Reliability Compliance Programs Roger Morie Reliability Enforcement Counsel FERC APPA National Conference Salt Lake City, UT June 17, 2009

2 Disclaimer This presentation reflects my views and does not bind the Federal Energy Regulatory Commission.

3 Fundamental Points FPA Section 215(e)(6) -Penalties: relate to seriousness of violation and efforts to remedy Revised FERC Policy Statement on Enforcement (2008) -In determining penalty, FERC assesses “Commitment to Compliance” (P 57-59) FERC Policy Statement on Compliance (2008) -Central Goal: Achieving compliance, not assessing penalties (P 1) -FERC expects strong internal compliance programs (P 10) -Internal programs should differ based on conduct regulated (P 9)

4 Fundamental Points II How does FERC’s focus on compliance programs relate to Reliability Standards? -FERC may assess compliance with Reliability Standards and take enforcement action against violations -In evaluating Notices of Penalty, FERC observes that actions to minimize future violations improve reliability and strengthen an entity’s compliance program and compliance culture (July 3 Order, 124 FERC ¶ 61,015 at P 16 (2008)) -FERC suggests that Regional Entity/NERC compliance audits assess a registered entity’s Reliability Standards compliance program and get information on factors discussed in the Policy Statement on Compliance (Guidance Order on Compliance Audits, 126 FERC ¶ 61,038 at P 12 (2009))

5 Fundamental Points III Guides for Appropriate Compliance Programs from the Policy Statement on Compliance: -Use internal resources, outside assistance or both -Entities can best determine for themselves (P 10) -No set $ amount, no need for outside help -Smaller entities have more limited resources (P 11) -A proactive approach is beneficial (P 12)

6 FERC’s Chairman [Then-Acting] Chairman Wellinghoff: -“I would like to note my belief that the central objective of the Commission’s enforcement program is compliance.” (Skadden’s Annual Enforcement and Compliance Seminar, Feb. 3, 2009) Four Factors of Vigorous and Effective Compliance Programs: -active engagement and leadership by senior management; -preventive measures appropriate to the circumstances of the company that are effective in practice; -prompt detection of problems, cessation of misconduct, and reporting of a violation; and -remediation of the misconduct. There is no standard formula for an effective compliance program.

7 Penalty Levels Policy Statement on Compliance (P 25): “Where a violation is not serious, that is, the violation does not involve significant harm, risk of significant harm, or damage to the integrity of the Commission’s regulatory program, and all four elements of vigorous compliance are present, the Commission may reduce the level of civil penalty that otherwise would be imposed to zero.”

8 Questions?