
[Federal Register Volume 76, Number 184 (Thursday, September 22, 2011)]
[Proposed Rules]
[Pages 58730-58741]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24102]



[[Page 58730]]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 40

[Docket No. RM11-11-000]


Version 4 Critical Infrastructure Protection Reliability 
Standards

AGENCY: Federal Energy Regulatory Commission.

ACTION: 

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otice of proposed rulemaking.

SUMMARY: Under section 215 of the Federal Power Act, the Federal Energy 
Regulatory Commission (Commission) proposes to approve eight modified 
Critical Infrastructure Protection (CIP) Reliability Standards, CIP-
002-4 through CIP-009-4, developed and submitted to the Commission for 
approval by the North American Electric Reliability Corporation (NERC), 
the Electric Reliability Organization certified by the Commission. In 
general, the CIP Reliability Standards provide a cybersecurity 
framework for the identification and protection of ``Critical Cyber 
Assets'' to support the reliable operation of the Bulk-Power System. 
Proposed Reliability Standard CIP-002-4 requires the identification and 
documentation of Critical Cyber Assets associated with Critical Assets 
that support the reliable operation of the Bulk-Power System. The 
``Version 4'' CIP Reliability Standards propose to modify CIP-002-4 to 
include ``bright line'' criteria for the identification of Critical 
Assets. The proposed Version 4 CIP Reliability Standards would replace 
the currently effective Version 3 CIP Reliability Standards. The 
Commission also proposes to approve the related Violation Risk Factors 
and Violation Severity Levels with modifications, the implementation 
plan, and effective date proposed by NERC.

DATES: Comments are due November 21, 2011.

ADDRESSES: You may submit comments, identified by docket number and in 
accordance with the requirements posted on the Commission's Web site 
http://www.ferc.gov. Comments may be submitted by any of the following 
methods:
     Agency Web Site: Documents created electronically using 
word processing software should be filed in native applications or 
print-to-PDF format and not in a scanned format, at http://www.ferc.gov/docs-filing/efiling.asp.
     Mail/Hand Delivery: Commenters unable to file comments 
electronically must mail or hand deliver an original copy of their 
comments to: Federal Energy Regulatory Commission, Secretary of the 
Commission, 888 First Street, NE., Washington, DC 20426. These 
requirements can be found on the Commission's Web site, see, e.g., the 
``Quick Reference Guide for Paper Submissions,'' available at http://www.ferc.gov/docs-filing/efiling.asp or via phone from FERC Online 
Support at 202-502-6652 or toll-free at 1-866-208-3676.

FOR FURTHER INFORMATION CONTACT: 

Jan Bargen (Technical Information), Office of Electric Reliability, 
Division of Logistics and Security, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
6333.
Edward Franks (Technical Information), Office of Electric Reliability, 
Division of Logistics and Security, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
6311.
Kevin Ryan (Legal Information), Office of the General Counsel, Federal 
Energy Regulatory Commission, 888 First Street, NE., Washington, DC 
20426, (202) 502-6840.
Matthew Vlissides (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8408.

SUPPLEMENTARY INFORMATION: 

September 15, 2011.
    1. Under section 215 of the Federal Power Act (FPA),\1\ the 
Commission proposes to approve eight modified Critical Infrastructure 
Protection (CIP) Reliability Standards, CIP-002-4 through CIP-009-4. 
The proposed ``Version 4'' CIP Standards were developed and submitted 
for approval to the Commission by the North American Electric 
Reliability Corporation (NERC), which the Commission certified as the 
Electric Reliability Organization (ERO) responsible for developing and 
enforcing mandatory Reliability Standards.\2\ In general, the CIP 
Reliability Standards provide a cybersecurity framework for the 
identification and protection of ``Critical Cyber Assets'' to support 
the reliable operation of the Bulk-Power System.\3\ In particular, the 
Version 4 CIP Reliability Standards propose to modify CIP-002-4 to 
include ``bright line'' criteria for the identification of Critical 
Assets, in lieu of the currently-required risk-based assessment 
methodology that is developed and applied by applicable entities. In 
addition, NERC developed proposed conforming modifications to the 
remaining cybersecurity Reliability Standards, CIP-003-4 through CIP-
009-4.
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    \1\ 16 U.S.C. 824o (2006).
    \2\ North American Electric Reliability Corp., 116 FERC ] 
61,062, order on reh'g & compliance, 117 FERC ] 61,126 (2006), aff'd 
sub nom. Alcoa, Inc. v. FERC, 564 F.3d 1342 (D.C. Cir. 2009).
    \3\ The NERC Glossary of Terms defines Critical Assets to mean 
``Facilities, systems, and equipment which, if destroyed, degraded, 
or otherwise rendered unavailable, would affect the reliability or 
operability of the Bulk Electric System.''
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    2. The Commission proposes to approve Version 4, the Violation Risk 
Factors (VRFs),the Violation Severity Levels (VSLs) with modifications, 
the implementation plan, and effective date proposed by NERC. The 
Commission also proposes to approve the retirement of the currently 
effective Version 3 CIP Reliability Standards, CIP-002-3 to CIP-009-3. 
The Commission seeks comments on these proposals to approve.
    3. While we propose to approve the Version 4 CIP Standards, like 
NERC, we recognize that the Version 4 CIP Standards represent an 
``interim step'' \4\ to addressing all of the outstanding directives 
set forth in Order No. 706.\5\ We believe that the electric industry, 
through the NERC standards development process, should continue to 
develop an approach to cybersecurity that is meaningful and 
comprehensive to assure that the nation's electric grid is capable of 
withstanding a Cybersecurity Incident.\6\ Below, we reiterate several 
topics set forth in Order No. 706 that pertain to a tiered approach to 
identifying Cyber Assets, protection from misuse, and a regional 
perspective. We expect NERC will continue to improve the CIP Standards 
to address these and other outstanding matters addressed in Order No. 
706.
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    \4\ NERC Petition at 6.
    \5\ Mandatory Reliability Standards for Critical Infrastructure 
Protection, Order No. 706, 122 FERC ] 61,040, order on reh'g, Order 
No. 706-A, 123 FERC ] 61,174 (2008), order on clarification, Order 
No. 706-B, 126 FERC ] 61,229 (2009).
    \6\ Section 215(a) of the FPA defines Cybersecurity Incident as 
``a malicious act or suspicious event that disrupts, or was an 
attempt to disrupt, the operation of those programmable electronic 
devices and communication networks including hardware, software and 
data that are essential to the reliable operation of the Bulk-Power 
System.''
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    4. Moreover, as discussed below, the Commission seeks comments from 
NERC and other interested persons on establishing a reasonable deadline 
for NERC to satisfy the outstanding directives in Order No. 706 
pertaining to the CIP Standards, using NERC's development timeline.

[[Page 58731]]

I. Background

A. Mandatory Reliability Standards

    5. Section 215 of the FPA requires a Commission-certified 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.\7\
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    \7\ See 16 U.S.C. 824o(e).
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    6. Pursuant to section 215 of the FPA, the Commission established a 
process to select and certify an ERO \8\ and, subsequently, certified 
NERC as the ERO.\9\ On January 18, 2008, the Commission issued Order 
No. 706 approving eight CIP Reliability Standards proposed by NERC.
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    \8\ 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).
    \9\ North American Electric Reliability Corp., 116 FERC ] 
61,062, order on reh'g & compliance, 117 FERC ] 61,126 (2006), aff'd 
sub nom., Alcoa, Inc. v. FERC, 564 F.3d 1342 (DC Cir. 2009).
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    7. In addition, pursuant to section 215(d)(5) of the FPA,\10\ the 
Commission directed NERC to develop modifications to the CIP 
Reliability Standards to address various concerns discussed in the 
Final Rule. In relevant part, the Commission directed the ERO to 
address the following issues regarding CIP-002-1: (1) Need for ERO 
guidance regarding the risk-based assessment methodology for 
identifying Critical Assets; (2) scope of Critical Assets and Critical 
Cyber Assets; (3) internal, management, approval of the risk-based 
assessment; (4) external review of Critical Assets identification; and 
(5) interdependency between Critical Assets of the Bulk-Power System 
and other critical infrastructures. Subsequently, the Commission 
approved Version 2 and Version 3 of the CIP Reliability Standards, each 
version including changes responsive to some but not all of the 
directives in Order No. 706.\11\
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    \10\ 16 U.S.C. 824o(d)(5).
    \11\ North American Electric Reliability Corp., 128 FERC ] 
61,291 (2009), order denying reh'g and granting clarification, 129 
FERC ] 61,236 (2009) (approving Version 2 of the CIP Reliability 
Standards); North American Electric Reliability Corp., 130 FERC ] 
61,271 (2010) (approving Version 3 of the CIP Reliability 
Standards).
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B. Current Version 3 CIP Reliability Standards

    8. Reliability Standard CIP-002-3 addresses the identification of 
Critical Assets and associated Critical Cyber Assets. Pursuant to CIP-
002-3, a responsible entity must develop a risk-based assessment 
methodology to identify its Critical Assets. Requirement R1 specifies 
certain types of assets that an assessment must consider for Critical 
Asset status and also allows the consideration of additional assets 
that the responsible entity deems appropriate. Requirement R2 requires 
the responsible entity to develop a list of Critical Assets based on an 
annual application of the risk-based assessment methodology developed 
pursuant to Requirement R1. Requirement R3 provides that the 
responsible entity must use the list of Critical Assets to develop a 
list of associated Critical Cyber Assets that are essential to the 
operation of the Critical Assets.
    9. In addition, the Commission approved the following ``Version 3'' 
CIP Standards:
     CIP-003-3 (Security Management Controls);
     CIP-004-3 (Personnel & Training);
     CIP-005-3 (Electronic Security Perimeter(s));
     CIP-006-3 (Physical Security of Critical Cyber Assets);
     CIP-007-3 (Systems Security Management);
     CIP-008-3 (Incident Reporting and Response Planning);
     CIP-009-3 (Recovery Plans for Critical Cyber Assets).

