The ongoing struggle to determine how and when generator interconnection facilities should be subject to the North American Electric Reliability Corporation’s (NERC) rules governing transmission owners and transmission operators seems to be drawing to a conclusion. NERC has proposed a modest set of changes to its reliability standards, which the Federal Energy Regulatory Commission (FERC) generally proposes to approve.

On April 18, 2013, FERC issued a notice of proposed rulemaking, Generator Requirements at the Transmission Interface, (NOPR), in which it proposes to adopt NERC’s proposed amendments to two transmission owner reliability standards to make them, under the appropriate set of facts, applicable to generator interconnection facilities.¹ NERC also proposes to add language to two generator reliability standards to include specifically generator interconnection facilities under their coverage. Comments on the NOPR are due June 24, 2013.

The following changes to the NERC reliability standards are proposed:

FAC-001-0 requires transmission owners and operators to document, maintain, and publish facility connection requirements that comply with NERC, regional, and individual criteria for generation facilities, transmission facilities, and end-user facilities. NERC proposes to modify this standard so that it applies to any generator owner that has executed an agreement to evaluate the reliability impact of interconnecting a third-party facility to the generator owner’s existing interconnection facilities. Essentially, this modification would apply to the relatively rare situations when a generator owner is required by a regulator to interconnect a third-party generator to its interconnection facility. Such an arrangement could result in the generator owner being registered as a new functional entity (such as a transmission owner). NERC’s proposed modification is intended to provide the appropriate reliability coverage until any additional registration is required, while ensuring that the FAC-001-0 does not apply to a generator owner that never executes such an agreement.

FAC-003-1 and FAC-003-2 set out the requirements for management of vegetation by transmission owners, but does not impose any obligations on generator owners. NERC proposes to revise the "Applicability" section of FAC-003-2 to state that the standard would apply to generator owners that own overhead lines that (1) extend more than one mile beyond the fenced area of the generating station switchyard, or (2) do not have a clear line of sight from the generating station switchyard to the point of interconnection with a transmission-owner’s facility. To qualify, however, these lines must meet the minimum standards for applicability association with "Transmission Facilities," i.e., they must be operated at 200 kV or higher, or if operated at below 200 kV, must be identified as an "element" of an Interconnection Reliability Operating Limit (IROL) under NERC Standard FAC-014, or as an "element" of a Major WECC Transfer Path.

PRC-004-2a requires transmission owners, applicable distribution providers, and generator owners to analyze their respective protection system misoperations, and to develop and implement a corrective action plan to address such misoperations. While there is no reliability gap in the existing version of this standard, NERC proposes to modify the specific wording of the requirement to clarify that the activities required by this reliability standard apply to a generator owner’s interconnection facilities.

PRC-005-1b requires transmission owners, applicable distribution providers, and applicable generator owners to have a protection system maintenance and testing program in place for any protection system that affects the reliability of the Bulk Electric System. While no reliability gap is associated with the standard as currently written, NERC proposes to modify the standard to make clear that any generator interconnection facilities are also part of the generator owner’s responsibility.

NERC Seeks the Middle Ground

NERC took the middle ground over how and when it should subject interconnection facilities to the reliability standards applicable to transmission owners and operators, an issue it has been grappling with for several years.

In its submission leading issuance of the NOPR, NERC argued that the proposed changes will address the reliability gap for generator interconnection facilities "for the vast majority of generator owners and operators." According to FERC, NERC stated:

• The modifications, if adopted, apply certain reliability standards to a generator owner without requiring the generator owner to register as a transmission owner or transmission operator only as a result of its interconnection facilities. 
• The modifications, if adopted, would be the only standards that need to be applied to generator owners and generator operators to ensure appropriate coverage of generator interconnection facilities "[e]xcept as necessary on a fact-specific basis." ²

NERC developed its proposed modifications after reviewing FERC case law, such as Cedar Creek,³ and the recommendations of the Ad Hoc Group of Generator Requirements at the Transmission Interface (Ad Hoc Group), which was created to address concerns about perceived reliability gaps associated with generator interconnection facilities. The Ad Hoc Group issued a report that suggested a fairly broad approach to address these perceived gaps, but the NERC standards drafting committee:

[U]ltimately chose a different approach than that proposed in the Ad Hoc Group report. The standard drafting team elected not to include clarifying language about a Reliability Standard’s applicability to generator interconnection facilities in most standards otherwise applicable to generator owners or generator operators, and to instead focus on modifying certain Reliability Standards not currently applicable to generating entities.⁴

For generator interconnections that require a more "expansive approach," NERC’s ability to engage in a case-specific assessment on the impact of an interconnection facility on neighboring transmission facilities would allow it to determine exactly which reliability standards and requirements ought to apply to that interconnection facility.

