(November 2009)Regulators are in the unenviable position of determining an allowance for ROE that’s fair to consumers and investors in a volatile economy. The cases that stand out this year...
Preparing for the Inevitable
Mitigating enforcement penalties in NERC hearings and appeals.
Notice of Violation
The first step on the path towards the hearing and appeals process is the violation notice. A violation notice will be issued once a potential violation of the reliability standards is discovered. NERC and the regional entities might uncover potential violations through a variety of means, including self-certifications, self-reports, compliance audits, spot checks, compliance violation investigations, periodic data submittals, exception reporting, and complaints. 3 The means of discovery, however, doesn’t affect the notice process.
It’s important to distinguish between the types of notices that may be issued. An initial notice of alleged violation (INOAV) alerts the recipient that it is under investigation, but doesn’t require the entity to take any action to preserve its rights. In contrast, a notice of alleged violation and proposed penalty or sanction (NAVAPS) starts the clock running for purposes of preserving the entity’s right to a hearing or appeal. A recipient either must contest or respond within 30 days of receipt of the NAVAPS or it is deemed to have accepted the violation and the proposed penalty. 4
Because there are no reported decisions on the issue, it remains unknown at this time whether the 30-day deadline for responding to the NAVAPS is immutable, or if it’s waivable or subject to extension and, if so, under what circumstances. The prudent course is to treat the 30-day deadline as firm.
Substantively, an entity can respond to a violation in several different ways: 5
• An entity can agree with the alleged violation and accept the penalty; if the entity does so, it must submit a mitigation plan demonstrating how it will correct the violation; 6
• An entity can choose to accept the violation but dispute the penalty; in this situation, it also must file a mitigation plan;
• An entity can submit a mitigation plan without waiving its right to contest the alleged violation or the proposed penalty or both; or
• An entity can contest both the violation and the proposed penalty.
If the recipient entity chooses to contest either the alleged violation or the proposed penalty, the entity must submit a response to the regional entity explaining its position and supplying supporting information and documents. 7 The regional entity then must schedule a meeting with the alleged violator, to discuss possible resolution, within 10 business days of receipt of the response. 8
If the issue isn’t resolved within 40 days following the alleged violator’s response, 9 then the registered entity may request a hearing. If no hearing is requested, the alleged violation will be deemed confirmed and the penalty final, and the violation and penalty will be filed with FERC.
Once the violation is filed with FERC, the agency can elect to hear an appeal or conduct a review of the alleged violation upon its own motion. 10 If FERC doesn’t review the notice and no appeal is filed, the penalty becomes final after 30 days. 11
An alleged violator may request a hearing within 40 days after its response to the notice of alleged violation, within 40 days