II. Proposed Version 4 CIP Reliability Standards

A. NERC Petition

    10. On February 10, 2011, NERC filed a petition seeking Commission 
approval of proposed Reliability Standards CIP-002-4 to CIP-009-4 and 
requesting the concurrent retirement of the currently effective Version 
3 CIP Reliability Standards, CIP-002-3 to CIP-009-3.\12\ The principal 
differences are found in CIP-002, where NERC replaced the risk-based 
assessment methodology for identifying Critical Assets with 17 uniform 
bright line criteria for identifying Critical Assets. NERC does not 
propose any changes to the process of identifying the associated 
Critical Cyber Assets that are then subject to the cyber security 
protections required by CIP-003 through CIP-009. NERC also submitted 
proposed VRFs and VSLs and an implementation plan governing the 
transition to Version 4. NERC proposed that the Version 4 CIP 
Reliability Standards become effective the first day of the eighth 
calendar quarter after applicable regulatory approvals have been 
received.
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    \12\ NERC Petition at 1. The proposed Reliability Standards are 
not attached to the NOPR. They are, however, available on the 
Commission's eLibrary document retrieval system in Docket No. RM11-
11-000 and are available on the ERO's Web site, http://www.nerc.com. Reliability Standards approved by the Commission are 
not codified in the CFR.
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    11. On April 12, 2011, NERC made an errata filing correcting 
certain errors in the petition and furnishing corrected exhibits and 
the standard drafting team minutes. In the errata, NERC also replaced 
the VRFs and VSLs in the February 10 petition with new proposed VRFs 
and VSLs.\13\
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    \13\ NERC states that the Version 4 VRFs and VSLs are carried 
over in part from the VRFs and VSLs in the Version 3 CIP Reliability 
Standards. NERC Petition at 46. The Commission approved the Version 
2 and 3 VRFs and VSLs in Docket Nos. RD10-6-001 and RD09-7-003 on 
January 20, 2011 but required NERC to make modifications in a 
compliance filing due by March 21, 2011. North American Electric 
Reliability Corporation, 134 FERC ] 61,045 (2011). The February 10 
petition did not carry over the modified Version 3 VRFs and VSLs 
since it was filed before the March 21 compliance filing. NERC 
submitted new Version 4 VRFs and VSLs that carried over the modified 
Version 3 VRFs and VSLs in the April 12 errata. On June 6, 2011, 
NERC filed the March 21, 2011 compliance filing in the present 
docket, Docket No. RM11-11-000.
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    12. In its Petition, NERC states that the Version 4 CIP Standards 
satisfy the Commission's criteria, set forth in Order No. 672, for 
determining whether a proposed Reliability Standard is just, 
reasonable, not unduly discriminatory or preferential and in the public 
interest.\14\ According to NERC, CIP-002-4 achieves a specified 
reliability goal by requiring the identification and documentation of 
Critical Cyber Assets associated with Critical Assets that support the 
reliable operation of the Bulk-Power System. NERC opines that the 
Reliability Standard ``improves reliability by establishing uniform 
criteria across all Responsible Entities for the identification of 
Critical Assets.'' \15\ Further, NERC states that CIP-002-4 contains a 
technically sound method to achieve its reliability goal by requiring 
the identification and documentation of Critical Assets through the 
application of the criteria set forth in Attachment 1 of CIP-002-4.
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    \14\ Order No. 672, FERC Stats. & Regs. ] 31,204 at P 323-337.
    \15\ NERC Petition at 4.
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    13. NERC states that CIP-002-4 establishes clear and uniform 
criteria for identifying Critical Assets on the Bulk-Power System.\16\ 
NERC also states that CIP-002-4 does not reflect any differentiation in 
requirements based on size of the responsible entity. NERC asserts that 
CIP-002-4 will not have negative effects on competition or restriction 
of the grid. NERC also contends that the two-year implementation period 
for CIP-002-4 is reasonable given the time it will take responsible 
entities to determine

[[Page 58732]]

whether assets meet the criteria included in Attachment 1 and to 
implement the controls required in CIP-003-4 through CIP-009-4 for the 
newly identified assets.
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    \16\ Id. at 38.
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    14. Finally, NERC acknowledges that CIP-002-4 addresses some, but 
not all, of the Commission's directives in Order No. 706. NERC explains 
that the standard drafting team limited the scope of requirements in 
the development of CIP Version 4 ``as an interim step'' limited to the 
concerns raised by the Commission regarding CIP-002.\17\ NERC states 
that it has taken a ``phased'' approach to meeting the Commission's 
directives from Order No. 706 and, according to NERC, the standard 
drafting team continues to address the remaining Commission directives. 
According to NERC, the team will build on the bright line approach of 
CIP Version 4.\18\
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    \17\ NERC Petition at 6 (citing Order No. 706, 122 FERC ] 61,040 
at P 236).
    \18\ NERC Petition at 6.
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B. Proposed Reliability Standard CIP-002-4

    15. Proposed Reliability Standard CIP-002-4 contains 3 
requirements. Requirement R1, which pertains to the identification of 
Critical Assets, provides:

    The Responsible Entity shall develop a list of its identified 
Critical Assets determined through an annual application of the 
criteria contained in CIP-002-4 Attachment 1--Critical Asset 
Criteria. The Responsible Entity shall update this list as 
necessary, and review it at least annually.

Attachment 1 provides seventeen criteria to be used by all responsible 
entities for the identification of Critical Assets pursuant to 
Requirement R1. The thresholds pertain to specific types of facilities 
such as generating units, transmission lines and control centers. For 
example, Criterion 1.1 provides ``[e]ach group of generating units 
(including nuclear generation) at a single plant location with an 
aggregate highest rated net Real Power capability of the preceding 12 
months equal to or exceeding 1500 MW in a single Interconnection.'' 
With regard to transmission, Criterion 1.6 provides ``Transmission 
Facilities operated at 500 kV or higher,'' and Criterion 1.7 provides 
``Transmission Facilities operated at 300 kV or higher at stations or 
substations interconnected at 300 kV or higher with three or more other 
transmission stations or substations.''
    16. Reliability Standard CIP-002-4, Requirement R2 requires 
responsible entities to develop a list of Critical Cyber Assets 
associated with the Critical Assets identified pursuant to Requirement 
R1. As in previous versions, the Requirement further states that to 
qualify as a Critical Cyber Asset, the Cyber Asset must: (1) Use a 
routable protocol to communicate outside the Electronic Security 
Perimeter; (2) use a routable protocol within a control center; or (3) 
be dial-up accessible. In the proposed version, in the context of 
generating units at a single plant location, the Requirement limits the 
designation of Critical Cyber Assets only to Cyber Assets shared by a 
combination of generating units whose compromise could within 15 
minutes result in the loss of generation capability equal to or higher 
than 1500 MW.
    17. Requirement R3 requires that a senior manager or delegate for 
each responsible entity approve annually the list of Critical Assets 
and the list of Critical Cyber Assets, even if the lists contain no 
elements. As mentioned above, proposed Reliability Standards CIP-003-4 
to CIP-009-4 only reflect conforming changes to accord with the CIP-
002-4 Reliability Standard.

