FERC’s 3 Lessons for NERC Reliability Standards Compliance

On March 17th, the Federal Energy Regulatory Commission (FERC) approved an $80,000 settlement between NERC, WECC, and Turlock Irrigation District for the violation of electric reliability standards (order [DOC]). In several previous cases, FERC had requested additional information from NERC. However, this is the first and only case in which FERC chose to proceed with an actual review of a notice of penalty.

What can we learn about the Commission’s views on reliability compliance from a read-through of its decision?

1. Load Shedding and Harm Are Factors in Assessing the Severity of a Violation

There has been some debate as to whether or not loss of load should be considered an aggravating factor in the assessment of a reliability standard violation. The concern is that load shedding is an essential tool for protecting the grid from cascading failures. In fact, load shedding may be required by the reliability standards. System operators shouldn’t be discouraged from acting to contain an emergency because of a concern that their actions will result in larger penalties. Thus, the Commission states:

Moreover, an underlying violation may require an operator to shed load to comply with a Reliability Standard to protect customers from a larger, possibly cascading outage. In such a situation, the operator’s decision to shed load pursuant to the Reliability Standard is not itself a violation and the Commission would not approve or assess a penalty for that decision.

However, the Commission also makes it very clear that a failure to serve customer load is an important measure of the seriousness of a violation.

A loss of load caused by a violation of a Reliability Standard results in harm that is unnecessary and avoidable.

Therefore, when considering an appropriate penalty for a violation, the Commission declares that loss of load should be a factor.

In order to set penalties at an appropriate level, we will consider the quantity of load lost in our analysis of the harm when it occurs, based on the particulars of the load lost resulting from a violation.

2. Self-reporting Should Be Strictly Interpreted

Self-reporting a reliability standard violation is normally grounds for special consideration in the assessment of penalties. What, though, counts as a self-report? Several standards explicitly require companies to notify regional entities about certain events. In such situations, a report is required anyway. In some cases, auditors have allowed companies being audited to file self-reports when violations were discovered (before the audit report was turned in).

In this order, the Commission soundly rejects Turlock’s assertion that it had self-reported an FAC-003 violation. The Commission distinguishes between cooperation and self-reporting, explaining that submitting a report required by a standard does not justify the credit accorded self-reports.

3. Human Error Is No Excuse

The professor of my Human Factors class in college used to say that there is no such thing as human error. Obviously, people make mistakes. What he meant was that you should expect people to make mistakes and design machines and systems to accommodate them.

The Commission makes a similar point in the Turlock order and rejects human error as a mitigating factor in reliability standards violations.

Whether or not these occurrences resulted from human error is not relevant to our consideration of this matter… language translator The possibility of a significant monetary penalty for a violation of a Reliability Standard resulting from human error that adversely affects the BPS provides an incentive for registered entities to create and implement robust training and compliance programs and procedures to make human errors less likely.  Merely because a violation resulted from human error, however, does not by itself warrant reduction of a penalty.

One More Thing…

We can see in this decision hints of the dysfunctional relationship that exists between FERC and NERC. FERC will intervene in the compliance process but finds it difficult to contradict NERC on enforcement.

Regulated entities should understand that FERC is an active participant in the compliance monitoring process. While preparing to respond to the regional entity or NERC during an audit or investigation, companies should remember that there’s also another agency that’s very much involved in the decision-making.

FERC staff work closely with NERC investigators on nearly every case and can have a strong influence on the results. In this order, the Commission approved the settlement but also directed WECC to spot-check Turlock’s performance of several specific standards. During investigations, FERC staff, though they don’t have the authority to order NERC, will similarly raise issues, ask questions, and recommend findings.

However, while FERC is wont to intervene during the investigation stage, when it comes down to the final decision regarding what violations to declare and what penalties to assess, the agency hasn’t demonstrated the willpower to overrule NERC.

This case is the one-and-only review initiated by the Commission for notices of penalty covering 1,872 reliability standard violations. Not a record that suggests a strong position on oversight (unless, that is, you think that NERC and the regional entities did a good job on all 1,800+ violations). Further, NERC filed the notice of penalty on November 13, 2009 and the Commission initiated its review on February 26, 2010, so this decision took more than a year to issue! Finally, the language of the order is pretty clear that the Commission would rather have seen a larger penalty, yet it approved the settlement and justified the action with an acknowledgment that the violation occurred during the early start-up period of mandatory standards.

This article was last edited on June 23, 2011.

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