric power, Electric utilities, Reporting and recordkeeping 
requirements.

    By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
 [FR Doc. E9-12348 Filed 5-27-09; 8:45 am]

BILLING CODE 6717-01-P