C. Additional Information Regarding Attachment 1 Criteria

    18. In response to a Commission data request, NERC provided 
additional information regarding the bright line criteria for 
identifying Critical Assets.\19\ NERC provided some information 
regarding the development of the criteria. Further, based on an 
industry survey, NERC provided information regarding the estimated 
number of Critical Assets and the number of Critical Assets that have 
associated Critical Cyber Assets located in the United States that 
would be identified pursuant to CIP-002-4. For example, NERC indicates 
that the Version 4 CIP Standards would result in the identification of 
532 control centers as Critical Assets with Critical Cyber Assets, and 
another 21 control centers as Critical Assets without any associated 
Critical Cyber Assets.\20\ Further, 201 control centers would not be 
identified as Critical Assets. With regard to Blackstart Resources, 
NERC's survey results indicate that CIP-002-4 would result in the 
identification of approximately 234 Blackstart Resources as Critical 
Assets with associated Critical Cyber Assets, 273 identified as 
Critical Assets without Critical Cyber Assets, and 35 Blackstart 
Resources not classified as Critical Assets.\21\
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    \19\ See April 17, 2011 Commission staff data request issued in 
Docket No. RM11-11-000. NERC responded to the data request in 
staggered filings, on May 27, 2011 and June 30, 2011.
    \20\ NERC June 30, 2011 Data Response at 2-3.
    \21\ Id. at 3-4. In the June 30, 2011 Data Response, NERC stated 
that with respect to Blackstart Resources some responsible entities 
indicated that they had not performed a complete analysis of their 
systems based on CIP-002-4 and are unsure whether some units may be 
classified as Critical Assets. Id. at 4.
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III. Discussion

    19. Pursuant to FPA section 215(d)(2), the Commission proposes to 
approve CIP-002-4 to CIP-009-4 as just, reasonable, not unduly 
discriminatory or preferential, and in the public interest. The 
Commission proposes to approve the VRFs and VSLs, implementation plan, 
and effective date proposed by NERC. The Commission also proposes to 
approve the retirement of the currently effective Version 3 CIP 
Reliability Standards CIP-002-3 to CIP-009-3 upon the effective date of 
CIP-002-4 to CIP-009-4. The Commission seeks comments on these 
proposals.
    20. Further, as discussed below, the Commission seeks comments from 
NERC and other interested persons on the proposal to establish a 
reasonable deadline for NERC to satisfy the outstanding directives in 
Order No. 706. Specifically, as explained in detail later, the 
Commission requests comments on: (1) The proposal to establish a 
deadline using NERC's development timeline for the next version of the 
CIP Reliability Standards; (2) how much time NERC needs to develop and 
file the next version of the CIP Reliability Standards; (3) other 
potential approaches to Critical Cyber Asset identification; and (4) 
whether the next version is anticipated to satisfy all of the 
directives in Order No. 706.

A. The Commission Proposes To Approve the Version 4 CIP Reliability 
Standards

    21. The Commission, in giving due weight to NERC's Filing, proposes 
to approve the Version 4 CIP Reliability Standards. The Commission also 
proposes to approve the implementation plan and effective date proposed 
by NERC. Version 4 provides a change in three respects: (1) Version 4 
will result in the identification of certain types of Critical Assets 
that may not be identified under the current approach; (2) Version 4 
uses bright line criteria to identify Critical Assets, eliminating the 
use of existing entity-defined risk-based assessment methodologies that 
generally do not adequately identify Critical Assets; and (3) Version 4 
provides a level of consistency and clarity regarding the 
identification of Critical Assets lacking under Version 3. We

[[Page 58733]]

separately address each of these reasons for proposing to approve 
Version 4 below.
1. Critical Asset Identification
    22. In its Petition, NERC indicates that, after conducting reviews 
of CIP-002 compliance, NERC ``determined that the existing 
methodologies generally do not adequately identify all Critical 
Assets.'' \22\ While recognizing that CIP version 4 is intended as an 
``interim step,'' it appears that the proposed bright line criteria 
will result in the identification of certain types of Critical Assets 
(e.g. 500 kV substations) that may not be identified by the approach 
that is currently in effect. This is reflected in NERC's June 30, 2011 
data response, in which NERC presented industry survey data reflecting 
the application of the bright line criteria in Version 4. To facilitate 
an analysis of the data, NERC also provided observations and data from 
several of its earlier industry surveys, including the 2009 ``CIP Self-
Certification Survey'' and 2010 ``CIP-002 Critical Asset Methodology 
Data Request.''. For example, NERC states in the June 30, 2011 data 
response that in the 2009 survey only 50 percent of substations rated 
300 kV and above are classified as Critical Assets while that figure 
would increase to 70 percent under Version 4.\23\
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    \22\ NERC Petition at 11.
    \23\ Id. at 4.
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    23. The NERC petition indicates that 270 transmission substations 
rated 500 kV and above are classified as Critical Assets under Version 
3 while, according to the data response, the figure would rise to 437 
under Version 4.\24\ This increase is consistent with Criterion 1.6 of 
Attachment 1 to CIP-002-4, which identifies all transmission 
substations rated 500 kV as Critical Assets. According to the data 
response, the 25 percent of generation units rated 300 MVA and above 
would be identified as Critical Assets under Version 4. Moreover, the 
proportion of total Blackstart Resources classified as Critical Assets 
increases due to the required 100 percent coverage of these under 
Version 4.\25\ Further, the number of control centers identified as 
Critical Assets increases from 425 under Version 3 to 553 under Version 
4, the latter figure representing 74 percent of all control centers. 
These figures represent increases in certain categories in Critical 
Asset identification among generation, transmission, and control 
centers. We also note that NERC's industry survey data indicates 
decreases in the number of generation and blackstart resources 
identified as Critical Assets with Critical Cyber Assets. While the 
bright line thresholds result in the identification of a significant 
number of additional generation plants rated above 1500 MVA as Critical 
Assets, the thresholds also result in the identification of less 
generation below 300 MVA.
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    \24\ Id. at 5.
    \25\ NERC Petition at 17 (explaining that each Blackstart 
Resource identified in a Transmission Operator's restoration plan is 
a Critical Asset). In the June 30, 2011 Data Response, NERC's survey 
found that responsible entities identified 93 percent of Blackstart 
Resources as Critical Assets. NERC stated that confusion over the 
term Blackstart Resource may have contributed to the lower 
percentage, and that responsible entities will be educated on the 
definition of Blackstart Resource prior to the effective date of 
CIP-002-4. NERC June 30, 2011 Data Response at 4.
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    24. As NERC recognizes in its filing, the improvements in Critical 
Asset identification under Version 4 represent an interim step in 
complying with the directives in Order No. 706.\26\ As we discuss 
below, Version 4 should not be viewed as an endpoint but as a step 
towards eventual full compliance with Order No. 706.
2. Version 4 Removes Discretion in Identifying Critical Assets
    25. The proposed Version 4 CIP Reliability Standards discards the 
current risk-based methodology for identifying Critical Assets. Under 
the current CIP-002-3, responsible entities are tasked with identifying 
Critical Assets based on their own risk-based methodology. In the 
Petition NERC points out that in Order No. 706 the Commission directed 
NERC to ``provide reasonable technical support to assist entities in 
determining whether their assets are critical to the Bulk-Power 
System.'' \27\ NERC explains that it responded to the Commission's 
direction by developing guidance documents to assist entities in 
developing their risk-based methodologies and Critical Asset 
identification.\28\
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    \27\ Id. at 10-11 (citing Order No. 706, 122 FERC ] 61,040 at P 
255).
    \28\ Id. at 11.
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    26. In its Petition, NERC states that it ``conducted various 
reviews of risk-based methodologies developed by many entities of 
varying sizes * * * and determined that the existing methodologies 
generally do not adequately identify all Critical Assets.'' \29\ To 
address this, NERC proposes to replace the current risk-based 
methodology with uniform, bright line criteria, which will be used by 
all responsible entities to identify Critical Assets.
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    \29\ Id.
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    27. While risk-based assessment methodologies have merit, we share 
NERC's concerns about the existing application of the currently 
effective CIP-002-3, Requirement 1. Thus, in this context, we believe 
that a shift away from responsible entity-designed risk-based 
methodologies for identifying Critical Assets, which NERC has found to 
be inadequate, to the use of NERC-developed criteria is an improvement.
3. Version 4 Provides Consistency and Clarity in the Identification of 
Critical Assets
    28. In its June 30, 2011 data response, NERC states that the survey 
results from 2009 generated concern ``about the apparent inconsistency 
in the application of the standards across the system, as evidenced by 
the apparent variation from region to region.'' \30\ NERC states that 
it subsequently engaged with the Regional Entities and stakeholders to 
better understand the data, with these efforts resulting in the 
development of Version 4.
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    \30\ NERC June 30, 2011 Data Response at 3.
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    29. We believe that the application of uniform criteria is an 
improvement over the current approach because they add greater 
consistency and clarity in identifying Critical Assets. The risks posed 
by cyber threats suggest a different approach than the possibly 
inconsistent, inadequate methodologies for identifying Critical Assets, 
as evidenced by NERC's conclusion that insufficient numbers of Critical 
Assets were identified using the risk-based assessment methodology. As 
an integrated system, the protection afforded for Critical Assets and 
their Critical Cyber Assets is only as strong as its weakest link. In 
this respect, allowing responsible entities to devise their own 
methodologies for identifying Critical Assets, especially if these 
methodologies prove to be weak, may compromise the Critical Assets and 
Critical Cyber Assets of other responsible entities even if they have 
adopted a more stringent methodology. The uniform system of Critical 
Asset identification proposed by NERC in Version 4 helps to address 
this weakness and places all responsible entities on an equal footing 
with respect to Critical Asset identification.
    30. In addition, clear, bright line criteria should make it easier 
for Regional Entities, NERC and the Commission to monitor responsible 
entities and evaluate how they are identifying Critical Assets. A 
single set of bright line criteria, as opposed to

