After significant concerns raised by the energy industry and a suspension of the originally released guidelines, FERC issued a Revised Policy Statement on Penalty Guidelines in September 2010. The revised guidelines will be used in determining civil penalties, and FERC believes guidelines will add greater fairness, consistency, and transparency to enforcement actions.
FERC did not change the underlying factors that will be used to determine penalties as described in its enforcement policy statements, but instead applies specific weight to each factor (e.g., harm or risk of harm, efforts to remedy violations, prior history, self-reporting, and senior management involvement). The revised guidelines will not impact enforcement staff's discretion to close investigations or self-reports. The guidelines will only apply to FERC Part 1b investigation and enforcement actions, and not to FERC's review of NERC Notices of Penalty. The new guidelines will apply to all future violations and pending violations where settlement negotiations have not begun. FERC also directed a technical conference be held in one year to evaluate the use of the new guidelines.
The revised penalty guidelines include the following changes:
- The base violation level for reliability violations has been reduced from 16 to six while increasing the risk of harm enhancements for reliability violations
- The quantity of load lost in MWh from a violation will be evaluated instead of the monetary value of the load lost, but no penalties will be enforced for load shedding required by the Reliability Standards
- Partial compliance credit will be given to entities having imperfect compliance programs in place
- The provision that automatically removed compliance credit where senior-personnel participated, condoned, or willfully ignored a violation to prevent a company from being punished for the action of rogue employees has been eliminated
- Mitigation credits will be issued separately for self-reports, cooperation, avoidance of trial-type hearings, and acceptance of responsibility
- The modified guidelines include an intent requirement for violations of misrepresentation and false statements
FERC continued to model the revised guidelines after the U.S. Sentencing Guidelines, stating that they provide the best model because they focus on factors, such as the seriousness and remediation of a violation, and provide an appropriate analytical model. FERC emphasized that the use of the Sentencing Guidelines as a model did not mean FERC was attempting to criminalize conduct.
Chairman Jon Wellinghoff noted that FERC will not apply strict liability to penalize operators for shedding load, so long as the action was taken in compliance with rReliability sStandards. However, the loss of load will be taken “into account in determining the risk posed by a violation of a Reliability Standard that gave rise to the load shedding.” With respect to the NERC Notices of Penalty, the Chairman found that it was appropriate not to apply the penalty guidelines because FERC has an appellate role and it would be difficult to define which Notices of Penalty to apply the revised guidelines.
The revised penalty guidelines address many of the concerns raised by industry commenters while maintaining the basic foundation from the March guidelines. By unbundling mitigation credits for actions such as self-reports, cooperation, avoidance of trial-type proceedings, and acceptance of responsibility, FERC further emphasized that parties should be proactive in their response to enforcement issues. Similarly, the ability to get at least partial credit for compliance programs should encourage even the smallest entity to put a compliance structure in place. The revised guidelines give entities involved in enforcement proceedings a way to evaluate potential penalty exposure, which can be helpful when interacting with enforcement Staff and deciding when to pursue settlements.