132 FERC ¶ 61,216 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Jon Wellinghoff, Chairman; 

 Marc Spitzer, Philip D. Moeller, 

 John R. Norris, and Cheryl A. LaFleur.: 

Enforcement of Statutes, Orders, Rules, 

 and Regulations 

Docket No. PL10-4-000 

REVISED POLICY STATEMENT ON PENALTY GUIDELINES 

(Issued September 17, 2010) 

1. The Commission issues this Revised Policy Statement on Penalty 

Guidelines to address comments we received on our Policy Statement on Penalty 

Guidelines, which we issued on March 18, 2010.1

 In addition to addressing these 

comments, the Commission describes modifications we have made to the Penalty 

Guidelines based on the comments. The Penalty Guidelines, in their modified 

form, are attached to this Revised Policy Statement.2

 Enforcement staff will hold 

a technical conference one year from the issuance of these modified Penalty 

Guidelines to discuss how they have worked and to permit comments and 

questions from the industry. 

2. The modified Penalty Guidelines will play a significant role in our 

determinations of civil penalties and will add greater fairness, consistency, and 

transparency to our enforcement program. These Penalty Guidelines continue to 

base penalties on the same factors as those present in our policy statements on 

enforcement,3

 but do so in a more focused manner by assigning specific and 

 

 

(continued...) 

1 Enforcement of Statutes, Orders, Rules, and Regulations, 130 FERC 

¶ 61,220 (2010) (Policy Statement on Penalty Guidelines). 

2

 The Penalty Guidelines will apply to any pending investigation where our 

Office of Enforcement staff (Enforcement staff or staff) and the organization have 

not yet entered into settlement negotiations. 

3 Enforcement of Statutes, Regulations and Orders, 123 FERC ¶ 61,156, at 

P 50-71 (2008) (Revised Policy Statement); Enforcement of Statutes, Orders, 
Docket No. PL10-4-000 - 2 - 

transparent weight to each factor. For example, we will continue to base penalties 

on the seriousness of the violation, measured in large part by the harm or risk of 

harm caused, an organization’s efforts to remedy the violation, as well as other 

culpability factors, such as senior-level involvement, prior history, compliance, 

self-reporting, and cooperation.4

 While these factors remain the same, 

organizations will now know with more certainty how each is applied. At the 

same time, the modified Penalty Guidelines do not restrict our discretion to make 

an individualized assessment based on the facts presented in a given case. 

3. Further, our Penalty Guidelines are still modeled on the United States 

Sentencing Guidelines (Sentencing Guidelines), though we have departed from 

certain sections of that model based on some commenters’ recommendations and 

have made some important modifications to specific sections of the Penalty 

Guidelines. 

4. The following points highlight our responses to some of the commenters’ 

recommendations: 

 We continue to believe that it is appropriate to model the Penalty 

Guidelines on the Sentencing Guidelines. 

 We clarify that the Penalty Guidelines will not affect Enforcement staff’s 

exercise of discretion to close investigations or self-reports without 

sanctions. 

 The Penalty Guidelines will apply to violations of the Reliability Standards 

only in the Commission’s Part 1b investigations and enforcement actions. 

We will not apply the Penalty Guidelines to our review of NERC’s Notices 

of Penalty. 

 We accept the commenters’ recommendation to reduce the base violation 

level for reliability violations from sixteen to six and to increase the risk of 

harm enhancements for reliability violations. 

 

Rules, and Regulations, 113 FERC ¶ 61,068, at P 17-27 (2005) (2005 Policy 

Statement). 

4 Compare Penalty Guidelines §§ 1C2.3, 2A1.1, 2B1.1 with Revised Policy 

Statement, 123 FERC ¶ 61,156 at P 54-68. 
Docket No. PL10-4-000 - 3 - 

 We accept the commenters’ suggestion that we not attempt to conduct a 

specific, individualized assessment of the value of losses of load that result 

from reliability violations. Instead, we will use the quantity of load lost, in 

MWh, as one measure of the seriousness of the violation. We recognize, 

however, that shedding load may be necessary in certain circumstances to 

comply with the Reliability Standards, and no penalty would be sought for 

an operator’s decision to shed load in such circumstances. 

 We have modified the Penalty Guidelines’ provision on compliance credit, 

section 1C2.3(f), in two respects. First, we agree to give partial 

compliance credit to organizations that have effective, yet imperfect, 

compliance programs. Second, we agree to delete the provision in the 

Penalty Guidelines that eliminates compliance credit when an 

organization’s high-level personnel, substantial authority personnel, or 

individuals with operational responsibility for compliance participated in, 

condoned, or were willfully ignorant of the violation. 

 We agree to unbundle the mitigation credits for self-reports, cooperation, 

avoidance of trial-type hearings, and acceptance of responsibility, 

recognizing that these factors carry independent value and should be 

credited accordingly. 

 We agree to include a scienter requirement with respect to 

misrepresentations and false statements under section 2C1.1 of the Penalty 

Guidelines. 

I. Background

5. On March 18, 2010, the Commission issued the Penalty Guidelines in an 

effort to provide greater fairness, transparency, and consistency in our civil 

penalty determinations. We explained that the Penalty Guidelines would provide 

more clarity and consistency by assessing civil penalties based on objective 

characteristics and a uniform set of factors weighted similarly for similar 

violations and similar violators. We emphasized further that the Penalty 

Guidelines would provide transparency by describing the factors we consider in 

our penalty determinations and the weight afforded to each factor. We also said 

that the Penalty Guidelines would provide us sufficient flexibility to depart from 

them whenever we deem appropriate. 

6. We explained that the Penalty Guidelines were based on Chapter Eight of 

the Sentencing Guidelines related to organizations (Organizational Sentencing 

Guidelines). The Sentencing Guidelines, applied for over two decades in federal 

courts, were designed to provide certainty, fairness, and transparency, and 
Docket No. PL10-4-000 - 4 - 

examine many of the same factors that the Commission has considered in 

assessing penalties, such as the harm caused by violations and an organization’s 

culpability. 

 

7. After the Commission issued the Penalty Guidelines, Enforcement staff 

held workshops in Washington, DC, Houston, and San Francisco to provide a 

forum for interested participants to ask questions on the interpretation and 

application of the Penalty Guidelines. Staff invited interested parties to attend the 

workshops and accepted questions in advance of the workshops. At each 

workshop, staff gave a demonstration on the Penalty Guidelines, including the 

mechanics of how they would work. In addition, staff addressed a broad range of 

questions from both the electric and natural gas industries. 

8. On April 15, 2010, the Commission suspended the Policy Statement on 

Penalty Guidelines and application of the Penalty Guidelines to allow sixty days 

within which comments could be submitted.5

 We believed that the public interest 

would be served by affording entities the opportunity to submit written comments 

on the Penalty Guidelines. 

9. The Commission has received forty-one sets of comments on the Penalty 

Guidelines addressing a broad range of issues, each of which we will address 

below.6

 

II. Discussion

A. Sentencing Guidelines as a Model for the Penalty Guidelines

1. Comments

10. EEI, INGAA, NERC, MISO, NorthWestern, National Grid, the Joint 

Municipals, TANC, and Turlock comment that there are fundamental distinctions 

 5 Enforcement of Statutes, Orders, Rules, and Regulations, 131 FERC 

¶ 61,040 (2010). 

6

 Many commenters endorse and support the comments of EEI and the joint 

comments of APPA, LPPC, and NRECA in addition to providing specific 

comments of their own. An appendix is attached to this Policy Statement with a 

complete list of commenters, including the abbreviations that we will use for each 

commenter throughout this Policy Statement. 
Docket No. PL10-4-000 - 5 - 

between civil and criminal law that make it inappropriate to use the Sentencing 

Guidelines as a model for our assessment of civil penalties.7

 Specifically, these 

commenters suggest that modeling the Penalty Guidelines on a criminal 

framework is wrong because, unlike in the civil and regulatory context, criminal 

cases require the government to prove, and an independent jury or judge to find, a 

defendant guilty beyond a reasonable doubt before imposing penalties on 

organizations. 

11. Some commenters also believe that the Sentencing Guidelines’ model is 

problematic because of the differences between the scienter requirements in the 

civil and criminal context. For example, EEI, APPA, ELCON, MISO, WIRAB, 

and PPC comment that using the Sentencing Guidelines as a model for the 

Commission’s assessment of penalties is inappropriate because violations in the 

civil regulatory context are often unintentional, narrowly focused errors arising 

from complex and obscure regulations, whereas the Sentencing Guidelines focus 

on intentional or reckless behavior.8

 

12. This difference in scienter requirements is of particular concern to 

commenters with respect to reliability violations, which, the commenters point 

out, can result from unintentional, inadvertent errors, including documentation 

errors. For example, EEI believes that it is inappropriate to use a criminal model 

that results in severe penalties for public welfare offenses, like violations of the 

Reliability Standards.9

 Similarly, APPA believes it is not appropriate to analogize 

“failures to achieve 100 percent compliance with the myriad, detailed (and in 

some cases unclear) mandatory reliability standards . . . to malum in se criminal 

behavior.”10 ELCON comments that “[u]nlike a civil regulatory context where 

violations generally are unintentional, narrowly focused miscues in following 

complex and sometimes obscure provisions, these considerations are not viewed 

as germane in the criminal context.”11 WIRAB asserts that few, if any, violations 

 7 See Comments of EEI at 16-17; INGAA at 1-2; NERC at 14; MISO at 3; 

NorthWestern at 1; National Grid at 4-5; the Joint Municipals at 3-4; TANC at 8; 

and Turlock. Turlock did not provide page numbers with its comments. 

8 See Comments of EEI at 16-18; APPA at 4; ELCON at 2; MISO at 6-7; 

WIRAB at 2; and PPC at 5. 

9

 Comments of EEI at 18-19. 

10 Comments of APPA at 5. 
Docket No. PL10-4-000 - 6 - 

of Reliability Standards will occur as a result of intentional, fraudulent, or criminal 

behavior and states that the Sentencing Guidelines are geared to deter that kind of 

conduct.12 

13. In addition, EEI, NERC, and ReliabilityFirst comment that the Sentencing 

Guidelines provide an inappropriate model because their use is in decline in 

federal courts.13 For example, EEI claims that the Sentencing Guidelines have 

been criticized by federal judges for their rigidity and harshness and, after the 

Supreme Court made them discretionary in United States v. Booker, 543 U.S. 220 

(2005), federal judges sharply reduced their use of them.14 Furthermore, EEI 

asserts that a 1999 Department of Justice memorandum issued by then Deputy 

Attorney General Eric Holder, known as the “Holder Memo,” encouraged 

prosecutors not to prosecute organizations that engaged in specified good 

corporate conduct.15 According to EEI, following the issuance of the Holder 

Memo, prosecutors “increasingly chose not to prosecute firms [pursuant to the 

Sentencing Guidelines] if the crime occurred notwithstanding an effective 

compliance program, or, more commonly, if the firm reported wrongdoing and/or 

cooperated.”16 NERC and ReliabilityFirst state that use of the Sentencing 

Guidelines is controversial in the criminal context and NERC comments that they 

are merely advisory.17 

14. Finally, Turlock comments that, unlike the Sentencing Guidelines, the 

Penalty Guidelines are not based on an extensive analysis of empirical evidence, 

such as years of sentencing data.18

 11 Comments of ELCON at 2-3. 

12 Comments of WIRAB at 2. 

13 See Comments of EEI at 15-16; NERC at 14; and ReliabilityFirst at 10. 

14 Comments of EEI at 15. 

15 See Comments of EEI at 16 (citing Memorandum from Eric Holder to 

Heads of Department Components and United States Attorneys, June 16, 1999 

(Holder Memo)). 

16 Id. 

17 Comments of NERC at 3; ReliabilityFirst at 10. 

18 Comments of Turlock. 
Docket No. PL10-4-000 - 7 - 

2. Commission Determination

15. Although the Commission’s guidelines approach to determine civil 

penalties is patterned after the Organizational Sentencing Guidelines, we do not 

intend to “criminalize” violations of our statutes, rules, and regulations in any 

manner. Rather, we believe “that the Sentencing Guidelines provide the best 

model to adapt to the Commission purposes because they focus on factors—such 

as the seriousness and remediation of a violation—that reflect the requirements of 

EPAct 2005 and that we believe are the centerpiece of our penalty regime.”19 The 

Commission does not agree that our use of the Sentencing Guidelines’ analytical 

structure reflects a failure to appreciate distinctions between criminal and civil 

law. There is nothing inherently “criminal” in the Sentencing Guidelines, just as 

there is nothing inherently “civil” or “regulatory” about the Penalty Guidelines. 

Neither the Sentencing Guidelines nor the Penalty Guidelines create or define 

prohibited conduct. Each is simply an analytical tool designed to provide 

objectivity, consistency, and transparency in penalty determinations. The 

prohibited conduct is supplied by statutes, rules, and regulations that exist 

independent of the guidelines. Although the Sentencing Guidelines and the 

Penalty Guidelines operate in different contexts, they share common purposes, 

including compliance and deterrence. 

16. Furthermore, using the Sentencing Guidelines as an analytical model for 

the Penalty Guidelines does not affect our consistent practice in making our 

penalty determinations by focusing on the two statutorily-mandated factors: 

“seriousness of the violation” and “efforts to remedy the violation.”20 Nor does 

our adopting these Penalty Guidelines alter the factors on which we have always 

focused in assessing a violation’s seriousness, such as pecuniary loss or gain, harm 

and risk of harm, and intent.21 Also, by using the Sentencing Guidelines as a 

model, the Penalty Guidelines consider many of the same culpability factors that 

 19 Policy Statement on Penalty Guidelines, 130 FERC ¶ 61,220 at P 26. 

20 See Revised Policy Statement, 123 FERC ¶ 61,156 at P 51 (“[W]e 

implement [our] statutory mandates . . . by taking into account numerous factors in 

determining the appropriate civil penalty for a violation, including the nature and 

seriousness of the violation and the company’s efforts to remedy it.”). 

21 Id. P 55. 
Docket No. PL10-4-000 - 8 - 

we have always considered, including prior history of violations, senior 

management involvement, compliance efforts, self-reporting, and cooperation.22 

17. Thus, we are not persuaded that modeling the Penalty Guidelines on the 

Sentencing Guidelines inappropriately inserts criminal law principles into our 

determination of civil penalties. Nor did the Commission in any way intend to 

insert such criminal law principles into our penalty regime. The Commission’s 

ability to impose significant monetary penalties under the Penalty Guidelines for 

statutory and regulatory violations that do not require proof of intent or 

recklessness is not a function of using the Sentencing Guidelines as a model for 

our Penalty Guidelines. Rather, it is a result of a Congressional determination that 

persons and organizations that violate the statutes we administer can be subjected 

to civil penalties of up to $1 million per day per violation.23

18. We are also not persuaded by a related point advanced by EEI that the 

Sentencing Guidelines are a poor model for our Penalty Guidelines because “the 

Sentencing Guidelines for Organizations were not intended, even by their drafters, 

to apply to violations of regulatory regimes of the sort enforced by the 

Commission.”24 We have found nothing in the text of the Sentencing Guidelines 

 22 See id. P 55-68. This point addresses the related concerns that the 

Sentencing Guidelines are an inappropriate model because they focus on 

intentional or reckless conduct, while some of the violations we address have no 

such requirements. We have chosen to employ the Sentencing Guidelines’ 

analytical approach, not the substantive judgments they incorporate regarding the 

appropriate penalties for the criminal behavior to which they apply. Moreover, the 

Sentencing Guidelines are not applied exclusively to intentional criminal conduct. 

See, e.g., 33 U.S.C. § 1319(c)(1) (2006) (negligent violation of Clean Water Act); 

id. § 1319(c)(6) (responsible corporate officer is subject to criminal penalties 

without proof of criminal act or personal knowledge of criminal act). 

23 In expanding the Commission’s civil penalty authority, Congress did not 

limit this authority to intentional violations. Moreover, Congress reserved 

criminal sanctions for intentional violations, see 16 U.S.C. § 825o (2006), 

confirming that unintentional violations are subject to the Commission’s civil 

penalty authority. Some of our cases involve violations that do not require proof 

of scienter, such as violations of most Reliability Standards. Others involve 

violations with a scienter requirement, such as violations of our anti-manipulation 

rules. 

24 Comments of EEI at 18. 
Docket No. PL10-4-000 - 9 - 

that supports the claim that violations of regulatory regimes were excluded from 

application of the Sentencing Guidelines.25 

19. EEI’s suggestion that use of the Sentencing Guidelines has been reduced in 

recent years is refuted by the Supreme Court’s decision in Gall v. United States,

552 U.S. 38 (2007), in which the Court, considering the proper role of the 

Sentencing Guidelines in the determination of federal sentences post-Booker,

instructed that “a district court should begin all sentencing proceedings by 

correctly calculating the applicable Guidelines range. As a matter of 

administration and to secure nationwide consistency, the Guidelines should be the 

starting point and the initial benchmark.”26 The Court also ruled that a district 

court “must make an individualized assessment based on the facts presented.”27 

 

 

(continued...) 

25 There is no exclusion of “regulatory offenses” from the plenary 

application of the Organizational Sentencing Guidelines. See U.S.S.G. § 8A1.1. 

Similarly, we find nothing to support this claim in EEI’s citation of I. Nagel & W. 

Swenson, The Federal Sentencing Guidelines for Corporations: Their 

Development, Theoretical Underpinnings, and Some Thoughts About Their 

Future, 71 Wash. U.L.Q. 205 (1993). EEI’s attempt to use the exclusion of 

environmental offenses from the fine provisions of the Organizational Sentencing 

Guidelines is equally unavailing to its argument that it is inappropriate to impose 

monetary penalties under the Penalty Guidelines on organizations that violate the 

“regulatory” statutes enforced by the Commission. Although the Sentencing 

Commission decided to exempt corporate environmental offenders from the 

Sentencing Guidelines’ fine provisions, section 8C2.10 of the Sentencing 

Guidelines instructs federal judges that they should use 18 U.S.C. §§ 3553 and 

3572 (2006) in calculating monetary penalties for such offenses. The factors 

considered in calculating fines under these provisions are the same factors the 

Commission considers in applying the Penalty Guidelines. Furthermore, we note 

that corporate offenders are subject to the other types of penalties generally 

available under the Sentencing Guidelines, irrespective of the type of offense. 

Therefore, the treatment of “regulatory” offenses under the Sentencing Guidelines 

does not persuade us that we have erred in deciding to use a guidelines model to 

determine penalties for violations of the statutes we enforce. 

26 Gall v. United States, 552 U.S. 38, 49-50 (2007) (emphasis added). 

27 Id. at 50. Furthermore, while it may have been historically true, as EEI 

claims, that many federal judges felt unduly constrained by the pre-Booker regime 

of mandatory guidelines, federal judges now regard the current discretionary use 

of guidelines—which is the model adopted by the Commission—as the one that 
Docket No. PL10-4-000 - 10 - 

Thus, the federal judiciary continues to use the Sentencing Guidelines as a first 

step in determining an appropriate penalty but departs where appropriate. 

Likewise, our decision to adopt a guidelines-based approach does not restrict the 

discretion that we have always exercised and will continue to exercise in order to 

make an individualized assessment based on the facts presented in a given case. 

The federal judiciary’s continued use of the Sentencing Guidelines confirms our 

previously expressed view that “[t]he adoption of the Penalty Guidelines promotes 

greater fairness and ensures greater proportionality . . . by more rigorously 

imposing appropriately different penalties for conduct of differing severity.”28 

20. We also reject EEI’s claim that we should not use the Sentencing 

Guidelines as a model because “federal prosecutors do not use [the Sentencing 

Guidelines] consistently because they provide such poor incentives for corporate 

compliance programs.”29 EEI’s asserted support for this position in the Holder 

Memo is unavailing. The argument fails to recognize that the Holder Memo and 

the Organizational Sentencing Guidelines address two different decisions made at 

two different stages in the enforcement process. The Holder Memo applies at the 

outset of the enforcement process and provides guidance to the Department of 

Justice (DOJ) staff in its exercise of discretion of whether to seek sanctions against 

a corporation. In contrast, the Organizational Sentencing Guidelines apply only 

after this decision to seek sanctions has been reached and provide guidance on the 

appropriate sanction for an admitted or proven violation.30 Moreover, while EEI 

 

 

(continued...) 

best achieves the goals of sentencing. See United States Sentencing Commission, 

“Results of Survey of United States District Judges, January 2010 through March 

2010,” Table 19 (seventy-five percent of judges endorsing current Sentencing 

Guidelines system). As we noted earlier, supra at P 15, the Penalty Guidelines 

and the Organizational Sentencing Guidelines share a common set of purposes, 

including achieving compliance with regulatory requirements and deterring 

violations. 

28 Policy Statement on Penalty Guidelines at P 27. 

29 Comments of EEI at 16 (quoting Jennifer Arlen, White Paper: 

Evaluation of the FERC Policy Statement on Penalty Guidelines (Arlen), at 5). 

30 Indeed, the Holder Memo itself provides the strongest refutation of EEI’s 

argument that the DOJ’s supposed dissatisfaction with the Sentencing Guidelines 

ought to make the Commission hesitant in using them as a model for the Penalty 

Guidelines. Specifically, it instructs DOJ staff that “[o]nce the decision to charge 

is made, the same rules as govern charging natural persons apply. These rules 
Docket No. PL10-4-000 - 11 - 

suggests that the DOJ policy reflected in the Holder Memo supports its position 

that the Commission should not seek penalties for the violations of employees 

from corporations that engage in “specified good corporate conduct,” we reject 

both the argument and the suggestion that the Holder Memo endorses such a 

practice.31

B. The Penalty Guidelines’ Effect on Commission and Enforcement 

Staff Discretion

1. Comments

21. EEI recommends that the preamble to the Penalty Guidelines clarify when, 

how, or by whom, the discretionary nature of the Penalty Guidelines may be 

applied.32 EEI, INGAA, and TAPS recommend that the Commission clarify that 

civil penalties will not generally be assessed for minor, inadvertent violations, 

particularly those that are self-reported.33 EEI further recommends that the 

Commission clarify that: (1) Enforcement staff has discretion to dismiss 

investigations, recommend downward departures, and settle for less than the 

Penalty Guidelines’ range; and (2) the Commission alone has the discretion to 

authorize upward departures.34 EPSA asks the Commission to clarify that civil 

penalties will be reserved for cases with material harm or risk of harm and 

intentional or willful violations.35 EEI also encourages the Commission to clarify 

that penalties will not be imposed under the Penalty Guidelines in cases where 

there is a legitimate ambiguity over what the law requires.36 On this latter point, 

 

require a faithful and honest application of the Sentencing Guidelines.” Holder 

Memo § XI, Charging a Corporation: Selecting Charges. 

31 Holder Memo § IV, “Charging a Corporation: Pervasiveness of 

Wrongdoing” (adopting Sentencing Guidelines’ definition of “pervasiveness”); 

§ VI, “Charging a Corporation: Voluntary Disclosure” (citing the Sentencing 

Guidelines’ treatment of this factor). 

32 Comments of EEI at 22. 

33 See Comments of EEI at 21-22; INGAA at 3-4; and TAPS at 28. 

34 Comments of EEI at 22. 

35 Comments of EPSA at 8. 

36 Comments of EEI at 21. 
Docket No. PL10-4-000 - 12 - 

EEI states that in Order No. 693 the Commission held that “‘if a dispute arises 

over compliance and there is a legitimate ambiguity regarding a particular fact or 

circumstance, that ambiguity can be taken into account in the exercise of the 

Commission’s enforcement discretion.’”37 

22. Similarly, TANC believes that the Commission should revise its proposed 

penalty structure such that utilities will not be exposed to penalties for every 

violation.38 Accordingly, TANC comments that the Commission’s policy should 

not expose entities to penalties for non-serious violations, especially violations 

involving Reliability Standards where the entity already has a comprehensive 

compliance program in place and appropriately rectifies the condition that gives 

rise to the violation.39 TANC believes that the Commission should decline to 

impose a penalty for “non-serious” violations if the entity adopted reasonable 

preventive measures to deter misconduct, detected and reported the violation 

promptly, and took appropriate remedial action in response to the violation.40

23. ISO/RTO Council recommends that the Commission clarify that the use of 

the Penalty Guidelines is discretionary. Specifically, ISO/RTO Council urges the 

Commission to clarify that the Commission will apply the Penalty Guidelines only 

when it determines that a penalty is appropriate and that the Commission retains 

the discretion not to impose a penalty and, hence, not apply the Penalty Guidelines 

in the first place.41 

24. NERC makes note of the Commission’s statement in the Policy Statement 

on Penalty Guidelines that we do not intend to depart from the Penalty Guidelines 

regularly but will not always adhere to a rigid application of them. NERC asks 

what criteria the Commission will consider in making such a determination and 

 37 Id. (quoting Mandatory Reliability Standards for the Bulk-Power System, 

Order No. 693, FERC Stats. & Regs. ¶ 31,242, at P 275 (2007)). 