[[Page 58734]]

myriad entity-designed risk-based methodologies, should improve the CIP 
compliance process.
    31. However, under the currently-effective CIP-002-3, an entity 
that applies its risk-based assessment methodology considers specific 
types of assets identified in Requirement R1, as well as ``any 
additional assets that support the operation of the Bulk Electric 
System that the Responsible Entity deems appropriate to include in its 
assessment.'' Thus, currently, a responsible entity has the flexibility 
to consider any assets it deems appropriate. The Commission also notes 
that there are assets currently identified as Critical Assets which 
would no longer be identified as Critical Assets under the Proposed 
Reliability Standard CIP-002-4 bright line criteria for Critical Asset 
identification. The Commission seeks comment whether, under CIP Version 
4, a responsible entity retains the flexibility to identify assets 
that, although outside of the bright line criteria, are essential to 
Bulk-Power System reliability. Further, we seek comment whether the ERO 
and/or Regional Entities would have the ability, either in an event-
driven investigation or compliance audit, to identify specific assets 
that fall outside the bright-line criteria yet are still essential to 
Bulk-Power System reliability and should be subject prospectively to 
compliance with the CIP Reliability. If so, on what basis should that 
decision be made?
    32. In addition, the Commission is cognizant of one caution that 
remains concerning a binary bright line criteria protection philosophy, 
i.e., either an asset satisfies the threshold and is subject to 
compliance or is below the threshold and not subject to compliance (as 
opposed to a tiered approach to compliance as discussed below), in 
terms of applying cybersecurity protections to Cyber Assets. 
Specifically, bright line criteria that limit legally-mandated 
cybersecurity protections to certain classes of Bulk-Power System 
assets may indicate to an adversary the types of assets that fail to 
meet the threshold and, therefore, are not subject to mandatory CIP 
compliance. Therefore, the Commission encourages NERC to accelerate 
development of the next version of the CIP Reliability Standards and to 
address the concerns discussed herein in Section B.
4. Violation Risk Factors/Violation Severity Levels
    33. NERC states that the proposed VRFs and VSLs are consistent with 
those approved for the Version 3 CIP Reliability Standards.\31\ NERC 
explains that each requirement in Version 4 is assigned a VRF and a set 
of VSLs and that these elements support the determination of an initial 
value range for the base penalty amount regarding violations of 
requirements in Commission-approved Reliability Standards, as defined 
in the ERO Sanction Guidelines.\32\
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    \31\ North American Electric Reliability Corp., 134 FERC ] 
61,045 (2011) (approving Version 2 and 3 CIP Reliability Standards 
VRFs and VSLs but requiring modifications in a compliance filing).
    \32\ NERC Petition at 37.
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    34. The principal changes in the proposed Version 4 VRFs and VSLs 
relate to CIP-002-4. NERC proposes to carry forward the Version 3 VRFs 
and VSLs for all other Requirements (in CIP-003-4 through CIP-009-4), 
for which no substantive revisions are proposed. CIP-002-4 no longer 
contains sub-Requirements and, instead, each of three main Requirements 
has a single VRF and set of VSLs, consistent with the methodology 
proposed by NERC and approved by the Commission.\33\ The VRF 
designations for the three Requirements in CIP-002-4 are consistent 
with those assigned to similar Requirements in previous versions of the 
CIP Reliability Standards and satisfy our established guidelines. 
Therefore, the Commission proposes to approve the Version 4 VRFs 
proposed by NERC and incorporate appropriately the modifications 
directed to prior versions.
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    \33\ North American Electric Reliability Corp., 135 FERC ] 
61,166, at 8 (2011).
---------------------------------------------------------------------------

    35. With regard to the proposed Version 4 VSLs for CIP-002-4, we 
are concerned that the VSLs for Requirement R1 and Requirement R2, 
while carrying forward the wording from corresponding Version 3 VSLs, 
do not adequately address the purpose of NERC's proposed bright line 
criteria: To ensure accurate and complete identification of all 
Critical Assets, so that all associated Critical Cyber Assets become 
subject to the protections required by the CIP Standards.
    36. More importantly, neither set of VSLs address the failure to 
properly identify either Critical Assets or Critical Cyber Assets in 
the first place. The failure to identify a Critical Asset, whether 
inadvertently or through misapplication of the bright line criteria, is 
paramount because if an Asset is not identified and included on the 
Critical Asset list, its associated Cyber Assets will not be considered 
under Requirement R2. Failure to identify those Cyber Assets as 
Critical Cyber Assets under Requirement R2 then creates the ``weakest 
link'' circumstance discussed in the Commission's order establishing 
two CIP VSL Guidelines for analyzing the validity of VSLs pertaining to 
cyber security.\34\
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    \34\ CIP VSL Guideline 1 states, ``Requirements where a single 
lapse in protection can compromise computer network security, i.e., 
the ``weakest link'' characteristic, should apply binary rather than 
gradated VSLs.''
---------------------------------------------------------------------------

    37. Therefore, the Commission proposes to direct the ERO to modify 
the VSLs for CIP-002-4, Requirements R1 and R2, to address a failure to 
identify either Critical Assets or Critical Cyber Assets, as shown in 
Appendix 1.\35\ The Commission proposes to approve the Version 4 VSLs 
proposed by NERC, as modified, because they would then satisfy our 
established guidelines, fully address the purpose of NERC's bright line 
criteria, and incorporate appropriately the modifications directed to 
prior versions.
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    \35\ NERC proposes to assign a Severe VSL for a violation of 
Requirement R1 if a responsible entity does not develop a list of 
its identified Critical Assets ``even if such list is null.'' NERC 
does not propose to assign a VSL for a violation of Requirement R1 
when a responsible entity fails to identify a Critical Asset that 
falls within any of the Critical Asset Criteria in Attachment 1, or 
fails to include an identified Critical Asset in its Critical Asset 
list. NERC further proposes to assign a Severe VSL to a responsible 
entity's violation of Requirement R2 only when it fails to include 
in its list of Critical Cyber Assets a Critical Cyber Asset it has 
identified. NERC does not propose to assign a VSL for a violation of 
Requirement R2 resulting from a responsible entity's failure to 
identify as a Critical Cyber Asset a Cyber Asset that qualifies as a 
Critical Cyber Asset.
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5. Implementation Plan and Effective Date
    38. NERC proposes an effective date for full compliance with the 
Version 4 CIP Standards of the first day of the eighth calendar quarter 
after applicable regulatory approvals have been received. In addition, 
NERC provides a detailed implementation plan for newly identified 
Critical Assets and newly registered entities. NERC also presents a 
number of scenarios intended to explain how CIP-002-4 will be 
implemented. Depending on the situation, the implementation plan 
establishes timelines and milestones for entities to reach full 
compliance with CIP-002-4.
    39. The Commission proposes to approve the effective date and 
implementation plan for CIP-002-4. Under the scenarios presented by 
NERC, we understand that entities with existing CIP compliance 
implementation programs will effectively no longer use CIP-002-3 to 
identify Critical Assets after approval of CIP-002-4 but rather will 
apply the criteria in Attachment 1 of CIP-002-4. While some responsible 
entities have already installed the necessary equipment and software to 
address

[[Page 58735]]

cybersecurity, we recognize that other responsible entities may need to 
purchase and install new equipment and software to achieve compliance 
for assets that are brought within the scope of the protections under 
the CIP-002-4 bright line criteria. Based on these considerations, the 
Commission believes that the implementation plan proposed by NERC sets 
reasonable deadlines for industry compliance.

