On March 15, 2013, the North American Electric Reliability Corporation (“NERC”) submitted to the Federal Energy Regulatory Commission (“FERC”) a compliance filing and report in fulfillment of its commitment made on September 30, 2011 in Docket No. RC11-6-000, and in compliance with FERC’s March 15, 2012 Order.
In the March 15, 2012 Order, FERC accepted — with certain limited conditions — NERC’s Petition requesting approval of its proposal to address lesser-risk, remediated Possible Violations of Reliability Standards through an informational filing format called the Find, Fix, Track and Report (“FFT”) spreadsheet. North American Electric Reliability Corp., 138 FERC ¶ 61,193 at PP 75-76 (2012). FERC also accepted an additional streamlined processing track for issues that do not pose a serious or substantial risk to the reliability of the bulk power system (“BPS”) but are not eligible for FFT treatment called the Spreadsheet Notice of Penalty (“SNOP”). Id. Finally, FERC ordered NERC to file a report on the implementation and progress of the FFT mechanism one year from the date of the March 15 Order. Id.
In its Compliance Filing, NERC reports that the FFT program is one element of a broader effort by NERC and the Regional Entities to better align their enforcement efforts with the level of risk to the reliability of the BPS posed by a potential noncompliance with the Reliability Standards. By streamlining documentation and filing requirements for both the Electric Reliability Organization (“ERO”) enterprise and registered entities and improving caseload processing, NERC assets that the FFT program has improved the ERO enterprise’s ability to devote time and resources to pursuing matters that have the greatest impact on the reliability of the BPS, thereby enhancing the ERO enterprise’s ability to ensure the reliability of the BPS. Further, NERC finds that the FFT program creates a positive incentive for registered entities to improve their culture of reliability excellence.
NERC identifies significant successes resulting from the FFT program and proposes further improvements that it anticipates will evolve the ERO enterprise’s risk-based approach to compliance monitoring and enforcement as NERC and the Regional Entities earn experience with the various processing tracks available. In the Compliance Filing, NERC makes the following claims about the FFT process:
The FFT program provides significant efficiencies. These efficiencies have allowed the ERO enterprise to focus its resources on risk management, training, and workshops for registered entities, as well as to focus on underlying issues uncovered in connection with BPS events.
- The improvements in processing efficiency result from the reduced documentation and negotiation required for FFT processing. NERC and the Regional Entities have used the FFT processing track for 41% of all filed violations since the program was implemented in September 2011, so the efficiency gains are sizeable.
- The efficiencies also have resulted in a reduction in caseload — since implementing the FFT and SNOP processing tracks, there have been more outgoing violations (through FERC filings and dismissals) than new incoming violations for 9 of the 12 months in 2012. In addition, the processing efficiencies have allowed the ERO enterprise to reduce the number of issues in its caseload dating prior to 2011 by approximately 80%.
- Self-identification of possible violations remains strong. Registered entities continued to self-identify Possible Violations approximately 70% of the time. Further, the FFT program reinforces incentives for registered entities to develop, improve, and effectively utilize internal controls and a strong culture of reliability excellence because it permits registered entities to go through an abbreviated enforcement process and avoid monetary penalties for those violations that pose a minimal risk to the BPS and are reported promptly.
- By identifying, mitigating, and resolving issues that do not pose a serious or substantial risk to the reliability of the BPS in a more streamlined manner, the FFT program has allowed NERC, Regional Entities, and the industry to focus on serious or substantial risks to the reliability of the BES. More than 900 FFTs have been filed through the end of December 2012, allowing the Regional Entities to dedicate more resources to complex cases involving a higher-level of risk to the reliability of the BPS.
All Regional Entities are using FFT to process minimal risk issues.
- NERC Enforcement staff has been directly involved in the processing of every FFT remediated issue to this date and the NERC and Regional Entity Enforcement staffs communicate on a regular basis to address any issues that NERC has identified. This collaborative and iterative process has improved consistency in the FFT filings and NERC now proposes to reduce its involvement in the process and rely on a more focused review of FFT candidates after they are finalized and posted by Regional Entities. NERC also will sample filed FFTs, reviewing source documents, and analyzing the regional FFT process documents.