38 Comments of TANC at 13. 

39 Id. 

40 Id. at 14-15. 

41 Comments of ISO/RTO Council at 5. 
Docket No. PL10-4-000 - 13 - 

whether the guidelines will be consistently applied if the Commission were to 

routinely depart from their application.42

25. On a related note, SMUD urges the Commission to clarify that zero or low 

dollar penalties may be appropriate in certain circumstances.43 Although staff 

explained at the April 7, 2010, workshop that the Commission will retain the 

discretion to assess zero dollar penalties in certain circumstances, SMUD states 

that the Penalty Guidelines give little guidance as to when it would be appropriate 

to exercise such discretion. Without such clarification, SMUD fears the starting 

point for negotiations of any future violations of the Reliability Standards will be 

between $8,750 and $35,000.44 

26. Similarly, Cities/M-S-R comments that the Commission should revise the 

Penalty Guidelines to include the possibility of a zero dollar penalty result.45 

Cities/M-S-R states that the Policy Statement on Penalty Guidelines indicates at 

P 32 that discretion will be applied within the range of penalties determined by the 

Penalty Guidelines, which never includes zero.46 National Grid and TANC also 

comment that a perfect score for cooperation, self-reporting, and a near perfect 

compliance plan cannot result in reduction to a zero dollar penalty.47

2. Commission Determination

27. The Commission clarifies that the Penalty Guidelines will not affect 

Enforcement staff’s exercise of discretion to close investigations or self-reports 

without sanctions. Staff will continue to close all investigations where no 

violation is found, and to close some investigations without sanctions for certain 

violations that are relatively minor in nature and that result in little or no potential 

or actual harm. Similarly, staff’s review of self-reports will continue to result in 

many instances where staff does not even open investigations, particularly for 

 42 Comments of NERC at 23. 

43 Comments of SMUD at 9. 

44 Id. at 11. 

45 Comments of Cities/M-S-R at 12. 

46 Id. 

47 Comments of National Grid at 7; TANC at 16. 
Docket No. PL10-4-000 - 14 - 

minor violations that do not cause harm and where preventive measures have been 

implemented to avoid recurrences. The Penalty Guidelines come into effect only 

after determining that a violation has been committed and that the violation 

warrants the imposition of a penalty by the Commission. 

28. We decline, however, to adopt a bright-line rule that the Penalty Guidelines 

will not apply to non-serious violations, though we will consider the nature of the 

violation in our penalty determination. For example, if an organization has a 

pattern of multiple non-serious violations, circumstances might dictate the 

application of the Penalty Guidelines. 

29. In response to EEI’s specific requests for clarification on this issue, we 

emphasize that Enforcement staff has discretion to dismiss investigations and to 

recommend both downward and upward departures from the Penalty Guidelines’ 

penalty range. We clarify that while Enforcement staff can recommend downward 

and upward departures from the Penalty Guidelines, only the Commission can 

authorize such departures. 

30. EEI also proposes that we adopt a rule that penalties not be imposed in 

cases where there is a “legitimate ambiguity over what the law requires.”48 Our 

position on this issue has not changed since Order No. 693, in which we stated, “if 

a dispute arises over compliance and there is a legitimate ambiguity regarding a 

particular fact or circumstance, that ambiguity can be taken into account in the 

exercise of the Commission’s enforcement discretion.”49

31. The Commission clarifies that zero dollar penalties are still possible under 

our guidelines-based approach. Specifically, Enforcement staff still has the 

discretion to close an investigation with no sanctions even when a violation 

occurred. In addition, Enforcement staff can recommend and the Commission can 

decide to depart from the Penalty Guidelines altogether, and such a departure 

could result in a zero dollar penalty. The Commission can also depart from the 

Penalty Guidelines in the absence of a staff recommendation or contrary to staff’s 

recommendation. 

32. Finally, in response to NERC’s request for clarification on the criteria we 

will consider in deciding whether to depart from the Penalty Guidelines, no 

 48 Comments of EEI at 21. 

49 Order No. 693, FERC Stats. & Regs. ¶ 31,242 at P 275. 
Docket No. PL10-4-000 - 15 - 

guidelines could include an exhaustive list of factors, and each decision will 

depend on the particular facts and circumstances. As we emphasize throughout 

the Revised Policy Statement, our decision to adopt a guidelines-based approach 

does not restrict the discretion that we have always exercised and will continue to 

exercise in order to make an individualized assessment based on the facts 

presented in a given case.50 Generally, we recognize that the Penalty Guidelines 

may not always account for the specific facts and circumstances of every case. 

This is an inevitable feature of a guidelines-based approach to determining 

penalties. It may be appropriate to depart from applying the Penalty Guidelines 

where they do not account for significant circumstances surrounding a violation, 

which is why we include the flexibility to depart as necessary. When the 

Commission determines that it is appropriate to depart upward or downward from 

the Penalty Guidelines, we will set out on the record the considerations that caused 

us to conclude a departure was appropriate.51

C. Reliability-Related Issues 

1. Applicability of the Penalty Guidelines to Violations of the 

Reliability Standards

a. Comments

33. Many commenters from the electric industry argue that the Penalty 

Guidelines should not apply to violations of the Reliability Standards because 

there are already guidelines—the NERC Sanction Guidelines—that apply to 

reliability violations.52 Many of these commenters support and endorse the 

comments filed by EEI and APPA on this issue. 

 

 

(continued...) 

50 See supra P 2. 

51 See Policy Statement on Penalty Guidelines, 130 FERC ¶ 61,220 at P 65 

(“[W]e expect that all orders imposing penalties shall describe the facts that 

support the penalty amount.”). In the context of settlement discussions, staff will 

inform the subject of the investigation of any departures. 

52 See, e.g., Comments of EEI at 5-7; APPA at 7-10; BPA at 10; ELCON at 

4; FRCC at 1; MRO at 5-6; National Grid at 12-13; NERC at 8; NPCC at 7; 

NCPA at 3-4; NorthWestern at 2; PPC at 11-12; ReliabilityFirst at 12; SMUD at 

3-5; SCE at 1-2; Joint Municipals at 3-8; Cities/M-S-R at 7; TAPS at 2; TANC at 

1-2; WIRAB at 1; and Xcel at 3-5. In addition, MISO comments that the Penalty 
Docket No. PL10-4-000 - 16 - 

34. EEI states that consistency and predictability are not achieved by having 

two sets of guidelines for the same type of violations.53 Specifically, EEI 

comments that the Commission has already approved the NERC Sanction 

Guidelines and argues that consistency is not achieved by layering a different set 

of guidelines on top of NERC’s existing framework.54 EEI and other commenters 

from the electric industry believe that having two sets of potentially conflicting 

guidelines will result in confusion and inconsistency.55 For example, APPA 

believes that “instead of bringing greater consistency, FERC’s proposal of a 

completely different set of Penalty Guidelines . . . increases uncertainty by 

overlaying a second penalty regime and much higher potential penalties in 

selected cases.”56 In addition, EEI believes that it weakens NERC and the regions 

to have them calculate penalties under one process only to have the Commission 

use another method.57 

35. Similarly, PPC, EPSA, and National Grid are concerned that the Penalty 

Guidelines create confusion regarding when and how they will apply to violations 

already assessed under the NERC Sanction Guidelines.58 PPC states that because 

the Commission does not propose to eliminate the existing NERC and Regional 

Entity penalty structure, all the Penalty Guidelines would do is conflict with and 

potentially override the existing penalty structure.59 

36. As an alternative argument, EEI, NERC, and NorthWestern argue that if we 

decide to adopt the Penalty Guidelines for reliability violations, we should clarify 

that they would apply only to the Commission’s own investigations conducted 

 

Guidelines should apply only to serious reliability violations. Comments of MISO 

at 8. 

53 Comments of EEI at 5. 

54 Id. at 6. 

55 See, e.g., id. at 6-7. 

56 Comments of APPA at 8. 

57 Comments of EEI at 6. 

58 See Comments of PPC at 6; EPSA at 9; and National Grid at 12. 

59 Comments of PPC at 6. 
Docket No. PL10-4-000 - 17 - 

under Part 1b of our regulations.60 This clarification, EEI contends, will avoid 

conflict and uncertainty that would result from having NERC and the Regional 

Entities calculate penalties under one process but have the Commission review 

and potentially reverse their determinations under a different method.61 

37. Instead of applying the Penalty Guidelines to reliability violations, many 

commenters argue that the NERC Sanction Guidelines should govern enforcement 

of the Reliability Standards.62 

38. EEI states that the Commission approved the Sanction Guidelines to 

provide a predictable, uniform, and rational approach for determining penalties.63 

EEI comments that the NERC Sanction Guidelines accomplish these goals through 

a detailed set of Violation Risk Factors (VRF) and Violation Severity Levels 

(VSL), which create a base penalty range. EEI states that aggravating and 

mitigating factors are then applied to select a penalty within that range.64

39. NERC comments that its Sanction Guidelines are designed and applied to 

foster a proactive reliability risk management assessment by scaling base penalties 

to risks to the Bulk-Power System and by using technical judgment in applying 

mitigating and aggravating factors to arrive at the ultimate penalty.65 NERC states 

that the prospect of very high, rapidly escalating penalties, as set out in the Penalty 

Guidelines, will cause entities to make compliance risk management more 

important than reliability risk management when the first focus should be on 

 60 See Comments of EEI at 7; NERC at 25; and NorthWestern at 4. EPSA 

also urges the Commission to clarify that the Penalty Guidelines would apply only 

to the Commission’s own investigations conducted under Part 1b of our 

regulations. Comments of EPSA at 7-8. 

61 Comments of EEI at 6. 

62 See, e.g., Comments of EEI at 5-7; ELCON at 4; NERC at 2-3; APPA at 

7-8; MRO at 5-6; NPCC at 7; NCPA at 3-4; NorthWestern at 2; ReliabilityFirst at 

8-9; FRCC at 1; SWTDUG at 5; MISO at 7-8; TAPS at 5; WECC at 1; Hoosier at 

3-4; and Xcel at 3-5. 

63 Comments of EEI at 5-7. 

64 Id. at 5. 

65 Comments of NERC at 12. 
Docket No. PL10-4-000 - 18 - 

reliability improvement and not penalty avoidance. NERC believes that such a 

risk averse posture will ultimately lead to the detriment of the reliability of the 

Bulk-Power System.66

40. ReliabilityFirst comments that the Commission-approved NERC Sanction 

Guidelines provide an effective and transparent model to determine penalties 

because they utilize a straightforward Base Penalty Amount Table which has been 

consistently and fairly applied for almost three years.67

41. MISO further argues that the Penalty Guidelines will likely cause confusion 

because they do not expressly incorporate VRFs or VSLs, which are the most 

important factors in calculating penalties under the NERC Sanction Guidelines.68 

APPA also asserts that a dual penalty regime will substantially undermine 

NERC’s Commission-approved model for no good purpose.69

42. Finally, in arguing that the NERC Sanction Guidelines should be the single 

and sole standard for violations of the Reliability Standards, SWTDUG asserts that 

the Commission’s role should be limited to an appellate function.70 Specifically, 

SWTDUG suggests that the Commission should assume the role of an appellate 

court if we deem it necessary to review NERC’s penalty assessment on a case by 

case basis in the future “but should also make it clear that [our] review will 

constitute acceptance or in the alternative remand to NERC on a basis, with 

instructions, that sets a clear and understandable national policy.”71

b. Commission Determination

43. The Commission disagrees with the commenters’ suggestion that we not 

apply the Penalty Guidelines to violations of the Reliability Standards. The 

Commission has decided that we will apply the Penalty Guidelines in enforcing 

 66 Id. 

67 Comments of ReliabilityFirst at 8-9. 

68 Comments of MISO at 7. 

69 Comments of APPA at 9. 

70 Comments of SWTDUG at 5. 

71 Id. 
Docket No. PL10-4-000 - 19 - 

our regulations and requirements and, because enforcement of the Reliability 

Standards falls under our direct enforcement authority, we see no reason to treat 

these requirements any differently than any of the other requirements that the 

Commission administers. In EPAct 2005, Congress granted the Commission 

explicit authority to directly enforce the Reliability Standards.72 This authority is 

separate from the authority of the Electric Reliability Organization (ERO) to 

enforce the Reliability Standards and the Commission’s authority to review the 

ERO’s enforcement determinations.73 

44. We have exercised our discretion to enforce the Reliability Standards and 

will continue to do so.74 

45. The commenters’ argument about having two sets of guidelines for 

enforcement of the Reliability Standards is unrelated to our issuance of the Penalty 

Guidelines. After all, there always have been two sets of standards governing the 

enforcement of the Reliability Standards. When investigating and settling 

reliability matters prior to issuance of the Penalty Guidelines, the Commission 

applied the enforcement factors enumerated in our Revised Policy Statement to 

determine an appropriate penalty.75 Meanwhile, NERC applied the NERC 

Sanction Guidelines to its enforcement actions. Thus, the existence of two 

enforcement regimes for the Reliability Standards is not a new phenomenon 

created by the Penalty Guidelines. 

 72 See 16 U.S.C. § 824o(e)(3) (2006) (“On its own motion or upon 

complaint, the Commission may order compliance with a reliability standard and 

may impose a penalty against a user or owner or operator of the bulk-power 

system if the Commission finds, after notice and opportunity for a hearing, that the 

user or owner or operator of the bulk-power system has engaged or is about to 

engage in any acts or practices that constitute or will constitute a violation of a 

reliability standard.”). 

73 See 16 U.S.C. § 824o(e)(1)-(2). 

74 See, e.g., Florida Blackout, 129 FERC ¶ 61,016 (2009); Florida 

Blackout, 130 FERC ¶ 61,163 (2010). 

75 See, e.g., Florida Blackout, 129 FERC ¶ 61,016 (settlement with FPL); 

Florida Blackout, 130 FERC ¶ 61,163 (settlement with Florida Reliability 

Coordinating Council (FRCC)). This has also been the approach while the Penalty 

Guidelines have been suspended. 
Docket No. PL10-4-000 - 20 - 

46. The Commission is not persuaded by the commenters’ suggestion that there 

cannot continue to be two sets of guidelines for enforcement of the Reliability 

Standards. The Commission and NERC, the Commission-approved ERO, have 

complementary, but separate, authority to enforce the Reliability Standards. The 

Penalty Guidelines will apply to the Commission’s investigations conducted under 

18 C.F.R. Part 1b (2010) as well as to our enforcement actions. These are separate 

from NERC’s enforcement processes. And, as we explain more fully below, we 

will not apply the Penalty Guidelines to our review of Notices of Penalty.76 

47. NERC comments that “there are cases in which the Commission and NERC 

have concurrent [Part] 1b and compliance violation investigation proceedings,” 

and “expects that [the Commission] and NERC will jointly work to determine the 

penalty” in such proceedings.77 The Commission acknowledges that in many, if 

not all, instances where we have initiated Part 1b investigations, our staff works 

jointly with NERC staff. In such matters, the Commission will use the Penalty 

Guidelines in determining an appropriate penalty. 

48. The Commission also rejects the commenters’ suggestion that we apply the 

NERC Sanction Guidelines in our own investigations and enforcement actions 

instead of applying the Penalty Guidelines. As we explained above, EPAct 2005 

empowers the Commission to exercise direct enforcement authority over the 

Reliability Standards. We see no reason to treat these requirements any differently 

than any of the other conduct that the Commission regulates. 

49. Applying the Sanction Guidelines to the Commission’s own Part 1b 

enforcement actions would be a significant and unwarranted break from 

Commission practice. We have previously recognized that when conducting our 

own reliability enforcement actions, we would proceed with a penalty calculation 

that would rely on our own policy statements on enforcement.78 Perhaps more 

 

 

(continued...) 

76 See infra section II.C.2.b. 

77 Comments of NERC at 10. 

78 North American Electric Reliability Corporation, 118 FERC ¶ 61,030, at 

P 93 (2007) (“In any event, if NERC does not submit Violation Risk Factors and 

Violation Severity Levels in sufficient time for their use when NERC’s 

enforcement program is to become effective in June 2007, we reserve the ability to 

take appropriate action to ensure that the penalty-setting process described in the 

Sanction Guidelines is operative. Alternatively, the Commission is prepared to 

assess monetary penalties for violations of Reliability Standards itself, pursuant to 
Docket No. PL10-4-000 - 21 - 

significantly, when we have actually sought civil penalties under our own 

authority in the past, we have not been bound by the Sanction Guidelines. We 

have not operated under the Sanction Guidelines, even when NERC participated in 

the enforcement action.79 The Commission, for example, instituted an 

investigation using its own authority into the events surrounding the 2008 Florida 

Blackout and entered into two settlements as part of the investigation, one with 

FPL and the other with the FRCC.80 Neither settlement order cited the NERC 

Sanction Guidelines as the basis for setting the penalty amount, though both of 

these investigations were conducted jointly with NERC. NERC was a signatory to 

both settlements and received a portion of the penalty dollars equal to the amount 

paid to the United States Treasury. The commenters have not provided a good 

justification for changing this approach. 

50. Finally, the Commission rejects SWTDUG’s suggestion that we limit our 

enforcement of the Reliability Standards to an appellate function. This suggestion 

ignores the statutory framework under which we operate. As we have stated, 

Congress granted the Commission explicit authority to enforce the Reliability 

Standards, and we have exercised this authority for serious violations of these 

standards. We also have authority to review NERC’s and the Regional Entities’ 

penalty determinations. We will continue to exercise both of these statutory 

functions, although, as explained below, when reviewing Notices of Penalty we 

will not apply the Penalty Guidelines. 

2. Penalty Guidelines’ Applicability to Notices of Penalty

a. Comments

51. EEI, MRO, EPSA, and PNGC recommend that the Commission specify 

that the Penalty Guidelines will not be used to evaluate Notice of Penalties.81 

NPCC further recommends that the Commission continue to utilize the NERC 

 

the Policy Statement on Enforcement, if NERC and the Regional Entities are 

unable to do so.”). 

79 Id. 

80 See Florida Blackout, 129 FERC ¶ 61,016; Florida Blackout, 130 FERC 

¶ 61,163. 

81 See Comments of EEI at 6; MRO at 6; EPSA at 11; and PNGC at 6. 
Docket No. PL10-4-000 - 22 - 

Sanction Guidelines and corresponding Commission case law when reviewing 

Notices of Penalty.82 

52. TANC, NERC, APPA, ISO/RTO Council, BPA, Joint Municipals, 

ReliabilityFirst, and Turlock state that, although the Commission has stated that 

the Penalty Guidelines will generally not apply during the Commission’s review 

of Notices of Penalty, the Commission also said that we may consider the results 

of applying the Penalty Guidelines for “out-of-ordinary” Notices of Penalty that 

describe “serious” violations.83 These commenters believe that both “out-ofordinary” and “serious,” as used in the Penalty Guidelines, are vague and 

ambiguous terms. They state that these terms are not defined and it is not clear 

when and how they will be applied. These commenters assert that this lack of 

clarity will create confusion and inefficiencies. They claim that vagueness will 

create confusion at the regional level regarding whether the NERC Sanction 

Guidelines or the Penalty Guidelines must be consulted or govern a particular 

determination, and confusion, in turn, will result in inefficiencies. ISO/RTO 

Council further recommends that the Commission provide examples of “out-ofordinary” circumstances when we might apply the Penalty Guidelines when 

reviewing Notices of Penalty.84

53. Moreover, APPA interprets P 64 of the Policy Statement on Penalty 

Guidelines to mean that if the Commission thinks a penalty NERC has levied for a 

serious violation is “too low” as compared to the penalty the Commission itself 

would levy, it will review that penalty.85 APPA states that P 64 of the Policy 

Statement, taken together with the Commission’s action to review the penalty 

levied against Turlock in Docket No. NP10-18-000 (Turlock Notice of Penalty) 

indicates that the Commission is reserving the right to second guess penalties 

NERC assesses under its own guidelines in all “serious” cases.86

 82 Comments of NPCC at 5. 

83 See, e.g., Comments of TANC at 18; NERC at 10; APPA at 8; ISO/RTO 

Council at 7; BPA at 6; Joint Municipals at 11; ReliabilityFirst at 4; and Turlock. 

84 Comments of ISO/RTO Council at 7. 

85 Comments of APPA at 8. 

86 Id. 
Docket No. PL10-4-000 - 23 - 

54. WIRAB believes that use of the Penalty Guidelines could complicate and 

confuse the existing standards enforcement regime because the Policy Statement 

on Penalty Guidelines states that the Commission would apply its guidelines in 

“out-of-ordinary” cases, essentially adding a new and different enforcement 

regime to that applicable in “ordinary” cases.87 WIRAB presumes that NERC 

enforcement actions comprise the universe of “ordinary” cases, but states that it is 

unclear whether a Commission review of a Notice of Penalty would make a case 

“out-of-ordinary,” or whether a case would become “out-of-ordinary” only if the 

Commission initiated the investigation.88

55. APPA states that it takes no comfort in the fact that the Turlock Notice Of 

Penalty is the only Notice of Penalty the Commission has chosen to review thus 

far.89 It believes that the Commission’s decision to review the penalty that the 

Regional Entity and NERC assessed in the Turlock Notice of Penalty is both 

inappropriate and unwarranted, and only heightens the commenters’ concerns 

about the Penalty Guidelines’ applicability. In light of the Commission’s review 

of the Turlock Notice of Penalty, APPA believes that “no user, owner, or 

operator” of the Bulk-Power System is safe from arbitrary and capricious reviews 

of NERC-assessed penalties.90

b. Commission Determination

56. The Commission agrees not to apply the Penalty Guidelines in our review 

of Notices of Penalty. In the Policy Statement on Penalty Guidelines we stated 

that we may consider the results of applying the Penalty Guidelines for out-of-theordinary Notices of Penalty that describe serious violations.91 The Commission 

now believes, however, that our use of the Penalty Guidelines should be reserved 

solely for our own Part 1b investigations and enforcement actions and not for our 

 87 Comments of WIRAB at 3. 

88 Id. 

89 Comments of APPA at 17-18. 

90 Id. at 18. The Commission views APPA’s specific comments on the 

merits of the Turlock Notice of Penalty as beyond the scope of the Penalty 

Guidelines. This is not the proper proceeding to discuss the merits of individual 

Notices of Penalty. 

91 Policy Statement on Penalty Guidelines, 130 FERC ¶ 61,220 at P 64. 
Docket No. PL10-4-000 - 24 - 

review of NERC’s Notices of Penalty. This will ensure consistent and predictable 

review of Notices of Penalty. 

57. The Commission will continue to consider the same substantive factors that 

we have always considered in determining whether to review a Notice of Penalty, 

including the seriousness of the violation, as measured by the VRF and the VSL, 

as well as the potential risk to the reliability of the Bulk-Power System and any 

actual harm that resulted. We will also consider the need to ensure consistency of 

penalties and the need to improve compliance with the Reliability Standards.92

3. Base Violation Level for Violations of Reliability 

Standards

a. Comments

58. Many commenters from the electric industry believe that a base violation 

level of sixteen for a violation of the Reliability Standards is too high and that the 

Commission has failed to explain and justify why the base violation level for a 

reliability violation should be set at sixteen.93 These commenters suggest that this 

base violation level is unjustified, particularly when compared to the base 

violation level of six for market manipulation, fraud, anti-competitive conduct, 

and other rule, tariff, and order violations. The commenters argue that violations 

of the Reliability Standards often involve documentation errors, negligence, and 

mistake, which are less culpable than the scienter required for market 

manipulation and fraud. 

59. EEI believes that there is no basis to treat reliability violations with a 

sixteen base violation level, stating that such level is used for serious crimes under 

the Sentencing Guidelines.94 Similarly, Empire argues that the base violation 

 92 See Review of Notices of Penalty for Violations of Reliability Standards, 

123 FERC ¶ 61,046, P 11 (2008). 

93 See, e.g., Comments of EEI at 23-24; BPA at 7-8; NERC at 14-15; 

Empire at 1; APPA at 6-7; NPCC at 5; NCPA at 6; PNGC at 2; SMUD at 12-14; 

TAPS at 9-10; TANC at 3; and Turlock. 

94 Comments of EEI at 23. 
Docket No. PL10-4-000 - 25 - 

level for reliability violations fails to appropriately assess the severity of partic

violations.

ular 

 

95

60. EEI proposes a modification to the base violation level and reliability 

adjustments to better account for the varying types of reliability violations.96 

Specifically, EEI proposes that, in connection with a reduction of the base penalty 

to six, the enhancement for risk for violations involving a low risk of minor harm 

remain at zero, while the enhancements in cases involving either a low risk of 

substantial harm or a moderate risk of minor harm increase from +3 to +5, and that 

the enhancements for a moderate risk of substantial harm or a high risk of minor 

harm increase from +5 to +8. For cases involving either a low risk of major harm 

or a high risk of substantial harm, EEI proposes increasing the enhancement from 

+7 to +11, while in cases involving a moderate risk of major harm, EEI proposes 

increasing the enhancement from +9 to +14. EEI proposes increasing the 

enhancement from +12 to +18 in cases involving either a low risk of extreme harm 

or a high risk of major harm, while increasing the enhancement from +14 to +22 in 

cases involving a moderate risk of extreme harm. Finally, EEI proposes 

increasing the enhancement from +16 to +26 in cases involving a high risk of 

extreme harm.97

61. EEI believes this to be a better approach because a high base violation level 

of sixteen is not appropriate for non-serious reliability matters, yet the 

modification to the enhancements still allows the Commission to assess significant 

penalties for more serious cases.98 BPA similarly suggests that the Commission 

should lower the base violation level for Reliability Standard violations and 

increase the penalty level based on the type of conduct involved.99

95 Comments of Empire at 1. 

96 See Comments of EEI at 25. 

97 These modifications are summarized in chart form in EEI’s comments 

at 25. 

98 Comments of EEI at 24. 

99 Comments of BPA at 8. 
Docket No. PL10-4-000 - 26 - 

b. Commission Determination

62. We agree to reduce the base violation level for the reliability guideline from 

sixteen to six. This reduction equates the base violation level for reliability 

violations to the violation level in section 2B1.1 for violations of other 

Commission requirements. Setting the violation level at six still reflects the 

seriousness with which the Commission treats all violations of the Reliability 

Standards without differentiating them from violations of other Commission rules, 

requirements, and orders. 

63. With respect to the enhancements for risk of harm, we find merit in EEI’s 

suggestion for the relatively less serious reliability violations. Thus, we agree to 

EEI’s proposal that, in connection with a reduction of the base violation level to 

six, the enhancement for violations involving a low risk of minor harm remain at 

0, while the enhancements in cases involving either a moderate risk of minor harm 

or a low risk of substantial harm increase from +3 to +5, and that the 

enhancements for a high risk of minor harm or a moderate risk of substantial harm 

increase from +5 to +8. We accept these suggestions as appropriately balancing 

the need for an adequate deterrent for reliability violations while recognizing that 

relatively less severe violations should receive relatively smaller penalties. 