B. Ongoing Development Efforts To Satisfy Directives Set Forth in Order 
No. 706

    40. As acknowledged by NERC, the proposed Version 4 CIP Reliability 
Standards do not address all of the directives set forth in Order No. 
706. Although the Commission proposes to approve CIP-002-4, we 
highlight the need for NERC, working through the Reliability Standards 
development process, to address all outstanding Order No. 706 
directives as soon as possible.
    41. Below, we discuss several directives in Order No. 706 that have 
yet to be satisfied and propose to give guidance regarding the next 
version of the CIP Reliability Standards, such as the need to address 
the NIST framework, data network connectivity, and the potential misuse 
of control centers or control systems and the adoption of a regional 
perspective and oversight. Our guidance is intended to more fully 
ensure that all Cyber Assets serving reliability functions of the Bulk-
Power System are within scope of the CIP Reliability Standards. In 
addition, as discussed below, we seek comments from NERC and other 
interested persons on a proposal to establish a deadline for NERC to 
submit modified CIP Reliability Standards that address the outstanding 
directives set forth in Order No. 706, using NERC's development 
timeline.
    42. The stated purpose of Reliability Standard CIP-002 is the 
accurate identification of Critical Cyber Assets. Both the currently-
effective and proposed CIP-002 Reliability Standards, along with 
guidance NERC provided to industry,\36\ are structured in a staged 
approach. First, an entity must identify Critical Assets. NERC defines 
Critical Assets as ``facilities, systems, and equipment which, if 
destroyed, degraded, or otherwise rendered unavailable, would affect 
the reliability or operability of the Bulk Electric System.'' \37\ 
Second, based on the Critical Assets identified in the first step, an 
entity must identify Cyber Assets supporting the Critical Assets. The 
NERC Glossary defines Cyber Assets as ``programmable electronic devices 
and communication networks including hardware, software, and data.'' 
\38\ Third, an entity should identify the Critical Cyber Assets by 
determining, in accordance with the NERC Glossary, the ``Cyber Assets 
essential to the reliable operation of the Critical Assets.'' \39\ In 
Order No. 706, the Commission did not address whether or not the staged 
approach outlined above was the only method for identifying Critical 
Cyber Assets. Rather at that time, focus was placed on addressing 
specific concerns with the first step--the identification of Critical 
Assets. Recognizing CIP-002 as the cornerstone of the CIP Reliability 
Standards,\40\ a failure to accurately identify Critical Assets could 
greatly impact accurate Critical Cyber Asset identification and the 
overall applicability of the protection measures afforded in CIP-003 
through CIP-009.
---------------------------------------------------------------------------

    \36\ North American Reliability Corporation Security Guideline 
for the Electric Sector: ``Identifying Critical Cyber Assets'' 
Version 1.0, Effective June 17, 2010, at 4-5, and North American 
Reliability Corporation Security Guideline for the Electric Sector: 
``Identifying Critical Assets'' Version 1.0, Effective September 17, 
2009.
    \37\ NERC Glossary of Terms at 11.
    \38\ Id.
    \39\ Id.
    \40\ Order No. 706, 122 FERC ] 61,040 at P 234.
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    43. In light of recent cybersecurity vulnerabilities, threats and 
attacks that have exploited the interconnectivity of cyber systems,\41\ 
the Commission seeks comments regarding the method of identification of 
Critical Cyber Assets \42\ to ensure sufficiency and accuracy. The 
Commission recognizes that control systems that support Bulk-Power 
System reliability are ``only as secure as their weakest links,'' and 
that a single vulnerability opens the computer network and all other 
networks with which it is interconnected to potential malicious 
activity.\43\ Accordingly, the Commission believes that any criteria 
adopted for the purposes of identifying a Critical Cyber Asset under 
CIP-002 should be based upon a Cyber Asset's connectivity and its 
potential to compromise the reliable operation \44\ of the Bulk-Power 
System, rather than focusing on the operation of any specific Critical 
Asset(s). The Commission seeks comments on this approach.
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    \41\ These include the discovery of Stuxnet, Night Dragon and 
RSA breaches from advanced persistent threats in July 2010, February 
2011 and March 2011 respectively, where systems were compromised.
    \42\ In Order No. 706, the Commission declined to direct a 
method for identifying Critical Cyber Assets, but stated that it may 
revisit this circumstance in a future proceeding. See Order No. 706, 
122 FERC ] 61,040 at P 284.
    \43\ North American Electric Reliability Corp., 130 FERC ] 
61,211, at P 15 (2010).
    \44\ 16 U.S.C. 824o(a)(4). 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.''
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    44. Further, the Commission seeks comments on how to ensure that 
the directives of Order No. 706 relative to CIP-002 with respect to the 
concerns discussed below are addressed, resulting in a method that will 
lead to sufficient and accurate Critical Cyber Asset identification.
    45. The Commission believes that NERC should consider the following 
three strategies to meet the outstanding directives and seeks comments 
on these strategies. First, NERC should consider applicable features of 
the NIST Risk Management Framework to ensure protection of all cyber 
systems connected to the Bulk-Power System, including establishing CIP 
requirements based on entity functional characteristics rather than 
focusing on Critical Asset size. Second, such as in the consideration 
of misuse, NERC should consider mechanisms for identifying Critical 
Cyber Assets by examining all possible communication paths between a 
given cyber resource and any asset supporting a reliability function. 
Third, NERC should provide a method for review and approval of Critical 
Cyber Asset lists from external sources such as the Regional Entities 
or NERC. Each of these strategies is discussed below.
1. NIST Framework
    46. In Order No. 706, the Commission directed NERC to ``monitor the 
development and implementation'' of cybersecurity standards then being 
developed by the National Institute of Standards and Technology 
(NIST).\45\ The Commission also directed NERC to consider the 
effectiveness of the NIST standards.\46\ At that time, the Commission 
directed NERC to address any NIST provisions that will better protect 
the Bulk-Power System in the Reliability Standards development 
process.\47\ While the Commission determined not to require NERC to 
adopt or incorporate elements of the NIST standards, Order No. 706 left 
open the option of revisiting the NIST standards at a later time.\48\ 
The Commission is not here proposing to direct that NERC use elements 
of the NIST standards. However, we continue

[[Page 58736]]

to believe that the NIST framework could provide beneficial input into 
the NERC CIP Reliability Standards and we urge NERC to consider any 
such provisions that will better protect the Bulk-Power System.
---------------------------------------------------------------------------

    \45\ Order No. 706, 122 FERC ] 61,040 at P 233.
    \46\ Id.
    \47\ Id.
    \48\ Id.
---------------------------------------------------------------------------

    47. The NIST Risk Management Framework was developed to manage the 
risks associated with all information systems, and offers a structured 
yet flexible approach that can now be applied to the electric industry. 
The NIST Risk Management Framework guides selection and specification 
of cybersecurity controls and measures necessary to protect individuals 
and the operations and assets of the organization, while considering 
effectiveness, efficiency, and constraints due to applicable laws, 
directives, policies, standards, or regulations. Each of the activities 
in the Risk Management Framework has an associated NIST security 
standard and/or guidance document that can be used by organizations 
implementing the framework. The management of risk is a key element.
    48. Two primary features of the NIST Framework are: (1) Customizing 
protection to the mission of the cyber systems subject to protection 
(similar to the role identified by the NERC Functional Model); and (2) 
ensuring that all connected cyber systems associated with the Bulk-
Power System, based on their function, receive some level of 
protection.\49\ The Bulk-Power System could benefit from each of these 
tested approaches.
---------------------------------------------------------------------------

    \49\ NIST SP800-53, Section 1.4, Organizational 
Responsibilities.
---------------------------------------------------------------------------

a. NIST Approach and the NERC Functional Model
    49. The purpose of the NERC CIP Reliability Standards is to specify 
mandatory Requirements for responsible entities to establish, maintain, 
and preserve the cybersecurity of key information technology systems' 
assets, the use of which is essential to reliable operation of the 
Bulk-Power System. The CIP Reliability Standards include Requirements 
which are based upon the functional roles of the responsible entities 
as specified in the NERC Functional Model.\50\ The identification of 
cyber systems and assets used to execute these functional roles should 
be the first step in identifying the systems for coverage under the CIP 
Reliability Standards for protection. The Functional Model should be 
used as a starting point when considering the applicability of the NIST 
Framework for securing the operation of cyber assets to provide for the 
Reliable Operation of the Bulk-Power System.
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    \50\ Reliability Functional Model, Function Definitions and 
Functional Entities, Version 5, approved by NERC Board of Trustees 
May 2010; and, Reliability Functional Model Technical Document 
Version 5, approved by NERC Board of Trustees May 2010.
---------------------------------------------------------------------------

b. NIST Tiered Approach
    50. If applied to the Bulk-Power System, the NIST Framework would 
specify the level of protection appropriate for systems based upon 
their importance to the reliable operation of the Bulk-Power System. 
Cyber systems connected to the Bulk-Power System require availability, 
integrity, and confidentiality to effectively ensure the reliability of 
the Bulk-Power System.
    51. The NIST Framework provides for a tiered approach to 
cybersecurity protection where protection of some type would be applied 
to all cyber assets connected to the Bulk-Power System. Under the NIST 
Framework, cyber assets whose compromise or loss of operability could 
result in a greater risk to Bulk-Power System reliability would be 
subject to more rigorous cybersecurity protections compared to a less 
important asset. The NIST Framework recognizes that all connected 
assets require a baseline level of protection to prevent attackers from 
gaining a foothold to launch further, even more devastating attacks on 
other critical systems.
    52. Using the NIST framework, all cyber assets would also be 
reviewed to determine the appropriate level of cyber protection. The 
level of protection required for a given cyber asset is based upon its 
mission criticality and its innate technological risks.
2. Misuse of Control Systems
    53. In Order No. 706, the Commission directed NERC to consider the 
misuse of control centers and control systems in the determination of 
Critical Assets.\51\ If a perpetrator is able to misuse an asset, the 
attacker may navigate across and between control system data networks 
in order to gain access to multiple sites, which could enable a 
coordinated multi-site attack. Recent cybersecurity incidents \52\ 
illustrate the importance of restricting connectivity between control 
systems and external networks, emphasizing the inherent risk exposure 
created by networking critical cyber control systems. Future mechanisms 
for identifying when cyber assets require protection will have to 
examine all possible paths between a given cyber resource and any asset 
supporting a reliability function.
---------------------------------------------------------------------------

