On March 18, 2010, FERC adopted a Policy Statement on Penalty Guidelines for its enforcement program (“Policy Statement”), a Notice of Proposed Rule Making (“NOPR”), and a series of orders intended to address the reliability of the bulk power system.

The Policy Statement (Docket No. PL10-4-000) seeks to address civil penalty assessment under the Commission’s enhanced penalty authority pursuant to the Energy Policy Act of 2005. The Commission reviewed its previous Policy Statements on Enforcement in order to develop an approach with the goal of creating greater fairness and proportionality to civil penalty determinations. FERC modeled its penalty guidelines on the United States Sentencing Guidelines and bases its penalty calculations on uniform factors with assigned weights. The Commission uses a five-step process to determine a final penalty range:

• Step One: Base Violation Level- there are three separate guidelines for violations of reliability standards, fraud or manipulation or misrepresentations and false statements to the Commission
• Step Two: Adjustments- applying adjustments for various items depending on the category of the violation, including risk of loss, monetary gain or loss and scope of the violation
• Step Three: Base Penalty- greater of dollar amount in a particular table corresponding to the violation level or the pecuniary gain to the organization or the pecuniary loss from the violation caused by the organization
• Step Four: Culpability Score- every organization starts with a score of five and is adjusted up or down based on different considerations, such as similar misconduct, obstruction of justice and self-reporting
• Step Five: Multiplication of Base Penalty by Minimum and Maximum Multipliers- produces the applicable penalty range.

The Commission also issued a NOPR (Docket No. RM09-18-000), proposing to direct the North American Electric Reliability Corporation (“NERC”) to update its definition of the term “bulk electric system” to include all transmission facilities with a rating of 100 kilovolts (“kV”) or above. The Commission also proposed to require NERC and Commission approval before a facility above 100 kV can be exempt from the mandatory reliability standards.

In March 2007, the Commission first approved NERC’s definition of the bulk electric system in Order No. 693. This definition provided discretion to define “bulk electric system” without any limitation and without NERC oversight. Since then, the Commission has found that the events which caused bulk electric system outages and disturbances demonstrate a need for updating and standardizing the definition of “bulk electric system” in the Commission-approved NERC Glossary in order to protect the reliability of the Bulk Power System in the United States. To eliminate inconsistencies, FERC proposed to limit Regional Reliability Entities from modifying the definition of “bulk electric system” within a region. Comments on FERC’s proposal are due 45 days after publication in the Federal Register.

The Commission also issued an order (Docket No. RR09-6-00) directing NERC to modify its Rules of Procedure with respect to developing Reliability Standards. The Commission is concerned that the voting process in the NERC rules of procedure can prevent compliance with reliability matters as directed by the Commission. Under Section 215(d)(5) of the Federal Power Act (“Federal Power Act”), NERC must comply with a Commission directive. The Commission expressed concern that the current NERC Standards of Development Process is in conflict with this statutory obligation because two-thirds of the stakeholder ballot body have to approve a new or modified Reliability Standard before it can be presented to the NERC board of trustees. The Commission directed NERC to propose notifications to the Rules of Procedure in order to be in compliance with Section 215 of the FPA. The Commission gave NERC discretion to propose the particular modifications and will issue a final order following a comment period on NERC’s proposed modifications.

Finally, the Commission issued two orders setting deadlines for compliance with certain reliability orders. In the first order (Docket No. RM06-16-09), the Commission directed NERC to comply with Order Number 693 by June 30, 2010. Order Number 693, issued on March 18, 2010, approved transmission planning reliability standards, including TPL-002-0, regarding system performance following the loss of a single bulk electric system element. The order directed NERC to clarify the “planned or controlled interruption of electric” supply where a single contingency occurs on a transmission system. This modification specifically addresses the loss of non-consequential load, including removal of any firm load. The Commission also ordered NERC to submit a modification to Table I, footnote b of TPL-002-0 in compliance with Order Number 693 by June 30, 2010. In the second order (Docket No. RM06-16-010), the Commission directed NERC to provide a modification to reliability standard BAL-003-0 by September 18, 2010. In order to comply with the Commission’s order, NERC must accomplish two items listed by the Commission: (1) determine an appropriate periodicity of frequency response surveys necessary to ensure that Requirement R2 and other requirements of the Reliability Standard are being met; and (2) define the necessary amount of frequency response needed for reliable operation for each balancing authority with methods of obtaining and measuring that the frequency response is achieved.