Compliance with Dodd-Frank might not be as complicated as feared; however, companies must be vigilant in order to maintain the relevant exemptions.
Penalty Predictability Enhanced
FERC modifies its enforcement guidelines.
own enforcement and 18 C.F.R. Part 1b investigation purposes against electric industry users, owners, or operators. Those purposes are separate from North American Electric Reliability Corp. (NERC) enforcement processes. FERC will not apply its penalty guidelines to its review of NERC notices of penalty and FERC does not intend to investigate minor reliability violations involving little or no harm or risk of harm. FERC’s belief is that the guidelines will deal effectively with violations seriously impacting bulk-power system reliability.
Balancing the need to deter reliability violations and promote compliance with a recognition that less-severe violations should receive smaller penalties, the revised policy statement modifies certain base violation levels, risk-of-harm adjustments including modifications to the specific violation characteristic categories for risk of loss, total violation levels, and base penalties. The revised policy statement includes a comparative table presenting the several modifications. 9 The interactions of those new factors modify the guidelines’ risk-of-harm adjustments to provide a smaller base penalty range for facts of low risk of minor harm ($5,000) to moderate risk of major harm ($2.1 million), while not modifying the base penalty range for the most serious violations, from low risk of extreme harm ($6.3 million) to high risk of extreme harm ($17.5 million).
With respect to loss of electricity load, the revised policy statement says FERC won’t make individual assessments of loss-of-load value as a measure of a violation’s harm because they require substantial time and resources by both the electric industry entity and FERC staff. 10 Instead, the guidelines use the quantity of load lost in megawatt hours (MWh) as a measure of seriousness. The 11 quantity categories range from a loss of less than 10 MWh of firm load (no level increase) to a loss of 10,000 or more MWh of firm load (add 32 levels). FERC rejects a suggestion to dispense entirely with loss-of-load data to calculate penalties for reliability violations, explaining that it continues to treat violations involving loss of load more seriously than non-blackout violations. FERC will consider loss of load when there is a causal connection between the load lost and a reliability standards violation, but not when a reliability standard requires load to be shed, for instance, to avoid cascading outages.
Once the final violation level for the type of violation ( e.g., misrepresentation, market or other, or reliability) is determined, that level, § 1C2.1, is matched to a base-penalty dollar amount from the violation level penalty table, § 1C2.2(b). Alternatively, the base-penalty amount is increased to the level of the pecuniary gain to the organization or the pecuniary loss caused by the organization, § 1C2.2(a)(2)-(3), if that dollar amount is greater than the base penalty. This civil-penalty assessment mechanism in the guidelines doesn’t affect FERC’s practice to require disgorgement of unjust profits by entering orders for the full amount of such gains plus interest, § 1B1.1. Nor has FERC let go of its discretion to assess non-monetary sanctions, either to replace or accompany monetary penalties, such as requiring entities to submit compliance monitoring reports or to conduct audits.