64. We do not accept EEI’s proposal on the risk of harm enhancements for the 

more serious reliability violations because we believe that more significant 

enhancements are necessary. For cases involving either a low risk of major harm 

or a high risk of substantial harm, EEI has proposed increasing the enhancement 

from +7 to +11, while in cases involving a moderate risk of major harm, EEI 

proposes increasing the enhancement from +9 to +14. Instead, we set the 

enhancement for violations involving a high risk of substantial harm or a low risk 

of major harm at +13 and the enhancement for violations involving a moderate 

risk of major harm at +18. The resulting total violation level for these violations, 

however, is lower than would be imposed under the original Penalty Guidelines. 

The total violation levels in the original Penalty Guidelines for violations falling 

within these categories were twenty-three and twenty-five. Under these revisions, 

the violation levels are reduced to nineteen and twenty-four. 

65. For the most serious violations of the Reliability Standards imposing the 

greatest risk to the system, i.e., those that threaten a high risk of major harm or 

pose any risk of extreme harm, we believe the original Penalty Guidelines reached 

an appropriate outcome. The EEI proposal would produce substantially lower 

violation levels in cases of extreme harm than those outlined in the original 

Penalty Guidelines even though the examples of “extreme harm” given in the 

Penalty Guidelines involve the type of widespread, cascading outages in the 2003 

Northeast Blackout that led to the development of mandatory Reliability Standards 
Docket No. PL10-4-000 - 27 - 

in the first place. As a result, we have increased the risk enhancement for those 

violations by ten levels to compensate for the ten-level reduction in the base 

violation level. These levels reflect the need to communicate the seriousness with 

which the Commission takes its authority to protect against major blackouts and 

other significant reliability incidents. 

66. The following table compares the base violation levels, risk of harm 

adjustments, total violation levels, and base penalties in our original Penalty 

Guidelines and the modified Penalty Guidelines: 

Risk of Harm

Base Adj. Total Base Base Adj. Total Base

Penalty Penalty

Low Risk-Minor Harm 16 0 16 $175,000 6 0 6 $5,000

Low Risk-Substantial Harm; 16 3 19 $500,000 6 5 11 $30,000

Moderate Risk-Minor Harm 16 3 19 $500,000 6 5 11 $30,000

Moderate Risk-Substantial Harm; 16 5 21 $910,000 6 8 14 $85,000

High Risk-Minor Harm 16 5 21 $910,000 6 8 14 $85,000

Low Risk-Major Harm; 16 7 23 $1,600,000 6 13 19 $500,000

High Risk-Substantial Harm 16 7 23 $1,600,000 6 13 19 $500,000

Moderate Risk-Major Harm 16 9 25 $2,800,000 6 18 24 $2,100,000

Low Risk-Extreme Harm; 16 12 28 $6,300,000 6 22 28 $6,300,000

High Risk-Major Harm 16 12 28 $6,300,000 6 22 28 $6,300,000

Moderate Risk-Extreme Harm 16 14 30 $10,500,000 6 24 30 $10,500,000

High Risk-Extreme Harm 16 16 32 $17,500,000 6 26 32 $17,500,000

Comparison of Base Violation Levels and Risk of Harm Adjustments

Original Guidelines Modified Guidelines

4. Load Loss

a. Comments

67. Many commenters from the electric industry express concern over the 

Commission’s consideration of load loss and, particularly, the value of such loss, 

in our penalty assessments.100

 

 

(continued...) 

100 See, e.g., Comments of EEI at 23; EPSA at 9; ELCON at 3-4; Empire 

at 1; ISO-NE at 3-9; APPA at 11-13; NARUC at 2; NERC at 15-20; NPCC at 6; 
Docket No. PL10-4-000 - 28 - 

68. Many of these commenters believe that factoring load loss into penalty 

determinations will have a perverse incentive on operators not to shed load when 

doing so would be necessary to maintain reliability and avoid cascading 

outages.101 For example, NERC states that it and the Regional Entities have 

worked for decades to educate utility management and system operators on the 

importance of shedding load in a timely fashion when it is necessary to protect the 

integrity of the Bulk-Power System.102 NERC and NARUC believe that the 

failure to shed load on a timely basis to protect overall system integrity was the 

root cause of the July 1977 blackout in New York City and the 2003 Northeast 

Blackout.103 NERC states further that when shedding load is required, it must be 

done without hesitation or fear of penalty or other sanction and that the existence 

of Penalty Guidelines that emphasize increased penalties for shedding load could 

have a chilling effect on system operators’ willingness to exercise their authority 

to shed load when necessary.104

69. APPA believes that in addition to creating this perverse incentive, the load 

loss factor places “inappropriate stress on transmission system operators, who 

must often make decisions whether or not to shed load in very short order. These 

are engineers and other comparable professionals doing their best to carry out a 

difficult and very technical job.”105 PPC comments that under the current penalty 

and compliance framework, member utilities are reporting that experienced 

engineers and technical staff are retiring or requesting transfers in order to avoid 

duties that involve compliance activities. PPC states that these employees fear 

that, despite their best intentions, judgment and actions, they will be held 

 

NorthWestern at 3; PNGC at 3-4; PPC at 7-8; SMUD at 7-9; SCE at 10-11; Joint 

Municipals at 8-10; TAPS at 13-17; TANC at 3-4; WIRAB at 3; and Xcel at 3-4. 

101 See, e.g., Comments of NERC at 17; ELCON at 3; APPA at 11; 

NARUC at 2; NPCC at 6; PNGC at 3; PPC at 7-8; SMUD at 7-9; Joint Municipals 

at 8-10; TAPS at 13-14; and WIRAB at 3. 

102 Comments of NERC at 17. 

103 Comments of NERC at 18; NARUC at 2. 

104 Comments of NERC at 18. 

105 Comments of APPA at 12. 
Docket No. PL10-4-000 - 29 - 

responsible for violations of Reliability Standards.106 PPC states that these 

employees play a key role in ensuring reliable system operation and 

maintenance.107 PPC believes that given the penalties that are possible under the 

Penalty Guidelines, member utilities expect to see employee reassignment 

requests, retirements, and departures from the industry to continue or accelerate.108 

NorthWestern states that system operators “should be left to manage reliability, 

not penalty risk.”109 

70. Many commenters also believe that it is inappropriate, and contrary to wellestablished law, to hold utilities liable for consequential damages that result from 

electrical outages.110 EEI, for example, claims that holding utilities liable for such 

damages “conflicts with decades of settled law and threatens to embroil the 

Commission in wasteful litigation over food spoilage claims, lost sales by 

commercial customers, etc.”111 EEI maintains that a limitation on the liability of 

public utilities for outages lowers the electric rates paid by consumers, results in 

greater fairness between customer classes, and corresponds to the highly regulated 

nature of electric utilities.112 Xcel comments that it is neither cost effective nor in 

 106 Comments of PPC at 8. See also Affidavit of Robin E. Manning on 

Behalf of EEI at 2 (asserting that the Penalty Guidelines’ consideration of load 

loss “would introduce confusion, doubt and indecision in the process of load 

shedding for reliability purposes”). 

107 Id. 

108 Id. 

109 Comments of NorthWestern at 3. 

110 See, e.g., Comments of EEI at 8-13; NorthWestern at 3; PNGC at 3-4; 

SCE at 10-11; and Xcel at 3-4. 

111 Comments of EEI at 8; see also White Paper of Richard A. Epstein in 

Support of EEI’s comments at 6-22 (asserting that state law has placed strict 

limitations on consequential damages imposed on private parties who have failed 

to comply with contractual or statutory standards and arguing that this law should 

apply in the regulatory context). 

112 Id. at 9-11. 
Docket No. PL10-4-000 - 30 - 

the best interest of customers to expose utilities to consequential damages 

associated with customer outages.113

71. Other commenters state that there are complexities and problems that arise 

from trying to value load loss and the Commission’s failure to address how it 

would analyze such value adds confusion on this issue.114 

72. SMUD, TANC, and NorthWestern argue further that factoring load loss 

into penalty determinations will have a disparate impact on certain organizations. 

SMUD, for example, believes that the load loss factor “exposes transmission 

owners with load-serving obligations to significantly greater penalties than nonload serving transmission owners.”115 TANC believes that the load loss factor 

will have a disparate impact on smaller utilities and non-profit entities, and th

customers.

eir 

 degree 

s.

 

116 NorthWestern states that rural transmission networks are 

necessarily a different design than urban networks and to achieve the same

of reliability for both types of networks would impose significant and unneeded 

costs on customer 117

73. EEI and ISO-NE recognize that load loss can still be an appropriate factor 

for the Commission to consider when assessing the seriousness of the violation, 

but object to the use of value as the measuring tool.118 For example, ISO-NE asks 

the Commission to consider whether “quantity is a better measuring stick to utilize 

in order to arrive at consistent results that better align with how power systems are 

planned and operated when considering loss of load as a penalty factor.”119 ISONE believes that the quantity of lost load is a better factor than the value of lost 

113 Comments of Xcel at 4. 

114 See, e.g., Comments of ELCON at 3-4; NCPA at 5; SCE at 10-11; and 

Joint Municipals at 8-10. 

115 Comments of SMUD at 8. 

116 Comments of TANC at 20. 

117 Comments of NorthWestern at 3. 

118 See Comments of EEI at 8; ISO-NE at 8. 

119 Comments of ISO-NE at 8. 
Docket No. PL10-4-000 - 31 - 

load because the use of value would result in different penalties for violations of 

the same standards for the same amount of load.120

74. Finally, PJM and Cities/M-S-R, while not directly rejecting the 

Commission’s consideration of load loss, seek clarification on the issue. First, 

PJM recognizes that load loss should be an element in calculating penalties that 

arise from a violation of a Reliability Standard, but it seeks clarification that “load 

shedding, which results in ‘loss of load’ is an entirely appropriate and prudent 

remedial action to take in certain circumstances to protect the larger 

interconnection as a whole.”121 Second, Cities/M-S-R requests further 

information on how the Commission plans to calculate losses o 122 f load. 

b. Commission Determination

75. We accept the suggestion that we not attempt to conduct a specific, 

individualized assessment of the value of the loss of load as a measure of the harm 

from the violation. While measuring value would allow enforcement actions to 

focus more specifically on the facts of the violation in any given case, such a 

calculation requires a substantial commitment of time and resources on behalf of 

the entity under investigation and Commission staff. Instead, we agree with the 

proposal of ISO-NE that we use the quantity of load lost as one measure of the 

seriousness of the violation. To reach this result, in the modified version of 

section 2A1.1, we included escalating penalties for increasing quantities of lost 

load in place of the valuation of lost load as a measure of harm. We believe that 

such an approach provides additional clarity and transparency to our penalty 

calculations while avoiding the potentially difficult effort to assign a value to a 

particular quantity of lost load. 

76. To the extent that commenters propose that we not consider the loss of load 

entirely in calculating a civil penalty for reliability violations, we reject that 

suggestion. The Commission has always made clear that it considers violations 

involving loss of load more seriously than similar incidents where no blackout 

 120 Id. 

121 Comments of PJM at 2. 

122 Comments of Cities/M-S-R at 10. 
Docket No. PL10-4-000 - 32 - 

occurred.123 Federal Power Act (FPA) section 215(e) requires the Commission to 

ensure that any penalty imposed for a violation of a Reliability Standard bears “a 

reasonable relation to the seriousness of the violation.” We have interpreted this 

obligation as requiring us to consider any actual harm as well as the risk to 

reliability posed by a violation of a Reliability Standard.124 The role of loss of 

load has been especially significant in the Commission’s exercise of its 

enforcement authority. As stated earlier, we instituted an investigation into the 

events surrounding the 2008 Florida Blackout based on the significance of that 

event.125 

77. We disagree with the commenters who suggest that increasing penalties 

when blackouts occur will increase the risk to the reliability of the Bulk-Power 

System. As we have emphasized previously, we recognize that “[l]oad shedding is 

not, alone, a violation, and . . . load shedding may sometimes be necessary or 

required.”126 While some commenters suggest that factoring loss of load into 

penalty determinations will have a perverse incentive on operators not to shed load 

when doing so would be necessary to comply with the Reliability Standards, we 

emphasize that we do not intend the Penalty Guidelines to have a chilling effect on 

system operators’ willingness to shed load. Indeed, load shedding is sometimes 

required by the Reliability Standards.127 Of course, neither the Commission nor 

 

 

(continued...) 

123 For example, the Commission recommended that the ERO revise its 

Rules of Procedure to state specifically that, in relation to an investigation of a 

blackout or other ongoing disturbance, the ERO will consider an enforcement 

action for any violation it finds. North American Electric Reliability Corp., 116 

FERC ¶ 61,062, at P 380 (Certification Order), order on reh’g and compliance, 

117 FERC ¶ 61,126 (2006). 

124 See Statement of Administrative Policy on Processing Reliability Notices 

of Penalty and Order Revising Statement in Order No. 672, 123 FERC ¶ 61,046, at 

P 11 (2008). 

125 2008 Florida Blackout, 122 FERC ¶ 61,244, at P 2 (2008) (“Given the 

significance of the Florida Blackout, we believe that Commission staff should 

participate in the coordinated review being conducted by NERC and the FRCC.”). 

126 North American Electric Reliability Corp., 130 FERC ¶ 61,151, at P 12 

(2010). 

127 Under the Reliability Standards, load shedding can be required as a last 

resort after all other measures have failed. See, e.g., Reliability Standards EOP-
Docket No. PL10-4-000 - 33 - 

NERC can impose a civil penalty for conduct that does not violate the standards. 

We consider loss of load only in those situations in which there is a causal 

connection between a violation of a Reliability Standard and the loss of load. 

When an operator decides to shed load because of the consequences of an 

underlying violation, we will consider whether the decision to shed load was a 

separate violation or whether the decision to shed load was required by the 

Reliability Standards to avoid cascading outages that would have a broader effect 

on system reliability. 

78. In the latter situation, an operator’s first responsibility is to comply with the 

Reliability Standards. When an underlying violation requires an operator to shed 

load pursuant to a Reliability Standard, we emphasize that the operator’s decision 

to shed load is not itself a violation and no penalty would be sought for that 

decision. In assessing the penalty for the underlying violation, where shedding 

load was necessary in order to comply with a Reliability Standard, we will not 

consider under section 2A1.1(b)(2) of the Penalty Guidelines the resulting MWh 

of load shed to comply with the Reliability Standards. We will, however, consider 

the fact that the underlying violation required load shedding in assessing the risk 

created by the underlying violation under section 2A1.1(b)(1) of the Penalty 

Guidelines. Indeed, given the statutory requirement that we consider the 

seriousness of the violation, we believe it is appropriate to consider the loss of 

load as a measure of the risk created by the underlying violation. 

79. Several commenters assume that entities will face lower penalties if they 

inappropriately fail to shed load when such conduct would reduce the risk to the 

system than if they appropriately shed load when it is necessary to do so. The 

Penalty Guidelines are specifically designed to avoid that result. To ensure that 

registered entities face appropriate incentives, we have clarified the Penalty 

Guidelines by adding language to an application note in section 2A1.1 which now 

explicitly states that entities will always face lower civil penalties in situations 

where load is shed in compliance with a Reliability Standard.128 The Commission 

will always take steps to ensure that entities are not penalized unreasonably when 

they take steps to ensure the reliability of the Bulk-Power System consistent with 

the Reliability Standards. Also, the Penalty Guidelines incent the prevention of 

 

002-2 R6-R7; EOP-003-1 R1-R2. See also Table 1, Transmission System 

Standards – Normal and Emergency Conditions, appended to Reliability Standards 

TPL-001-0 through TPL-004-0 (outlining instances that call for planned losses of 

load under Reliability Standards TPL-001-0 through TPL-004-0). 

128 See Penalty Guidelines § 2A1.1 (Application Note 4). 
Docket No. PL10-4-000 - 34 - 

cascading outages by increasing penalties in proportion to the quantity of lost 

MWh. 

5. Risk of Harm Examples

a. Comments

80. EEI recommends that the Commission delete the hypothetical “risk of 

harm” examples in the reliability section of the Penalty Guidelines.129 EEI states 

that there are no criteria for making the “risk of harm” determinations and that this 

is an example of how the Penalty Guidelines create numerical calculations that can 

offer the appearance of certainty, but often rest on subjective and unexplained 

criteria.130

b. Commission Determination

81. The Commission declines to delete the hypothetical “risk of harm” 

examples in the reliability section of the Penalty Guidelines. We offer these as 

illustrative examples of the varying levels of risk of harm that could exist as a 

result of reliability violations. The examples do not provide an exhaustive list. 

They are meant to provide some guidance to industry of the types of violations 

that might fall within each risk of harm category. 

6. Double Penalty Concerns

a. Comments

82. Hoosier urges the Commission to ensure that entities are not subjected to 

double penalties for the same violation of the Reliability Standards.131 Hoosier 

suspects that if entities are subjected to double penalties, they are likely to react by 

trying to eliminate the obligation to comply with Reliability Standards from future 

contracts, even where an express obligation to comply may be warranted. Hoosier 

argues such a development would not serve the interests of the owners, operators, 

or users of the Bulk-Power System, or of the Commission itself.132 

 129 Comments of EEI at 16. 

130 Id. at 7. 

131 Comments of Hoosier at 4. 

132 Id. 
Docket No. PL10-4-000 - 35 - 

83. FirstEnergy comments further that while section 215 of the FPA authorizes 

the Commission to modify a NERC-approved penalty, section 215 does not allow 

the Commission to impose a second, additive penalty on top of a NERC-approved 

penalty.133 Accordingly, FirstEnergy recommends that the Commission’s 

determination of civil penalties should displace, and not be additive to, any 

determination of civil penalties by NERC.134

b. Commission Determination

84. The double penalty concerns of Hoosier and FirstEnergy are entirely 

hypothetical and, as a matter of enforcement policy and discretion, we are hard 

pressed to envision a situation in which we would penalize the same conduct for 

which we had already approved a penalty imposed by NERC. 

7. Administrative and Documentation Violations of the 

Reliability Standards

a. Comments

85. SMUD comments that in the three years since the Reliability Standards 

became effective the Commission has received approximately 380 Notices of 

Penalty but not a single Notice of Penalty involving a registered entity that 

knowingly committed a violation or engaged in misconduct that ultimately led to a 

violation.135 Rather, SMUD asserts that the vast majority of violations involved 

administrative errors, documentation-related errors, or misapplication of the 

requirements of a particular standard.136 Accordingly, SMUD argues that it is 

unreasonable to apply the Penalty Guidelines to violations of the mandatory 

Reliability Standards.137 

 133 Comments of FirstEnergy. FirstEnergy did not provide page numbers 

with its comments. 

134 Id. 

135 Comments of SMUD at 3. 

136 Id. at 4. 

137 Id. at 3. 
Docket No. PL10-4-000 - 36 - 

86. MISO requests that the Commission adopt an express distinction between 

serious Reliability Standard violations and inadvertent violations, particularly 

documentation errors that do not have a serious impact on reliability.138 

Specifically, MISO requests that the Commission’s Penalty Guidelines apply only 

to violations of Reliability Standards that result from operator negligence or 

willful misconduct, and that directly threaten or otherwise adversely affect the 

reliability of the Bulk-Power System.139 

87. NorthWestern states that the base penalty for any reliability violation other 

than a documentation error under the Penalty Guidelines is punitive and 

unnecessary, and believes that the Penalty Guidelines are likely to discourage 

firms from investing in measures to detect and report wrongdoing.140 NERC also 

requests clarification on how the Commission intends to differentiate, in the base 

penalty, between documentation violations and significant, operational 

violations.141 

b. Commission Determination

88. The Commission disagrees with SMUD that it is unreasonable to apply the 

Penalty Guidelines to violations of the mandatory Reliability Standards simply 

because some of these violations may involve administrative errors, 

documentation-related errors, or misapplication of the requirements of a particular 

standard. Although we recognize that some reliability violations involve 

documentation and administrative errors, we do not intend to investigate minor 

violations of the Reliability Standards that involve little or no harm or risk of 

harm. We have not focused on such minor violations in past investigations and we 

do not intend to change course now. On the other hand, we believe that the 

Penalty Guidelines will be an effective tool in enforcing serious violations of the 

Reliability Standards that impact the reliability of the Bulk-Power System. 

89. We reiterate that we retain discretion under the Penalty Guidelines not to 

investigate and pursue penalties for every type of violation. Under the Penalty 

 138 Comments of MISO at 6. 

139 Id. at 9. 

140 Comments of NorthWestern at 3. 

141 Comments of NERC at 23. 
Docket No. PL10-4-000 - 37 - 

Guidelines, we will continue to investigate serious reliability violations, not minor 

violations involving documentation or administrative errors that do not result in 

harm or significant impact to reliability. Therefore, we find it unnecessary to 

adopt a distinction, as MISO requests, between serious Reliability Standard 

violations and inadvertent violations that do not have a serious impact on 

reliability. 

8. Other Reliability Issues

90. SCE states that reliability of the Bulk-Power System can be enhanced most 

effectively through a performance-based approach to the Reliability Standards 

rather than increasing penalty exposure.142 Therefore, SCE believes that we 

should remove the Reliability Standards from the Penalty Guidelines and instead 

take this opportunity to work with NERC and Bulk-Power System users, owners, 

and operators, to implement a more collaborative and performance-based approach 

to Reliability Standards development and compliance.143 In that regard, SCE 

states that the nuclear industry provides a useful starting point to develop a model 

of this approach based on the complementary roles of the Institute of Nuclear 

Power Operations (INPO) and the Nuclear Regulatory Commission (NRC).144

91. Although the Commission believes that INPO serves a valuable function in 

the nuclear industry, it is not an enforcement function. INPO’s mission is to 

promote the highest levels of safety and reliability, but it performs this function 

not to supplant the regulatory role of the NRC, but to provide the means whereby 

the industry itself can, acting collectively, make its nuclear operations safer. The 

NRC still uses its enforcement powers, like us, to assess penalties and undertake 

enforcement actions. Thus, while an INPO-like body could serve a valuable 

purpose in the electric industry, that purpose would not supplant, or in any way 

affect, our enforcement role. Therefore, we find SCE’s request to be outside the 

scope of this proceeding. 

92. NorthWestern states that the timing of the decision to adopt the Penalty 

Guidelines is particularly questionable because NERC is developing enhanced 

 142 Comments of SCE at 3. 

143 Id. 

144 Id. at 4. 
Docket No. PL10-4-000 - 38 - 

VRFs to account for the experience over the last two years in implementing 

section 215 of the FPA.145 

93. The Commission does not believe that NorthWestern’s comment warrants 

further delay in our issuance of the Penalty Guidelines. Once approved by the 

Commission, NERC’s development of enhanced VRFs will apply to NERC’s 

enforcement processes, while the Penalty Guidelines will apply to our 

enforcement authority. 

94. ISO/RTO Council argues that the Commission should clarify that activities 

on radial transmission facilities cannot constitute violations of Reliability 

Standards because, at present, radial facilities are excluded from NERC’s 

definition of the Bulk-Power System.146 

95. The Commission believes that ISO/RTO Council’s comment is beyond the 

scope of the Penalty Guidelines. This is not the forum to be making jurisdictional 

determinations on the applicability of the Reliability Standards. 

96. BPA thinks penalties for violations of Reliability Standards should include 

both monetary and non-monetary penalties.147 BPA states section 215 of the FPA 

does not specify that penalties assessed for violations of the Reliability Standards 

need to be only monetary in nature. BPA claims that the NERC Sanction 

Guidelines recognize non-monetary sanctions as an important and preferred 

enforcement tool because the focus is improving reliability and preventing repeat 

violations.148 In contrast, BPA states that the Penalty Guidelines do not allow for 

non-monetary sanctions. BPA states that the Commission should make the 

Penalty Guidelines less restrictive to encourage entities to take proactive steps to 

avoid violations and improve reliability.149 

 145 Comments of NorthWestern at 2. 

146 Comments of ISO/RTO Council at 4. 

147 Comments of BPA at 8. 

148 Id. 

149 Id. at 10. 
Docket No. PL10-4-000 - 39 - 

97. We clarify that the Penalty Guidelines do allow for non-monetary 

sanctions. The Commission has always had the discretion to assess non-monetary 

sanctions, instead of or in addition to monetary penalties, such as requiring entities 

to submit compliance monitoring reports and conduct audits. The Penalty 

Guidelines do not change this practice. 

98. NERC comments that there are a number of places in the Penalty 

Guidelines that rely on undefined terms, subjective criteria, and missing formulas 

to make penalty determinations. NERC argues that failure to address these could 

lead to inconsistency and confusion in the application of the Penalty Guidelines.150 

Examples suggested by NERC are as follows: 

99. First, NERC comments that in the Penalty Guidelines the term “low risk” is 

meant to apply to cases where there was a significant, albeit small, chance of 

relevant level of harm. NERC states that use of terms “significant” and “small” 

when describing the chance of relevant harm is confusing. Specifically, NERC 

asks whether “low risk” means that there is a significant chance of relevant harm, 

a small chance of relevant harm, or a small chance of a significant risk of harm. 

100. NERC’s comment refers to the Commission’s reference to “low risk” in 

Application Note 2 of section 2A1.1 related to reliability violations. As originally 

drafted, this Application Note stated that “‘low risk’ is not meant to include cases 

where there was virtually no risk of harm. It is meant to apply to cases where 

there was a significant, albeit small, chance of the relevant level of harm.” The 

Commission was not using the term “significant” in this note to refer to a 

particular degree of chance. Rather, the Commission meant that “low risk” refers 

to situations where there is a real chance of harm, albeit a small chance. To avoid 

any confusion, however, the Commission has revised this language in Application 

Note 2. The important point is that “low risk” does not include circumstances 

where there is no risk at all. 

101. Second, NERC states that the Penalty Guidelines provide no explanation 

for why the different terms “minor,” “substantial,” “major,” and “extreme” are 

needed for reliability violations. NERC also comments that the Penalty 

Guidelines do not define these four new terms and do not provide criteria to 

evaluate the risk of harm. 