    \51\ Order No. 706, 122 FERC ] 61,040 at P 282.
    \52\ These include the discovery of Stuxnet, Night Dragon and 
RSA breaches from advanced persistent threats in July 2010, February 
2011 and March 2011 respectively, where systems were compromised.
---------------------------------------------------------------------------

    54. In Order No. 706, the Commission expressed concerns regarding 
the classification of control centers and the potential misuse of 
control systems.\53\ With regard to control centers, the Commission 
noted that responsible entities should be required to ``examine the 
impact on reliability if the control centers are unavailable, due for 
example to power or communications failures, or denial of service 
attacks.'' \54\ In addition, the Commission stated that ``[r]esponsible 
entities should also examine the impact that misuse of those control 
centers could have on the electric facilities they control and what the 
combined impact of those electric facilities could be on the 
reliability of the Bulk-Power System.'' \55\ The Commission stated that 
``when these matters are taken into account, it is difficult to 
envision a scenario in which a reliability coordinator, transmission 
operator or transmission owner control center or backup control center 
would not properly be identified as a critical asset.'' \56\
---------------------------------------------------------------------------

    \53\ Order No. 706, 122 FERC ] 61,040 at P 280-281.
    \54\ Id. P 280.
    \55\ Id.
    \56\ Id.
---------------------------------------------------------------------------

    55. In addition, the Commission raised concerns about the misuse of 
a control system that controls more than one asset.\57\ Specifically, 
the Commission noted that multiple assets, whether multiple generating 
units, multiple transmission breakers, or perhaps even multiple 
substations, could be taken out of service simultaneously due to a 
failure or misuse of the control system. The Commission stated that 
even if one or all of the assets would not be considered as a Critical 
Asset on a stand alone basis, a simultaneous outage resulting from the 
single point of control might affect the reliability or operability of 
the Bulk-Power System. The Commission stated ``[i]n that case, the 
common control system should be considered a Critical Cyber Asset.'' 
\58\
---------------------------------------------------------------------------

    \57\ Id. P 281.
    \58\ Id.
---------------------------------------------------------------------------

    56. The Commission is concerned that the proposed CIP-002-4 bright 
line criteria do not adequately address the Commission's prior 
directive regarding the classification of control centers or take the 
potential misuse of control systems into account in the identification 
of Critical Assets. For example, the proposed bright line criteria 
leave a number of Critical Assets

[[Page 58737]]

with potentially unprotected cyber assets, including a total of 222 
\59\ control centers with no legal obligation to apply cybersecurity 
measures. These potentially unprotected control centers involve an 
unknown number of associated control systems.
---------------------------------------------------------------------------

    \59\ NERC June 30, 2011 Data Response at 3.
---------------------------------------------------------------------------

    57. Consider the following example: Electric grid control system 
operation in part consists of the collection of raw data needed to run 
the grid, collected by a SCADA system from intelligent electronic 
devices (IEDs) (e.g., RTUs and synchrophasors). The SCADA data is 
typically aggregated by an energy management system (EMS). The EMS may, 
in some cases, calculate area control error (ACE) and transmit it to a 
balancing authority, which in turn makes computer based decisions about 
balancing load and generation. Those decisions are then used by the 
balancing authority or generation operator as part of an automated 
generation control (AGC) process. At each of these one or more sites, 
there are many data network interconnection points with other entities, 
(e.g., neighboring transmission operators, generation operators, and 
reliability coordinators) and additional connectivity to corporate data 
networks and elsewhere, employing several communications technologies. 
This results in a complex interconnection of cyber assets (including 
the data of those cyber assets) demanding vigilant protection.\60\ 
These cyber systems require comprehensive protection because the 
interconnected system is only as strong as its weakest link.
---------------------------------------------------------------------------

    \60\ See generally, Ron Ross, Managing Enterprise Risk in 
Today's World of Sophisticated Threats, National Institute of 
Standards and Technology (2007).
---------------------------------------------------------------------------

    58. Any failure to take into account the interconnectivity of 
control systems represents a significant reliability gap. Where modern 
data networking technology is used for operation of the Bulk-Power 
System (e.g., control systems, synchrophasors, smart grid), a network-
based cyber attack could result in multiple simultaneous outages of 
grid equipment and cyber systems alike through misuse of a single point 
of control (e.g., a SCADA control host system). Such an attack could 
take place by way of a cyber system associated with an asset that falls 
outside the CIP-002-4 bright line criteria yet is connected in common 
with other cyber systems on the Bulk-Power System. The risk of a cyber 
attack is greater now than when Order No. 706 was issued, as borne out 
by the recent increased frequency and sophistication of cyber attacks. 
It is critical, therefore, that the Commission's concerns regarding the 
potential misuse of control centers and associated control systems be 
addressed in the CIP Reliability Standards.
3. Regional Perspective
    59. In Order No. 706, the Commission directed NERC to ``develop a 
process of external review and approval of critical asset lists based 
on a regional perspective.'' \61\ The Commission found that ``Regional 
Entities must have a role in the external review to assure that there 
is sufficient accountability in the process [and] * * * because the 
Regional Entities and ERO are ultimately responsible for ensuring 
compliance with Reliability Standards.'' \62\
---------------------------------------------------------------------------

    \61\ Order No. 706, 122 FERC ] 61,040 at P 329.
    \62\ Id. P 327.
---------------------------------------------------------------------------

    60. The Commission is concerned that the lack of a regional review 
in the identification of cyber assets might result in a reliability 
gap. In Order No. 706, the Commission expressed concerns regarding the 
need for developing a process of external review and approval of 
Critical Asset lists based on a regional perspective, and that such 
lists are considered from a wide-area view. This process would help to 
identify trends in Critical Asset identification. Further, while we 
recognize that individual circumstances may likely vary, an external 
review will provide an appropriate level of consistency.\63\ For 
example, reliability coordinators may communicate through a common 
system and compromise of that system could propagate across multiple 
regions. A cyber compromise can easily propagate across these data and 
control networks with potential adverse consequences to the Bulk-Power 
System on multi-region basis.
---------------------------------------------------------------------------

    \63\ Id. P 322.
---------------------------------------------------------------------------

    61. This problem may become exacerbated by any future revisions to 
the CIP Reliability Standards that opt to reserve a high level of 
independent authority to the registered entity to categorize and 
prioritize its cyber assets. Looking forward, it will be essential for 
NERC and the Regional Entities to actively review the designation of 
cyber assets that are subject to the CIP Reliability Standards, 
including those which span regions, in order to determine whether 
additional cyber assets should be protected.
4. Summary
    62. In summary, the Commission proposes to approve NERC's proposed 
Version 4 CIP Standards pursuant to section 215(d)(2) of the FPA. As 
discussed above, it appears that the Version 4 CIP Standards represent 
an improvement in three respects in that they: (1) Will result in the 
identification of certain types of Critical Assets that may not be 
identified under the current approach; (2) use bright line criteria to 
identify Critical Assets, thus limiting the discretion of responsible 
entities when identifying Critical Assets; and (3) provide a level of 
consistency and clarity regarding the identification of Critical 
Assets.
    63. While we believe that the Version 4 CIP Reliability Standards 
satisfy the statutory standard for approval, we also believe that more 
improvement is needed. As NERC explains in its Petition, the Version 4 
CIP Reliability Standards are intended as ``interim'' and future 
versions will build on Version 4. We believe that the electric 
industry, through the NERC standards development process, should 
continue to develop an approach to cybersecurity that is meaningful and 
comprehensive to assure that the nation's electric grid is capable of 
withstanding a Cybersecurity Incident.\64\ As discussed above, we 
believe that some of the essential components of such a meaningful and 
comprehensive approach to cybersecurity are set forth in Order No. 706.
---------------------------------------------------------------------------

    \64\ Section 215(a) of the FPA defines Cybersecurity Incident as 
``a malicious act or suspicious event that disrupts, or was an 
attempt to disrupt, the operation of those programmable electronic 
devices and communication networks including hardware, software and 
data that are essential to the reliable operation of the Bulk-Power 
System.''

