(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.
of an application for review does not stay the penalty unless FERC orders otherwise. 29 If the penalty isn’t appealed, and FERC doesn’t initiate independent review, then the notice of penalty is deemed affirmed 30 days after the filing date. 30 FERC also has the authority to toll the period for action to determine whether to initiate review on its own motion. Once an appeal is initiated, FERC anticipates acting within 60 days, unless it determines another length of time is appropriate. 31 FERC may decide to affirm, set aside, reinstate, or modify the penalty, or remand to NERC for further proceedings. 32
At least, that’s the theory. No hearings or appeals have commenced yet. Still, it’s likely that they will, and it’s possible to identify some practical considerations that a registered entity should take into account both before and throughout the NERC hearing and appeals process in order to enhance the chances of success.
A series of practices and actions can help utility companies manage their compliance obligations and avoid or minimize NERC-enforcement penalties.
• Mind the Timelines: Each step of the hearing and appeals process is guided by specific timelines. For example, if the registered entity chooses to contest an alleged violation or proposed penalty, there are specified windows of time within which to request a hearing or file an appeal before the matter becomes uncontestable. Because there are no litigated cases yet, it is unclear how firm those deadlines are. But registered entities are cautioned to avoid being the test case to see how strictly these deadlines will be enforced, whether by the regional entities, NERC or FERC. Therefore, the registered entity should take careful note of the applicable deadlines.
• Follow Instructions: If an entity comes under investigation, it is important to follow all instructions and expeditiously and accurately respond to requests. For example, the regional entity compliance audit teams are required to issue specific instructions to the audited entity and they expect concise—but complete—responses in return. This may seem obvious, but in light of the potential implications—including heightened scrutiny and negative inferences that the audited entity is uncooperative—it is an important practice guideline to mind.
• Be Cooperative: One of NERC’s penalty adjustment factors is the degree and quality of cooperation with violation investigations and in implementing remedial plans. 33 FERC also has recommended a proactive approach to reporting violations and cooperating in violation proceedings. In fact, FERC has stated that in some circumstances a company’s proactive and cooperative approach to correcting violations and improving compliance could lead to a resolution that does not involve civil penalties. 34 As noted, such an approach extends to interactions with the regulators ( i.e., such as in responding to data requests, in negotiations, and in other contexts). Accordingly, to the extent feasible, exemplary cooperation is recommended.
• Develop a Thorough Record: The record developed in the regional entity proceedings is the same record NERC and FERC will review should a matter be appealed. The record should be organized and effective, and every fact that might be important to