 150 See Comments of NERC at 21-22. 
Docket No. PL10-4-000 - 40 - 

102. The Commission believes that these four terms help to differentiate varying 

degrees of harm that could result from reliability violations. The terms are not 

defined, but we have included illustrative examples to provide guidance on the 

types of violations that could be included in each category. Also, over time the 

Commission will apply these terms in our penalty determinations, thereby 

developing precedent, which will provide further guidance on their meaning. 

103. Third, NERC raised several concerns with the Commission’s reliability 

violation example at P 56 of the Policy Statement on Penalty Guidelines. NERC 

states that the duration date is not identified in the example and that it is not clear 

whether the proposed penalty range is a per-day penalty or a cumulative penalty or 

how the per day issues are reflected in the penalty amount. NERC asks that the 

Commission provide more information on the duration of the violation as 

compared to the duration of the outage. In addition, NERC believes the 

Commission should explain whether the loss of load figure includes direct, 

indirect, special, consequential, or any other types of losses or damages. NERC 

states that the Commission should also explain whether and how it took into 

account state and federal limitations on liability with respect to outage costs, 

including those that preclude recovery of losses for lost profit and spoiled food. 

104. The reliability example in the Policy Statement on Penalty Guidelines was 

purely hypothetical and not every fact was addressed. The purpose of the 

hypothetical was simply to illustrate how the Penalty Guidelines calculate penalty 

ranges. We recognize that the hypothetical raised concerns because it involved a 

$15 million penalty, but this figure does not have significance other than 

demonstrating the mechanics of a penalty calculation under the Penalty 

Guidelines. That said, the Penalty Guidelines treat multiple reliability violations 

that are related to the same conduct or event as a whole,151 and we would consider 

the per day duration only to ensure that the guidelines’ minimum penalty would 

not exceed the statutory maximum of $1 million per day per violation. 

105. Finally, SUB submitted several comments, which, the Commission 

believes, are outside the scope of the Penalty Guidelines.152 SUB’s comments 

generally concern changes to the Reliability Standards over time, lack of clarity of 

some Reliability Standards, the costs to organizations of responding to alleged 

violations, and consulting services offered to organizations by former regulatory 

 151 We discuss this point in further detail infra at P 182-183. 

152 These comments appear in SUB’s Comments at 5-12. 
Docket No. PL10-4-000 - 41 - 

officials. Because these comments by SUB do not address the Penalty Guidelines, 

but rather focus on enforcement practices more generally, they are beyond the 

scope of this Policy Statement. 

D. Compliance Credit 

1. Compliance as a Central Goal of the Commission

a. Comments

106. Several commenters suggest that the Penalty Guidelines should do more to 

encourage and provide credit for strong compliance. For example, EEI 

recommends that the Commission explicitly state that we and our staff will be 

guided by the principle that “achieving compliance, not assessing penalties, is the 

central goal of our enforcement efforts,” as we stated in 2008 in our Policy 

Statement on Compliance.153 INGAA urges the Commission to place more 

emphasis on compliance through incentives rather than penalties.154 Similarly, 

BPA believes that the Penalty Guidelines are premised on the idea that the threat 

of large penalties, not providing sufficient incentives to mitigate penalties, 

promotes compliance.155 INGAA also suggests that our focus should remain on 

compliance with the Commission’s requirements and should not broaden the 

concept to include an ethics program or areas unrelated to the Commission’s 

regulations and requirements.156 

107. EEI argues further that the Sentencing Guidelines do not provide a good 

model on compliance, claiming that “federal prosecutors do not use them 

consistently because they provide such poor incentives for corporate compliance 

programs.”157 EEI relies on the Holder Memo to support this position, arguing 

that the memo “encouraged prosecutors not to prosecute firms that engaged in 

specified good corporate conduct” and that “[f]ollowing the Holder Memo, 

 153 Comments of EEI at 20. 

154 Comments of INGAA at 2. 

155 Comments of BPA at 4. 

156 Comments of INGAA at 8. 

157 Comments of EEI at 16 (citing Arlen at 5). 
Docket No. PL10-4-000 - 42 - 

prosecutors increasingly chose not to prosecute firms [pursuant to the Guidelines] 

if the crime occurred notwithstanding an effective compliance program . . . .”158 

108. In addition to the comments that generally urge the Commission to focus on 

compliance, some commenters suggest that we specifically modify the Penalty 

Guidelines to give greater weight to effective compliance programs. AGA, for 

example, recommends that the Commission increase the credit for an effective 

compliance program to five points instead of the three point credit provided under 

section 1C2.3.159 AGA believes that this increased credit would better reflect the 

importance the Commission places on compliance and would provide a significant 

incentive for organizations to develop robust programs.160 Similarly, INGAA 

comments that given the Commission’s focus on compliance, organizations should 

be entitled to a larger credit.161 INGAA acknowledges that the Penalty 

Guidelines’ three point credit stems from the Sentencing Guidelines, but believes 

that no independent rationale exists for the Commission to adopt this number.162 

National Grid also comments that we should give more credit to organizations that 

strive for strong compliance.163 Finally, BPA suggests that extra compliance 

credit should be awarded to encourage organizations to adopt the best compliance 

programs rather than simply encourage them to meet the requirements listed in the 

Penalty Guidelines.164 

b. Commission Determination

109. The Commission agrees with the commenters that achieving compliance 

should remain the Commission’s main goal. Since EPAct 2005, the Commission 

has continually placed a heavy emphasis on promoting industry-wide 

 158 Id. (quoting Arlen at 5). 

159 Comments of AGA at 7. 

160 Id. 

161 Comments of INGAA at 6. 

162 Id. 

163 Comments of National Grid at 5. 

164 Comments of BPA at 6. 
Docket No. PL10-4-000 - 43 - 

compliance,165 and the Penalty Guidelines did nothing, either explicitly or 

implicitly, to change this emphasis. Indeed, the Penalty Guidelines served only to 

solidify the importance we place on compliance by providing substantial and 

transparent mitigation credit for effective compliance programs. Specifically, 

under the Penalty Guidelines, an effective compliance program could result in a 

ninety-five percent reduction in penalties when combined with other factors. For 

example, if the Commission finds that an organization had an effective compliance 

program at the time of a violation, this finding, together with other mitigating 

circumstances, could lead to a final culpability score of zero. A culpability score 

of zero, in turn, reduces an organization’s base penalty by ninety-five percent, for 

example, from $5 million down to $250,000. This is a significant credit, awarded, 

in part, through the existence of an effective compliance program. Moreover, 

even if an organization fails to receive any reduction other than compliance credit, 

the compliance credit alone could still reduce a penalty by sixty percent, for 

example, from $5 million to $2 million. 

110. Thus, the Commission agrees with the commenters that achieving 

compliance should remain a central goal for the Commission and, to clarify this 

point, we agree to adopt EEI’s proposal that we state explicitly in the Penalty 

Guidelines that “[a]chieving compliance, not assessing penalties, is the central 

goal of the Commission’s enforcement efforts,” as we have previously stated in 

our Policy Statement on Compliance.166 Given the substantial credit awarded for 

effective compliance under the Penalty Guidelines, however, the Commission 

declines the commenters’ request for a larger credit than the three point credit 

currently in the Penalty Guidelines. 

111. Although we accept EEI’s general statement that compliance should remain 

our focus, we disagree with EEI’s argument that the Holder Memo somehow 

 165 See, e.g., 2005 Policy Statement, 113 FERC ¶ 61,068 at P 22 (“We 

encourage companies engaged in jurisdictional activities to take steps to create a 

strong atmosphere of compliance in their organizations.”); Revised Policy 

Statement, 123 FERC ¶ 61,156 at P 54 (listing the “strength of an entity’s 

commitment to compliance” as one of the most important factors in determining 

penalty amounts); Compliance with Statutes, Regulations, and Orders, 125 FERC 

¶ 61,058, at P 8 (2008) (Policy Statement on Compliance) (“[T]he Commission 

places great emphasis on a company’s efforts to assure compliance with all 

applicable regulatory requirements.”). 

166 See Policy Statement on Compliance, 125 FERC ¶ 61,058 at P 1. 
Docket No. PL10-4-000 - 44 - 

encouraged prosecutors not to use the Sentencing Guidelines because they provide 

poor incentives for compliance. First, as we stated supra in section II.A.2, the 

implication that prior to the Holder Memo prosecutors determined whether they 

should charge a corporation based upon the sanctions available under the 

Organizational Sentencing Guidelines is incorrect. As the Holder Memo itself 

points out, the Sentencing Guidelines are taken into account only after “a 

prosecutor has decided to charge a corporation.”167 Second, EEI’s reliance on this 

memo for its compliance argument ignores a central element of the memo’s 

treatment of the weight accorded to a corporation’s compliance program in the 

charging decision, specifically, that “the existence of a compliance program is not 

sufficient, in and of itself, to justify not charging a corporation for criminal 

conduct undertaken by its officers, directors, employees, or agents.”168 Third, 

EEI’s suggestion that the Holder Memo reflects a rejection of the Sentencing 

Guidelines’ treatment of compliance programs ignores the memo’s instruction that 

prosecutors should consult the Sentencing Guidelines “for a detailed review of 

[the factors to consider] concerning corporate compliance programs.”169 

112. The Commission does not view assessing civil penalties and encouraging 

compliance as mutually exclusive. This is not an “either/or” situation. Rather, 

civil penalties are an important tool to achieve compliance. It has been widely 

recognized that “regulators have an array of persuasive tools at hand, such as 

warnings, civil penalties including fines, and license suspension, with which to 

achieve compliance.”170 The Commission expects that civil penalties will prompt 

organizations to devote significant efforts and resources to compliance in order to 

avoid future penalties. 

 167 Holder Memo § XI. 

168 Id. § VII. 

169 Id. 

170 Geraldine Szott Moohr, The Balance Among Corporate Criminal 

Liability, Private Civil Suits, and Regulatory Enforcement, 46 Am. Crim. L. Rev. 

1459, 1476 (2009) (emphasis added); see also John D. Copeland, The Tyson Story: 

Building an Effective Ethics and Compliance Program, 5 Drake J. Agric. L. 305, 

n.7 (2000) (“Criminal penalties are imposed on corporations to encourage them to 

develop effective compliance programs.”). 
Docket No. PL10-4-000 - 45 - 

113. Finally, the Commission agrees with INGAA that our focus should remain 

on compliance with the Commission’s requirements and that we should not 

broaden the concept to include an ethics program or areas unrelated to the 

Commission’s regulations and requirements. The Commission is concerned about 

compliance with the statutory and regulatory requirements that we oversee. Thus, 

we have modified the language in section 1C2.3 to clarify that the compliance 

credit relates to compliance with the Commission’s requirements and not an 

organization’s ethics program or areas unrelated to the Commission’s 

requirements.171 

2. Partial Compliance Credit 

a. Comments

114. Some commenters take issue with the Penalty Guidelines’ lack of partial 

compliance credit for organizations that meet some, but not all, of the 

requirements listed in section 1B2.1(b) of the Penalty Guidelines. EEI, for 

example, proposes that the Commission change the “all or nothing” nature of the 

compliance credit so that organizations can receive partial credit for effective 

compliance programs that do not meet all of the requirements listed in section 

1B2.1.172 EEI also proposes that an effective compliance program that meets all 

of the requirements in section 1B2.1 receive three points, while a program that 

meets most, but not all requirements, receive two points.173 INGAA comments 

that it is unreasonable not to award partial credit because many of the criteria 

listed in section 1B2.1 are subjective.174 Thus, INGAA proposes increasing the 

compliance credit to seven points, corresponding to the seven requirements listed

in section 1B2.1, to give the Commission flexibility to award partial credi

organizations that meet some of those requirements.

t to those 

 

175 Xcel also believes that 

171 References to “ethics” have been deleted from sections 1B2.1 and 1C2.3 

of the Penalty Guidelines. 

172 Comments of EEI at 36. 

173 Id. 

174 Comments of INGAA at 7. 

175 Id. 
Docket No. PL10-4-000 - 46 - 

partial compliance credit is warranted, but does not propose a specific range of 

credit.176 

b. Commission Determination

115. The Commission believes there is merit to the commenters’ proposal that 

organizations receive partial credit for effective compliance programs that do not 

meet every requirement in section 1B2.1 of the Penalty Guidelines. Section 1B2.1 

lists seven factors we will consider to determine whether an organization has an 

effective compliance program.177 This section offers organizations a useful 

checklist for creating effective compliance programs, and organizations can 

receive the maximum amount of credit given (three points) for implementing and 

carefully following this guidance. The Commission recognizes, however, that an 

organization might achieve effective compliance without following every element 

and sub-element listed in the Penalty Guidelines. Therefore, we agree to award 

partial credit to organizations that have effective compliance programs, but that do 

not follow the section 1B2.1 requirements exactly. 

116. In general, effective compliance programs should account in some fashion 

for the seven factors listed in the Penalty Guidelines. These seven factors are 

consistent with the four hallmarks we enumerated in our 2008 Policy Statement on 

Compliance: (1) active engagement and leadership by senior management; (2) 

effective preventive measures; (3) measures for the prompt detection and cessation 

of violations and voluntary reporting of violations; and (4) measures for 

remediation of the misconduct.178 The Commission would likely give some 

degree of compliance credit to organizations that achieve these four factors, even 

if the organization fails to specifically meet each of the requirements explicitly 

listed in the Penalty Guidelines. 

117. Our decision to grant partial compliance credit is consistent with our prior 

statement that “the facts and circumstances of each situation should be evaluated 

to determine the appropriate amount of credit given.”179 It also accords with our 

 176 Comments of Xcel at 5. 

177 See Penalty Guidelines § 1B2.1(b). 

178 Policy Statement on Compliance, 123 FERC ¶ 61,058 at P 13-21. 

179 Id. P 12. 
Docket No. PL10-4-000 - 47 - 

continuing view that “there is no one template or approach for a good compliance 

program, and . . . market participants are in the best position to assess their 

regulatory risks and to devise the optimum mix of measures that will provide the 

best conditions for ongoing compliance.”180 

118. Although the Commission agrees to give organizations partial compliance 

credit, we reject EEI’s and INGAA’s proposal to specifically delineate the varying 

degrees of weight given. The Commission believes that the better approach is to 

assess the effectiveness of each compliance program individually and to decide the 

appropriate degree of credit warranted on a case-by-case basis. This approach will 

allow the Commission to consider the appropriate mix of compliance measures for 

each organization rather than simply looking at a list of factors in isolation. 

119. Thus, the Commission has revised the section of the Penalty Guidelines 

providing compliance credit—section 1C2.3—to make explicit that: (1) a threepoint credit is the maximum that an organization can earn for an effective 

compliance program, and (2) organizations can earn partial credit for compliance 

programs that do not meet every requirement listed in section 1B2.1, but, 

nonetheless, are effective.181 

3. Compliance Credit and Senior-Level Involvement

a. Comments

120. EEI, Xcel, and INGAA recommend that the Commission delete the 

provision in the Penalty Guidelines that would eliminate any compliance credit for 

violations where an organization’s high-level personnel, substantial authority 

personnel, or individuals with operational responsibility for compliance 

participated in, condoned, or were willfully ignorant of the violation.182 EEI 

argues that this provision provides a disincentive to Boards of Directors to adopt 

compliance programs that monitor senior-level employees’ conduct because if 

such personnel engage in misconduct, no credit will be earned for compliance.183 

EEI also states that Boards of Directors cannot eliminate the risk of hiring errant 

 180 Id. P 10. 

181 Penalty Guidelines § 1C2.3(f) (Application Note 9). 

182 See Comments of EEI at 36-37; Xcel at 5; and INGAA at 9. 

183 Comments of EEI at 36. 
Docket No. PL10-4-000 - 48 - 

managers.184 Xcel shares the views of EEI and states that effective compliance 

programs serve as a deterrent, not a guarantee.185 

121. Finally, INGAA encourages the Commission to adopt a current amendment 

proposed by the Sentencing Commission that could allow an organization to 

receive credit for an effective compliance program despite having high-level 

personnel involved in the violation.186 Under the amendment, to receive 

compliance credit where high-level personnel were involved, the organization 

must meet certain criteria, including that no individual with operational 

responsibility for the compliance program participated in, condoned, or was 

willfully ignorant of the offense. 

b. Commission Determination

122. The Commission agrees to delete the provision in the Penalty Guidelines 

that would automatically eliminate any compliance credit where an organization’s 

high-level personnel, substantial authority personnel, or individuals with 

operational responsibility for compliance (collectively referred to as “senior-level 

personnel”) participated in, condoned,187 or were willfully ignorant of the 

violation. In agreeing to adopt this change to the Penalty Guidelines, we 

recognize that despite devoting significant efforts and resources to compliance, 

organizations may still not be able to avoid a violation, particularly if the 

 184 Id. at 37. 

185 Comments of Xcel at 5. 

186 Comments of INGAA at 9. The proposed amendment would add 

subsection 8C2.5(f)(3)(C) to the Sentencing Guidelines. See Amendments to the

Sentencing Guidelines (May 3, 2010), available at

http://www.ussc.gov/2010guid/20100503_Reader_Friendly_Proposed_Amendmen

ts.pdf. 

187 While defining the type of activity by senior-level personnel that 

constitutes “condoning” improper behavior is difficult in the abstract, the 

Commission will review the actions of senior-level personnel on a case-by-case 

basis to determine whether to eliminate compliance credit. If we determine that 

senior-level personnel acted in good-faith after a deliberative process, we may 

choose not to eliminate the compliance credit even where senior-level personnel 

approved of conduct that violates Commission regulations. 
Docket No. PL10-4-000 - 49 - 

organization is dealing with a rogue employee not adhering to clear direction from 

the company. In such situations, the Commission believes that it would be unfair 

to automatically withhold all compliance credit for an organization exercising 

diligence to comply with the law. 

123. Thus, in situations where there is senior-level personnel involvement in a 

violation, the Commission will not automatically eliminate all compliance credit. 

Instead, we will consider whether the senior-level employee acted on his or her 

own or at the direction or supervision, or with tacit acquiescence of the 

organization’s governing authority.188

124. The Commission emphasizes that although we will not automatically 

eliminate compliance credit where there is senior-level personnel involvement, we 

would likely find that compliance credit is not warranted where senior-level 

personnel involvement in a violation is so pervasive throughout the organization 

that it reflects the collective actions of the organization as a whole. Compliance 

credit also would not be warranted where there is evidence that an organization’s 

governing authority knew of the senior-level involvement in a violation or failed 

to take timely remedial action. 

4. Compliance Credit and Self-Reporting

a. Comments

125. EEI, Xcel, and INGAA also propose that the Commission delete the 

provision that eliminates compliance credit when an organization fails to timely 

report a violation.189 EEI and INGAA believe that an organization should not lose 

all compliance credit if it detects and remedies a violation on its own without also 

 188 Under the Penalty Guidelines, “Governing authority” means “(A) the 

Board of Directors; or (B) if the organization does not have a Board of Directors, 

the highest-level governing body of the organization.” Penalty Guidelines § 1B2.1 

(Application Note 1). 

189 See Comments of EEI at 37; Xcel at 5; and INGAA at 8. EEI uses the 

phrase “timely reported.” Under the Penalty Guidelines, an organization will not 

receive compliance credit “if, after becoming aware of a violation, the 

organization unreasonably delayed reporting the violation to appropriate 

governmental authorities.” Penalty Guidelines § 1C2.3(f)(2). 
Docket No. PL10-4-000 - 50 - 

self-reporting it.190 Xcel states that even effective compliance programs might not 

result in discovery of all violations by a company.191

126. On a related note, AGA comments that the Penalty Guidelines are unclear 

as to what would constitute an “unreasonable” delay in reporting or a “reasonable” 

period of time to conduct an investigation.192 AGA submits that the Penalty 

Guidelines should specify the factors that would be considered in determining 

whether a particular period of time is “reasonable.”193 

b. Commission Determination

127. The Commission disagrees with the commenters’ request that we eliminate 

the requirement that, for compliance credit to be received, a detected violation 

must be reported without unreasonable delay. The Commission has always 

expected prompt reporting of violations as part of an organization’s compliance 

program. For example, we made clear in the Policy Statement on Compliance that 

after a violation is detected “we expect that companies will act expeditiously to 

end the wrongful conduct and will report it promptly.”194 The Penalty Guidelines 

do not change this expectation. The Commission believes that giving 

organizations credit for prompt reporting of violations increases compliance by 

providing an incentive for, and increasing the likelihood of, early detection of 

violations. 

128. Thus, because the Commission continues to expect prompt reporting of 

violations as part of an organization’s compliance efforts, we will not eliminate 

the requirement that, for compliance credit to be received, a detected violation 

must be reported without unreasonable delay.195

 190 Comments of EEI at 37; INGAA at 8. 

191 Comments of Xcel at 5. 

192 Comments of AGA at 6. 

193 Id. 

194 Policy Statement on Compliance, 125 FERC ¶ 61,058 at P 19 (emphasis 

added). 

195 The Commission, however, has unbundled self-reporting credit from the 

credits for cooperation, avoidance of trial-type hearings and acceptance of 

responsibility. See infra section II.E.1. 
Docket No. PL10-4-000 - 51 - 

129. The Commission will consider the particular facts and circumstances to 

determine whether a self-report was “unreasonably delayed.” Among the factors 

we will consider are: (1) the time between when the violation was discovered, or 

reasonably should have been discovered, and the time of the report; (2) the steps 

the organization took before reporting the violation; and (3) the nature of the 

violation. The Commission recognizes that an organization’s inquiry into conduct 

by its employees could, in some circumstances, take considerable time to 

determine whether an act violates our regulations and requirements.196 It also 

could take time for an organization to determine the nature and duration of 

violations. An organization, however, can always inform Enforcement staff that it 

is investigating a matter. In fact, the Commission encourages organizations that 

discover violations to contact Enforcement staff before submitting a full report. 

This contact could allow Enforcement staff to provide guidance to the 

organization on the matters to explore and present in its written report. In turn, 

this could lead to a more complete self-report and a more well-informed and 

prompt conclusion to staff’s inquiry. 

5. Upward Adjustment for the Lack of a Compliance 

Program

a. Comments

130. CPUC is concerned that the Penalty Guidelines do not address the lack of 

any compliance program and recommend that the lack of an “effective” program 

be considered as an upward adjustment in determining an organization’s 

culpability score under section 1C2.3.197 Further, CPUC recommends that the 

Application Notes to section 1B2.1 specifically reference record retention and 

electronic recordkeeping policies as part of an effective compliance program.198

b. Commission Determination

131. The Commission shares CPUC’s concern that entities might lack effective 

compliance programs. We believe, however, that the Penalty Guidelines 

 196 The Penalty Guidelines “contemplate that the organization will be 

allowed a reasonable period of time to conduct an internal investigation.” Penalty 

Guidelines § 1C2.3 (Application Note 9). 

197 Comments of CPUC at 2-3. 

198 Id. at 4. 
Docket No. PL10-4-000 - 52 - 

adequately address this concern. Calculations under the Penalty Guidelines result 

in a wide range of possible penalties, and we can use this range to address the 

entity that might not have an effective compliance program. For example, we can 

assess a penalty that falls on the higher side of the penalty range. Or, in the case 

of a widespread disregard for compliance or little or no culture of compliance we 

may decide to depart from applying the Penalty Guidelines. These ways of 

addressing the lack of an effective compliance program give us the flexibility to 

consider the particular compliance program and its degree of effectiveness in 

particular circumstances. 

132. Also, in reviewing an organization’s compliance program, the Penalty 

Guidelines do not affect the Commission’s ability to consider an organization’s 

record retention and electronic recordkeeping policies. 

6. Size as a Relevant Factor for Compliance Credit

a. Comments

133. AGA comments that the commentary to section 1B2.1 on compliance 

explains that size, including whether an organization is “large” or “small,” is 

relevant to whether an organization meets the requirements for an effective 

compliance program. AGA states, however, that the Commission fails to define 

“large” or “small.”199 AGA urges the Commission to: (1) define “large” and 

“small;” (2) clarify whether size is determined based on the number of employees 

and whether other factors may be relevant; and (3) specify the level and type of 

employees or other criteria that would constitute a “large” or “small” 

organization.200

b. Commission Determination

134. The Commission will consider the size of an organization for purposes of 

determining whether an organization has met the requirements for an effective 

compliance program. We believe that size is an important factor because, for 

example, a large organization should be able to devote more formal operations and 

greater resources for compliance than a small organization. Small organizations, 

while being equally devoted to compliance, might be able to meet their 

 199 Comments of AGA at 4-5. 

200 Id. at 5. 
Docket No. PL10-4-000 - 53 - 

compliance needs with less formality and fewer resources than large 

organizations. 

135. The Commission has not defined “large” or “small” for purposes of 

determining the size of an organization. A precise definition would not be helpful 

to the Commission or industry because determining an organization’s size for 

compliance purposes is not as simple as fitting the organization into a predetermined definition of “large” or “small.” Rather, size should be determined by 

looking at multiple factors that might vary depending on the particular 

organization. Among the factors that we will consider include: (1) the number of 

employees; (2) the annual revenue, profits, and budget of the organization; (3) the 

number of separate operating divisions or units within the organization; (4) the 

number of senior-level employees; and (5) the corporate structure of the 

organization. While not an exhaustive list, these factors provide a good indication 

of what we believe to be relevant to size and to whether an organization has shown 

sufficient commitment to warrant credit for an effective compliance program. 

