Via Email October 28, 2011
To: Registered Entities
British Columbia MRS Program
Re: British Columbia’s Mandatory Reliability Standards (MRS)
Determination of Reference Amount for a Confirmed Violation of MRS
In this letter, the British Columbia Utilities Commission (Commission) proposes a Procedure for determining a Reference Amount as a measure of the seriousness of a Confirmed Violation of a Mandatory Reliability Standard, and requests comments on the Procedure.
Background
Policy Action 14 of the 2007 British Columbia Energy Plan states: “Ensure that the province remains consistent with North American transmission reliability standards.” The Energy Plan also states that the Commission will determine, set and enforce reliability standards in the province.
In 2008, the Utilities Commission Act (Act) was amended by the addition of section 125.2, which gives the Commission jurisdiction to determine whether a reliability standard should be adopted in British Columbia. Further, it authorizes the Commission to make orders for the administration of adopted reliability standards.
Ministerial Order M 039 dated February 22, 2009 (MRS Regulation) identifies the entities to which reliability standards adopted under section 125.2 of the Act apply (Applicable Entities).
Commission Orders G-67-09, G-167-10, G-162-11 and G-175-11 adopted a number of reliability standards for application in British Columbia. Order G-123-09 approved the Rules of Procedure for MRS, including the Registration Manual and the Compliance Monitoring Program (CMP). That Order also appointed the Western Electricity Coordinating Council (WECC) as Administrator for registration and compliance monitoring with respect to MRS.
Current status of MRS Program
The initial registration of Applicable Entities in British Columbia is approaching completion, and compliance monitoring is well underway. Compliance is monitored from the later of November 1, 2010 or the date an Applicable Entity’s operations connected with the bulk power system, regardless of registration date. Under the CMP, a possible violation of adopted reliability standards may be identified by the Applicable Entity, or by the Administrator through an audit or some other process.
After a review of the matter, the Administrator may provide a Notice of Alleged Violation (NOAV) to the Applicable Entity and the Commission. The NOAV will include information which informs the alleged violator of the potential penalty amount that the Administrator believes may be appropriate for a Confirmed Violation if one applied North American Electric Reliability Corporation (NERC) Sanction Guidelines to the factual pattern described in the Alleged Violation against an entity under NERC jurisdiction and within the Western Interconnect. The information on the potential penalty amount is not a matter that is considered during the violation phase process to consider the confirmation of an Alleged Violation.
The Applicable Entity has 30 days to respond to a NOAV. If the Alleged Violation is contested, the Commission will hold a hearing.
If the Commission makes a Confirmed Violation finding, the Applicable Entity must prepare a Mitigation Plan to correct the violation or provide a description of how the violation has been mitigated, if the Applicable Entity has not already done so. The CMP also provides that the Commission may issue a Remedial Action Directive to protect the reliability of the bulk power system.
Enforcement of MRS
The Compliance Monitoring Program is based on mandatory rather than voluntary compliance with adopted reliability standards. Enforcement of compliance may ultimately require the levying of appropriate penalties, in the form of fines and other sanctions, for violations of adopted reliability standards. At this time, the Commission does not have authority to levy administrative penalties. If circumstances warrant, the Commission can bring a MRS violation before the courts, and seek to have an Applicable Entity convicted of an offence under the Act.
Notwithstanding its lack of authority to levy administrative penalties, the Commission believes that it is worthwhile to establish a Procedure for determining a Reference Amount as a measure of the seriousness of a Confirmed Violation. This will provide useful feedback to the Applicable Entity and to other interested persons about the seriousness of the violation, and will enable the Commission to establish a more informative “track record” for Applicable Entities with Confirmed Violations. The Commission recognizes, of course, that in the event future legislation provides it with the authority to levy administrative penalties, changes to this Procedure may be required.
