In a March 17, 2011 order, the Federal Energy Regulatory Commission (FERC) affirmed the proposed penalty initially filed by the North American Electric Reliability Corporation (NERC) in the first case in which FERC initiated its formal review process. In doing so, FERC also offered additional guidance to NERC and the regulated community regarding the development of penalties for violations of the mandatory NERC Reliability Standards.

Background

In the March 17 order in FERC Docket No. NP10-18-000 (134 FERC ¶ 61,209) (March 17 Order), FERC addressed a proposed penalty assessed against Turlock Irrigation District (Turlock) for alleged violations of certain Reliability Standards, including the vegetation management Standard (FAC-003). The violations arose from a transmission facility outage in August 2007 that resulted in the loss of 270 MW of firm load in the service areas of Turlock and a neighboring electric utility. Following an investigation by the Western Electricity Coordinating Council (WECC), the Regional Entity with enforcement authority in Turlock’s region, Turlock agreed to pay an $80,000 penalty. NERC approved the settlement and penalty amount, and filed them with FERC for approval.

FERC reviewed NERC’s submission and sought additional data from NERC concerning the circumstances of the outage and Turlock’s mitigation plans to remedy the violation. In a February 26, 2010 order, FERC formally initiated review of the Turlock penalty, suggesting that the penalty amount may not have been high enough in light of the loss of firm load and the size of other penalties assessed against other entities for violations of the FAC-003 Reliability Standard.

FERC’s Order

In the March 17 Order, FERC affirmed the $80,000 penalty. FERC agreed with NERC and industry commenters that transmission operators like Turlock must be able to shed load at times to maintain the reliability of their transmission systems, and that shedding load alone is not inherently a Reliability Standard violation. However, FERC cautioned that the penalty for a violation resulting in load shedding should take into account the lost load because of the more serious risk involved. In this case, FERC found that “unnecessary loss of customer load as a consequence of a Reliability Standard violation is serious, and serves to increase the severity of the underlying violation.” Still, FERC emphasized the “particular circumstances” of this case, including the fact that the violations occurred shortly after the Reliability Standards became mandatory and enforceable.