 

E. Credits for Self-Reporting, Cooperation, Avoidance of TrialType Hearing, and Acceptance of Responsibility 

1. Unbundling the Credits

a. Comments

136. Several commenters suggest that the Commission should unbundle the 

credits for self-reports, cooperation, avoidance of trial-type hearings, and 

acceptance of responsibility. EEI, National Grid, and TAPS, for example, state 

that the Commission should unbundle the mitigation credits for self-reports and 

cooperation because there is value from self-reporting that is separate from the 

value of cooperation.201 Self-reports are valuable, EEI believes, because without 

them the Commission may never know that a violation occurred.202 Cooperation, 

on the other hand, is valuable, EEI asserts, because it facilitates Enforcement 

staff’s review of misconduct.203 EEI and INGAA also argue that tying the credits 

for self-reports and cooperation could create a disincentive to self-reporting in 

 201 See Comments of EEI at 37; National Grid at 7; and TAPS at 30. 

202 Comments of EEI at 38. 

203 Id. 
Docket No. PL10-4-000 - 54 - 

instances where the organization cannot be certain whether it will receive 

cooperation credit.204 

137. EEI and TAPS also propose that we unbundle the credits for cooperation 

and avoidance of trial-type hearings because, they contend, these are unrelated 

concepts.205 Specifically, EEI states that cooperation helps Enforcement staff 

during the preliminary phase of an investigation and a trial-type hearing occurs, 

not because of the absence of cooperation, but because of legal or factual 

disputes.206 INGAA also takes issue with bundling these credits. It states that a 

company should not forego the cooperation credit by contesting a penalty 

calculation, commenting that an organization should have the right to admit a 

violation, but nonetheless contest the proposed penalty calculation in a trial-type 

hearing.207

138. Similarly, AGA states that, under the Penalty Guidelines, no credit is given 

for self-reporting, cooperating, and accepting responsibility unless the 

organization resolves the matter without the need for a trial-type hearing. AGA 

believes that this aspect of the Penalty Guidelines appears to undervalue selfreporting, cooperation, and acceptance of responsibility by conditioning credit for 

them on a settlement.208 AGA recommends that we restructure this model to 

provide separate credits for each of the identified actions.209

139. Finally, INGAA recommends unbundling the credits for cooperation and 

acceptance of responsibility from the credit for resolving a matter without a trialtype hearing because an organization should not be deemed uncooperative or 

unwilling to accept responsibility by seeking a trial-type hearing where there is a 

good-faith basis for a disagreement over the law or facts of a case.210 

 204 See Comments of EEI at 38; INGAA at 13. 

205 See Comments of EEI at 38-39; TAPS at 30. 

206 Comments of EEI at 39. 

207 Comments of INGAA at 13-14. 

208 Comments of AGA at 7. 

209 Id. at 7-8. 

210 Comments of INGAA at 13-14. 
Docket No. PL10-4-000 - 55 - 

b. Commission Determination

140. The Commission agrees to modify the Penalty Guidelines so that the 

mitigation credits for self-reports, cooperation, avoidance of trial-type hearings, 

and acceptance of responsibility are not tied together. Each of these factors carries 

independent value and should be credited accordingly. 

141. Self-reports, for example, add significant value to overall industry 

compliance, and the Commission will continue to place great importance on selfreporting. As we stated in the 2005 Policy Statement, “[c]ompanies are in the best 

position to detect and correct violations of our orders, rules, and regulations, both 

inadvertent and intentional, and should be proactive in doing so.”211 Providing 

credit for self-reporting gives organizations an incentive to detect and correct 

violations early. Self-reporting also assists the Commission’s review of violations 

and facilitates the process of providing remedies to affected parties. 

142. Cooperation also adds significant independent value. Specifically, 

cooperation that is in good faith, consistent, and continuing will help provide 

Enforcement staff with sufficient information to understand the circumstances of 

how and why the violation occurred as well as the identity of the relevant 

personnel involved in the violation. As is the case with good-faith self-reports, 

this type of cooperation should lead to a better informed and prompt conclusion of 

staff’s inquiry. 

143. Finally, the Commission believes there is independent value in 

organizations avoiding trial-type hearings and accepting responsibility for their 

violations, both of which are factors under the Sentencing Guidelines. A 

willingness to resolve cases without the need for a trial-type hearing saves the 

Commission time and resources that can be spent on other matters. Moreover, the 

Commission believes that organizations should receive an additional credit for 

affirmatively admitting their violations. We understand that some organizations 

will continue to neither admit nor deny violations, but we think some credit should 

be given to organizations that accept responsibility for their misconduct. 

144. Thus, the Commission believes there is sufficient independent value in selfreporting violations, cooperating, avoiding trial-type hearings, and accepting 

responsibility for violations, such that obtaining credit for these factors should be 

 211 2005 Policy Statement, 113 FERC ¶ 61,068 at P 24. 
Docket No. PL10-4-000 - 56 - 

considered independently of each other. In most cases, however, when an 

organization self-reports a violation it also cooperates and settles. 

145. Accordingly, the Commission has modified section 1C2.3(g) of the Penalty 

Guidelines so that organizations can now receive: (1) two points for self-reports 

that are made prior to an imminent threat of disclosure or government 

investigation and within a reasonably prompt time after becoming aware of the 

violation;212 (2) one point for full cooperation; (3) one point for resolving the 

matter without the need for a trial-type hearing; and (4) one point for affirmative 

acceptance of responsibility for their violations. We have made explicit that these 

credits operate independently of each other. Thus, as revised, organizations can 

still receive a five point credit to their culpability score for meeting each of the 

above factors, but they can now also receive a partial credit for meeting some, or 

even one, of these factors. 

2. Credit for Self-Reports Versus Credit for SelfCertifications 

a. Comments

146. EEI contends that self-certifications are “functionally the same” as selfreports and should be treated equally for purposes of mitigating civil penalties for 

reliability violations.213 

b. Commission Determination

147. The Commission disagrees with EEI that self-certifications are 

“functionally the same” as self-reports. We made clear in our July 3, 2008, 

Guidance Order on Reliability Notices of Penalty that there are critical differences 

between self-certifications and self-reports.214 We explained that “[u]nlike a selfcertification in response to a Regional Entity’s questionnaire or inquiry, which is a 

required act, a self-report is a totally voluntary disclosure of a violation.”215 We 

 212 See infra section II.E.2.b. 

213 Comments of EEI at 38. 

214 See North American Electric Reliability Corporation, 124 FERC 

¶ 61,015, at P 32 (2008). 

215 Id. 
Docket No. PL10-4-000 - 57 - 

explained further that a “self-report occurs when a registered entity alerts a 

Regional Entity to a violation before the registered entity is required to disclose 

the violation to the Regional Entity in response to a self-certification questionnaire 

or to another directive from a Regional Entity to submit compliance-related 

information.”216

148. We reiterate here that a self-certification is a required act whereas a selfreport constitutes a voluntary disclosure. This distinction should be reflected in 

the mitigation credit afforded to organizations. By voluntarily disclosing 

information that otherwise would not have to be disclosed, organizations should 

receive some mitigation credit.217 On the other hand, if an organization is already 

required to disclose certain information, mitigation credit will not be provided. 

Thus, organizations will receive mitigation credit for good-faith, prompt selfreports, but will not receive any mitigation credit for self-certifications. 

3. Additional Concerns Regarding Cooperation and SelfReporting Credit

149. INGAA urges the Commission to clarify that an organization will not lose 

cooperation credit for a good-faith argument on the law or facts of a case.218 

150. Under the Penalty Guidelines, organizations will not lose cooperation credit 

for good-faith legal or factual arguments. Similarly, organizations can make 

good-faith objections to data requests and still receive cooperation credit. And as 

stated in Application Note 11 of the culpability section, the “Commission will not 

require organizations to waive attorney-client privilege or work-product 

protections in order to qualify for a reduction under these subsections.” 

151. NERC asks the Commission to explain what credit is provided in a case of 

exemplary cooperation as opposed to full cooperation.219 

 216 Id. 

217 As EEI itself urges, a self-report provides value to the Commission 

because without one the Commission may never learn that a violation occurred. 

Comments of EEI at 38. 

218 Comments of INGAA at 13. 

219 Comments of NERC at 24. 
Docket No. PL10-4-000 - 58 - 

152. The Penalty Guidelines provide credit for full cooperation. An organization 

that provides exemplary cooperation does not receive any specific extra credit 

under the Penalty Guidelines, 220 although it may be a relevant consideration, for 

example, in determining where within the range the ultimate penalty falls. 

153. Finally, National Grid is concerned that the Penalty Guidelines do not 

provide sufficient credit for cooperation and self-reports.221 

154. We disagree with National Grid’s concern. Organizations can receive 

substantial and transparent credit for cooperation and self-reporting. For example, 

if an organization receives credit for cooperation and self-reporting, its culpability 

score would be reduced by three points. Starting with a base culpability score of 

five, the three point reduction could lead to a final culpability score of two, which 

could lead to an eighty percent reduction in penalty when comparing the high end 

of the penalty range to the low end. For example, cooperation and self-reporting 

credit could reduce a penalty from $2,000,000 to $400,000. This is substantial and 

transparent credit. 

F. Efforts to Remedy Violations

1. Comments

155. EEI comments that the Penalty Guidelines do not provide an independent 

credit for remediation which is inconsistent with FPA section 316A222 and marks 

an unexplained and unjustified departure from the Commission’s Policy Statement 

on Compliance. EEI recommends that the Commission add a provision that a 

company will receive the minimum level of the penalty range if it adopts full 

 220 See, e.g., Revised Policy Statement, 123 FERC ¶ 61,156 at P 65 (“Since 

cooperation is expected of all entities, we do not give penalty mitigation credit for 

ordinary cooperation . . . . However, we do give credit for exemplary 

cooperation.”). 

221 Comments of National Grid at 5; 7-8. 

222 Section 316A of the FPA states that “in determining the amount of a 

proposed penalty,” the Commission must consider the severity of the violation as 

well as the efforts to remedy the violation in a timely manner. 16 U.S.C. § 825o-1 

(2006). 
Docket No. PL10-4-000 - 59 - 

remediation.223 Similarly, INGAA, NERC, and TAPS encourage the Commission 

to provide an independent credit for remediation, which would demonstrate the 

seriousness of the Commission’s intent to focus on achieving compliance through 

voluntary actions rather than penalty risk.224 

156. Further, SMUD questions the legality of applying the Penalty Guidelines to 

the NERC Reliability Standards without accounting for an organization’s 

remediation efforts.225 SMUD comments that FPA section 215(e)(6) provides that 

any penalty imposed by the Commission or the ERO “shall bear a reasonable 

relation to the seriousness of the violation and shall take into consideration the 

efforts of such user, owner, or operator to remedy the violation in a timely 

manner.”226 SMUD states that the Penalty Guidelines do not take into account the 

efforts of a registered entity to remedy the violation in a timely manner.227

2. Commission Determination

157. The Commission’s obligation to consider an organization’s efforts to 

remedy a violation is built into the Penalty Guidelines in multiple places. For 

example, it is built into the section on effective compliance programs, which 

states: “After a violation has been detected, the organization shall take reasonable 

steps to respond appropriately to the violation and to prevent further similar 

violations, including making any necessary modifications to the organization’s 

compliance program.”228 That section also provides, “in implementing subsection 

(b), the organization shall periodically assess the risk of violations and shall take 

appropriate steps to design, implement, or modify each requirement set forth in 

subsection (b) to reduce the risk of violations identified through this process.”229 

In addition, to the extent the violation is causing harm, remedial action to limit the 

 223 Comments of EEI at 39. 

224 See Comments of INGAA at 10; NERC at 24; and TAPS at 30. 

225 Comments of SMUD at 5. 

226 Id. (emphasis in original). 

227 Id. 

228 Penalty Guidelines § 1B2.1(b)(7). 

229 Id. § 1B2.1(c). 
Docket No. PL10-4-000 - 60 - 

harm will reduce the penalty. Furthermore, the Penalty Guidelines provide us with 

enough flexibility to consider remedial measures in our penalty determinations. 

158. The Commission, however, declines to adopt a bright-line rule that a 

company will automatically receive the minimum level of the penalty range if it 

adopts full remediation, as EEI requests, or to adopt a specific, independent credit 

for remediation, as the other commenters suggest. We expect organizations to 

comply with our requirements and to attain compliance within a reasonable time 

period after committing a violation. We generally consider that an organization’s 

efforts to achieve or maintain compliance with our requirements should not be the 

basis for an offset to or reduction in the penalty amount for a violation because the 

organization should have been in compliance before the violation. An 

organization’s significantly enhanced efforts in response to a violation that go 

beyond what is required to attain compliance may, however, be considered in 

determining a penalty amount. 

G. Prior History 

1. Prior History of Serious Violations

a. Comments

159. EEI and INGAA state that the Penalty Guidelines’ enhancement for prior 

history should apply only in the case of serious violations, claiming that it is 

difficult for organizations to achieve perfect compliance with many of the 

Commission’s regulations.230 EEI states, for example, that hundreds of OASIS 

posting requirements exist, making it unreasonable to expect perfection of these 

requirements. Also, EEI claims that hundreds or thousands of employees could be 

affected by the Standards of Conduct requirements, which govern multiple 

interactions on a daily basis.231 Similarly, INGAA asks the Commission to clarify 

that the prior history enhancement applies only to significant violations and not, 

for example, to erroneous NAESB postings.232 

 

 230 Comments of EEI at 34-35; INGAA at 14. 

231 Comments of EEI at 35. 

232 Comments of INGAA at 14. 
Docket No. PL10-4-000 - 61 - 

b. Commission Determination

160. The Commission declines to create a bright-line rule that the prior history 

enhancement applies only to serious violations. Although the Commission is most 

concerned with an organization’s serious violations, we are also concerned with 

the number of prior violations committed by an organization and the frequency or 

rate at which the organization commits violations. For example, the Commission 

may be concerned with an organization that has committed many violations during 

a relatively short period of time, regardless of the seriousness of the violations. 

This situation might reflect an overall lack of commitment to compliance and 

would not be captured if we limited the prior history enhancement to serious 

violations. Rather than create a bright-line rule, we will consider the prior history 

of an organization on a case-by-case basis. This case-by-case approach will give 

us the flexibility to consider not only the nature and seriousness of past violations, 

but also other important factors, such as the number and frequency of prior 

violations. 

2. Prior Settlement as “Adjudication”

a. Comments

161. EEI and INGAA assert that the Commission should not treat prior 

settlements as “adjudications” that would trigger the prior history enhancement 

under the Penalty Guidelines.233 In support of this point, EEI states that 

settlements, by definition, are not “adjudications,” and most organizations settle to 

avoid litigation costs and risks, not to admit guilt.234 INGAA shares these views 

and states further that treating settlements as prior history will serve as a 

disincentive to settle.235 

b. Commission Determination

162. The Commission rejects the commenters’ suggestion that we not treat prior 

settlements as “adjudications” that would trigger the prior history enhancement 

under the Penalty Guidelines. Pursuant to Commission practice and procedures, 

we do not reach the settlement stage of our investigations until we have received a 

 233 Comments of EEI at 35; INGAA at 14. 

234 Comments of EEI at 35. 

235 Comments of INGAA at 14. 
Docket No. PL10-4-000 - 62 - 

recommendation from Enforcement staff and have independently concluded that it 

is appropriate to pursue settlement discussions. As we stated supra in section 

II.B.2., staff will continue to close investigations where no violation is found and 

to close some investigations without sanctions for certain violations that are 

relatively minor and that result in little or no harm. Thus, given that we assess 

penalties only after receiving a recommendation from staff and independently 

deciding that it is appropriate to pursue settlement discussions, we believe prior 

settlements should be treated as “adjudications.” 

163. We recognize that organizations are often not willing to admit liability in 

settlements because they do not want to increase their risk of liability to 

shareholders and others. We also recognize that organizations will continue to 

neither admit nor deny violations in settlements in order to preserve their ability to 

deny liability in parallel or subsequent private litigation. Commission practice 

since EPAct 2005, however, has not treated these statements as having 

precedential effect on the Commission’s prior history determination in future 

investigations. 

164. In fact, many of the Commission’s past stipulation and consent agreements 

have made clear that organizations’ “neither admit nor deny” statements do not 

affect the Commission’s prior history determinations in future investigations.236 

 

 

(continued...) 

236 See, e.g., In re Tenaska Marketing Ventures, 126 FERC ¶ 61,040, 

Stipulation and Consent Agreement at P 17 (2009) (“Tenaska consents to the use 

of Enforcement’s conclusions set forth in paragraph numbers 10 and 11 of this 

Agreement [related to staff’s findings that Tenaska violated 18 C.F.R. § 1c.1] for 

the purpose of assessing the factors in any future matter, including the factor of 

determining the company’s history of violations . . . .”); In re Louisville Gas & 

Electric Co., 127 FERC ¶ 61,068, Stipulation and Consent Agreement at P 13 

(2009) (same); In re Anadarko Petroleum Corp., 127 FERC ¶ 61,069, Stipulation 

and Consent Agreement at P 13 (2009) (same); In re Puget Sound Energy, 127 

FERC ¶ 61,070, Stipulation and Consent Agreement at P 20 (2009) (same); In re 

Wasatch Oil & Gas Corp., 127 FERC ¶ 61,322, Stipulation and Consent 

Agreement at P 14 (2009) (same); In re Piedmont Natural Gas Co., 127 FERC 

¶ 61,319, Stipulation and Consent Agreement at P 16 (2009) (same); In re 

NorthWestern Corp., 125 FERC ¶ 61,233, Stipulation and Consent Agreement at 

P 31 (2008) (same); Columbia Gas Transmission Corp. and Columbia Gulf 

Transmission Co., 125 FERC ¶ 61,150, Stipulation and Consent Agreement at 

P 24 (2008) (same); In re Duquesne Light Co., 123 FERC ¶ 61,221, Stipulation 

and Consent Agreement at P 19 (2008) (same); In re Cleco Power, LLC, 119 

FERC ¶ 61,271, Stipulation and Consent Agreement at Section 5, P B (2007) 
Docket No. PL10-4-000 - 63 - 

The Commission considers prior settlements for purposes of considering an 

organization’s prior history and we will continue to do so under the Penalty 

Guidelines. The Commission believes that organizations will still have ample 

incentives to settle, including avoiding the cost of litigation and receiving 

mitigation credit for avoiding trial-type hearings. 

3. Scope of Prior History

a. Comments

165. NERC states that the “Penalty Guidelines do not appear to make the 

distinction to require violations to be the same or closely related” in determining if 

they are repeat violations.237 NERC believes the “Commission should clarify if it 

is making changes with respect to treating all prior violations as repeat history.”238

b. Commission Determination

166. To clarify the issue NERC raises, an organization’s culpability score 

increases by one point if there was a Commission adjudication of any violation 

less than ten years earlier or if there was an adjudication of similar misconduct by 

any other enforcement agency. If the time period is less than five years, the score 

increases by two points.239 Thus, NERC is correct that the Penalty Guidelines do 

not require violations to be the same or closely related for prior Commission 

adjudications. If, however, the prior history involved another enforcement 

agency, it must be similar misconduct within the prior ten years for the 

enhancement to apply. 

 

(same); In re Columbia Gulf Transmission Co., 119 FERC ¶ 61,174, Stipulation 

and Consent Agreement at P 20 (2007) (same). 

237 Comments of NERC at 24. 

238 Id. 

239 Penalty Guidelines § 1C2.3(c). 
Docket No. PL10-4-000 - 64 - 

H. Section 1C2.3(d) Culpability Enhancement for Violating an 

Order

1. Comments

167. AGA and INGAA comment that the Penalty Guidelines are not clear as to 

the nature of the order or injunction that would trigger a two-point increase in an 

organization’s culpability score under section 1C2.3(d) of the Penalty 

Guidelines.240 AGA recognizes that an organization should be considered more 

culpable for repeat violations, but states that it is unclear whether an organization 

should be held similarly more culpable when the prior order is unrelated to the 

violation that is the subject of the instant penalty action.241 AGA believes that the 

type of order or injunction appropriately contemplated by this provision should be 

an enforcement or remedial order directly related to the violation that is the subject 

of the instant penalty action. AGA comments that Enforcement staff appeared to 

confirm that this was the case at the April 7, 2010, workshop.242

2. Commission Determination

168. AGA is correct that section 1C2.3(d) is intended to apply to violations of 

enforcement-related or other remedial orders directly related to the violation that is 

the subject of the instant investigation or enforcement action. Section 1C2.3(d) 

would not apply where the prior order is unrelated to the instant violation. 

I. Section 2C1.1 Guideline for Misrepresentations and False 

Statements

1. Intentional Misrepresentations and False Statements

a. Comments

169. EEI, AGA, and INGAA urge the Commission to limit application of 

section 2C1.1 to instances of intentional misconduct and not apply it to simple 

misunderstandings or unintentional miscommunications.243 EEI states that 

 240 Comments of AGA at 8; INGAA at 14. 

241 Comments of AGA at 8. 

242 Id. 

243 See Comments of EEI at 31; AGA at 9; and INGAA at 4-6. 
Docket No. PL10-4-000 - 65 - 

Enforcement staff’s investigations can turn on complex and contested facts, often 

leading to unintentional misunderstandings. These types of misunderstandings, 

EEI believes, do not merit the imposition of civil penalties.244 

170. Similarly, AGA states that inadvertent reporting errors and unintentional 

misstatements, particularly in informal conversations with Commission staff, 

should not be penalized as if they were intentional acts of deception.245 AGA 

believes that penalties for misrepresentations or false statements should be limited 

to circumstances in which an entity has willfully, knowingly, or recklessly made a 

material misrepresentation or false statement to the Commission or staff and 

should not apply in instances of mere negligence or inadvertent error. AGA 

believes that some violations may occasionally occur despite an entity’s best 

efforts to prevent them and these errors are corrected as a matter of course when 

discovered by Commission staff or the parties involved.246 INGAA also believes 

that the Commission should adopt a scienter requirement for violations of section 

2C1.1.247 

b. Commission Determination

171. The Commission agrees to modify section 2C1.1 of the Penalty Guidelines 

to include a scienter requirement. Thus, this section is limited to instances of 

intentional or reckless misrepresentations and false statements. The Commission 

does not intend this section to apply to inadvertent errors or miscommunications in 

organizations’ filings or communications with the Commission and our staff. 

172. The Commission has drawn clear distinctions between intentional and 

reckless misrepresentations and false statements aimed at misleading, or 

attempting to mislead, the efforts of the Commission or our staff and inadvertent 

errors or miscommunications that can easily be cured. We have always limited 

our enforcement efforts to the former instances. 

 244 Comments of EEI at 32. 

245 Comments of AGA at 9. 

246 Id. 

247 Comments of INGAA at 5. 
Docket No. PL10-4-000 - 66 - 

173. The Commission will continue to draw distinctions and will pursue only 

intentional and reckless misrepresentations and false statements that mislead, or 

attempt to mislead, staff’s efforts. Thus, we have modified the Penalty Guidelines 

to clarify that section 2C1.1 applies only to intentional or reckless 

misrepresentations that mislead, or attempt to mislead, the Commission’s or staff’s 

efforts. 

2. Scope of Section 2C1.1

a. Comments

174. EEI urges the Commission to identify the statutory provisions and 

regulations that are covered by the section 2C1.1 guideline for misrepresentations 

and false statements in an effort to promote and further transparency.248 

b. Commission Determination

175. Although the Commission declines to provide an exhaustive list of all of 

the statutory provisions and regulations that potentially are covered by section 

2C1.1 of the Penalty Guidelines, we emphasize that we have authority to assess 

civil penalties for violations of the statutes, rules, regulations, and orders that we 

oversee. In addition, the Commission has the authority to enforce Commissionapproved tariff provisions. 

176. Section 35.41(b) of the Commission’s regulations is one of the 

requirements that could be covered under section 2C1.1 of the Penalty Guidelines. 

This regulation imposes a duty of candor upon electric power sellers authorized to 

engage in sales for resale of electric energy at market-based rates to provide 

accurate, factual, and complete information in communications with the 

Commission.249 A section 35.41(b) violation, however, is not limited to section 

2C1.1 of the Penalty Guidelines. Such a violation could also fall under section 

2B1.1, covering fraud, anti-competitive conduct, and other rule, tariff, and order 

violations, with a base violation level of six in certain cases, as section 35.41(b) 

does not contain a scienter requirement. 

 248 Comments of EEI at 31. 

249 18 C.F.R. § 35.41(b)(2010). 
Docket No. PL10-4-000 - 67 - 

3. Base Violation Level for Misrepresentations and False 

Statements

a. Comments

177. EEI recommends that the Commission lower the base violation level for 

misrepresentations and false statements from eighteen to fourteen, which is the 

base violation level for perjury under the Sentencing Guidelines.250 EEI 

comments that a base violation level of eighteen under the Penalty Guidelines 

corresponds to a base penalty of $350,000. EEI believes that this is an extreme 

penalty that is even more severe than the penalties for perjury in federal court.251 

AGA similarly comments that the base penalty for misrepresentations and false 

statements may be excessive in certain cases.252 

b. Commission Determination

178. The Commission declines to modify the Penalty Guidelines to lower the 

base violation level for misrepresentations and false statements from eighteen to 

fourteen. EEI’s comparison to sanctions for perjury in federal court misses a 

critical point. Unlike an intentional or reckless misrepresentation to the 

Commission or staff, perjury could result in incarceration under the Sentencing 

Guidelines. Comparing the base offense level under the Sentencing Guidelines to 

the base violation level under the Penalty Guidelines is misleading because one is 

meant to calculate prison terms for criminal conduct, while the other is intended to 

formulate monetary penalties in civil matters. We believe that a base violation 

level of eighteen accurately reflects the seriousness with which we treat 

misrepresentations to the Commission and staff. Although the potential penalty is 

high, it is balanced by the increased evidentiary burden required to prove scienter. 

