Washington Energy Report > Troutman Sanders LLP

NERC Contests FERC Audit Report, Files for Rehearing

On May 15, 2012, the North American Electric Reliability Corporation (“NERC”) filed a request for rehearing of a May 4, 2012 letter order issued by the Director of FERC’s Office of Enforcement accepting a contested audit report critical of NERC (“May 4 Letter Order”).  NERC noted that the FERC audit report contained “so many errors that it is difficult to understand the Office of Enforcement’s position on a wide range of matters.”

In the alternative, NERC offered a set of “procedures” that FERC adopt to allow NERC and other interested parties to contest, or otherwise comment on the conclusions of the FERC audit. 

The May 4 Letter Order accepted an audit report critical of NERC, prepared by FERC’s Office of Enforcement (see May 8, 2012 edition of the WER).  NERC’s request for rehearing argued that the Director of FERC’s Office of Enforcement lacked the requisite delegated authority to accept the audit report on behalf of the Commission.  NERC also objected to what it perceived as the Office of Enforcement’s unwillingness to work with NERC towards an uncontested audit. 

NERC first argued that the Director of the Office of Enforcement lacked the delegated authority required to finalize and accept the contested audit report.  NERC argued that the Director’s delegated authority under FERC’s regulations is limited to contested audits “that concern public utilities and hydro licensees under Parts I and II of the FPA.”  NERC argued that this delegated authority does not extend to FERC’s jurisdiction over NERC as the Electric Reliability Organization (“ERO”), nor to audits of the ERO under section 215 of the FPA. 

NERC argued that even if the Director had the requisite delegated authority, he erred in “selectively adopting and rejecting elements of a comprehensive proposal” to address deficiencies identified in the audit.  NERC argued that it had proposed to negotiate in “good faith” with the Office of Enforcement to work towards an uncontested audit on all issues.  NERC compared this proposal to a settlement offer, which cannot be “accepted and rejected in part.”  Further, NERC argued that the Office of Enforcement did not provide NERC an opportunity to review revised recommendations, in contrast to the “normal approach” taken in FERC audits. 

Along with its rehearing request, NERC submitted a “Statement on Procedures” pursuant to which all audit report recommendations would be treated as contested and subject to comments by NERC and other interested parties. Specifically, NERC proposed that:

  • Within thirty (30) days of a Commission order adopting the procedures, NERC would submit a brief that addresses all 42 recommendations in the Final Audit Report on a comprehensive basis and provides support for any proposed modifications to those recommendations;
  • Within thirty (30) days of the filing of NERC’s brief, all interested parties (including the Office of Enforcement if it so chooses) would have the opportunity to file brief responding to NERC’s filing;
  • Within twenty (20) days of the submission of such responsive briefs, NERC would have the opportunity to submit a reply brief;
  • The Commission would then, based on the record thereby compiled, issue an order resolving all issues on a coordinated and comprehensive basis; and
  • Within sixty (60) days thereafter, NERC would submit a compliance filing to the Commission that would be subject to notice and comment by interested parties.

NERC asked that the Commission grant rehearing, or in the alternative, adopt the Statement on Procedures and dismiss the request for rehearing as moot.

A copy of the request for rehearing is available here.  A copy of the Statement on Procedures is available here.