The Federal Energy Regulatory Commission (FERC) has issued Order No. 773, which approves a revised definition of "bulk electric system" proposed by the North American Electric Reliability Corporation (NERC) in response to a prior FERC directive. The revised definition establishes a "bright-line" threshold pursuant to which transmission facilities at 100 kilovolts or above must comply with applicable NERC reliability standards. The definition also incorporates designations of types of facility configurations that are specifically included in, or excluded from, the bulk electric system, and abolishes the existing discretion afforded to regional reliability entities to determine which transmission facilities should be subject to compliance with reliability rules.

In addition to approving the revised bulk electric system definition, FERC approved an exception process to permit entities to seek a determination that specific facilities included in the definition should be excluded, or that facilities excluded from the definition should be included. FERC also approved a detailed information form developed by NERC to be submitted by entities that request exceptions. Exception requests will be reviewed initially by the applicable regional entity, which will then make a recommendation to NERC. NERC will then issue a final determination based upon its independent review of the regional entity’s recommendation, relevant technical documents, and any comments that may be submitted. Apart from this exception process, FERC stated that it may determine on its own that specific sub-100 kilovolt elements or other elements are operationally important to bulk electric system reliability (e.g., following an event analysis of a system disturbance), and therefore reserved for itself the right to designate facilities to be included in the bulk electric system, subject to public notice and comment.

FERC also addressed issues related to the status of local distribution facilities. Section 215 of the Federal Power Act (FPA) specifically exempts "facilities used in the local distribution of electric energy" from FERC’s reliability jurisdiction. FERC concluded that NERC’s definition of "bulk electric system," coupled with the exclusion for "local networks," is consistent with the FPA section 215 exemption. However, FERC determined that the NERC exception process is not the appropriate vehicle for determining whether specific facilities should be deemed to fall within the exemption. Rather, an entity seeking such a determination must submit a petition to FERC, which will make the determination based upon its application of the seven factors identified in Order No. 888 for analyzing whether a facility is a local jurisdiction facility or a transmission facility, along with consideration of any other factors that should be taken into account in individual circumstances.

The new definition will become effective on the first day of the second calendar quarter following regulatory approval, i.e., 1 April 2013, and all newly identified elements to be included in the bulk electric system must comply with the applicable reliability standards within 24 months of that date.