J. Multiple Violations

1. Comments

179. Several commenters suggest that the Commission clarify that multiple 

violations falling in the same general category will be treated as one. EEI, for 

 250 Comments of EEI at 33-34. 

251 Id. at 33. 

252 Comments of AGA at 8-9. 
Docket No. PL10-4-000 - 68 - 

example, suggests that the preamble to the Penalty Guidelines should state that 

violations falling within the same general category will be treated as a single 

violation.253 EPSA and CPUC recommend that the Commission treat multiple 

violations that are similar in nature as a single violation for purposes of applying 

the guidelines.254 FirstEnergy also recommends that the Commission treat 

multiple violations that arise out of the same transaction or set of events as a single 

violation for purposes of applying the guidelines.255

180. INGAA expresses some concerns with how the Commission will count or 

divide violations under the Penalty Guidelines. In this regard, INGAA asks the 

Commission to confirm that the Penalty Guidelines apply to the conduct as a 

whole, not each separate infraction.256 INGAA also poses a specific hypothetical 

asking the Commission to show how it would analyze the following issue: “does a 

market manipulation violation involving false bids to obtain capacity constitute 

one violation for the day on which the false bid was made, or does it constitute 

multiple (i.e., “per day”) violations as long as the capacity thereby acquired is 

retained.”257

181. NERC requests that the Commission address the following questions in its 

final action: (1) Are penalties going to be developed and applied on a per 

Reliability Standard violation basis; (2) if not, how will they be developed and 

applied; and (3) would a bell-curve approach be used with regard to penalty 

assignments if a penalty results in a disparity.258

2. Commission Determination

182. The Commission clarifies that where there are multiple violations falling 

under different Chapter Two guidelines, the Commission will determine the 

 253 Comments of EEI at 22. 

254 Comments of EPSA at 14-15; CPUC at 6. 

255 Comments of FirstEnergy. 

256 Comments of INGAA at 17. 

257 Id. at 17-18. 

258 Comments of NERC at 23. 
Docket No. PL10-4-000 - 69 - 

appropriate penalty on a case-by-case basis.259 For multiple violations that fall 

within section 2A1.1 (guideline for violations of the Reliability Standards) and 

that are related to the same conduct or event, the Commission will apply the 

Penalty Guidelines based on the conduct as a whole.260 We have modified the 

Penalty Guidelines to emphasize this point.261 

183. Where, however, an organization has engaged in multiple acts of fraud, 

anti-competitive conduct, or other rule, tariff, and order violations, in which the 

penalty is determined under section 2B1.1; or made multiple misrepresentations or 

false statements in which the penalty is determined under section 2C1.1, the 

Penalty Guidelines treat each act as a separate violation. But in calculating the 

harm for purposes of determining the penalty, it is the cumulative harm of the 

multiple violations that is taken into account. Thus, the Penalty Guidelines would 

treat each false bid in INGAA’s hypothetical as a separate violation. The Penalty 

Guidelines would also consider the duration of the violation in INGAA’s 

hypothetical as part of the duration enhancement in section 2B1.1(b)(2). Of 

course, the Commission would retain the discretion to depart from the Penalty 

Guidelines calculation, if appropriate, in this or any other factual scenario. 

K. Organization Size and Status

1. Comments

184. Many commenters take the position that the Penalty Guidelines do not 

adequately address the size or status of organizations. For example, APPA states 

that the size of an entity is an explicit factor to be considered in calculating 

penalties for violations of Reliability Standards under the NERC Sanction 

 259 Penalty Guidelines § 1C2.1(b). For example, the Commission will 

consider on a case-by-case basis penalties for organizations that commit both 

OATT and reliability violations. 

260 When treating multiple violations that relate to the same conduct or 

event as a whole under section 2A1.1, we may also have to account for each 

violation to assure that the statutory cap for each violation will not be exceeded. 

261 See Penalty Guidelines § 2A1.1 (Application Note 5). We have also 

modified sections 2A1.1(b)(1) and (b)(2) to make clear that section 2A1.1 

considers harm and risk of harm arising from multiple violations that relate to the 

same event. 
Docket No. PL10-4-000 - 70 - 

Guidelines.262 In contrast, APPA comments that under the Penalty Guidelines, 

size would be explicitly considered only in the context of compliance programs, 

and would only serve to mitigate any increase in the culpability score under 

section 1.C.2.3(b).263 APPA and PPC are concerned that certain of their members 

could face potential fines jeopardizing their continued viability if the Commission 

applies the Penalty Guidelines as contemplated, and states that the financial harm 

to a smaller utility could be quite severe even if its continued viability is not at 

risk—its ability to undertake new capital improvements or programs could be 

impaired if its bond rating falls in the wake of a penalty levy.264 APPA states 

further that the Commission fails to explain how such a result, effectively stopping 

just short of placing a utility on “life support,” would enhance reliability or meet 

the purposes of FPA section 215.265

185. Cities/M-S-R and Turlock also comment that the Commission should place 

more emphasis on entity size when determining the range of penalties.266 

Cities/M-S-R states that despite the adjustment based on size under section 

1.C.2.3(b), resulting penalties could remain unnecessarily and disproportionately 

large.267 In addition, Cities/M-S-R is not assuaged by staff’s assurance at the 

Washington, DC workshop that the threat of large penalties provides an incentive 

to both large and small entities to comply with our requirements.268 Cities/M-S-R 

believes that while this statement may be true, the impact of a large penalty on a 

small entity can be debilitating. Therefore, Cities/M-S-R urges the Commission to 

place more emphasis on reducing the penalty amount for smaller entities in its 

Penalty Guidelines.269 On the other hand, CPUC recommends that the 

Commission clarify that if an organization is unable to pay, the Commission is not 

 262 Comments of APPA at 13. 

263 Id. at 15. 

264 See Comments of APPA at 17; PPC at 11. 

265 Comments of APPA at 17. 

266 See Comments of Cities/M-S-R at 13; Turlock. 

267 Comments of Cities/M-S-R at 13. 

268 Id. at 14. 

269 Id. 
Docket No. PL10-4-000 - 71 - 

precluded from taking other enforcement action, including, for example, limitation 

or revocation of market-based rate authority.270

186. Several commenters are concerned that the Penalty Guidelines do not 

appropriately consider non-profit entities.271 BPA states that as opposed to the 

NERC Sanction Guidelines, the Penalty Guidelines do not clearly allow for the 

consideration of an organization’s non-profit status.272 Several commenters state 

that the Commission should consider the business model of a violator because 

non-profit companies, government-owned entities (such as a municipal utility), 

and ISO/RTOs do not have shareholders or excess funds from which to pay 

penalties, and any fines levied would be assessed to the company’s customers. 

ISO/RTO Council emphasizes that the Commission should reassert its previous 

findings that a company’s non-profit status should be considered in penalty 

determinations.273 PPC states that the Commission has shown no intention of 

returning money collected from penalties to the customers that experienced the 

economic loss, nor is there a means of implementing a fair and equitable 

distribution of those funds, so the fine functions as a tax and not as a means of 

remediation.274 PNGC states further that the disproportionate effect on small 

organizations creates unfair results for those organizations and their retail 

customers. PNGC recommends that the Penalty Guidelines be amended to 

recognize the disproportionate impacts that penalties can have on small utilities 

and should subject smaller entities to proportionally smaller penalty amounts.275

187. TAPS recommends that the Penalty Guidelines expressly provide that, in 

assessing penalties: (1) the Commission will take into account an organization’s 

financial resources; (2) the burden that the fine will impose upon the organization 

or other affected entities, including the organization’s ratepayers; (3) the size of 

the organization and any measure taken by the organization to discipline any 

 270 Comments of CPUC at 5. 

271 See, e.g., Comments of PPC at 10; BPA at 9; PNGC at 4-5; and 

ISO/RTO Council at 3. 

272 Comments of BPA at 9. 

273 Comments of ISO/RTO Council at 3. 

274 Comments of PPC at 10. 

275 Comments of PNGC at 4-5. 
Docket No. PL10-4-000 - 72 - 

officer, director, employee, or agent of the organization responsible for the 

violation and to prevent a recurrence of such an offense; and (4) entity structure, 

including whether the organization is a public entity, whether members, 

customers, or other beneficiaries of the organization, other than shareholders, are 

direct victims of the offense, and whether the organization can pass on to 

consumers or others the expense of the fine.276

188. APPA believes that the Commission’s Penalty Guidelines run afoul of the 

purposes and goals of the Regulatory Flexibility Act of 1980 (RFA) under which 

the Commission must analyze the impact of new rules that will have a significant 

economic impact on a substantial number of small entities as defined by the Small 

Business Administration.277 APPA states that by our decision to seek comments 

from the industry in this docket, we have at least tacitly acknowledged that this 

proceeding bears many of the hallmarks of a rulemaking, to which the 

requirements of the RFA would apply.278 APPA states that the Commission has 

an obligation when enacting new regulations and policies to consider their impact 

on small utilities and has failed to do so here. APPA recommends that the 

Commission undertake an RFA analysis if it proceeds with the Penalty 

Guidelines.279

189. Finally, EPE urges the Commission to assess a penalty’s impact on each 

organization. Specifically, EPE requests that the Commission consider the 

addition of a third element to the model under which a civil penalty range is 

developed.280 EPE states that this third element would work together with the 

existing combination of a “violation level” and a “culpability score” to generate a 

penalty range that would more effectively satisfy the Commission’s stated goal of 

basing penalties on factors that are “weighted similarly for similar types of 

violations and similar types of violators.”281 EPE states that it is essential that 

some consideration be given to the impact of the penalty range on the targeted 

 276 Comments of TAPS at 25-26. 

277 Comments of APPA at 15-16. 

278 Id. at 16. 

279 Id. 

280 Comments of EPE at 1. 

281 Id. 
Docket No. PL10-4-000 - 73 - 

entity. EPE requests that the combination of the model described in P 37 of the 

Policy Statement not only incorporate the two elements described there, but also a 

third element as follows: 

(3) An impact assessment, which considers whether a penalty range is both 

high enough to act as an effective deterrent to future misconduct by the 

particular company at issue and not so high as to have the unintended effect 

of threatening the viability of the company as a going concern.282

190. EPE states that without an impact assessment by the Commission, a penalty 

range that is generated simply by the first two factors could result in a slap on the 

wrist for Company A, but a devastating blow to Company B.283

2. Commission Determination

191. The Penalty Guidelines consider the size and non-profit status of 

organizations, including the impact that the guidelines’ penalty range could have 

on a particular organization based on its size or non-profit status. First, under the 

Penalty Guidelines, the Commission retains the discretion to examine the facts and 

circumstances of a case, including the size and non-profit status of an 

organization, and to depart from the Penalty Guidelines based on these factors.284 

In addition, the Penalty Guidelines take size into account in a variety of ways and, 

as a result, a smaller organization may receive a lower penalty than a larger 

organization. For example, the size of an organization is a factor in assessing 

whether it devoted sufficient resources and measures to develop an effective 

compliance program.285 Similarly, under the Penalty Guidelines, a small 

organization may be less likely to cause harm to the same extent as a large 

organization. The Commission can also reduce a penalty based on an 

organization’s inability to pay.286 Finally, we retain flexibility to examine an 

organization’s size and structure because the Penalty Guidelines produce a penalty 

 282 Id. at 2. 

283 Id. 

284 See Penalty Guidelines § 1A1.1 (“The Commission reserves the right to 

depart from these Guidelines where it deems appropriate.”). 

285 See id. § 1B2.1 (Application Note 2(A)). 

286 Id. § 1C3.2(b). 
Docket No. PL10-4-000 - 74 - 

range, rather than an absolute figure. Specific facts of each case, including 

organization size and structure, may affect where in the range the ultimate penalty 

falls. 

192. Pursuant to the Commission’s discretion to examine the facts and 

circumstances of a case and depart from the Penalty Guidelines where appropriate, 

we could examine a broad range of issues relevant to an organization’s size or 

non-profit status, including the factors that TAPS recommends we consider: (1) 

an organization’s financial resources; (2) the burden that the penalty will impose 

upon the organization; (3) the size of the organization; and (4) the structure of the 

organization. This is not an exhaustive list. The Penalty Guidelines are 

sufficiently flexible that we can consider multiple factors relevant to an 

organization’s size and corporate structure and adjust the penalty accordingly. 

193. APPA’s and PPC’s concerns about their members facing fines that could 

jeopardize their continued viability are specifically addressed in section 1C3.2(b), 

which states that the “Commission may impose a penalty below that otherwise 

required if the Commission finds that the organization is not able and, even with 

the use of a reasonable installment schedule, is not likely to become able to pay 

the minimum [penalty].”287 Under the Penalty Guidelines, an organization is 

deemed unable to pay the minimum penalty if the payment of the penalty would 

“substantially jeopardize the continued existence of the organization.”288 

194. Built into the Penalty Guidelines, the Commission already has the ability to 

conduct an impact analysis as EPE proposes we do. Specifically, the Penalty 

Guidelines are designed to generate a penalty range that is high enough to serve to 

provide just punishment, deterrence, and incentives for organizations to develop 

and maintain sufficient compliance measures. On the other hand, through their 

discretionary nature and section 1C3.2’s consideration of ability to pay, the 

Penalty Guidelines take into account whether a penalty will be so high as to 

threaten the viability of an organization. 

195. Finally, the Commission disagrees with APPA that the Penalty Guidelines 

run afoul of the RFA. The RFA does not apply to our Policy Statement because it 

is not a regulation promulgated by notice and comment rulemaking pursuant to 

 287 As CPUC suggests, however, if an organization is unable to pay, we are 

not precluded from taking other, non-monetary enforcement actions. 

288 Penalty Guidelines § 1C3.2 (Application Note 1). 
Docket No. PL10-4-000 - 75 - 

section 553(b) of the Administrative Procedure Act (APA). Under the RFA, an 

agency must provide a description and analysis of the impact of any final rule that 

will have a substantial impact on small businesses.289 The RFA defines “rule” to 

mean “any rule for which the agency publishes a general notice of proposed 

rulemaking pursuant to section 553(b) of [5 U.S.C.], or any other law.”290 Section 

553(b) does not apply “(A) to interpretative rules, general statements of policy, or 

rules of agency organization, procedure or practice . . . .”291 Thus, when the 

Commission issues a policy statement, we need not fulfill the section 553(b) 

requirement of issuing a proposed rulemaking because it falls into the exception in 

section 553(b)(3)(A). And, because we need not issue a proposed rulemaking, we 

are not subject to the requirements of the RFA.292 Nonetheless, as we stated 

above, we are cognizant of the impact of civil penalties on small businesses, and 

the Penalty Guidelines take such considerations into account. 

L. Statutory Cap of $1 Million Per Day Per Violation

1. Comments

196. ISO-NE believes that the Commission should clarify how the Penalty 

Guidelines comport with the statutory limitation on the amount of a penalty per 

day per violation because this point was not clear in the Policy Statement’s 

Reliability Standard violation example.293 Similarly, CPUC recommends that the 

Commission clarify that an organization is subject to the statutory maximum 

penalty and that when the minimum penalty is greater than the maximum allowed 

by statute, the guideline penalty will be reduced to the maximum authorized by 

 289 5 U.S.C. § 603(b)(2006). 

290 5 U.S.C. § 601(2)(2006). 

291 5 U.S.C. § 553(b)(3)(A)(2006). 

292 See also Cent. Tex. Tel. Coop., Inc. v. FCC, 402 F.3d 205, 214 (D.C. 

Cir. 2005) (“We therefore hold that the [Order] constituted an interpretive rule 

under § 553(b)(3)(A) of APA. It follows that the Commission was not required to 

issue an impact statement under § 604 of the Regulatory Flexibility Act, which 

applies only to legislative rules.”). 

293 Comments of ISO-NE at 8-9. 
Docket No. PL10-4-000 - 76 - 

statute.294 National Grid recommends that the Penalty Guidelines be limited to the 

statutory maximum.295

197. Turlock believes that it is unclear under the Penalty Guidelines how the 

Commission will assess a penalty based on the duration of the violation and 

whether the duration of the violation is a criterion which will be taken into 

consideration.296

2. Commission Determination

198. The Penalty Guidelines explicitly state, “[w]here the minimum guideline 

penalty is greater than the maximum penalty authorized by statute, the maximum 

penalty authorized by statute will be the guideline penalty.”297 

199. In response to Turlock’s comments about duration, we note that we must 

consider duration to ensure that the Penalty Guidelines’ minimum penalty does not 

exceed the statutory maximum of $1 million per day per violation. 

M. Duration and Volume Enhancements

1. Comments

200. EEI and CPUC suggest modifications to the Commission’s consideration of 

duration and volume under section 2B1.1 of the Penalty Guidelines. EEI proposes 

converting the volumetric and duration enhancements to be floors, not 

enhancements.298 CPUC suggests that the enhancements under section 2B1.1 for 

duration and volume should be cumulative.299

 294 Comments of CPUC at 6. 

295 Comments of National Grid at 9-10. 

296 Comments of Turlock. 

297 Penalty Guidelines § 1C3.1(b). Thus, for example, if there was a single 

violation for which the Penalty Guidelines generate a penalty range of $2 to $4 

million, but the violation lasted only one day, then the penalty would be reduced to 

the statutory maximum, $1 million. 

298 Comments of EEI at 29. 

299 Comments of CPUC at 2. 
Docket No. PL10-4-000 - 77 - 

2. Commission Determination

201. The Commission rejects EEI’s proposal to convert the volumetric and 

duration enhancements in section 2B1.1(b)(2) to be floors, not enhancements. We 

believe that these are significant factors that warrant enhancements and are not 

designed to simply establish floors. Indeed, these factors are based on the 

statutory requirements that we consider the seriousness and duration of a violation. 

202. Although the Commission believes the volumetric and duration factors are 

significant, we decline to apply these factors cumulatively, as CPUC suggests, 

because we believe that a cumulative application could result in overly severe 

penalties in many circumstances. The Commission will continue to apply the 

greater of either the volume or duration enhancement. 

N. Consideration of Loss Under the Penalty Guidelines

1. Comments

203. EEI “propose[s] a change to the applicable standard” for calculating loss in 

cases involving market manipulation and other violations in which the civil 

penalties are calculated with reference to loss under section 2B1.1 of the Penalty 

Guidelines.300 EEI raises a particular concern that an entity will be responsible for 

losses that result from a violation if the entity reasonably should have known that a 

loss was a “potential” result of the violation. EEI suggests that the Commission 

adopt the definition of “reasonably foreseeable” losses in section 351 of the 

Restatement (Second) of Contracts, which limits a party’s responsibility for losses 

to those that were “probable” rather than “potential.”301 EEI also recommends 

that the Commission amend the standard for estimation of losses to provide that 

the “estimation of loss shall be based on substantial evidence regarding the 

specific violation” and that Commission staff “shall provide the subject of an 

investigation sufficient information to allow it to replicate any loss calculation on 

which [s]taff bases a proposed penalty” instead of the statement that “[t]he 

Commission need only make a reasonable estima 302 te of the loss.”

 300 Comments of EEI at 14, 28. 

301 Id. at 28. 

302 Id. at 29. 
Docket No. PL10-4-000 - 78 - 

204. Further, TAPS recommends that operational penalties paid under a public 

utility’s tariff count as diminishing the pecuniary gain/loss associated with a tariff 

violation.303

2. Commission Determination

205. The Commission rejects EEI’s suggestion that we adopt the definition of 

“reasonably foreseeable” losses in section 351 of the Restatement (Second) of 

Contracts. With regard to loss, contract law considers theories of risk allocation 

between two contracting parties. These principles of contract law are not relevant 

to the Commission’s enforcement program, which focuses on ensuring compliance 

with the statutes, rules, regulations, restrictions, conditions, and orders overseen 

by the Commission, not contractual relations between two entities. Therefore, it 

would be inappropriate to apply contract principles to violations of Commission 

requirements. Moreover, the Penalty Guidelines’ definition of “reasonably 

foreseeable” comes from the definition in the Sentencing Guidelines,304 which 

have been applied in the enforcement context for over two decades by federal 

judges. 

206. Regarding EEI’s recommendation to base our estimates of loss “on 

substantial evidence regarding the specific violation,” the Commission is, in fact, 

required under the APA to base imposition of any sanction on “substantial 

evidence.”305 The Supreme Court in Steadman v. SEC, 450 U.S. 91, 102 (1981), 

equated the APA’s “substantial evidence” requirement with the “traditional 

preponderance-of-the-evidence standard,” and the Commission has been guided 

by this standard ever since.306 This “substantial evidence” requirement, however, 

does not preclude the Commission from making a reasonable estimate of loss 

under the Penalty Guidelines. Substantial evidence refers to “a certain quantity of 

 303 Comments of TAPS at 29. 

304 See U.S.S.G. § 2B1.1 (Application Note 3(A)(iv)). 

305 5 U.S.C. § 556(d)(2006) (“A sanction may not be imposed . . . except on 

consideration of . . . substantial evidence.”). 

306 See, e.g., Nantahala Power and Light Co., 19 FERC ¶ 61,152, at n.9 

(1982) (citing Steadman v. S.E.C., 49 U.S. L.W. 4174 (February 25, 

1981)(Steadman)). 
Docket No. PL10-4-000 - 79 - 

evidence,” not the methods by which the evidence is calculated.307 The 

Commission cannot predict how it will measure loss in every case. There may be 

circumstances when precise calculations cannot be made. Moreover, the 

availability of evidence will likely vary from case to case. In certain situations, 

the Commission may need to rely on a reasonable estimate of loss. We can do so 

without violating the requirement that our sanctions must be based on substantial 

evidence. Also, staff will continue to provide the subject of an investigation 

sufficient information to allow the loss calculations to be replicated. 

207. In response to TAPS’ recommendation about operational penalties, we note 

that in determining an appropriate penalty under the Penalty Guidelines, and in 

exercising our discretion under them, we could consider operational penalties that 

an organization has already paid under a utility’s tariff for the same violation. 

O. Rulemaking Versus Policy Statement

1. Comments

208. NERC argues that to the extent the Commission seeks to employ a different 

penalty framework than that envisioned by Congress for Reliability Standard 

violations, it must do so in a rulemaking proceeding under the Administrative 

Procedure Act, and not through a policy statement.308 NERC states that sections 

215(e)(1) and (2) of the FPA give the ERO the authority to establish and impose 

penalties as an appropriate implementation of the penalty provisions of section 

215 and that the Commission has approved NERC’s Sanction Guidelines to be 

applied to Reliability Standard violations. NERC states that the NERC Sanction 

Guidelines were approved by the Commission through a lengthy and extensive 

notice and comment rulemaking proceeding, with reasoned consideration of 

industry input. NERC asserts that Congress established a very different 

framework with respect to the Commission’s role in oversight of NERC’s 

development and enforcement of the Reliability Standards than the Commission’s 

role for other matters subject to its jurisdiction. NERC states that the 

Commission’s prior orders implementing the section 215 program respect these 

roles and establish a workable mechanism by which penalties are, and have been, 

assessed.309

 307 Steadman, 450 U.S. at 98. 

308 Comments of NERC at 9. 

309 Id. at 8-9. 
Docket No. PL10-4-000 - 80 - 

209. National Grid recommends that the Commission’s methodology for 

assessing penalties should be implemented by a rulemaking instead of a policy 

statement.310 Similarly, National Grid suggests that if we decide to adopt the 

Penalty Guidelines for reliability violations, we should provide a clear set of rules, 

developed with public input, for applying the Penalty Guidelines to violations of 

Reliability Standards.311

2. Commission Determination

210. Issuing the Penalty Guidelines through a policy statement is consistent with 

the Commission’s prior approaches to explain our processes for assessing civil 

penalties, such as with our 2005 Policy Statement and Revised Policy Statement in 

2008. Moreover, in deciding to adopt the Penalty Guidelines, we considered the 

views of industry, including the wide-spread suggestions by industry since the 

Commission’s November 2007 Conference on Enforcement Policy that the 

Commission adopt a guidelines approach to determine civil penalties.312 Also, as 

part of our industry and public outreach, Enforcement staff held three workshops 

in April 2010, addressing a broad range of questions from industry. The 

Commission also has reviewed and carefully considered the forty-one sets of 

comments we received after our suspension of the Penalty Guidelines. Finally, as 

noted in our March 18, 2010, Policy Statement on Penalty Guidelines, we will 

hold a technical conference one year from implementation of the modified Penalty 

Guidelines we issue today to discuss how they have worked in practice and to 

permit comments and questions from industry. 

211. This is a policy statement. Consistent with the APA, when the Commission 

applies the Penalty Guidelines in orders, we will present why it is appropriate to 

apply the Penalty Guidelines and will justify their application in the particular 

circumstances at hand.313 Moreover, where the Commission decides to depart 

 

 

(continued...) 

310 Comments of National Grid at 13-14. 

311 Id. at 13. 

312 See Conference on Enforcement Policy, Docket No. AD07-13-000 (Nov. 

16, 2007). 

313 See Pac. Gas & Elec. v. Fed. Power Comm’n, 506 F.2d 33, 38 (D.C. Cir. 

1974) (an agency “cannot apply or rely upon [the policy] as law because a general 

statement of policy only announces what the agency seeks to establishing as 

policy”); Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C. Cir. 
Docket No. PL10-4-000 - 81 - 

from the Penalty Guidelines, it will support and justify that departure based upon 

the facts and circumstances of the specific case. 

212. NERC’s suggestion that we should operate by rulemaking if we seek to 

employ a different penalty framework than that envisioned by Congress is 

misplaced. In issuing the Penalty Guidelines, we have not altered the reliability 

enforcement framework that Congress created in EPAct 2005. As we have made 

clear, the Penalty Guidelines will apply to our authority to enforce the Reliability 

Standards that Congress explicitly granted to us in EPAct 2005. 

P. Other Issues

213. EEI comments that, although it does not recommend a change to the base 

culpability score, this does not eliminate the Commission’s burden, if the matter is 

contested, of showing that there is, in fact, culpability that warrants a civil penalty 

and a “base” culpability that could double the base penalty.314 Similarly, Turlock 

comments that the Commission has not justified its proposed use of either a 

culpability multiplier or the starting culpability base score of five points for the 

violation of a Reliability Standard. Turlock states that the use of culpability 

multipliers is inappropriate for violations of Reliability Standards because they 

generally do not involve scienter or culpability. Furthermore, Turlock emphasizes 

that the culpability score is not insignificant and is excessive and unjustified.315 

214. EEI’s and Turlock’s comments misinterpret the purpose of the culpability 

score. Culpability refers to an organization’s blameworthiness and all violations 

will include some level of blameworthiness, even if minimal, for failing to comply 

with our requirements. The culpability score establishes a baseline multiplier for 

all violations, and allows for increases or decreases of the score based upon the 

conduct of the organization. Thus, it is possible for an organization (that is 

 

1970); Am Trucking Ass’n v. U.S., 642 F.2d 916, 920 (5th Cir. 1981) (court looks 

to see that the agency considered the relevant facts, avoided clear error, and had a 

rational connection between the facts and conclusions). The Commission, 

however, is not required to “repeat itself incessantly” in subsequent application of 

the Penalty Guidelines. Bechtel v. FCC, 10 F.3d 875, 878 (D.C. Cir. 1993). 

