Energy Law

On June 4, 2008, the North American Electric Reliability Corporation made its first public announcement of its Notices of Penalty when it filed at FERC the first batch of proposed penalties for reliability standard violations.  Most Notices of Penalty filed with FERC were for a zero penalty amount, however, Baltimore Gas & Electric and MidAmerican Energy Company received penalties of $180,000 and $75,000, respectively, for violations of the Transmission Vegetation Management Standard, FAC-003-1.  Violations of the Transmission Vegetation Management Standard were one of the major causes of the 2003 Blackout and an area where Regional Entities and NERC clearly intend to keep a watchful eye to ensure companies' compliance.  Violations of reliability standards can result in penalties of up to $1 million per day per violation.

The most common violations have been violations of the sabotage reporting requirements set forth in CIP-001-1, followed by violations of other standards that address normal operations planning, maintenance of generation and transmission protection systems, and facility ratings methodology.  Many of the Notices of Penalty characterize violations as "documentation" issues because while many companies may have procedures in place, Regional Entities and NERC have found their documentation of such procedures to be lacking.  The Notices of Penalty put an emphasis on the actions taken by companies to ensure reliability going forward, including the completion of Mitigation Plans to remedy violations and prevent future violations.  The Regional Entities have discovered violations through spot checks, self certifications, self reports, and compliance audits. 

So far, NERC has made zero penalty amount determinations based on the presence of most, if not all, of the following eight factors: (1) the violation was a documentation issue, or was characterized as minor under the circumstances; (2) no system disturbance occurred as a result of the violation and the violation did not jeopardize bulk power system reliability; (3) the violation occurred prior to 1/08; (4) the violations are the first incidence of violation for the registered entity; (5) the registered entity's cooperation with the regional entity; (6) immediate action to mitigate; (7) the violation was mitigated in accordance with the mitigation plan; and (8) the registered entity's actions ensured reliability.

Full post as published by Energy Legal Blog on June 06, 2008 (boomark / email).