To gather information on the implementation and effectiveness of the FFT program, NERC’s Enforcement staff performed a review of the methods used by Regional Entities, from September 2011 through December 2012, for processing and submitting Possible Violations eligible for FFT treatment. NERC’s Enforcement staff found that following FERC’s March 15 Order, and as the program matured, the quality of the FFTs submitted to NERC by the Regional Entities has improved consistently. Nonetheless, NERC has identified some areas for improvement and is working with the Regional Entities to address them. These areas include:
- While the Regional Entities provide good descriptions of the issues presented and consistently address the actual risk presented by the issue by including mitigating factors in place during the pendency of the issue, they are inconsistent in addressing the potential risk presented by each FFT.
- All eight Regional Entities required the registered entities to mitigate the issue in a timely manner, but require different levels of documentation from the registered entities (some Regional Entities require the submittal of a full, formal Mitigation Plan for FFTs while others have eliminated the requirement. NERC is working with the Regional Entities to identify possible solutions, including a streamlined description of mitigation activities that is less burdensome than a full Mitigation Plan.
- All eight Regional Entities demonstrated that the violation history was considered at least to some extent when making an FFT determination. In addition, Regional Entities have evaluated Internal Compliance Programs and internal controls when deciding on the disposition track for Possible Violations. The quality and consistency of the Regional Entities’ consideration of Internal Compliance Programs has increased throughout 2012.
- NERC has implemented additional tools to improve consistency in FFT implementation. These include sending a package of instructions and templates to all Regional Entities, reviewing the Regional Entities’ evidence of training of employees and contractors, and provided training to the registered entities.
- NERC’s evaluation of risk as part of the FFT program has continued to evolve. Risk is evaluated from the perspective of the potential risk arising out of a failure to comply with any individual Requirement and the actual risk posed to the reliability of the BPS, which takes into account those factors that existed during the pendency of a Possible Violation and the actual impact of the Possible Violation. NERC has engaged in outreach activities such as training, workshops, and meetings to educate Regional Entities and registered entities on the determination of risk. It also has worked with them to ensure consistency in risk assessments and to incorporate feedback into the process to ensure accurate risk determinations.
Whether the successes of the FFT program claimed by NERC and outlined above reflect actual experiences of registered entities is an open question. As NERC states in its compliance filing, NERC conducted a survey in late 2012 of registered entities’ experience with the FFT program, and the survey results indicate that registered entities are concerned about the consistency, timing, and documentation requirements associated with the FFT program. In a number of matters in which we have assisted clients, there remains uncertainty as to whether self-identified possible violations will receive credit in compliance enforcement matters before the various regional entities. Also, as reflected in Figure 2 of the compliance filing, the regional entities’ reliance on the FFT program to dispose of compliance enforcement matters is mixed, with WECC utilizing the FFT program for only about 18% of their possible violations and MRO utilizing the FFT program for more than 80% of their possible violations.
NERC states that it is planning to continue its expansion and evolution of the program, which it anticipates will provide greater benefits. In its Compliance Filing, NERC proposes several enhancements to increase the utilization of FFTs and improve processing. Specifically, NERC proposes to revise the FFT process to:
- increase the scope of the FFT program to include a limited pool of violations with moderate risk;
- eliminate the requirement that remediated issues must be completely mitigated prior to posting as FFTs by the Regional Entity and include in the FFT program violations with mitigation activities to be completed in a short timeframe;
- eliminate the requirement for senior officer certification that remediation is complete, at a minimum in situations where the Regional Entity has verified completion of mitigation activities;
- substitute the public posting of FFTs followed by an annual informational filing for the current monthly informational filing at FERC containing the FFT spreadsheets;
- provide for monthly sampling and oversight of the FFTs by NERC to ensure consistency and exercise oversight over the FFT process; and
- continue to make annual informational filings with FERC to report on the results of NERC’s FFT sampling throughout the year and report on any other matters of interest associated with the FFT program.
Finally, NERC also proposes to expand the FFT program in connection with findings made by compliance monitoring staff to expedite the determination of the processing track for minimal and moderate risk issues that are discovered in connection with a Compliance Audit, Spot Check, or other externally identified monitoring method.
Comments must be filed by April 15, 2013 at 5:00 p.m. Eastern Time.