Violations
Mitigation Plans
Penalties
2008 FRCC Compliance
Workshop
1
Violations
• Possible, Alleged, and Confirmed
• Discovered from any of eight
processes
• Violations are at the requirement level
• Must go through a review process
2
Possible Violations
• Initial review by FRCC compliance
staff
• Submittal to NERC
• Further review by FRCC compliance
staff
3
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
4
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
5
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
6
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
7
Mitigation Plans (continued)
If milestone or completion dates are not met:
• Violations will be enforced immediately
• Entity must submit a new mitigation plan
• Compliance audit may be conducted or a
Remedial Action Directive initiated
8
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.
9
Remedial Action Directives
Short 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
10
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
11
Remedial Action Directives
• A Registered Entity may contest a
Remedial Action Directive
The Registered Entity must provide written
notice within 2 business days
The Registered Entity may request an
expedited hearing
The Registered Entity may proceed with
implementing the directive even if contesting it
12
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
13
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
14
Key Penalty Concepts
Violation Risk Factor
Violation Severity Level
Potential or actual impact to the BPS
Aggravating and Mitigating Factors
15
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.
16
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%
17
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?
18
Base Penalty Amount Table (Proposed)
Violation Severity Level
Violation
Risk
Factor
Lower
Range Limits
Low
High
Moderate
Range Limits
Low
High
High
Range Limits
Low
High
Severe
Range Limits
Low
High
Lower
$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
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.
19
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.
20
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 circumstances
In cases where extenuating circumstances
exist, for example a natural disaster, the
penalty and/or sanctions may be significantly
reduced or eliminated
21
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
22
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.
23
Penalty Determination
There are 3 primary steps to
determining a financial penalty.
24
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
25
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.
26
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
27
QUESTIONS ???
28