On September 30, 2011, the North American Electric Reliability Corporation (“NERC”) submitted to the Federal Energy Regulatory Commission (“FERC” or “Commission”) a petition requesting approval of new reliability enforcement mechanisms in Docket No. RC11-6-000 (“Petition” or “Initiative”). NERC describes its proposed enforcement Initiative as an “evolution” of its implementation of the Compliance Monitoring and Enforcement Program (“CMEP”), making it more effective and efficient. Keeping the status quo, NERC explains, would involve considerable paperwork, man-hours and administrative burdens for “lesser risk issues.” To increase efficiency, NERC proposes its “Find, Fix, Track and Report” procedures for handling “lesser risk” violations of electric reliability standards.
Under its proposed enforcement Initiative, NERC will submit to FERC a monthly informational filing containing “Find, Fix, Track and Report” documentation (the “FFT Report”). The FFT Report will be in a spreadsheet format with the lesser risk issues identified. The documentation for each item will be as short as a few sentences. According to the FFT Report summary contained in the Petition, FFT Reports “could include, but are not limited to,” potential violations that were previously addressed in Administrative Citation notices of penalty (“NOPs”), Deficiency NOPs and zero/lower dollar minimal to moderate risk issues addressed in Abbreviated NOPs. Issues subject to FFT Reports are identified and corrected outside of the full CMEP process. Once a possible violation is corrected, it becomes labeled as a “Remediated Issue” in the FFT Report. It is important to note that potential violations in FFT Reports will not be subject to sanction or penalty. Further, a Registered Entity with FFT Report issues will not be required to submit a formal mitigation plan. However, that Registered Entity must demonstrate that it has undertaken corrective actions to address the underlying issues.
Spreadsheet and Full NOPs
Another “evolution” in its Initiative is NERC’s proposed use of a new spreadsheet Notice of Penalty report (“Spreadsheet NOP”). Spreadsheet NOPs will address violations presenting a moderate to serious risk to the bulk power system (“BPS”). Spreadsheet NOPs closely resemble the Administrative Citation NOP spreadsheets which will be superseded by FFT Reports.
NERC also proposes to keep full NOP reports (“Full NOPs”) for violations posing a more serious risk to the BPS. NERC included examples of potential violations that it believes pose the most serious risk: (i) those involving or resulting in (a) extended outages, (b) loss of load, (c) cascading blackouts, (d) vegetation contacts and (e) systemic or significant performance failures; and (ii) those involving (a) intentional or willful acts or omissions, (b) gross negligence and (c) other misconduct. Although NERC requests the Commission’s approval for its proposed enforcement Initiative, it nonetheless concurrently filed a new Spreadsheet NOP along with some Full NOPs.
According to the Petition, NERC will decide upon the proper disposition of a potential compliance matter by considering the following factors: (1) the underlying facts and circumstances (i.e., what happened, why, where and when); (2) the reliability standard potentially violated; (3) the Violation Risk Factor and Violation Severity Level applicable to the reliability standard; (4) the potential and actual level of risk to reliability, including mitigating factors during pendency of the potential violation; (5) the Registered Entity’s compliance program, including preventive and corrective processes and procedures, internal controls and culture of compliance; and (6) the Registered Entity’s compliance record. The Petition also states that the Regional Entity’s determination that a penalty or sanction is warranted and the deterrence value of a penalty or sanction also will be considered.
NERC will continue to issue confidential Notices of Possible Violation to FERC regardless of whether it is ultimately included in a FFT Report, Spreadsheet NOP or Full NOP. NERC also states that all its risk assessments will be consistent with its FERC-approved Sanction Guidelines. In other words, NERC will continue to take into account the size, location and characteristics of BPS facilities owned and operated by the subject entity.
Interventions and Comments
NERC contends that its proposed streamlining efforts will allow for substantially greater resources and attention to be shifted to matters that present a more serious threat to the BPS. Registered Entities should closely review the NERC Initiative to analyze whether it maintains appropriate levels of due process for potential violations. While NERC’s efforts to maximize efficiency are laudable, it is important to ensure that important protections provided to Registered Entities subject to the CMEP process remain in place.