FERC Conditionally Approves NERC’s “Find, Fix, Track And Report” Process
The Federal Energy Regulatory Commission ("FERC" or "Commission") conditionally approved the North American Electric Reliability Corporation’s ("NERC’s") "Find, Fix, Track, and Report" ("FFT") proposal in an order issued on March 15, 2012 ("FFT Order"). NERC’s FFT proposal, which Blank Rome previously addressed in a client alert, sought to increase the efficiency of enforcing "lesser risk" violations of NERC Reliability Standards. These violations will no longer be handled under NERC’s Compliance Monitoring and Enforcement Program but, instead, will be remediated by the applicable Registered Entity and then identified in NERC’s monthly FFT information filings with FERC. The FFT informational filings will streamline compliance for these "lesser risk" violations, thereby permitting NERC and Regional Entities to focus their resources on those violations that pose the most risk to the bulk power system’s reliability and reduce the large backlog of pending enforcement actions. NERC will continue to report all possible violations to FERC pursuant to NERC’s Rules of Procedures.
NERC’s FFT Process
NERC and Regional Entities will use a six factor balancing test to assess which possible violations posed a "lesser risk" to the reliability of the grid, thereby enabling that violation to be included in an FFT informational filing. Risk assessment factors include the underlying facts, the applicable Reliability Standard, the applicable Violation Risk Factor and Violation Severity Level ("VSL"), the level of risk presented by the violation, the strength of the Registered Entity’s compliance program, and the Registered Entity’s compliance history. "Lesser risk" violations will typically involve administrative, documentation, and limited maintenance and testing program implementation failures. FERC, as a condition of approving NERC’s proposal, is only permitting those possible violations that had a minimal risk VSL to be considered for FFT treatment, despite NERC’s proposal to also include violations that had a moderate risk VSL.
FERC provides the following guidance regarding risk assessment in its FFT Order: i) a possible violation cannot be deemed to be minimal risk simply because the violation had no adverse impact on reliability during the period of violation; ii) NERC and Regional Entities can show that a possible violation posed only a minimal risk under the totality of the circumstances; iii) facts, and not assumptions, must be used when assessing risk; iv) a possible violation cannot be considered minimal risk if the violation "reveals a serious shortcoming in a Registered Entity’s reliability-related processes"; and v) risk assessments cannot use facts that develop later on – only those facts known at the time of the possible violation.
Once a possible violation is considered to be "lesser risk" by NERC or the applicable Regional Entity, the applicable Registered Entity will correct the reported possible violation and submit a signed affidavit to its Regional Entity certifying that remediation has occurred and is completed.1At that point, the possible violation will then be deemed a "Remediated Issue" and NERC will include the possible violation in its monthly FFT informational filing to FERC. This filing will identify and provide a brief description of each Remediated Issue. FERC’s FFT Order, in contrast to NERC’s proposal, requires that FFT information filings publicly identify the applicable Registered Entities provided there are no security concerns with the identification. A Remediated Issue is not subject to sanctions or penalties and the applicable Registered Entity is not required to submit a formal mitigation plan. However, in contrast to NERC’s proposal, FERC retains its right to reopen a Remediated Issue within sixty days of the FFT information filing. If FERC has not provided notice that it will review the violation in that sixty day period, the Remediated Issue will be deemed closed. FERC may reopen a Remediated Issue after the sixty day period if FERC finds FFT treatment was obtained based on a material misrepresentation of the facts.
Implementation of the FFT program has already begun and will occur in two phases. NERC began implementing Phase 1 upon filing its FFT proposal at FERC. In this phase, NERC and Regional Entity compliance staff will provide recommendations to their counterpart enforcement staff at the applicable Regional Reliability Organization ("RRO") about what process should be used to handle specific possible violations. However, the RRO compliance staff has the ultimate authority to make that decision. FERC’s FFT Order grants NERC permission to move forward with the implementation of Phase 2. Because NERC has more experience with the FFT process, both compliance and enforcement staff will have the authority to make FFT determinations. Compliance field staff will even have the authority to make FFT determinations, without enforcement staff oversight, during Compliance Audits, Spot Checks and Compliance Investigations, although field staff is expected to collaborate closely with enforcement staff.
FERC plans to survey the Remediated Issues filed under the FFT process so that FERC can determine: i) how successful the FFT process is in efficiently processing and remediating possible violations; and ii) whether it generally agrees with how NERC and Regional Entities are determining which possible violations are of "lesser risk."
NERC is required to make two filings by May 14, 2012 and one filing by March 15, 2013 (sixty days and twelve months after the issuance of the FFT Order, respectively). The first filing is a sixty-day compliance filing where NERC is required to explain how a Registered Entity’s compliance history will factor into the risk assessment and, therefore, whether a possible violation qualifies for FFT treatment. That filing must also include information regarding the implementation of Phase 2. NERC is required to concurrently file its proposed six-month report with the sixty-day compliance filing. This six-month report will address the experience gained and implementation results from the FFT process. Lastly, NERC must file a twelve-month report so that the Commission can review the overall effectiveness of the FFT process and determine whether any changes are necessary. This twelve-month report must also evaluate the consistency and application of risk assessments.
FERC Seeking Comments
FERC recognized that the FFT process is predicated on the view that many Reliability Standard violations pose lesser risk to the bulk power system and, therefore, FERC questioned whether some Reliability Standards provide little protection to the bulk power system or are redundant. FERC seeks comments on whether such requirements could be eliminated with little effect on reliability and increase the efficiency of NERC’s compliance program. FERC also seeks comments and proposals on the appropriate mechanisms to identify and remove unnecessary or redundant Reliability Standards. FERC did not establish a deadline for such comments, but noted that NERC, Regional Entities and interested parties should submit their respective comments concurrently.