On August 29, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order initiating review of a Notice of Penalty (“NOP”) issued by the North American Electric Reliability Corporation (“NERC”) on July 28, 2011, against Southwestern Power Administration (“SWPA”) for violating Reliability Standards Requirements for Critical Infrastructure Protection. SWPA and the United States Department of Energy (“DOE”) filed an application for review with FERC arguing that NERC lacks the statutory authority to assess monetary penalties against a federal agency, and thus the NOP against SWPA must be dismissed.
In 2009 and again in 2010, the U.S. Army Corps of Engineers questioned NERC’s ability to assess penalties against federal agencies. In each of those cases, however, the reliability standard violation penalty was zero dollars. In the instant case of SWPA, the penalty amount is $19,500.
In their application for review, SWPA and the DOE argued that the plain language of the Federal Power Act (“FPA”), and section 316A “expressly limits” application of civil penalties to “persons,” a term that excludes the federal government. SWPA and DOE further argued that section 215(e) of the FPA does not create independent penalty authority, as NERC argued in its July 28, 2011 NOP. SWPA and DOE went on to argue that even if the Commission finds that the FPA is ambiguous, the doctrine of sovereign immunity prevents the expansion of the FPA’s penalty authority beyond the plain language of the statute.
Additionally, SWPA and DOE argued that the Commission should decline to impose monetary penalties against a federal agency as a matter of policy, even if it has the authority to do so. NERC argued in its NOP that if federal entities are excluded from the enforcement regime and do not face the threat of monetary penalties, there is “increased risk to the reliability of the bulk power system and potential for an incident caused by an agency of the United States.” NERC found this reliability risk to be inconsistent with the legislative history of section 215 of the FPA.
The Commission will review the NOP and the proposed penalty is stayed pending the conclusion of the Commission’s review.
A copy of the NOP is available here.
A copy of SWPA and DOE’s application for review is available here.
A copy of FERC’s order initiating review is available here.