|March 23, 2012|
FERC Imposes Additional Conditions on NERC's "Find, Fix, Track and Report" Enforcement Process
The Federal Energy Regulatory Commission on March 15, 2012 issued its final order accepting NERC's "Find, Fix, Track and Report" ("FFT") enforcement mechanisms. FERC noted that after several years of experience with the current program, NERC and the Regional Entities should have flexibility to more efficiently process and track lesser risk violations in order to focus their resources on issues that pose the greatest risk to reliability. Accordingly, FERC accepted NERC's proposal to use the proposed FFT process for possible violations that are determined to pose a lesser risk to the Bulk Power System ("BPS").
While FERC approved NERC's use of the FFT mechanism, FERC imposed certain conditions, grouped into three categories: (1) conditions related to whether a possible violation may qualify for FFT treatment; (2) conditions related to documentation of possible violations processed as FFTs; and (3) a condition related to accountability and deterrence.
Qualification for FFT treatment. FERC stated that until it obtains more experience on how the risk determinations are made for the purpose of qualifying possible violations for FFT treatment, it will condition its acceptance of the FFT mechanism on allowing only possible violations that pose a minimal risk to BPS reliability to be eligible for FFT treatment. FERC specified that the risk the possible violation posed to reliability must be determined based on potential risk, not after-the-fact actual risk. Simply because there was no adverse impact to the BPS during the period a possible violation occurred does not mean there was minimal risk to the BPS. However, FERC stated that a possible violation may qualify for FFT treatment if NERC or the Regional Entity can explain in the FFT informational filing that other factors mitigated risk, based on the totality of the circumstances.
Second, FERC underscored that risk assessments included in the FFT informational filings must be based on facts, rather than assumptions.
Third, FERC stated that it would not view a possible violation as posing a minimal risk if it reveals a serious shortcoming in a registered entity's reliability-related processes.
Finally, FERC required that risk assessments must be based on facts at the time of the possible violation, not on facts that develop later.
FERC also stated that if a registered entity that received FFT treatment for a possible violation fails to mitigate the possible violation as certified, it will not receive FFT treatment for that possible violation. Instead, failure to remediate a possible violation included in an FFT informational filing will be treated as a continuing possible violation of a Reliability Standard requirement that is not eligible for FFT treatment, and any further action on the possible violation must be processed as a Notice of Penalty.
Documentation. With respect to documentation, FERC made the following points:
Accountability and deterrence. FERC concluded that FFT informational filings must publicly identify the registered entity with a possible violation. FERC clarified that none of its regulations prevent disclosure of the identity of an entity that is the subject of an FFT matter.
FERC also stated that it will consider a possible violation reported in an FFT filing as closed within 60 days after the filing, and will not reopen the matter, unless FERC provides notice within the 60 days that it will review the matter. However, FERC may review a possible violation reported in an FFT filing, even after the 60-day period, if it finds that FFT treatment was obtained based on a material misrepresentation of facts underlying the FFT matter.
FERC directed NERC to submit a compliance filing within 60 days, providing, among other information (1) the procedures for coordination and collaboration between compliance personnel and enforcement personnel in evaluating FFT eligibility, and (2) an explanation of how NERC intends to obtain consistent treatment of possible violations for FFT treatment among the Regional Entities and as between NERC and the Regional Entities.
ABOUT SCHIFF HARDIN LLPSchiff Hardin is proud to have nationally recognized expertise in the energy industry and its markets, the regulation of commodity markets and the participants in those markets, and antitrust laws and policy. This unusual combination of expertise enables us to add immediate value for our energy industry clients.
For more information, contact us.