At its open meeting on March 21, 2013, the Federal Energy Regulatory Commission (“FERC”) took a number of actions that affect reliability regulation.

Vegetation Management

FERC issued an order approving a new set of vegetation management requirements under Reliability Standard FAC-003-2. This standard is notable for a number of reasons. First, while FAC-003-1 applied only to transmission facilities operated at 200kV or above, FAC-003-2 expands the applicability to facilities operated below 200kV if the facilities are either the element of an Interconnection Reliability Operating Limit or the element of a Major WECC Transfer Path. This standard is also significant because it was the first standard to have commenced development under NERC’s “results based” standard initiative in 2010, and as a result it is formatted differently than other Reliability Standards. Other significant changes brought about by FAC-003-2 include:

• There is now an explicit requirement for Transmission Owners to prevent encroachments in to the minimum vegetation clearance distance (“MVCD”), regardless of whether the encroachment results in a sustained outage or fault.
• Required MVCDs are spelled out explicitly in Table 2 of FAC-003-2, instead of incorporated by reference to external sources. Table 2 sets forth MVCDs based on voltage classes of transmission facilities and elevation.
• Transmission owners are now required to inspect all transmission lines subject to the standard annually and to complete 100 percent of their annual vegetation work plan.

In approving FAC-003-2, FERC did raise questions about NERC’s use of the “Gallet equation” in determining MVCDs, and it directed NERC to conduct or contract for testing to obtain empirical data to support the MVCDs. NERC committed to do this testing in conjunction with the Electric Power Research Institute, but due to the uncertainty about the timing, funding, design, scope and execution of the study, NERC asked FERC not to issue a directive. Citing the importance of establishing accurate MVCDs, FERC directed NERC to submit a report within 45 days of the effective date of the order on NERC’s plan to conduct testing to obtain empirical data on MVCDs.

In ruling on the MVCDs, FERC clarified how the MVCDs are intended to operate. FERC made clear that MVCDs constituted the minimum allowable clearances under all rated conditions, and that any encroachments into the MVCD would constitute a violation even if the encroachment was remedied before an outage actually occurred. FERC also clarified that transmission owners must ensure that they manage vegetation growth to ensure that MVCDs are never violated.

To facilitate implementation of the new standard with respect to sub-200kV facilities, FERC found that NERC should establish a clearly defined communication structure to ensure that Interconnection Reliability Operating Limits (“IROL”) and IROL changes are communicated to transmission owners. FERC noted that Reliability Standard FAC-014-5 (which requires reliability coordinators, planning authorities and transmission planners to establish System Operating Limits (“SOL”) and IROLs) does not require that transmission owners should be provided IROL information. FERC recognized, however, that FAC-003-2 provides a 12-month period to bring a sub-200kV line into compliance after it is initially designated as an element of an IROL.

FERC also directed NERC to revise the Violation Risk Factor (“VRF”) for Requirement 2. NERC proposed to assign a “medium” VRF for encroachments into the MVCD for transmission lines operated at 200kV and above but that were not part of an IROL or a Major WECC transmission path. FERC required that NERC submit a revision assigning a “high” VRF for Requirement 2 within 60 days.

Finally, in response to a number of commenters, FERC made the following rulings:

• Footnote 2 of FAC-003-2 contains a force majeure provision that exempts transmission owners from compliance with Requirements R1 and R2, but FERC found that the exemption would need to be assessed on a case-by-case basis as to whether it extended to encroachments caused by activities performed by the transmission owners own employees or contractors.
• FERC declined to impose training and qualification requirements for foresters in FAC-003-2, which requirements were eliminated from the standard as part of the result-based initiative.
• FERC required NERC to consolidate reference material to support implementation of FAC-003-2 and to post it on NERC’s website within 45 days of the effective date of FERC’s order.
• In furtherance of NERC’s results-based standards efforts, FAC-003-2 moved provisions for quarterly reporting of vegetation contacts from the requirements of the standard and into the “Additional Compliance Information” section. FERC accepted this approach noting that a transmission owner’s failure to submit quarterly reports could result in the transmission owner being assessed a higher violation severity level for any violation of FAC-003-2 and being subject to more stringent compliance oversight.
• Although FERC was concerned originally that definition of “right-of-way” lack an objective standard for determining right-of-way widths, FERC accepted NERC’s proposed definition of “right-of-way,” noting that any MVCD encroachment (whether due to trees inside or outside of the “right-of-way”) would constitute a violation of Requirement R1. FERC also noted that, while “fall-ins” from trees outside the right-of-way (but within the control of the transmission owner) would not violate FAC-003-2 R1 or R2, trees outside a right-of-way that “are likely to pose a hazard to the line(s)” must be covered under the vegetation inspection and work plans of transmission owners under FAC-003-2 R6 and R7.
• FERC made clear that FAC-003-2 does not require clear-cutting, but instead transmission owners should work with private land owners to determine the appropriate vegetation maintenance strategies.
• FERC found that its approval of FAC-003-2 does not require it to develop an environmental impact statement or an environmental assessment under the National Environmental Policy Act. FERC found that the revisions approved in FAC-003-2 would not have a significant adverse effect on the human environment.