Reference Amount of a Confirmed Violation, and ADMINISTRATOR Reference amount
In developing the Procedure, the Commission has been guided by the Energy Policy requirement for consistency with North American transmission reliability standards as reflected in the wording of section 125.2(6) of the Act. In the Commission’s view, this consistency also suggests comparable assessment of the level of seriousness of threats to the reliability of the bulk power system caused by Confirmed Violations to those arising from violations having similar factual patterns in other jurisdictions in North America that have adopted reliability standards. For this reason, the Commission has relied upon the established procedures and practices of the NERC, WECC and the United States Federal Energy Regulatory Commission (FERC) when preparing the draft Procedure attached as Attachment 1 to this letter.
In part to provide comparability with other jurisdictions, the Commission proposes to express the Reference Amount for a Confirmed Violation in terms of dollars. This will permit an assessment of the seriousness of the Confirmed Violation relative to sanctions that have been levied against entities that are under NERC jurisdiction, where the maximum penalty currently is $1,000,000. Alternatives would be to assess seriousness using descriptive words or a scale of zero to 10, but the Commission believes that these options will not provide adequate precision, granularity or comparability.
Therefore, the Commission proposes that, after the Commission makes a Confirmed Violation finding, the Administrator will review the potential penalty amount identified in the NOAV and assess the Administrator Reference Amount as the penalty amount that may be appropriate if one applied NERC Sanction Guidelines to the factual pattern upon which the Confirmed Violation is based, against an entity under NERC jurisdiction and within the Western Interconnect. The Administrator will determine the Violation Risk Factor (VRF) and the Violation Severity Level (VSL) according to the NERC matrices applicable at the time of the NOAV. The Administrator will then determine the initial value range of the base penalty amount from the table in Appendix A of the NERC Sanction Guidelines. After considering any other relevant factors discussed in the NERC Sanction Guidelines, the Administrator will assess the Administrator Reference Amount and report it to both the Applicable Entity and the Commission in a Notice of Administrator Reference Amount, within 30 days after the Commission makes the Confirmed Violation finding. The NERC Sanction Guidelines dated January 1, 2011 are Attachment 2 to this letter. The two NERC matrices are available at VRF Matrix and VSL Matrix, respectively.
PROCESS TO Determine REference Amount of a Confirmed Violation
The Applicable Entity will have 30 days to accept the Administrator Reference Amount or to propose and provide information supporting an alternative reference amount (Alternative Reference Amount), as a measure of the seriousness of a Confirmed Violation compared to the penalty amount in similar circumstances for an entity under NERC jurisdiction. If the Applicable Entity does not propose an Alternative Reference Amount, the Commission may accept the Administrator Reference Amount as the Reference Amount for the Confirmed Violation.
If the Applicable Entity proposes an Alternative Reference Amount, and unless the Commission by order directs otherwise, the next step will be for Commission staff and the Applicable Entity to meet in a dispute resolution process (DRP) for the purpose of reaching agreement on a reference amount for the Confirmed Violation (Agreed Reference Amount). Within 14 days of an Applicable Entity filing an Alternative Reference Amount, Commission staff will send an initial letter to the Applicable Entity proposing a date for the first DRP meeting that is within 14 days of the date of the letter. The parties will be expected to use reasonable efforts to agree upon mutually convenient and timely DRP meeting dates.
Subject to any Commission order extending the time, within 40 days of the date of the initial letter, Commission staff will advise the Commission whether it and the Applicable Entity have reached agreement on an Agreed Reference Amount. If the Applicable Entity and Commission staff agree to an Agreed Reference Amount, the parties to the DRP will sign a Memorandum of Agreement that Commission staff will submit to the Commission in support of a proposal that the Agreed Reference Amount be determined as the Reference Amount for the Confirmed Violation. The Commission may accept or reject the Agreed Reference Amount as the Reference Amount.