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[[Page 58738]]

5. Reasonable Deadline for Full Compliance With Order No. 706
    64. The Commission issued Order No. 706 on January 18, 2008. In 
Order No. 706, the Commission approved Version 1 of the CIP Reliability 
Standards while also directing modifications pursuant to section 
215(d)(5) of the FPA, some of which are described above. Later approved 
versions of the CIP Reliability Standards, and now the proposed Version 
4 CIP Reliability Standards, addressed some of the directives in Order 
No. 706, but other directives remain unsatisfied.
    65. Over three years have elapsed since the Commission issued the 
Final Rule in January 2008. As discussed above, we believe that it is 
important for the successful implementation of a comprehensive approach 
to cybersecurity that NERC timely addresses the modifications directed 
by the Commission in Order No. 706. Accordingly, the Commission 
proposes to set a deadline for NERC to file the next version of the CIP 
Reliability Standards, which NERC indicates will address all 
outstanding Order No. 706 directives.\65\ This proposal is consistent 
with the views expressed in the January 2011 Audit Report of the 
Department of Energy's Inspector General, who found ``that the 
Commission could have, but did not impose specific deadlines for the 
ERO to incorporate changes to the CIP standards.'' \66\ Similarly, our 
proposal is responsive to the Audit Report finding that ``the CIP 
standards implementation approach and schedule approved by the 
Commission were not adequate to ensure that systems-related risks to 
the Nation's power grid were mitigated or addressed in a timely 
manner.'' \67\
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    \65\ See NERC's May 27, 2011 Responses to Data Requests, 
Response 1 (``[t]he standard drafting team expects that the filing 
for the next version of the CIP Reliability Standards will address 
the remaining FERC Order No. 706 directives'').
    \66\ Department of Energy Inspector General Audit Report, 
Federal Energy Regulatory Commission's Monitoring of Power Grid 
Cybersecurity at 6 (January 2011).
    \67\ Id. at 2.
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    66. The Commission understands that, under NERC's timeline for the 
ongoing effort to address all outstanding Order No. 706 directives, it 
anticipates submitting the next version of the CIP Reliability 
Standards to the NERC Board of Trustees by the second quarter of 2012, 
and filing that version the Commission by the end of the third quarter 
of 2012.\68\
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    \68\ See NERC's May 27, 2011 Responses to Data Requests, 
Response 1. See also North American Electric Reliability Corporation 
Reliability Standards Development Plan 2011-2013 Informational 
Filing Pursuant to Section 310 of the NERC Rules of Procedure, 
Docket Nos. RM05-17-000, RM05-25-000, RM06-16-000 at 14 (filed April 
5, 2011).
---------------------------------------------------------------------------

    67. The Commission proposes to establish NERC's current development 
timeline above as a deadline for compliance with the outstanding Order 
No. 706 CIP Standard directives. The Commission seeks comments from 
NERC and other parties concerning this proposal. Further, NERC and 
other parties may propose and support an alternative compliance 
deadline.

IV. Information Collection Statement

    68. The Office of Management and Budget (OMB) regulations require 
that OMB approve certain reporting and recordkeeping requirements 
(collections of information) imposed by an agency.\69\ The information 
contained here is also subject to review under section 3507(d) of the 
Paperwork Reduction Act of 1995.\70\ We will submit this proposed rule 
to OMB for review.
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    \69\ 5 CFR 1320.11.
    \70\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    69. As stated above, the Commission previously approved Reliability 
Standards similar to the proposed Reliability Standards that are the 
subject of the current rulemaking.\71\
---------------------------------------------------------------------------

    \71\ North American Electric Reliability Corporation, 130 FERC ] 
61,271 (2010).
---------------------------------------------------------------------------

    70. The principal differences in the information collection 
requirements and resulting burden imposed by the proposed Reliability 
Standards in this rule are triggered by the proposed changes in 
Reliability Standard CIP-002-4. The previous risk-based assessment 
methodology for identifying Critical Assets will be replaced by 17 
uniform ``bright line'' criteria for identifying Critical Assets (in 
CIP-002-4, Attachment 1, ``Critical Asset Criteria''). Proposed 
Reliability Standard CIP-002-4 would require each responsible entity to 
use the bright line criteria as a ``checklist'' to identify Critical 
Assets, initially and in an annual review, instead of performing the 
more technical and individualized risk analysis involved in complying 
with the currently-effective CIP Reliability Standards. As in past 
versions, each Responsible Entity will then identify the Critical Cyber 
Assets associated with its updated list of Critical Assets. If 
application of the bright line criteria result in the identification of 
new Critical Cyber Assets, such assets become subject to the remaining 
standards (proposed CIP-003-4, CIP-004-4, CIP-005-4a, CIP-006-4c, CIP-
007-4, CIP-008-4, and CIP-009-4), and the information collection 
requirements contained therein.
    71. We estimate that the burden associated with the annual review 
of the assets (by the estimated 1,501 entities) will be simplified by 
the ``Critical Asset Criteria'' in proposed Reliability Standard CIP-
002-4. Rather than each entity annually reviewing and updating a Risk-
Based Assessment Methodology that frequently required technical 
analysis and judgment decisions, the proposed bright line criteria will 
provide a straight forward checklist for all entities to use. Thus, we 
estimate that the proposal will reduce the burden associated with the 
annual review, as well as provide a consistent and clear set of 
criteria for all entities to follow.
    72. The estimated changes to burden as contained in the proposed 
rule in RM11-11 follow.

[[Page 58739]]



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                                                                                                                                         Annual burden
   FERC-725B Data  collection (per      Number of  respondents   Average number of     Average number of     Effect of NOPR in RM11-      hours upon
         proposed Version 4)                     \72\            annual responses       burden hours per       11, on total  annual    implementation of
                                                                  per respondent         response \73\                hours                 RM11-11
                                       (1)....................                 (2)  (3)....................  (1) x (2) x (3)........
--------------------------------------------------------------------------------------------------------------------------------------------------------
Entities that (previously and now)     345 [no change]........                   1  1,880 [reduction of 40   reduction of 13,800                 648,600
 will identify at least one Critical                                                 hours from 1,920 to      hours.
 Cyber Asset [category a].                                                           1,880 hours].
Entities that (previously and now)     1,144 [reduction of 12                    1  120 [no change]........  Reduction of 1,440                  137,280
 will not identify any Critical Cyber   entities from 1156 to                                                 hours [for the 12
 Assets [category b].                   1,144].                                                               entities].
Entities that will newly identify a    increase of 12                            1  3,840 \75\.............  increase of 46,080.....              46,080
 Critical Asset/Critical Cyber Asset    [formerly 0].
 due to the requirements in RM11-11
 \74\ [category c].
                                      ------------------------------------------------------------------------------------------------------------------
    Net Total........................  1,501 \72\.............  ..................  .......................  +30,840................             831,960
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The revisions to the cost estimates based on requirements of this 
proposed rule are:
---------------------------------------------------------------------------

    \72\ The NERC Compliance Registry as of 9/28/2010 indicated that 
2,079 entities were registered for NERC's compliance program. Of 
these, 2,057 were identified as being U.S. entities. Staff concluded 
that of the 2,057 U.S. entities, approximately 1,501 were registered 
for at least one CIP related function. According to an April 7, 2009 
memo to industry, NERC noted that only 31% of entities responding to 
an earlier survey reported that they had at least one Critical 
Asset, and only 23% reported having a Critical Cyber Asset. Staff 
applied the 23% (an estimate unchanged for Version 4 standards) to 
the 1,501 figure to estimate the number of entities that identified 
Critical Assets under Version 3 CIP Standards.
    \73\ Calculations for figures prior to applying reductions:
    Respondent category b:
    3 employees x (working 50%) x (40 hrs/week) x (2 weeks) = 120 
hours.
    Respondent category c:
    20 employees x (working 50%) x (40 hrs/week) x (8 weeks) = 3200 
hours.
     20 employees x (working 20%) x (3200 hrs) = 640 hours.
     Total = 3840.
    Respondent category a:
    50% of 3840 hours (category d) = 1920.
    \74\ We estimate 12 (or 1%) of the existing entities that 
formerly had no identified Critical Cyber Assets will have them 
under the proposed Reliability Standards. This proposed rule does 
not affect the burden for the 6 new U.S. Entities that were 
estimated to newly register or otherwise become subject to the CIP 
Standards each year in FERC-725B, and therefore are not included in 
this chart.
    \75\ This estimated burden estimate applies only to the first 
three year audit cycle. In subsequent audit cycles these entities 
will move into category a, or be removed from the burden as an 
entity that no longer is registered for a CIP related function.
---------------------------------------------------------------------------