The effective date of FAC-003-2 is “on the first calendar day of the first calendar quarter one year after the date of the order approving the standard from applicable regulatory authorities where such explicit approval is required.” Because FERC’s order will be effective sometime in May (60 days after the order is published in the Federal Register), the effective date of FAC-003-2 in the United States will be July 1, 2014. The standard specifies other lead times for assets that are newly acquired or newly designated as being part of an IROL or a Major WECC transmission path.

ATC Calculation

FERC issued a notice of proposed rulemaking (“NOPR”) to approve Reliability Standard MOD-028-2. In MOD-028-2, NERC proposed a single modification to the existing Reliability Standard concerning the information a transmission service provider must include when calculating Total Transfer Capability (“TTC”) using the area interchange methodology, which is one of three methodologies for calculating Available Transfer Capability (“ATC”) or Available Flowgate Capability (“AFC”). Under the prior requirement (MOD-028-1 R3.1), transmission operators were required to provide information for its TTC determination in multiple time periods – on-peak and off-peak intra-day and next day time periods, as well as future days two through 31 and for months two through 13. Following up on an interpretation request, NERC promulgated MOD-028-2 to make clear that TTCs did not need to be calculated for multiple time periods. Rather the new language requires only that for TTC used in current-day and next-day ATC calculations, the load forecasts used should be consistent with the time period being calculated. Transmission operators may use either daily or hourly load forecasts.

In its NOPR, FERC proposes to approve MOD-028-2, but solicits comments on whether the flexibility MOD-028-2 gives transmission operators to choose either daily or hourly load forecasts may inhibit competition. Specifically FERC asked whether a transmission operator using daily on-peak load forecasts in determining off-peak TTC could either intentionally or unintentionally suppress off-peak ATC in a manner that would affect off-peak sales or purchases of hourly service. The due date for comments on the NOPR will be sometime in mid-May (45 days after the NOPR is published in the Federal Register sometime in the next two weeks).

Remand of Cyber Security Standard Interpretations

FERC issued two orders remanding interpretations rendered by NERC of two of its Reliability Standards concerning Cyber Security. In the first order, FERC dealt with a proposed interpretation of Reliability Standard CIP-006-4 concerning physical security for Critical Cyber Assets. Requirement 1.1 of CIP-006-4 requires a “six wall” border to enclose and protect a Critical Cyber Asset. Upon a request for interpretation as to whether this “six wall” border must encompass all external wiring to the physical security perimeter, NERC issued an interpretation that the standard only addressed protection of Cyber Assets and not wiring or communication mediums. FERC disagreed with that interpretation, noting that the definition of Cyber Asset includes “communication networks,” which necessarily includes wires or other communication mediums. FERC also noted that a previously issued and approved interpretation of CIP-006-2 R1.1 addressed external wiring and alternative methods to provide security equivalent to a six-wall boundary. Because of the flexibility in this prior interpretation, FERC rejected claims by NERC that an expansive reading of Requirement 1.1 to cover external wiring would be unduly costly for the industry.

In the second order, FERC rejected NERC’s proposed interpretation of CIP-002-4, R2. This requirement relates to identification of Critical Cyber Assets by looking at those Cyber Assets that are “essential to the operation of the Critical Asset.” This phrase has been at the heart of debates about whether transmission operator laptops which may be used to control system operations remotely (but which are not required to be used to control system operations) must be treated as Critical Cyber Assets. NERC interpreted that phrase as requiring a Critical Cyber Asset to be “inherent to” or “necessary for” the operation of the Critical Asset and not merely “valuable to.” FERC found this an unduly narrow reading of CIP-002-4, R2, and instead suggested that a Cyber Asset that is being used to operate a Critical Asset would be “essential” to that operation “during such usage.” FERC stated: “Even if the Critical Asset can function at times without human intervention, or such intervention can be done through alternative devices, the device used at any given time to exert such control is ‘inherent to or necessary for the operation of the Critical Asset.’”

Rehearing requests on either of these two remand orders would be due April 22, 2013.