NERC’s Proposed Rules of Procedure Would Impact Enforcement Actions
The North American Electric Reliability Corporation ("NERC") filed a petition with the Federal Energy Regulatory Commission ("FERC") for approval of proposed revisions to NERC's Rules of Procedures ("ROP") on May 7, 2012 ("ROP Petition"). NERC developed these revisions by determining where improvements could be made, reflecting on the experiences of NERC and the Regional Entities, and seeking comment from stakeholders on potential changes. Furthermore, these revisions implement actions set forth in NERC's 2009 Three-Year Electric Reliability Organization Performance Assessment Report.
While the ROP Petition proposes changes throughout NERC's ROP, NERC is proposing significant changes to the Hearing Procedures section in Attachment 2 of Appendix 4C-Compliance Monitoring and Enforcement Program ("Appendix 4C"). Such proposed revisions include: i) permitting interested third-party interventions in enforcement hearings; ii) allowing independent system operators ("ISOs") and regional transmission organizations ("RTOs") to request that the Compliance Enforcement Authority ("CEA") make a determination regarding whether other specific Registered Entities are responsible for the violation at issue during that enforcement proceeding; iii) providing parties, including CEAs, the right to appeal Regional Entity Hearing Body ("Hearing Body") decisions to NERC; and iv) granting NERC the ability to modify Hearing Body decisions that have not been appealed to NERC.
NERC Proposed Revisions
Third-Party Interventions in Enforcement Hearings
NERC proposes to enable a Hearing Body to grant intervention requests by third-parties in enforcement proceedings conducted under NERC's Hearing Procedures when such parties have an interest in the proceeding. NERC's existing ROP expressly prohibit third-party interventions unless authorized by FERC (see Blank Rome's prior energy update on this issue). Under the ROP Petition, interventions would be permitted by Hearing Bodies when the party seeking intervention "has a direct and substantial interest in the outcome of the Alleged Violation, proposed Penalty or sanction, Mitigation Plan or Remedial Action Directive that is the subject of the proceeding." The proposed revisions to the ROP include examples of a "direct and substantial interest" such as: i) a party that has received a Notice of Alleged Violation "involving the same Reliability Standard requirement(s) and arising out of the same event or occurrences" as the proceeding at issue; or ii) the party seeking intervention may be "contractually or legally liable to the original [r]espondent" for whole or part payment of the proposed penalty or sanction that is the subject of the proceeding. On the other hand, NERC would not permit interventions in a hearing where: i) the party has received a Notice of Alleged Violation for the same Reliability Standard, but it arises out of a different event or occurrences; and ii) the party only seeks intervention to "advocate an interpretation of the Reliability Standard [r]equirement(s) or provision(s) of the Sanction Guidelines" at issue.
Parties seeking to intervene must file a motion to intervene with the Compliance Enforcement Authority's ("CEA's") clerk. The Hearing Officer will issue a recommendation to the Hearing Body within seven days following the end of the response period regarding whether to grant the motion to intervene and the Hearing Body has up to seven days to grant or deny such motion. Once a party is granted participant status, the party will be designated as a respondent and deemed to be aligned with the existing respondent(s), unless the Hearing Body states that the intervening party should be aligned with another participant in the proceeding.
ISO/RTO Request for Determination of Responsibility
NERC also proposes to allow ISOs and RTOs to request that the CEA make a finding during an enforcement action for a Notice of Possible Violation regarding the responsibility of one or more other Registered Entities for the violation at issue. The ISO/RTO must make such request and provide notice of the request to the specified other Registered Entities no later than ten business days after the ISO/RTO receives the related Notice of Possible Violation. To participate in the enforcement action, the specified other Registered Entities must submit a written request to participate and execute a CEA-provided non-disclosure agreement. The written request to participate must be filed prior to, as applicable: i) the date of execution of a settlement agreement between the CEA and the ISO/RTO, and ii) the date that the CEA issues a Notice of Confirmed Violation to the ISO/RTO. NERC's proposal gives specified other Registered Entities an affirmative right to participate in the enforcement action.
The CEA will make a determination in its proposed Notice of Penalty, provided the enforcement action does not result in a settlement agreement, regarding whether the specified other Registered Entity(ies) was responsible, in whole or in part, for actions or omissions that caused or contributed to the violation identified in the Notice of Possible Violation. However, the CEA will not opine on whether all or a part of any monetary penalty imposed on the ISO/RTO for the violation should be allocated to the specified other Regional Entity(ies). Furthermore, NERC's ROP Petition seeks to require the ISO/RTO to pay any penalty imposed by the CEA within the required time period, regardless of whether the CEA has made a determination of responsibility.
Appealing Hearing Body Decisions to NERC
NERC is proposing to allow parties to enforcement proceedings, including CEAs, to appeal Hearing Body decisions to NERC. To make an appeal to NERC under the proposed ROP, a party must file a notice of appeal with NERC's director of enforcement within 21 days of the issuance of the decision3 under Section 409 of the ROP. Other proceeding participants have 35 days after the notice of appeal is filed to file responses to the issues raised in such notice and the appealing participant has seven days to reply to those responses. NERC's Board of Trustees Compliance Committee will decide the appeal which "shall be final, except for further appeal" to FERC.
NERC proposes to add a new section to the ROP which would require NERC to review and process each Hearing Body decision, concerning alleged violations, proposed penalties and sanctions, or proposed mitigation plans, that is not appealed to NERC. Under this new section, NERC may require that a Regional Entity modify a Hearing Body's decision in accordance with Section 5.8 (Notification of Confirmed Violation), Section 5.9 (Notice of Penalty) and Section 6.5 (Review and Acceptance or Rejection of Proposed Mitigation Plans) of Appendix 4C. NERC asserts this revision is necessary to ensure consistency in such determinations among Regional Entities, but such plenary authority is likely to receive intense scrutiny from FERC and Registered Entities.
Other Proposed Revisions
NERC has also proposed, among other changes, the following important revisions to the ROP:
a Registered Entity would now be permitted to submit a Self-Report when it believes it "may have" violated a Reliability Standard, but such report is not required;
a Registered Entity may object to the participation of any NERC or FERC staff member on the Compliance Audit Team "on grounds of a conflict of interest or the existence of other circumstances that could interfere with the [staff] member's impartial performance of his or her duties;" and
when determining a violator's penalty, NERC and Regional Entities will take into account previous violations by affiliates of the violator of the same or similar Reliability Standard requirements.
NERC's ROP Petition would permit third-party intervention in ISO/RTO enforcement proceedings without requiring that third-party to petition FERC. This is a welcome departure from rules that would otherwise prohibit entities that could be directly impacted by the enforcement action. These proposed revisions make it easier for certain third-parties to defend their actions during the enforcement proceeding (i.e., before the Hearing Body imposes a penalty on the ISO/RTO). Other proposed revisions expand NERC's control over Hearing Body decisions which mirrors FERC's role over administrative law judge recommended decisions. Two such proposals, permitting CEAs to appeal Hearing Body decisions to NERC and NERC's ability to modify such decisions, will likely incur strong resistance from industry groups and possibly FERC.