     Each entity that has identified Critical Cyber Assets has 
a reduction of 40 hours (345 entities x 40 hrs. x @$96/hour = 
$1,324,800 reduction).
     12 Entities that formerly had not identified Critical 
Cyber Assets, but now will have them, has
    [cir] A reduction of 120 hours and an increase of 3,840 hours (for 
a net increase of 3,720 annual hours), giving 12 entities x 3,720 
hrs.@$96/hour = $4,285,440.
    [cir] Storage costs = 12 entities@$15.25/entity = $183.
    Total Net Annual Cost for the FERC-725B requirements contained in 
the NOPR in RM11-11 = $2,960,823 ($4,285,440 + $183 -$1,324,800).
    The estimated hourly rate of $96 is the average cost of legal 
services ($230 per hour), technical employees ($40 per hour) and 
administrative support ($18 per hour), based on hourly rates from the 
Bureau of Labor Statistics (BLS) and the 2009 Billing Rates and 
Practices Survey Report.\76\ The $15.25 per entity for storage costs is 
an estimate based on the average costs to service and store 1 GB of 
data to demonstrate compliance with the CIP Standards.\77\
---------------------------------------------------------------------------

    \76\ Bureau of Labor Statistics figures were obtained from 
http://www.bls.gov/oes/current/naics2_22.htm, and 2009 Billing 
Rates figure were obtained from http://www.marylandlawyerblog.com/2009/07/average_hourly_rate_for_lawyer.html. Legal services were 
based on the national average billing rate (contracting out) from 
the above report and BLS hourly earnings (in-house personnel). It is 
assumed that 25% of respondents have in-house legal personnel.
    \77\ Based on the aggregate cost of an advanced data protection 
server.
---------------------------------------------------------------------------

    Title: Mandatory Reliability Standards, Version 4 Critical 
Infrastructure Protection Standards.
    Action: Proposed Collection FERC-725B.
    OMB Control No.: 1902-0248.
    Respondents: Businesses or other for-profit institutions; not-for-
profit institutions.
    Frequency of Responses: On Occasion.
    Necessity of the Information: This proposed rule proposes to 
approve the requested modifications to Reliability Standards pertaining 
to critical infrastructure protection. The proposed Reliability 
Standards help ensure the reliable operation of the Bulk-Power System 
by providing a cybersecurity framework for the identification and 
protection of Critical Assets and associated Critical Cyber Assets. As 
discussed above, the Commission proposes to approve NERC's proposed 
Version 4 CIP Standards pursuant to section 215(d)(2) of the FPA 
because they represent an improvement to the currently-effective CIP 
Reliability Standards.
    Internal Review: The Commission has reviewed the proposed 
Reliability Standards and made a determination that its action is 
necessary to implement section 215 of the FPA.
    73. 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: 
Ellen Brown, Office of the Executive Director, e-mail: 
DataClearance@ferc.gov, phone: (202) 502-8663, fax: (202) 273-0873].
    74. For submitting comments concerning the collection(s) of 
information and the associated burden estimate(s), please send your 
comments to the Commission, and to the Office of Management and Budget, 
Office of Information and Regulatory Affairs,

[[Page 58740]]

Washington, DC 20503 [Attention: Desk Officer for the Federal Energy 
Regulatory Commission, phone: (202) 395-4638, fax: (202) 395-7285]. For 
security reasons, comments to OMB should be submitted by e-mail to: 
oira_submission@omb.eop.gov. Comments submitted to OMB should include 
Docket Number RM11-11 and OMB Control Number 1902-0248.

V. Environmental Analysis

    75. 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.\78\ 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.\79\ The actions proposed here 
fall within this categorical exclusion in the Commission's regulations.
---------------------------------------------------------------------------

    \78\ Order No. 486, Regulations Implementing the National 
Environmental Policy Act of 1969, FERC Stats. & Regs., Regulations 
Preambles 1986-1990 ] 30,783 (1987).
    \79\ 18 CFR 380.4(a)(2)(ii).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act Certification

    76. The Regulatory Flexibility Act of 1980 (RFA) \80\ generally 
requires a description and analysis of final rules that will have a 
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 (SBA) Office of Size 
Standards develops the numerical definition of a small business.\81\ 
The SBA has established a size standard for electric utilities, stating 
that 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.\82\
---------------------------------------------------------------------------

    \80\ 5 U.S.C. 601-612.
    \81\ 13 CFR 121.101.
    \82\ 13 CFR 121.201, Sector 22, Utilities & n.1.
---------------------------------------------------------------------------

    77. The Commission analyzed the affect of the proposed rule on 
small entities. The Commission's analysis found that the DOE's Energy 
Information Administration (EIA) reports that there were 3,276 electric 
utility companies in the United States in 2009,\83\ and 3,015 of these 
electric utilities qualify as small entities under the Small Business 
Administration (SBA) definition. Of these 3,276 electric utility 
companies, the EIA subdivides them as follows: (1) 875 Cooperatives of 
which 843 are small entity cooperatives; (2) 1,841 municipal utilities, 
of which 1,826 are small entity municipal utilities; (3) 128 political 
subdivisions, of which 115 are small entity political subdivisions; (4) 
171 power marketers, of which 113 individually could be considered 
small entity power marketers; \84\ (5) 200 privately owned utilities, 
of which 93 could be considered small entity private utilities; (6) 24 
state organizations, of which 14 are small entity state organizations; 
and (7) 9 federal organizations of which 4 are small entity federal 
organizations.
---------------------------------------------------------------------------

    \83\ See Energy Information Administration Database, Form EIA-
861, Dept. of Energy (2009), available at http://www.eia.doe.gov/cneaf/electricity/page/eia861.html.
    \84\ Most of these small entity power marketers and private 
utilities are affiliated with others and, therefore, do not qualify 
as small entities under the SBA definition.
---------------------------------------------------------------------------

    78. Many of the entities that have not previously identified 
Critical Assets and Critical Cyber Assets are considered small 
entities. The new CIP version 4 bright line criteria generally result 
in the identification of relatively larger Bulk-Power System equipment 
as Critical Assets. For the most part, the small entities do not own or 
operate these larger facilities. There is a limited possibility that 
these entities would have facilities that meet the bright line criteria 
and therefore be subject to the full CIP standards (CIP-002 through 
CIP-009). The Commission expects only a marginal increase in the number 
of small entities that will identify at least one Critical Asset under 
the Version 4 CIP Reliability Standards that have not done so 
previously.
    79. The Commission estimates that only one percent (12) of the 
small and medium-sized entities that have not previously identified 
Critical Assets and Critical Cyber Assets will have an increased cost 
due to the proposed Reliability Standards and their identification of 
new Critical Cyber Assets. For each of those 12 entities, we anticipate 
a cost increase associated with creating a cyber security program along 
with the actual cyber security protections associated with the 
identified Critical Cyber Assets. The Commission requests comment on 
the potential implementation cost and subsequent cost increases that 
could be experienced by such small entities. Small and medium-sized 
entities that continue to have no Critical Assets will not see any 
change in their burden.
    80. In general, the majority of small entities are not required to 
comply with mandatory Reliability Standards because they are not 
regulated by NERC pursuant to the NERC Registry Criteria. Moreover, a 
small entity that is registered but does not identify critical cyber 
assets pursuant to CIP-002-4 will not have compliance obligations 
pursuant to CIP-003-4 through CIP-009-4.
    81. The Commission also investigated possible alternatives. These 
included the Commission's adoption in Order No. 693 of the NERC 
definition of bulk electric system, which reduces significantly the 
number of small entities responsible for compliance with mandatory 
Reliability Standards. The Commission also noted that small entities 
could join a joint action agency or similar organization, which could 
accept responsibility for compliance with mandatory Reliability 
Standards on behalf of its members and also may divide the 
responsibility for compliance with its members.
    82. Based on the foregoing, the Commission certifies that the 
proposed Reliability Standards will not have a significant impact on a 
substantial number of small entities. Accordingly, no regulatory 
flexibility analysis is required.

VII. Comment Procedures

    83. 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 November 21, 2011. Comments must refer to 
Docket No. RM11-11-000, and must include the commenter's name, the 
organization they represent, if applicable, and their address in their 
comments.
    84. The Commission encourages comments to be filed electronically 
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard word processing 
formats. Documents created electronically using word processing 
software should be filed in native applications or print-to-PDF format 
and not in a scanned format. Commenters filing electronically do not 
need to make a paper filing.
    85. Commenters unable to file comments electronically must mail or 
hand deliver an original copy of their comments to: Federal Energy 
Regulatory Commission, Secretary of the Commission, 888 First Street, 
NE., Washington, DC 20426.

[[Page 58741]]

    86. 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

    87. 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.
    88. 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.
    89. 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.

List of Subjects in 18 CFR Part 40

    Electric power, Electric utilities, Reporting and recordkeeping 
requirements.

    By direction of the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2011-24102 Filed 9-21-11; 8:45 am]
BILLING CODE 6717-01-P