If Commission staff and the Applicable Entity are unable to reach agreement on an Agreed Reference Amount or the Commission rejects the Agreed Reference Amount as the Reference Amount, the Commission will hold a hearing to determine the appropriate Reference Amount to be applied to the Confirmed Violation. It is expected that, considering the technical and limited nature of the matter, in the normal course the hearing will be a written hearing. The Commission will make its determination of the Reference Amount based on the
factual pattern upon which the Confirmed Violation is based and any evidence and submissions it receives as to Reference Amount. In making its determination, the Commission may consider the Administrator Reference Amount, any Alternative Reference Amount, and the information provided to support those or any other amounts.
The DRP discussions and information submitted at them will be private, confidential and without prejudice. If the Commission rejects an Agreed Reference Amount, the Commission will consider the Memorandum of Agreement and the Agreed Reference Amount to have been made and agreed to on a without prejudice basis. WECC staff will provide technical assistance to Commission staff during the DRP. The Commission staff Lead Spokesperson will have no interaction with Commissioners on the matter from the time that the DRP starts until the Commission determines the Reference Amount for the Confirmed Violation.
The Commission intends to determine the Reference Amount of each Confirmed Violation by order, and to post all such determinations on its MRS web site. The record of Confirmed Violations and Reference Amounts for an Applicable Entity may be a factor that that the Commission considers in setting a penalty amount for a future violation in the event the Commission receives authority to levy administrative penalties.
Comments on Procedure for Reference Amounts of Confirmed Violations
Parties who wish to comment on the attached draft Procedure should do so in writing by Thursday, November 24, 2011. The Commission will post all submissions on its website under Reconsiderations and Other Processes. Parties who wish to reply to the comments of others will do so by Monday, December 12, 2011. After considering the comments it receives, the Commission intends to issue the Procedure as an amendment to the Compliance Monitoring Program.
Questions in this matter should be directed to Mr. Bob Rerie, MRS Coordinator at (250) 296-3402.
Yours truly,
Alanna Gillis
JBW/dg
Enclosures
cc: Western Electricity Coordinating Council
Ms. Constance White, Vice President of Compliance
Ministry of Energy and Mines
Ms. Jennifer Champion
(Jennifer.Champion@gov.bc.ca)
DRAFT Revision to CMP
New CMP sub-section 4.1.3
4.1.3 Potential Penalty Amount:
A Notice of Alleged Violation will contain information that informs the alleged violator of the potential penalty amount that the Administrator believes may be appropriate for a Confirmed Violation if one applied North American Electric Reliability Corporation (NERC) Sanction Guidelines to the factual pattern described in the Notice of Alleged Violation against an entity under NERC jurisdiction and within the Western Interconnect.
New CMP section 7
7. REFERENCE AMOUNT OF CONFIRMED VIOLATION
7.1 Assessment of Administrator Reference Amount
For each Confirmed Violation, the Administrator will provide the Applicable Entity and the Commission with its assessment of the Administrator Reference Amount as the penalty amount that the Administrator believes may be appropriate for the Confirmed Violation if one applied the NERC Sanction Guidelines to the factual pattern upon which the Confirmed Violation is based, against an entity subject to NERC jurisdiction and within the Western Interconnect. The assessment will address the Violation Risk Factor and Violation Severity Level, the reliability impact, identify the corresponding range of the base penalty amount, and discuss the factors considered to determine the indicated Administrator Reference Amount.
The Administrator will provide its assessment of the Administrator Reference Amount in a Notice of Administrator Reference Amount within thirty (30) days after the Commission determines a Confirmed Violation.
7.2. Administrator Reference Amount as an Indicator of Relative Seriousness
Subject to Section 7.3, the Administrator Reference Amount will be interpreted as a measure of the seriousness of a Confirmed Violation using a penalty amount which could be assessed for a comparable violation at that time under NERC Sanction Guidelines.
For consistency and convenience, the Commission will use the same relative measure when it determines the Reference Amount of a Confirmed Violation, and will express Reference Amount in dollars.
