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ViolationsMitigation Plans

Penalties

2008 FRCC Compliance Workshop

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Violations

• Possible, Alleged, and Confirmed

• Discovered from any of eight processes

• Violations are at the requirement level

• Must go through a review process

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Possible Violations

• Initial review by FRCC compliance staff

• Submittal to NERC

• Further review by FRCC compliance staff

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Alleged Violations

• Notice of Alleged Violation and Proposed Penalty or Sanction sent to entity and NERC

• Within 30 days entity must select one of three options for response

• No response in 30 days then entity deemed to have accepted

• Mitigation plan requested, if not already submitted

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Confirmed Violations

• Notice of Confirmed Violation and Penalty or Sanction sent to entity and NERC

• Record sent to entity and NERC

• After approval by NERC a Notice of Penalty is sent to FERC, FRCC, and the registered entity

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Mitigation Plans

• To be submitted immediately with any violation

• Will be reviewed by FRCC Compliance staff for acceptance

• Submitted to NERC for approval

• Submitted to FERC for review

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Mitigation Plans (continued)

• Template for mitigation plans is on FRCC website

• Must include milestones if over 90 days

• Entity must submit updates at least quarterly if over 90 days

• Request for extension of a milestone or completion date must be received by FRCC a minimum of five days prior

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Mitigation Plans (continued)

• Violations will be enforced immediately

• Entity must submit a new mitigation plan

• Compliance audit may be conducted or a Remedial Action Directive initiated

If milestone or completion dates are not met:

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Sanctions, Penalties and Remedial Action Directives

• Necessary mechanisms for compliance enforcement:

Promote compliance behavior Provide deterrence to future incidents, actions or

situations of non-compliance Implement actions to promptly correct behavior Disgorge benefits that may have accrued to a violator

as a consequence of violating Place upon a violator some portion of damage their

violation may have caused others NERC Sanction Guidelines – located in NERC Rules

of Procedure Appendix 4B.

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Remedial Action DirectivesShort Term Corrective Actions

• Used when such action is immediately necessary to protect the reliability of the bulk power system. Examples:

– Specifying operating or planning criteria, limits, or limitations

– Requiring specific system studies– Defining operating practices or guidelines– Requiring confirmation of data, practices, or

procedures through inspection testing or other methods

– Requiring development of specific operating plans

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Remedial Action Directives

• Prior to issuing, FRCC Compliance Staff will consult with the FRCC Reliability Coordinator

• The directive will include a deadline for compliance

• FRCC will monitor implementation of Remedial Action Directives to verify compliance

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Remedial Action Directives

• A Registered Entity may contest a Remedial Action DirectiveThe Registered Entity must provide written

notice within 2 business daysThe Registered Entity may request an

expedited hearingThe Registered Entity may proceed with

implementing the directive even if contesting it

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Sanctions

• Sanctions are applied with the objective of promoting reliability and compliance with the reliability standards.

• Sanctions are usually non-monetary in nature and may include, but are not be limited to, the following:– Limitations on activities, functions, or operations– Placing an entity on a reliability watch list composed

of major violators– Notification of boards of directors, regulators, and

others

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Penalties

• Penalties are monetary fines levied against an entity for violation of a Reliability Standard.

• Penalties should bear a reasonable relationship to the seriousness of the violation in terms

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Key Penalty Concepts

Violation Risk FactorViolation Severity Level

Potential or actual impact to the BPSAggravating and Mitigating Factors

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Violation Risk Factor

• Assigned to each requirement in a Reliability Standard

• Based on the impact that the violation of that requirement could or would likely have to the reliability of the Bulk Power System

• Real time operation VRFs are often high, since they have the immediate impact on the BPS.

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Violation Severity Level

The VSL indicates how badly the standard was violated.

Example - Level of non-compliance for BAL 002

Level 1 (lower) – value of average percent recovery for the quarter less than 100% but greater than or equal to 95%

Level 2 (moderate) – Value of the average percent recovery for the quarter is less than 95% but greater than or equal to 90%

Level 3 (high) – Value of the average percent recovery for the quarter is less than 90% but greater than or equal to 85%

Level 4 (severe) – Value of the average percent recovery for the quarter is less than 85%

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Potential or Actual Impact to BPS

• The issue to be considered is as follows:

Given the violation’s Violation Risk Factor and the Violation Severity Level, what is the relationship between the potential consequence of the violation and the actual consequence of the violation?

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Base Penalty Amount Table (Proposed)

Low High Low High Low High Low HighLower $1,000 $3,000 $2,000 $7,500 $3,000 $15,000 $5,000 $25,000

Medium $2,000 $30,000 $4,000 $100,000 $6,000 $200,000 $10,000 $335,000

High $4,000 $125,000 $8,000 $300,000 $12,000 $625,000 $20,000 $1,000,000

ViolationRisk

Factor

High Severe

Violation Severity Level

Range Limits Range Limits Range Limits Range LimitsLower Moderate

Note: Amounts listed in the Table are generally “per incident”; however, in the U.S NERC is authorized to assess them on a “per day” basis where warranted.

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Mitigating Factors – Deduct from base penalty

• Self-disclosure & voluntary corrective action by the violator

– The FRCC shall consider whether a violator self-disclosed the violation prior to detection or intervention by the FRCC or NERC, and any action undertaken by the violator to correct the situation.

• Degree and quality of cooperation in violation investigation and remedial action

– If the violator has cooperated with the FRCC in a manner and to a degree noticeably beyond what would be considered the norm.

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Mitigating Factors – Deduct from base penalty

• Presence & quality of violator’s internal compliance program The FRCC will not increase a violator’s penalty

specifically on the grounds that the violator has no program or a poor quality program.

• Extenuating circumstancesIn cases where extenuating circumstances

exist, for example a natural disaster, the penalty and/or sanctions may be significantly reduced or eliminated

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Aggravating Factors – Add to base penalty

• Repetitive violations & the violator’s compliance history– If the violator has had repeated violations of the same or a

closely related reliability standard, the FRCC will consider some increase to the penalty

• Failure of the violator to comply with compliance directives

– If the violator incurs a violation in spite of having received related compliance directives, the FRCC will consider some increase to the penalty

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Aggravating Factors – Add to base penalty

• Violation Concealment– Any purposeful misrepresentation or an attempt to

conceal the violation, or information needed to investigate the violation, will result in an increase in penalty.

• Intentional violations– If the violation was intentional without just cause, i.e.

to avoid a more significant threat or immediate risk to reliability, there will be significant increase to the penalty.

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Penalty Determination

There are 3 primary steps to determining a financial penalty.

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Penalty Determination

• Step 1:– The base penalty amount for the violation is

determined based on the violation’s (VRF) & (VSL) and the potential or actual impact to the reliability of the BPS.

The impact helps determine where in the range the base penalty starts

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Penalty Determination

• Step 2:– The base penalty amount determined in Step

1 may be adjusted in light of time horizon of the violation. Generally if all other considerations are similar,

violations involving immediate or real-time activities should generally incur larger penalties than violations with longer or broader timeframes.

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Penalty Determination

• Step 3:– Make final adjustments based on the

mitigating and aggravating factors. The resulting penalty is the final penalty.

– By law the maximum penalty allowed is $1 Million dollars per day per violation

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QUESTIONS ???