314 Comments of EEI at 34. 

315 Comments of Turlock. 
Docket No. PL10-4-000 - 82 - 

blameworthy for the violation) to have a zero culpability score after receiving 

credit for various mitigating factors. 

215. EEI comments that minimum fairness and due process require that 

disgorged pecuniary gains either be offset against any Commission penalty 

imposed, or discounted for purposes of the determination of a base penalty 

level.316 

216. The Commission rejects EEI’s assertion that disgorged pecuniary gains 

should be offset against any Commission penalty imposed, or discounted for 

purposes of the determination of a base penalty level. The Commission has 

always required disgorgement in addition to the assessment of civil penalties. 

They are entirely different concepts. Disgorgement involves relinquishing profits 

illegally obtained, and such profits are distributed to those who were harmed by 

the violations. Civil penalties, on the other hand, serve to provide just 

punishment, deterrence, and incentives for organizations to develop and maintain 

sufficient compliance measures. Funds from civil penalties go to the United States 

Treasury. 

217. INGAA encourages the Commission to clarify that not every tariff or 

posting error constitutes a threat to market transparency.317 

218. INGAA is correct that not every tariff or posting error constitutes a threat to 

market transparency to warrant a violation level of sixteen under section 

2B1.1(b)(3). Moreover, the Commission emphasizes that this section will not be 

triggered for all threats to market transparency, only for conduct that presents a 

serious threat to market transparency.318

219. Turlock asserts that if civil penalties resulting from the Penalty Guidelines 

are intended to do more than extract compensation and restore the status quo, the 

Seventh Amendment to the United States Constitution entitles organizations to a 

 316 Comments of EEI at 41. 

317 Comments of INGAA at 15. 

318 See Report on Enforcement, Docket No. AD07-13-002, at 16 (Dec. 17, 

2009) (listing investigations closed without monetary sanctions from 2007 through 

2009, including violations of non-serious posting requirements, OATT violations, 

and violations of the Standards of Conduct). 
Docket No. PL10-4-000 - 83 - 

jury trial. Without such due process concerns, Turlock cautions that the Penalty 

Guidelines would be unconstitutional.319 

220. The Commission views Turlock’s Seventh Amendment argument as 

beyond the scope of the Penalty Guidelines, as our purpose in assessing civil 

penalties has always gone beyond extracting compensation and restoring the status 

quo. In any event, we disagree with Turlock that our assessment of civil penalties 

implicates the Seventh Amendment right to a jury trial. The Supreme Court of the 

Unites States has made clear that “Congress may effectively supplant a common 

law cause of action carrying with it a right to a jury trial with a statutory cause of 

action shorn of a jury trial if that statutory cause of action inheres, in or lies 

against, the Federal Government in its sovereign capacity.”320 Congress created 

statutes that gave us the right to regulate the purchase and sale of electricity and 

natural gas in interstate commerce, and to do so in the public interest. Further, we 

operate under a framework in which our enforcement proceedings are heard by 

administrative law judges. As the Supreme Court states, “if Congress . . . 

assign[s] the adjudication of a statutory cause of action to a non-Article III 

tribunal, then the Seventh Amendment poses no independent bar to the 

adjudication of that action by a nonjury factfinder.”321 

221. FirstEnergy states that, regardless of whether a civil penalty is remedial or 

punitive, the Eighth Amendment to the United States Constitution limits 

application of the Commission’s section 316A civil penalty authority to avoid 

fines that would be described as “excessive,” even if the particular circumstances 

seem to call for the appearance of rigorous punishment. FirstEnergy asserts that 

the Commission’s civil penalty assessment is further limited by the language in 

section 316A itself. Specifically, FirstEnergy argues that section 316A caps the 

total amount of any penalty to $1 million per day per violation and calls for the 

penalty to be reduced by consideration of the seriousness of the violation and the 

efforts to remedy the violation in a timely manner. For these reasons, FirstEnergy 

urges the Commission to return to the approach of assessing civil penalties on a 

case-by-case basis.322

 319 See Comments of Turlock. 

320 Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 53 (1989). 

321 Id. 

322 See Comments of FirstEnergy. 
Docket No. PL10-4-000 - 84 - 

222. The Commission acknowledges that our civil penalty determinations are 

subject to the Eighth Amendment’s prohibition on excessive fines, but the Penalty 

Guidelines do nothing to change this fact. These guidelines also do not change 

our requirements under section 316A of the FPA. We addressed FirstEnergy’s 

concerns about these requirements in our prior policy statements on enforcement. 

For example, we said that with our “expanded authority comes added 

responsibility to ensure that the Commission’s penalty authority determinations 

are fair and reasonable, and take into account the unique factors relevant to a given 

violation.”323 We went on to emphasize the language in section 316A of the FPA 

when we stated that it “requires us to ‘take into consideration the seriousness of 

the violation and the efforts . . . to remedy the violation in a timely manner.’”324 

Finally, we clearly stated that “we implement these statutory mandates and our 

due process obligations by taking into account numerous factors in determining 

the appropriate civil penalty for a violation, including the nature and seriousness 

of the violation and the company’s efforts to remedy it.”325 The Penalty 

Guidelines do not change any of these considerations. Under the Penalty 

Guidelines, we continue to be limited by the statutory maximum of $1 million per 

day per violation and we continue to consider factors related to the seriousness of 

the violation and the organization’s efforts to remedy it. The only difference is 

that we now assign specific and transparent weight to these factors. 

223. SCE asks the Commission to clarify whether and how penalties will be 

assessed to ISOs/RTOs in terms of these entities’ ability to pay and to pass 

through any fines or penalties. SCE believes that members of ISOs and RTOs 

might not be willing to enter into indemnification agreements, given the potential 

size of penalties under the Penalty Guidelines.326 

224. The Commission addressed ISOs’ and RTOs’ ability to pass through 

penalties in our Order Providing Guidance on Recovery of Reliability Penalty 

Costs by Regional Transmission Organizations and Independent System 

 323 Revised Policy Statement, 123 FERC ¶ 61,156 at P 51. 

324 Id. (quoting 16 U.S.C. § 825o-1 (2006) (as amended by EPAct 2005, 

§ 1284(e)). 

325 Id. 

326 Comments of SCE at 8-9. 
Docket No. PL10-4-000 - 85 - 

Operators.327 Specifically, we stated that “we will not allow RTOs and ISOs to 

adopt tariff mechanisms that provide automatic recovery of penalties incurred for 

Reliability Standard violations and will instead require that proposals to recover 

any such penalties be filed case-by-case.”328 The Penalty Guidelines do not 

change our views on this issue. 

225. Several commenters request a technical conference. SMUD asks the 

Commission to conduct a technical conference early next year to discuss potential 

improvement to the enforcement process, and to permit comments and questions 

from the industry.329 SCE and PPC request a technical conference before we issue 

a revised version of the Penalty Guidelines. Specifically, SCE comments that after 

the Commission has had sufficient time to consider the comments submitted on 

June 14, 2010, it should initiate a process with industry stakeholders to develop 

the Penalty Guidelines further.330 Rather than workshops with limited 

opportunities for input and participation, SCE states that the Commission should 

hold a series of technical conferences allowing for an open exchange of ideas and 

dialogue. SCE suggests that the process should focus in the near term on 

refinements in the substantive areas of: (1) fraud, manipulation, or anticompetitive conduct, and (2) misrepresentations or false statements to the 

Commission.331 Finally, SCE believes that future technical conferences should 

explore how the Reliability Standards can be incorporated into the Penalty 

Guidelines.332 PPC requests that the Commission refrain from issuing a final 

policy statement or a determination adopting the Penalty Guidelines.333 PPC 

requests that the Commission engage the industry to develop the best approach to 

 327 See Reliability Standard Compliance and Enforcement in Regions with 

Regional Transmission Organizations or Independent System Operators, 122 

FERC ¶ 61,247 (2008). 

328 Id. P 16. 

329 Comments of SMUD at 16. 

330 Comments of SCE at 12-13. 

331 Id. 

332 Id. 

333 Comments of PPC at 12. 
Docket No. PL10-4-000 - 86 - 

oversight of penalty determinations and settlements by the reliability

organizations.334

226. As previously stated, we will hold a technical conference one year from the 

implementation of the modified Penalty Guidelines to discuss how they have 

worked in practice and to permit comments and questions from the industry. We 

decline, however, to hold a technical conference in advance of issuing the 

modified Penalty Guidelines, as SCE and PPC request. We believe that it makes 

more sense to hold a technical conference after we, and the industry, have had a 

chance to observe the actual application of the Penalty Guidelines. 

227. PPC states that the Commission does not explain why the current 

enforcement program and its fines are inadequate to meet the Commission’s 

enforcement needs or how greater compliance would be achieved by adoption of 

the Penalty Guidelines.335 

228. As stated earlier, the Commission believes that the Penalty Guidelines 

improve our enforcement program by adding greater fairness, consistency, and 

transparency. The Penalty Guidelines will provide more notice and certainty to 

the regulated community. The Penalty Guidelines will also provide detailed 

guidance to industry about how to best develop and maintain an effective 

compliance program. Under the Penalty Guidelines, the Commission will still 

consider many of the same factors that are present in our prior policy statements 

on enforcement, but we will do so in a more focused manner by assigning 

transparent values to the various factors. At the same time, the Penalty Guidelines 

still allow for the discretion and flexibility to depart from the indicated penalty 

range where necessary to account for facts and circumstances not considered by 

the guidelines. 

III. Conclusion

229. Since Congress expanded our civil penalty authority in EPAct 2005, we 

have carefully considered our responsibility to implement our new authority and to 

improve our application of it in light of experience. To that end, we have 

continuously strived to add greater fairness, consistency, and transparency to our 

penalty determinations, and we have always sought to consider industry’s 

 334 Id. at 4. 

335 Id. at 6. 
Docket No. PL10-4-000 - 87 - 

recommendations to achieve these goals. Our issuance of the modified Penalty 

Guidelines reflects these objectives. We have considered a broad range of 

comments and recommendations from various segments of the energy industry, 

and these comments have led to a number of important modifications to the 

Penalty Guidelines, which we have explained throughout this Revised Policy 

Statement. 

By the Commission. 

(S E A L) 

Kimberly D. Bose, 

Secretary. 

 , 

 
Docket No. PL10-4-000 - 88 - 

Appendix 

1. American Gas Association (AGA) 

2. Bonneville Power Administration (BPA) 

3. Edison Electric Institute (EEI) 

4. El Paso Electric Company (EPE) 

5. Electric Power Supply Association (EPSA) 

6. Electricity Consumers Resource Council (ELCON) 

7. FirstEnergy Companies (FirstEnergy) 

8. Florida Reliability Coordinating Council, Inc. (FRCC) 

9. Hoosier Energy Rural Electric Cooperative (Hoosier) 

10.Industry Stakeholder – Empire District (Empire) 

11.Interstate Natural Gas Association (INGAA) 

12.ISO New England (ISO-NE) 

13.ISO RTO Council (ISO/RTO Council) 

14.Joint Comments of American Public Power Association, Large Public 

Power Council, and National Rural Electric Cooperative Association 

(collectively, APPA) 

15.Joint Comments of Georgia Transmission Corporation (GTC) and Georgia 

Systems Operations Corporation (GSOC) 

16.Midwest Independent Transmission System Operator, Inc. (MISO) 

17.Midwest Reliability Organization (MRO) 

18.National Association of Regulatory Utility Commissioners (NARUC) 

19.National Grid USA (National Grid) 

20.North American Electric Reliability Corporation (NERC) 

21.Northeast Power Coordinating Council (NPCC) 

22.Northern California Power Agency (NCPA) 

23.NorthWestern Corporation (NorthWestern) 

24.Pacific Northwest Generating Cooperative (PNGC) 

25.PJM Interconnection (PJM) 

26.Public Power Council (PPC) 

27.Public Utilities Commission of the State of California (CPUC) 

28.ReliabilityFirst Corporation (ReliabilityFirst) 

29.Sacramento Municipal Utility District (SMUD) 

30.Southern California Edison Company (SCE) 

31.Southwest Transmission Dependent Utility Group (SWTDUG) 

32.Springfield Utility Board (SUB) 

33.The Joint Municipal Registered Entities (Joint Municipals) 

34.Joint Comments of M-S-R Public Power Agency, the City of Redding, 

California, and the City of Santa Clara, California (collectively, Cities/M-SR) 

35.Transmission Access Policy Study Group (TAPS) 

36.Transmission Agency of Northern California (TANC) 
Docket No. PL10-4-000 - 89 - 

37.Turlock Irrigation District (Turlock) 

38.Utility Services, Inc. (Utility Services) 

39.Western Electricity Coordinating Council (WECC) 

40.Western Interconnection Regional Advisory Body (WIRAB) 

41.Xcel Energy Services, Inc. (Xcel) 
Docket No. PL10-4-000 - 90 - 

FERC Penalty Guidelines 

CHAPTER 1 

PART A - GENERAL APPLICATION PRINCIPLES 

§1A1.1. Applicability of these Guidelines

1. This chapter applies to the penalties to be imposed on all organizations for violations of 

the statutes, rules, regulations, restrictions, conditions or orders overseen by the Federal 

Energy Regulatory Commission. The Commission reserves the right to depart from these 

Guidelines where it deems appropriate. Further, the Penalty Guidelines do not affect the 

Commission’s Office of Enforcement staff’s exercise of discretion to close investigations 

and self-reports without sanctions. These Penalty Guidelines apply only after staff has 

recommended, and the Commission determines, that a penalty is warranted and, even 

then, the Commission can depart from their application if appropriate. 

2. The Commission views civil penalties as an important tool to achieve compliance. 

Achieving compliance, not assessing penalties, is the central goal of the Commission’s 

enforcement efforts. 

3. For multiple violations that fall under section 2A1.1 of these Penalty Guidelines for 

violations of the Reliability Standards and that are related to the same conduct or event, 

the Commission will apply the Guideline based on the conduct as a whole. Where an 

organization has engaged in multiple acts of fraud, anti-competitive conduct, or other 

rule, tariff, and order violations, in which the penalty is determined under section 2B1.1 

of these Penalty Guidelines; or made multiple misrepresentations or false statements in 

which the penalty is determined under section 2C1.1 of these Penalty Guidelines, each 

act will be treated as a separate violation. But in calculating the harm for purposes of 

determining the penalty, it is the cumulative harm of the multiple violations that is taken 

into account. 

Commentary

Application Notes: 

1. "Organization" means any entity other than a natural person. The Commission will 

determine the appropriate penalty for natural persons based on the facts and 

circumstances of the violation but will look to these Guidelines for guidance in setting 

those penalties. 

2. The definitions in the United States Sentencing Guidelines are persuasive authority in 

interpreting these Guidelines unless otherwise specified. 

3. The following are definitions of terms used frequently in this chapter: 

(a) "High-level personnel of the organization" means individuals who have 

substantial control over the organization or who have a substantial role in the 

making of policy within the organization. The term includes: a director; an 

executive officer; an individual in charge of a major business or functional unit 

of the organization, such as sales, administration, or finance; and an individual 
Docket No. PL10-4-000 - 91 - 

with a substantial ownership interest. "High-level personnel of a unit of the 

organization" is defined in the Commentary to §1C2.3 (Culpability Score). 

(b) "Substantial authority personnel" means individuals who within the scope of 

their authority exercise a substantial measure of discretion in acting on behalf of 

an organization. The term includes high-level personnel of the organization, 

individuals who exercise substantial supervisory authority (e.g., a plant 

manager, a sales manager), and any other individuals who, although not a part 

of an organization’s management, nevertheless exercise substantial discretion 

when acting within the scope of their authority (e.g., an individual with authority 

in an organization to negotiate or set price levels or an individual authorized to 

negotiate or approve significant contracts). Whether an individual falls within 

this category must be determined on a case-by-case basis. 

(c) "Agent" means any individual, including a director, an officer, an employee, or 

an independent contractor, authorized to act on behalf of the organization. 

(d) An individual "condoned" a violation if the individual knew of the violation and 

did not take reasonable steps to prevent or terminate the violation. 

(e) "Prior adjudication" means any resolution, whether by trial or settlement , 

regardless whether the settlement included an admission of the violation. 

(f) "Similar violations" means prior conduct that is similar in nature to the conduct 

underlying the instant violation, without regard to whether or not such conduct 

violated the same provision. 

(g) "Pecuniary gain" is derived from 18 U.S.C. § 3571(d) and means the additional 

 before tax profit to the entity resulting from the relevant conduct of the violation. 

Gain can result from either additional revenue or cost savings. For example, a 

violation involving an unreported outage by an organization receiving capacity 

payments can produce additional revenue. In such a case, the pecuniary gain is 

the additional revenue received because the outage was not reported. A violation 

involving a failure to comply with the reliability standards requiring vegetation 

management can produce pecuniary gain resulting from cost savings. In such a 

case, the pecuniary gain is the amount saved over time as a result of the failure 

to implement an appropriate vegetation management program. 

(h) "Pecuniary loss" is equivalent to the term "loss" as used in Chapter Two 

(Violation Conduct). 

(i) An individual was "willfully ignorant of the violation" if the individual did not 

investigate the possible occurrence of violative conduct despite knowledge of 

circumstances that would lead a reasonable person to investigate whether 

violative conduct had occurred. 

(j) “Violation” means a violation of any statute, rule, regulation, restriction, 

condition or order overseen by the Commission. “Compliance with the law” 

means compliance with a statute, rule, regulation, restriction, condition or order 

overseen by the Commission. 
Docket No. PL10-4-000 - 92 - 

PART B - DISGORGING GAIN FROM VIOLATIONS AND EFFECTIVE 

COMPLIANCE PROGRAM

1. DISGORGING GAIN FROM VIOLATIONS 

§1B1.1. Disgorgement

(a) In the case of pecuniary gain as a result of the violation, the Commission enters a 

disgorgement order for the full amount of the gain plus interest. 

 

2. EFFECTIVE COMPLIANCE PROGRAM 

§1B2.1. Effective Compliance Program

(a) To have an effective compliance program, for purposes of 

subsection (f) of §1C2.3 (Culpability Score), an organization shall— 

(1) exercise due diligence to prevent and detect violations; and 

(2) otherwise promote an organizational culture that encourages a 

commitment to compliance with the law. 

Such compliance program shall be reasonably designed, implemented, 

and enforced so that the program is generally effective in 

preventing and detecting violations. The failure to prevent or detect the 

instant violation does not necessarily mean that the program is not 

generally effective in preventing and detecting violations. 

(b) Due diligence and the promotion of an organizational culture that encourages 

a commitment to compliance with the law within the meaning of subsection (a) 

minimally require the following: 

(1) The organization shall establish standards and procedures to prevent and 

detect violations. 

(2) (A) The organization’s governing authority shall be knowledgeable 

about the content and operation of the compliance program and 

shall exercise reasonable oversight with respect to the 

implementation and effectiveness of the compliance program. 

(B) High-level personnel of the organization shall ensure that the 

organization has an effective compliance program, as 

described in this guideline. Specific individual(s) within highlevel personnel shall be assigned overall responsibility for the 

compliance program. 

 (C) Specific individual(s) within the organization shall be delegated 

day-to-day operational responsibility for the compliance 

program. Individual(s) with operational responsibility 

shall report periodically to high-level personnel and, as 

appropriate, to the governing authority, or an appropriate 
Docket No. PL10-4-000 - 93 - 

subgroup of the governing authority, on the effectiveness of the 

compliance program. To carry out such operational 

responsibility, such individual(s) shall be given adequate 

resources, appropriate authority, and direct access to the 

governing authority or an appropriate subgroup of the governing 

authority. 

(3) The organization shall use reasonable efforts not to include within the 

substantial authority personnel of the organization any individual whom 

the organization knew, or should have known through the exercise of due 

diligence, has engaged in violations or other conduct inconsistent 

with an effective compliance program. 

(4) (A) The organization shall take reasonable steps to communicate 

periodically and in a practical manner its standards and 

procedures, and other aspects of the compliance 

program, to the individuals referred to in subdivision (B) by 

conducting effective training programs and otherwise 

disseminating information appropriate to such individuals’ 

respective roles and responsibilities. 

(B) The individuals referred to in subdivision (A) are the members 

of the governing authority, high-level personnel, substantial 

authority personnel, the organization’s employees, and, as 

appropriate, the organization’s agents. 

(5) The organization shall take reasonable steps— 

(A) to ensure that the organization’s compliance program 

is followed, including monitoring and auditing to detect 

violations; 

(B) to evaluate periodically the effectiveness of the organization’s 

compliance program; and 

(C) to have and publicize a system, which may include mechanisms 

that allow for anonymity or confidentiality, whereby the 

organization’s employees and agents may report or seek 

guidance regarding potential or actual violations without 

fear of retaliation. 

(6) The organization’s compliance program shall be promoted and 

 enforced consistently throughout the organization through (A) 

appropriate incentives to perform in accordance with the compliance 

program; and (B) appropriate disciplinary measures for engaging 

in violations and for failing to take reasonable steps to prevent or 

detect violations. 

(7) After a violation has been detected, the organization shall take 

reasonable steps to respond appropriately to the violation and to 

prevent further similar violations, including making any necessary 
Docket No. PL10-4-000 - 94 - 

modifications to the organization’s compliance program. 

(c) In implementing subsection (b), the organization shall periodically assess the risk 

of violations and shall take appropriate steps to design, implement, or 

modify each requirement set forth in subsection (b) to reduce the risk of 

violations identified through this process. 

Commentary

Application Notes: 

1. Definitions.—For purposes of this guideline: 

"Compliance program" means a program designed to prevent and detect violations. 

"Governing authority" means the (A) the Board of Directors; or (B) if the organization does 

not have a Board of Directors, the highest-level governing body of the organization. "High-level 

personnel of the organization" and "substantial authority personnel" have the meaning given 

those terms in the Commentary to §1A1.1 (Application Instructions-Organizations). 

"Standards and procedures" means standards of behavior and internal controls that are 

reasonably capable of reducing the likelihood of violations. 

2. Factors to Consider in Meeting Requirements of this Guideline.— 

(A) In General.—Each of the requirements set forth in this guideline shall be met by 

 an organization; however, in determining what specific actions are necessary to 

meet those requirements, factors that should be considered include: (i) 

applicable industry practice; (ii) the size of the organization; and (iii) similar 

violations. 

(B) Applicable Industry Practice.—An organization’s 

failure to incorporate and follow applicable industry practice weighs against a 

finding of an effective compliance program. 

 

(C) The Size of the Organization.— 

(i) In General.—The formality and scope of actions that an organization 

 shall take to meet the requirements of this guideline, including the 

 necessary features of the organization’s standards and procedures, 

 depend on the size of the organization. 

(ii) Large Organizations.—A large organization generally shall devote more 

formal operations and greater resources in meeting the requirements of 

this guideline than shall a small organization. 

(iii) Small Organizations.—In meeting the requirements of this guideline, 

small organizations shall demonstrate the same degree of commitment to 

compliance with the law as large organizations. However, a small 

organization may meet the requirements of this guideline with less 

formality and fewer resources than would be expected of large 
Docket No. PL10-4-000 - 95 - 

organizations. In appropriate circumstances, reliance on existing 

resources and simple systems can demonstrate a degree of commitment 

that, for a large organization, would only be demonstrated through more 

formally planned and implemented systems. 

Examples of the informality and use of fewer resources with which a 

small organization may meet the requirements of this guideline include 

the following: (I) the governing authority’s discharge of its responsibility 

for oversight of the compliance program by directly managing the 

organization’s compliance efforts; (II) training employees through 

informal staff meetings, and monitoring through regular "walk-arounds" 

or continuous observation while managing the organization; (III) using 

available personnel, rather than employing separate staff, to carry out 

the compliance program; and (IV) modeling its own compliance 

program on existing, effective compliance programs and best practices 

of other similar organizations. 

(D) Recurrence of Similar Violations.—Recurrence of similar violations creates 

doubt regarding whether the organization took reasonable steps to meet the 

requirements of this guideline. For purposes of this subdivision, "similar 

violations" has the meaning given that term in the Commentary to §1A1.1 

(Application Instructions - Organizations). 

3. Application of Subsection (b)(2).—High-level personnel and substantial authority 

personnel of the organization shall be knowledgeable about the content and operation of 

the compliance program, shall perform their assigned duties consistent with the exercise 

of due diligence, and shall promote an organizational culture that encourages a 

commitment to compliance with the law. 

If the specific individual(s) assigned overall responsibility for the compliance program 

does not have day-to-day operational responsibility for the program, then the 

individual(s) with day-to-day operational responsibility for the program typically should, 

no less than annually, give the organization’s governing authority or an appropriate 

subgroup thereof information on the implementation and effectiveness of the compliance 

program. 

4. Application of Subsection (b)(3).— 

(A) Consistency with Other Law.—Nothing in subsection (b)(3) is intended to require 

conduct inconsistent with any Federal, State, or local law, including any law 

governing employment or hiring practices. 

(B) Implementation.—In implementing subsection (b)(3), the organization shall hire 

and promote individuals so as to ensure that all individuals within the high-level 

personnel and substantial authority personnel of the organization will perform 

their assigned duties in a manner consistent with the exercise of due diligence 

and the promotion of an organizational culture that encourages a commitment to 

compliance with the law under subsection (a). With respect to the hiring or 

promotion of such individuals, an organization shall consider the relatedness of 

the individual’s violations (including other conduct inconsistent with an effective 

compliance program) to the specific responsibilities the individual is anticipated 
Docket No. PL10-4-000 - 96 - 

to be assigned and other factors such as: (i) the recency of the individual’s 

violations; and (ii) whether the individual has engaged in other such violations. 

