Generator and Transmission Owners Beware: Potentially Costly Changes in the Offing

Think geomagnetic disturbances are not relevant to you? Think again. On October 18, 2012, the Federal Energy Regulatory Commission ("FERC") issued a Notice of Proposed Rulemaking ("NOPR") in Docket No. RM12-22-000 to address the potential threat of such a disturbance. Buried in footnote 24 of the NOPR is the potential cost, up to $500,000 per blocking device that may need to be installed on "each affected transformer." Certain generator step-up transformers as well as certain transformers owned and operated by transmission providers registered to comply with North American Electric Reliability Corporation ("NERC") Reliability Standards may be subject to a future requirement to install such costly new equipment. A disruption to the Hydro-Quebec grid that occurred in 1989 was cited as an example of the harm that may be associated with geomagnetic disturbances.

The Commission proposes in the NOPR to require NERC to submit new Reliability Standards for approval that address the impact of geomagnetic disturbances on the Bulk-Power system. The Commission anticipates the standards would be implemented in two stages. The first anticipated stage would require owners and operators of the Bulk-Power System (entities registered with NERC) to develop and implement operational procedures to mitigate the effect of geomagnetic disturbances. FERC proposes that NERC file a proposal for this stage within 90 days of the issuance of its Final Rule. During stage two, it is anticipated that registered entities would be required to conduct assessments of the impact of geomagnetic disturbances, and implement plans to eliminate instability, uncontrolled separation, or cascading failures to the Bulk-Power System. The strategies employed may include automatically blocking geomagnetically-induced currents from entering the Bulk-Power System, or specifying requirements for new equipment and isolating equipment that is not cost effective to retrofit. FERC proposes that NERC file a proposal as to stage 2 within 6 months of the issuance of the Final Rule.

Because the NOPR applies to NERC, which is to develop the requested new Reliability Standards, FERC asserts that the NOPR itself "will not have a significant or substantial impact on entities other than NERC." That thought process is narrow. FERC is directing NERC to propose changes that may impose a substantial burden on the industry. Industry comments are solicited.