On July 19, 2012, FERC upheld the North American Electric Reliability Corporation’s (“NERC”) proposed penalty against the Southwestern Power Administration (“SWPA”), an entity within the Department of Energy (“DOE”), for violating certain mandatory Reliability Standards. FERC held that section 215 of the Federal Power Act (“FPA”) authorizes NERC to assess monetary penalties against federal agencies that are users, owners, or operators of the Bulk-Power System for violating mandatory Reliability Standards. As a result, FERC allowed NERC’s $19,500 penalty assessed against SWPA to go into effect.
NERC originally issued its Notice of Penalty against SWPA for violating Reliability Standards for Critical Infrastructure Protection in July 2011. In response, SWPA and DOE filed an application for review with FERC, arguing that NERC lacked the statutory authority to assess monetary penalties against a federal agency (see September 12, 2011 edition of the WER).
In its order of this week, FERC emphasized that for purposes of section 215 of the FPA (governing reliability standards), federal agencies are subject to both FERC and NERC’s jurisdiction. As such, they must comply with the mandatory Reliability Standards. SWPA argued that, while federal agencies are required to comply with the mandatory Reliability Standards, the doctrine of sovereign immunity should protect them from monetary penalties. FERC rejected SWPA’s argument, stating that sovereign immunity is “unequivocally waived” under section 215 because the statute expressly includes federal agencies, and thus, they should be subject to the same penalties as non-governmental entities. Additionally, FERC held that section 215 explicitly grants FERC and NERC jurisdiction over federal agencies with the authority to impose penalties without exception or limitation as long as the penalty bears a reasonable relation to the seriousness of the violation.
Finally, FERC rejected SWPA’s arguments that assessing monetary penalties on federal agencies results in a waste of federal resources, stating that “any exemption of a large class of customers from the imposition of penalties for violations of a mandatory Reliability Standard would undermine NERC’s enforcement regime.”
A copy of the order is available here.