7.3. Applicable Entity Response
7.3.1 Time for Response:
The Applicable Entity has thirty (30) days after the date of the Notice of Administrator Reference Amount to respond to the Administrator’s assessment of a Administrator Reference Amount by exercising one of the options provided in section 7.3.2. Responses will be submitted to the Commission and the Administrator. If the Applicable Entity fails to respond within thirty (30) days, the Commission may consider the Reference Amount of the Confirmed Violation in the absence of a response from the Applicable Entity.
7.3.2 Applicable Entity Options for Response:
The Applicable Entity has two options in responding to a Notice of Administrator Reference Amount from the Administrator:
1. The Applicable Entity may agree with the Administrator’s assessment of the Administrator Reference Amount as the Reference Amount for the Confirmed Violation; or
2. The Applicable Entity may provide its alternative assessment of a penalty amount as the Reference Amount for the Confirmed Violation (Alternative Reference Amount), provide an explanation of its position, and include any supporting information.
7.3.3 Dispute Resolution Process:
Where an Applicable Entity has provided an Alternative Reference Amount and unless the Commission by order directs otherwise, a dispute resolution process (DRP) will take place between the Applicable Entity and Commission staff for the purpose of reaching an agreement on the Reference Amount for the Confirmed Violation (Agreed Reference Amount). Within fourteen (14) days of an Applicable Entity filing an Alternate Reference Amount, Commission staff will send an initial letter to the Applicable Entity proposing a date for the first DRP meeting to take place within fourteen (14) days of the date of the letter. The parties are expected to use reasonable efforts to agree upon mutually convenient and timely meeting dates.
Subject to a Commission order extending the time, within forty (40) days of the initial Commission staff letter, Commission staff will advise the Commission whether it and the Applicable Entity have reached agreement on an Agreed Reference Amount. If the parties reach agreement, the Agreed Reference Amount will be set out in a Memorandum of Agreement that Commission staff on behalf of the parties will submit to the Commission in support of a proposal that the Agreed Reference Amount be determined as the Reference Amount for the Confirmed Violation. The Commission can accept or reject the Agreed Reference Amount as the Reference Amount.
7.3.4 Hearing:
If the Applicable Entity provides an Alternative Reference Amount and does not reach an agreement with Commission staff on an Agreed Reference Amount or the Applicable Entity reaches an agreement with Commission staff but the Commission rejects the Agreed Reference Amount, the Commission will hold a hearing to determine the Reference Amount for the Confirmed Violation.
7.3.5 Posting of Commission Determinations:
All Commission Confirmed Violation Orders and Orders determining Reference Amount will be posted on the Commission’s web site.
7.3.6 Use of Reference Amount in Future Commission Proceedings:
The Commission may consider an Applicable Entity’s record of Confirmed Violations and its determinations of Reference Amounts for the Confirmed Violations as a factor in setting a penalty amount for a future violation in the event the Commission receives authority to levy administrative penalties.
Additional Definitions:
Agreed Reference Amount: An amount agreed to between the Applicable Entity and Commission staff in the place of the Administrator Reference Amount and Alternative Reference Amount as a result of a dispute resolution process, as provided for in Section 7.3.3.
Alternative Reference Amount: An amount proposed by an Applicable Entity in response to a Administrator Reference Amount, as provided for in Section 7.3.2.
Notice of Administrator Reference Amount: Written Notice from the Administrator to an Applicable Entity and the Commission of the Administrator’s assessment of a Administrator Reference Amount for a Confirmed Violation as provided for in Section 7.1.
Administrator Reference Amount: The penalty amount assessed by the Administrator that may be appropriate for a Confirmed Violation, if one applied North American Electric Reliability Corporation Sanction Guidelines to the factual pattern upon which the Confirmed Violation is based, against an entity subject to NERC jurisdiction and within the Western Interconnect, as provided for in Section 7.1.
Reference Amount: The seriousness of a Confirmed Violation expressed in dollars relative to the penalty amount that could be assessed for a comparable violation at that time under North American Electric Reliability Corporation Sanction Guidelines, as provided for in Section 7.2.