On February 26, 2010, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an Order Initiating Review of Notice of Penalty filed by the North American Reliability Corporation (“NERC”) against Turlock Irrigation District (“Turlock”).  This is the first time that FERC has questioned a penalty issued by NERC.

On November 13, 2009, NERC filed a Notice of Penalty that proposed an $80,000 fine for Turlock pursuant to a settlement agreement between its regional reliability monitor, Western Electricity Coordinating Council (“WECC”) and Turlock.  The settlement agreement resolved several alleged violations of NERC reliability standards.  FERC is initiating a review of one of the alleged violations, FAC-003-1 R2, which requires an entity to create and implement an annual plan for vegetation management.  Turlock had reported to WECC a violation of FAC-003-1 resulting from an August 29, 2007 kilovolt (“kV”) line outage and firm load shedding.  WECC and Turlock independently concluded that Turlock failed to adequately follow its 2007 Vegetation Management Work Plan, which allowed an almond tree to grow into a 230 kV power line causing an outage to thousands of customers.

In its decision to review NERC’s notice of penalty against Turlock, FERC cited several factors:

• Seriousness of violations—FERC stated that this was a serious violation because Turlock’s alleged violation of FAC-003-1 R2 involved the loss of firm load on the BPS. 
• Potential risk and actual harm to the bulk power system (“BPS”)—FERC stated that loss of customer load increases the severity of the violation because of the harm to the BPS.  Additionally, FERC noted that nothing on the record indicates what the system conditions were on the day of the fault and that WECC and NERC should have inquired as to how the outage may have exacerbated operating conditions on the BPS.  FERC stated that the consequences of the outage could be more severe than presented in NERC’s notice of penalty if they extend to aggravating overloaded transmission lines or operating reserve deficiencies.
• Consistency in the application of penalties—FERC stated that other Notices of Penalty filed for violations of FAC-003-1 R2 resulted in penalty amounts ranging from $0 to $250,000, and none of them involved loss of load.  FERC compared the proposed $80,000 penalty against Turlock to a previous penalty of $225,000 assessed against Commonwealth Edison for three momentary transmission outages that did not result in any loss of load. 
• The ability of the penalty to improve compliance with Reliability Standards—FERC questioned WECC’s finding that Turlock self-reported its violation of FAC-003-1 R2 because it is a separate standard, EOP-004-1 R3, which required Turlock to report the loss of firm load of more than 100 megawatts.  FERC also questioned the mitigation and remedial efforts made by Turlock.  FERC said that WECC’s acceptance of “tree-only” inspection of the line involved trimming and training for field personnel is not enough.  At minimum, FERC recommended that Turlock implement additional inspection procedures. 

For these reasons, FERC stated that the penalty amount may be insufficient and initiated a review of the proposed penalty to determine whether violations of other reliability standards or facts not disclosed in NERC’s notice of violation may have contributed to the loss of firm load on August 29, 2007, and whether the proposed penalty should be reconsidered.  Answers, interventions or comments are due 20 days from the February 26, 2010 order.

A copy of FERC’s full order can be found at www.ferc.gov under Docket No. NP10-18-000