FERC Is Generally Supportive

FERC is generally supportive of the proposed modifications, but also seems a bit concerned that generators could misinterpret the NOPR to mean that the four reliability standards NERC proposes to modify would be the only reliability standards – generator or transmission – that would be generically applicable to generator interconnections (particularly given NERC’s statement in its petition noted above):

We recognize that the standard drafting team reviewed 34 other Reliability Standards and 102 requirements to assess the need for applicability to generator owners and generator operators, and determined that some of those other Reliability Standards and requirements already apply to generators. In its Petition, NERC makes clear that it is not seeking any changes to those other Reliability Standards and requirements . . . .⁵

To drive the point more, FERC specifically seeks comment on its understanding that a project owner’s generator owner reliability standard compliance obligations extend to the generator interconnection facilities up to the point of interconnection with the host transmission owner.

To create a commonality in word use, FERC seeks comment on the definition "generator interconnection facility." FERC stated that it uses that term to refer to "generator interconnection tie-lines and their associated facilities extending from the secondary (high) side of a generator owner’s step-up transformers to the point of interconnection with the host transmission owner."⁶ It should be noted that FERC is not always consistent in its use of terms. It used the term "generator tie-line" in Order No. 773, but acknowledged this definition meant the same thing as the term "generator interconnection facility."⁷

FERC also clarified that NERC’s proposed modifications would not overturn any order FERC has issued addressing a generator’s registration as a transmission owner or operator, such as Cedar Creek, or Harquahala.⁸

With respect to "individual assessments," FERC stated:

[O]ur proposal to approve the revised Reliability Standards is based on the understanding that additional Reliability Standards or individual requirements may need to be applied to generator interconnection facilities as NERC acknowledges in its Petition, based on "individual assessments."⁹

Finally, FERC also sought comments as to what should trigger an individual assessment and how NERC envisions that individual assessments would be performed as part of the transmission planning and operating studies that NERC mentioned in its petition for approval.

Conclusion

Given the concern of the electric industry during the past several years about the applicability of transmission owner reliability standards to generation interconnection facilities, NERC’s moderate approach should be viewed with some relief. Ultimately, NERC decided that it was not necessary to generically subject generation owners to a number of transmission owner reliability requirements. The NOPR does make clear, however, that any relevant generator reliability standards will be applied to a generator’s interconnection facilities and not, for example, only to its generating plant.

FERC’s effort to develop a common understanding of what a "generator interconnection facility" consists of should also provide more certainty to generation owners as to exactly which facilities could be subjected to NERC‘s transmission reliability standards. In all, the conclusion of this rulemaking proceeding should provide a higher level of certainty to the vast majority of project developers attempting to determine which NERC transmission and generation reliability standards they need to meet when designing, constructing and operating interconnection facilities.

1. 143 FERC ¶ 61,049 (April 18, 2013).
2. NOPR at P 15. (footnotes omitted).
3. Cedar Creek Wind Energy, LLC, 135 FERC ¶ 61,241 (Cedar Creek), order on reh’g and clarification, 137 FERC ¶ 61,141 (2011), order on compliance filing, 139 FERC ¶ 61,214 (2012) (Cedar Creek Compliance Order).
4. NOPR at P 16 (footnote omitted).
5. NOPR at P 23 (footnotes omitted).
6. NOPR at P 22 (footnotes omitted).
7. Revisions to Electric Reliability Organization Definition of Bulk Electric System and Rules of Procedure, Order No. 773, 141 FERC ¶ 61,236 (2012), order on reh’g and clarification, Order No. 773-A, 143 FERC ¶ 61,053 at P 27, n 43 (2113).
8. NOPR at P 17. See New Harquahala Generating Co., LLC, 123 FERC ¶ 61,173 (2008).
9. NOPR at P 24.

Client Alert 2013-113