FERC’s enforcement action with regard to the Arizona Public Service Company (“APS”) provides some instructive guidance for all regulated utilities as to what FERC’s Office of Enforcement deems to be an effective compliance program.
FERC recently approved an enforcement agreement penalizing APS $3,250,000 for violations of North American Electric Reliability Corporation (“NERC”) Reliability Standards that allegedly contributed to the Southwest blackout on September 8, 2011. APS will be able to offset $1,250,000 of the fine with certain reliability enhancements.
In assessing penalty amounts against APS, FERC’s Office of Enforcement specifically reviewed APS’s compliance program under the FERC Penalty Guidelines. The Office of Enforcement found that APS’s compliance program satisfied the criteria for an effective compliance program. Without such a finding, APS may have been required to pay an even higher penalty.
The Office of Enforcement identified the following features of APS’s compliance program as characteristics of an effective compliance program:
- Dedicated staff. The company’s compliance program is supported by a dedicated staff of seven full-time employees devoted to evaluating and responding to compliance issues.
- Executive-level oversight. An executive-level committee has responsibility for compliance, meets no less frequently than quarterly, and receives compliance updates no less frequently than bimonthly.
- Independent access to CEO and the Board. The Chief Compliance Officerand the Director of Regulatory Compliance have independent access to the CEO and President and to the company’s and the parent company’s Board of Directors.
- Regular review and updates of compliance policies and business practices. All lines of business review their policies, standards, procedures and guidelines and update them whenever NERC or Western Electric Coordinating Council (“WECC”) issues new or revised Reliability Standards.
- Training. New hires are trained on regulatory compliance and subject matter experts are provided with periodic regulatory updates and annual training on the Reliability Standards.
- Subject Matter Experts. Each line of business has subject matter experts responsible for managing NERC compliance for their business and annually certifying compliance with the Reliability Standards.
- Hotline for Anonymous Tips. The company has an “independent” hotline staffed 24/7 for employees to anonymously report potential noncompliance.
- Written Compliance Program and Policies. The company has written program that addresses compliance policies relating to risk assessment, controls, monitoring and reporting, and evidence of compliance with laws and regulations, including Reliability Standards.
The Office of Enforcement did not indicate that each of these features is an essential element of an effective compliance program, nor did it indicate that these features are the only elements of an effective compliance program. However, the list provides guidance as to what makes an effective compliance program for purposes of both the NERC Reliability Standards and compliance with market conduct rules and regulations.