5. Application of Subsection (b)(6).—Adequate discipline of individuals responsible for a 

violation is a necessary component of enforcement; however, the form of discipline that 

will be appropriate will be case specific. 

6. Application of Subsection (c).—To meet the requirements of subsection (c), an 

organization shall: 

(A) Assess periodically the risk that violations will occur, including assessing the 

following: 

(i) The nature and seriousness of such violations. 

(ii) The likelihood that certain violations may occur because of the nature of 

the organization’s business. If, because of the nature of an 

organization’s business, there is a substantial risk that certain types of 

violations may occur, the organization shall take reasonable steps to 

prevent and detect that type of violation. For example, an organization 

that, due to the nature of its business, has employees whose 

compensation is dependent on the final settlement price of a certain 

product shall establish standards and procedures designed to prevent 

market manipulation of that final settlement price. 

(iii) The prior history of the organization. The prior history of an 

organization may indicate types of violations that it shall take actions to 

prevent and detect. 

(B) Prioritize periodically, as appropriate, the actions taken pursuant to any 

requirement set forth in subsection (b), in order to focus on preventing and 

detecting the violations identified under subdivision (A) of this note as most 

serious, and most likely, to occur. 

(C) Modify, as appropriate, the actions taken pursuant to any requirement set forth 

in subsection (b) to reduce the risk of violations identified under subdivision (A) 

of this note as most serious, and most likely, to occur. 

PART C – CIVIL PENALTIES 

1. GENERAL 

§1C1.1 

This Part governs the determination and implementation of civil penalties. 

2. DETERMINING THE PENALTY 

§1C2.1. Violation Level

(a) Use the applicable Chapter Two guideline to determine the base violation level 
Docket No. PL10-4-000 - 97 - 

and apply, in the order listed, any appropriate adjustments contained in that 

guideline. 

(b) Where there are multiple violations falling under different Chapter Two 

guidelines, e.g., a case involving both anticompetitive conduct and reliability 

violations, the Commission will determine the appropriate penalty on a case-bycase basis.

§1C2.2. Base Penalty 

(a) The base penalty is the greatest of: 

(1) the amount from the table in subsection (b) below corresponding to the 

violation level determined under §1C2.1 (Violation Level); or 

(2) the pecuniary gain to the organization from the violation; or 

(3) the pecuniary loss from the violation caused by the organization. 

(b) Violation Level Penalty Table

Violation Level Amount

6 or less $5,000 

7 $7,500 

8 $10,000 

9 $15,000 

10 $20,000 

11 $30,000 

12 $40,000 

13 $60,000 

14 $85,000

15 $125,000 

16 $175,000 

17 $250,000 

18 $350,000 

19 $500,000 

20 $650,000 

21 $910,000 

22 $1,200,000 

23 $1,600,000 

24 $2,100,000 

25 $2,800,000 

26 $3,700,000 

27 $4,800,000 

28 $6,300,000 

29 $8,100,000 

30 $10,500,000 

31 $13,500,000 

32 $17,500,000 

33 $22,000,000 
Docket No. PL10-4-000 - 98 - 

34 $28,500,000 

35 $36,000,000 

36 $45,500,000 

37 $57,500,000 

38 or more $72,500,000 

. 

§1C2.3. Culpability Score

(a) Start with 5 points and apply subsections (b) through (g) below. 

(b) Involvement in or Tolerance of Violations

If more than one applies, use the greatest: 

(1) If -- 

(A) the organization had 5,000 or more employees and 

(i) an individual within high-level personnel of the 

organization participated in, condoned, or was willfully 

ignorant of the violation; or 

(ii) tolerance of the violation by substantial authority 

personnel was pervasive throughout the organization; or 

(B) the unit of the organization within which the violation was 

committed had 5,000 or more employees and 

(i) an individual within high-level personnel of the unit 

participated in, condoned, or was willfully ignorant of 

the violation; or 

(ii) tolerance of the violation by substantial authority 

personnel was pervasive throughout such unit, 

add 5 points; or 

(2) If -- 

(A) the organization had 1,000 or more employees and 

(i) an individual within high-level personnel of the 

organization participated in, condoned, or was willfully 

ignorant of the violation; or 

(ii) tolerance of the violation by substantial authority 

personnel was pervasive throughout the organization; or 

(B) the unit of the organization within which the violation was 

committed had 1,000 or more employees and 
Docket No. PL10-4-000 - 99 - 

(i) an individual within high-level personnel of the unit 

participated in, condoned, or was willfully ignorant of 

the violation; or 

 

(ii) tolerance of the violation by substantial authority 

personnel was pervasive throughout such unit, 

add 4 points; or 

(3) If -- 

(A) the organization had 200 or more employees and 

(i) an individual within high-level personnel of the 

organization participated in, condoned, or was willfully 

ignorant of the violation; or 

(ii) tolerance of the violation by substantial authority 

personnel was pervasive throughout the organization; or 

(B) the unit of the organization within which the violation was 

committed had 200 or more employees and 

(i) an individual within high-level personnel of the unit 

participated in, condoned, or was willfully ignorant of 

the violation; or 

(ii) tolerance of the violation by substantial authority 

personnel was pervasive throughout such unit, 

add 3 points; or 

(4) If the organization had 50 or more employees and an individual within 

substantial authority personnel participated in, condoned, or was willfully 

ignorant of the violation, add 2 points; or 

(5) If the organization had 10 or more employees and an individual within 

substantial authority personnel participated in, condoned, or was 

willfully ignorant of the violation, add 1 point. 

(c) Prior History

If more than one applies, use the greater: 

(1) If the organization committed 

any part of the instant violation less than 10 years after a prior Commission 

adjudication of any violation or less than 10 years after an adjudication of similar 

misconduct by any other enforcement agency, add 1 point; or 

(2) If the organization committed 
Docket No. PL10-4-000 - 100 - 

any part of the instant violation less than 5 years after a prior Commission 

adjudication of any violation or less than 5 years after an adjudication of similar 

misconduct by any other enforcement agency, add 2 points. 

(d) Violation of an Order

 If the commission of the instant violation violated a judicial or Commission order 

or injunction directed at the specific organization by the Commission or other 

Federal and state enforcement agencies that adjudicate similar types of matters as 

the Commission, add 2 points. 

(e) Obstruction of Justice

If the organization willfully obstructed or impeded, attempted to obstruct or 

impede, or aided, abetted, or encouraged obstruction of justice during the 

investigation or resolution of the instant violation, or, with knowledge thereof, 

failed to take reasonable steps to prevent such obstruction or 

impedance or attempted obstruction or impedance, add 3 points. 

(f) Effective Compliance Program

(1) If the violation occurred even though the organization had in place at the time of 

the violation an effective compliance program, as provided in §1B2.1 (Effective 

Compliance Program), subtract up to 3 points. 

(2) Subsection (f)(1) does not apply if, after becoming aware of a violation, 

the organization unreasonably delayed reporting the violation to 

appropriate governmental authorities. 

(g) Self-Reporting, Cooperation, Avoidance of Trial-Type Hearing, and Acceptance of 

Responsibility

(1) If the organization (A) prior to an imminent threat of disclosure or government 

investigation; and (B) within a reasonably prompt time after becoming aware of 

the violation, reported the violation to the Commission, subtract 2 points. 

(2) If the organization exhibited full cooperation in the investigation, subtract 1 

point. 

(3) If the organization resolved the matter without need for a trial-type hearing, 

subtract 1 point. 

(4) If the organization clearly demonstrated recognition and affirmative acceptance 

of responsibility for its violation, subtract 1 point. 

Commentary

Application Notes: 

1. Definitions.—For purposes of this guideline, "condoned," "prior adjudication," 
Docket No. PL10-4-000 - 101 - 

"similar violations," "substantial authority personnel," and "willfully ignorant of the 

violation" have the meaning given those terms in the Commentary to 

§1A1.1(Applicability of these Guidelines). 

2. For purposes of subsection (b), "unit of the organization" means any reasonably distinct 

operational component of the organization. For example, a large organization may have 

several large units such as divisions or subsidiaries, as well as many smaller units such 

as specialized manufacturing, marketing, or accounting operations within these larger 

units. For purposes of this definition, all of these types of units are encompassed within 

the term "unit of the organization." 

3. "High-level personnel of the organization" is defined in the Commentary to §1A1.1 

(Application Instructions - Organizations). With respect to a unit with 200 or more 

employees, "high-level personnel of a unit of the organization" means agents within the 

unit who set the policy for or control that unit. For example, if the managing agent of a 

unit with 200 employees participated in a violation, three points would be added under 

subsection (b)(3); if that organization had 1,000 employees and the managing agent of 

the unit with 200 employees were also within high-level personnel of the organization in 

its entirety, four points (rather than three) would be added under subsection (b)(2). 

4. Pervasiveness under subsection (b) will be case specific and depend on the number, and 

degree of responsibility, of individuals within substantial authority personnel who 

participated in, condoned, or were willfully ignorant of the violation. Fewer individuals 

need to be involved for a finding of pervasiveness if those individuals exercised a 

relatively high degree of authority. Pervasiveness can occur either within an 

organization as a whole or within a unit of an organization. For example, if a violation 

were committed in an organization with 1,000 employees but the tolerance of the 

violation was pervasive only within a unit of the organization with 200 employees (and 

no high-level personnel of the organization participated in, condoned, or was willfully 

ignorant of the violation), three points would be added under subsection (b)(3). If, in the 

same organization, tolerance of the violation was pervasive throughout the organization 

as a whole, or an individual within high-level personnel of the organization participated 

in the violation, four points (rather than three) would be added under subsection (b)(2). 

5. Under subsection (c), in determining the prior history of an organization with separately 

managed lines of business, only the prior conduct or record of the separately managed 

line of business involved in the instant violation is to be used. A "separately managed 

line of business" is a subpart of a for-profit organization that has its own management, 

has a high degree of autonomy from higher managerial authority, and maintains its own 

separate books of account. Corporate subsidiaries and divisions frequently are 

separately managed lines of business. 

6. Under subsection (c), in determining the prior history of an organization, the conduct of 

the underlying economic entity will be considered without regard to its legal structure or 

ownership. For example, if two companies merged and became separate divisions and 

separately managed lines of business within the merged company, each division would 

retain the prior history of its predecessor company. If a company reorganized and 

became a new legal entity, the new company would retain the prior history of the 

predecessor company. In contrast, if one company purchased the physical assets but not 

the ongoing business of another company, the prior history of the company selling the 

physical assets would not be transferred to the company purchasing the assets. However, 
Docket No. PL10-4-000 - 102 - 

if an organization is acquired by another organization in response to solicitations by 

appropriate federal government officials, the prior history of the acquired organization 

will not be attributed to the acquiring organization. 

7. Under subsection (c)(1), the adjudication(s) must have occurred within the specified 

period (ten or five years) of the instant violation. 

8. Adjust the culpability score for the factors listed in subsection (e) whether or not the 

violation guideline incorporates that factor, or that factor is inherent in the violation. 

9. Under subsection (f)(1), an organization can receive partial credit (one or two points) for 

a compliance program that is effective, yet does not follow section 1B2.1 in its entirety. 

Subsection (f)(2) contemplates that the organization will be allowed a reasonable period 

of time to conduct an internal investigation. In addition, no reporting is required by 

subsection (f)(2) if the organization reasonably concluded, based on the information then 

available, that no violation had been committed. 

10. If an organization’s high-level personnel, substantial authority personnel, or individuals 

with operational responsibility for compliance participate in, condone, or are willfully 

ignorant of the violation, the organization will not automatically be disqualified for 

compliance credit under subsection (f)(1). The organization, however, may not receive 

the compliance credit if the senior-level employee acted at the direction or supervision, 

or with tacit acquiescence of the organization’s governing authority. 

11. To qualify for a reduction under subsection (g)(2), cooperation must be both timely and 

thorough. To be timely, the cooperation must begin essentially at the same time as the 

organization is notified by the Commission or Commission staff of an investigation. To be 

thorough, the cooperation should include the disclosure of all pertinent information 

known by the organization. A prime test of whether the organization has disclosed all 

pertinent information is whether the information is sufficient for the Commission to 

identify the nature and extent of the violation and the individual(s) responsible for the 

violation. However, the cooperation to be measured is the cooperation of the 

organization itself, not the cooperation of individuals within the organization. If, because 

of the lack of cooperation of particular individual(s), neither the organization nor the 

Commission are able to identify the culpable individual(s) within the organization despite 

the organization’s efforts to cooperate fully, the organization may still be given credit for 

full cooperation. The Commission will not require organizations to waive attorney-client 

privilege or work-product protections in order to qualify for a reduction under these 

subsections. 

12. The Commission has not always required organizations to admit responsibility in 

settlement agreements. This Guideline is designed to provide a reduction in the 

culpability score to organizations willing to resolve cases without the need for a trialtype hearing that is comparable to the reduction in the Sentencing Guidelines for 

acceptance of responsibility with an additional incentive for companies willing to 

affirmatively recognize their violations. 

Background: The increased culpability scores under subsection (b) are based on three 

interrelated principles. First, an organization is more culpable when individuals who manage the 

organization or who have substantial discretion in acting for the organization participate in, 

condone, or are willfully ignorant of violations. Second, as organizations become larger and 
Docket No. PL10-4-000 - 103 - 

their managements become more professional, participation in, condonation of, or willful 

ignorance of violations by such management is increasingly a breach of trust or abuse of 

position. Third, as organizations increase in size, the risk of violations beyond that reflected in 

the instant violation also increases whenever management’s tolerance of that violation is 

pervasive. Because of the continuum of sizes of organizations and professionalization of 

management, subsection (b) gradually increases the culpability score based upon the size of the 

organization and the level and extent of the substantial authority personnel involvement. 

§1C2.4. Minimum and Maximum Multipliers

Using the culpability score from §1C2.3 (Culpability Score) and applying any applicable 

special instruction for penalties in Chapter Two, determine the applicable minimum and 

maximum penalty multipliers from the table below. 

Culpability Minimum Maximum 

Score Multiplier Multiplier

10 or more 2.00 4.00 

9 1.80 3.60 

8 1.60 3.20 

7 1.40 2.80 

6 1.20 2.40 

5 1.00 2.00 

4 0.80 1.60 

3 0.60 1.20 

2 0.40 0.80 

1 0.20 0.40 

0 or less 0.05 0.20. 

§1C2.5. Guideline Penalty Range – Organizations

(a) The minimum of the guideline penalty range is determined by 

multiplying the base penalty determined under §1C2.2 (Base Penalty) by 

the applicable minimum multiplier determined under §1C2.3 (Minimum 

and Maximum Multipliers). 

(b) The maximum of the guideline penalty range is determined by 

multiplying the base penalty determined under §1C2.2 (Base Penalty) by 

the applicable maximum multiplier determined under §1C2.3 (Minimum 

and Maximum Multipliers). 

3. IMPLEMENTING THE PENALTY 

§1C3.1. Imposing a Penalty

(a) Except to the extent restricted by the maximum penalty authorized by 

statute or any minimum penalty required by statute, the penalty range 

will be that determined under §1C2.5 (Guideline Penalty Range - 

Organizations). 
Docket No. PL10-4-000 - 104 - 

(b) Where the minimum guideline penalty is greater than the maximum 

penalty authorized by statute, the maximum penalty authorized by statute 

will be the guideline penalty. 

§1C3.2. Reduction of Penalty Based on Inability to Pay

(a) The Commission will reduce the penalty below that otherwise required to 

the extent that imposition of such penalty would impair its ability to 

disgorge profits. 

(b) The Commission may impose a penalty below that otherwise required if 

the Commission finds that the organization is not able and, even with the 

use of a reasonable installment schedule, is not likely to become able to 

pay the minimum required by §1C2.5 (Guideline Penalty RangeOrganizations) and §1B1.1 (Disgorgement). 

Provided, that the reduction under this subsection will not be more than 

necessary to avoid substantially jeopardizing the continued viability of 

the organization. 

Commentary

Application Notes: 

1. For purposes of this section, an organization is not able to pay the minimum penalty if, 

even with an installment schedule, the payment of that penalty would substantially 

jeopardize the continued existence of the organization. 
Docket No. PL10-4-000 - 105 - 

CHAPTER 2: VIOLATION CONDUCT 

Guideline for Violations of Commission-Approved Reliability Standards 

§2A1.1 

(a) Base Violation Level: 6 

(b) Specific Violation Characteristics. Apply the greatest of the following:

(1) Risk of Loss 

 

(A) If the violation or event created a low risk of minor harm, no increase. 

(B) If the violation or event created either a moderate risk of minor harm OR a low 

risk of substantial harm, add 5. 

(C) If the violation or event created either a high risk of minor harm OR a moderate 

risk of substantial harm, add 8. 

(D) If the violation or event created either a high risk of substantial harm OR a low 

risk of major harm, add 13. 

(E) If the violation or event created a moderate risk of major harm, add 18. 

(F) If the violation or event created a high risk of major harm OR a low risk of 

extreme harm, add 22. 

(G) If the violation or event created a moderate risk of extreme harm, add 24. 

(H) If the violation or event created a high risk of extreme harm, add 26. 

(2) Loss of Load 

 

(A) If the violation or event caused the loss of less than 10 MWh of firm load, no 

increase. 

(B) If the violation or event caused the loss of 10 or more MWh of firm load, add 6.

(C) If the violation or event caused the loss of 20 or more MWh of firm load, add 8. 

(D) If the violation or event caused the loss of 50 or more MWh of firm load, add 11. 

(E) If the violation or event caused the loss of 100 or more MWh of firm load, add 

13. 

(F) If the violation or event caused the loss of 250 or more MWh of firm load, add 

16. 

(G) If the violation or event caused the loss of 500 or more MWh of firm load, add 

19. 

(H) If the violation or event caused the loss of 1000 or more MWh of firm load, add 

22. 

(I) If the violation or event caused the loss of 2500 or more MWh of firm load, add 

26. 

(J) If the violation or event caused the loss of 5000 or more MWh of firm load, add 

29. 

(K) If the violation or event caused the loss of 10000 or more MWh of firm load, add 

32. 

Commentary

The following chart reflects the enhancements for risk of harm described in this Guideline: 
Docket No. PL10-4-000 - 106 - 

Minor harm Substantial Harm Major Harm Extreme Harm 

Low Risk +0 +5 +13 +22 

Moderate Risk +5 +8 +18 +24 

High Risk +8 +13 +22 +26 

Illustrative Examples:

(1) Risk of harm. 

 

(A) Low risk of minor harm 

Example: A Transmission Owner fails to produce evidence of maintenance and 

testing for 37 days after requested by its Regional Entity, i.e., 7 days after the 30-

day deadline for production, creating a risk that no documentation exists to show 

the entity’s adherence to its maintenance and testing program for protection 

systems. 

(B.1) Moderate risk of minor harm 

Example: A medium-sized utility registered as a Balancing Authority has a 

documented and adequate training program, but the training plan does not 

address all the knowledge and competencies required for reliable system 

operations and the entity has provided 90% of its operators with sufficient 

training time, creating a risk that a small percentage of operators have not 

received sufficient time for training to maintain all competencies needed for 

reliable system operations. 

(B.2) Low risk of substantial harm 

Example: A Generator Operator fails to, without any intentional time delay, 

notify its Balancing Authority and Transmission Operator of equipment failure 

that would limit the output of its 300 MW generator, which may make it difficult 

for the Generator Operator’s Balancing Authority to replace the power in a time 

period of high demand or low supply availability. 

(C.1) High risk of minor harm 

Example: A small utility registered as a Transmission Owner is three months 

behind on testing and maintaining 1% of its relays, all on its 115 kV radial 

transmission lines, meaning the entity faces a high risk of losing a small amount 

of radial load through an inability to isolate a fault in response to a contingency. 

(C.2) Moderate risk of substantial harm 

Example: Over a weekend when the system is lightly loaded, operating 

personnel for a small utility registered as a Transmission Operator fail to use 

three-part communication of directives, which leads to the wrong breaker being 

opened. Because there was sufficient capacity on a looped line, there was 

moderate risk that a substantial, otherwise unnecessary loss of load could occur 

because the breaker opened. 
Docket No. PL10-4-000 - 107 - 

(D.1) High risk of substantial harm 

Example: A medium to large utility registered as a Transmission Operator fails 

to have on duty NERC-certified operators for 50 hours per month for the last 2 

years, placing the utility at an elevated risk of an operator error during any 

emergency while the non-certified operator is on duty that could lead to a 

substantial, otherwise unnecessary loss of load. 

(D.2) Low risk of major harm 

Example: A Reliability Coordinator’s modeling tool does not include several 

recent changes to the transmission system. Should an emergency occur, the 

Reliability Coordinator would lack situational awareness of its Reliability 

Coordinator Area and, as a result, issue improper directives that exacerbate the 

emergency. 

(E) Moderate risk of major harm 

Example: A medium to large utility registered as a Balancing Authority has an 

event occur on its system and fails to take actions necessary to return its area 

control error (ACE) to zero for more than 15 minutes, and while it has the 

necessary amount of reserves through a reserve sharing group, the full amount of 

reserves cannot be delivered to the BA due to transmission constraints resulting 

from the event. This violation threatens unnecessary losses of load within the 

Balancing Authority and in neighboring Balancing Authorities should another 

contingency occur. 

(F.1) High risk of major harm 

Example: A large Transmission Owner has a transmission vegetation 

management program that requires foot, vehicle and aerial patrols annually 

along rights-of-way for transmission lines having a capacity of 138 kV and 

above. The Transmission Owner decides to save $2 million by deferring the 

annual aerial patrols for two years. During that time period, a tree located 

within the right-of-way of a 500 kV line grew sufficiently to contact the line. An 

aerial patrol timely would have identified the tree as a potential threat of a 

vegetation contact or flashover that would cause an outage of the line. Such an 

outage likely would result in major harm through significant, unnecessary losses 

of load, as well as severe transmission constraints between neighboring 

Transmission Operators and Balancing Authorities. 

(F.2) Low risk of extreme harm 

 Example: A utility registered as a Balancing Authority does not have any 

required procedures for the recognition of and for making its operating 

personnel aware of sabotage events on its facilities and multi-site sabotage 

affecting larger portions of the Interconnection, and its operating personnel have 

received no training on recognizing sabotage events. Because of the Balancing 

Authority’s configuration and facilities, its lack of these procedures and training 

make it more likely that a large-scale sabotage attempt focused on the Balancing 
Docket No. PL10-4-000 - 108 - 

Authority’s facilities would be successful, causing widespread, unnecessary 

losses of load on the systems of the Balancing Authority and its neighboring 

Balancing Authorities. 

(G) Moderate risk of extreme harm 

Example: A medium-sized utility that serves native load and is registered as a 

Balancing Authority and Transmission Operator does not have sufficient 

manually-operated load shedding capability to shed load within fifteen minutes 

in the amount of the Balancing Authority’s most severe single contingency. The 

failure to shed sufficient load as a last resort in an emergency could cause the 

utility to lean on the Interconnection for too long and, were an Adjacent 

Balancing Authority to have a contingency, it could lead to widespread blackouts 

in either or both Balancing Authority Areas. 

(H) High risk of extreme harm 

This situation could occur as a result of multiple violations (vegetation contact, 

frequency oscillations, poor operator training and situational awareness, etc.) 

that are similar to the causes of the 2003 Northeast blackout. 

Application Notes:

1. The Guideline increases the violation level as the expected harm from the reliability 

violation increases. As a result, the violation level goes up as both the risk of harm and 

the severity of the potential harm increases. Many cases may involve multiple risks of 

multiple levels of harm. For instance, a case might involve a moderate risk of major 

harm and a high risk of substantial harm. The Guideline takes the greater of the two 

violation levels. In this case, the increase to the base violation level would be 9. 

2. In this context, “low risk” is not meant to include cases where there was virtually no risk 

of harm. It is meant to apply to cases where there is a real chance of harm, albeit a small 

chance. 

3. The risk of the relevant harm is to be determined based on all of the facts and 

circumstances surrounding the violation(s). As an initial starting point, the violation risk 

factors will be considered in determining the relevant risk. However, the VRF might 

understate or overstate the actual risk resulting from the violation. For instance, a 

violation or combination of violations of Low VRF standards might, under certain 

circumstances, pose a high risk of harm. Alternatively, a violation of a standard with a 

High VRF might present little or no real risk of harm. Under such circumstances, the 

actual risk from the violation should be used to determine the violation level. The fact 

that little or no loss of load occurred is not, by itself, evidence that the violation involved 

a low or moderate risk. 

4. In certain circumstances, the Reliability Standards may require the shedding of firm load. 

When an underlying violation requires an operator to shed load pursuant to a Reliability 

Standard as a necessary means to avoid a further risk to the Bulk-Power System, the 

operator’s decision to shed load is not itself a violation and no penalty would be sought 

for that decision. However, the fact that the underlying violation required load shedding 

will be considered in assessing the risk created by the underlying violation under section 

2A1.1(b)(1) of the Penalty Guidelines. Organizations will face lower civil penalties in 

situations when load is shed in compliance with a Reliability Standard. 
Docket No. PL10-4-000 - 109 - 

5. For multiple violations that fall within the section 2A1.1 Guideline for violations of the 

Reliability Standards and that are related to the same conduct or event, the Commission 

will apply the Guideline based on the conduct as a whole. 
Docket No. PL10-4-000 - 110 - 

Guideline for Fraud, Anti-Competitive Conduct and 

Other Rule, Tariff and Order Violations 

§2B1.1 

(a) Base Violation Level: 6 

(b) Specific Violation Characteristics

(1) If the loss exceeded $5,000, increase the violation level as follows: 

 

Loss (Apply the Greatest) Increase in Level

(A) $5,000 or less no increase 

(B) More than $5,000 add 2 

(C) More than $10,000 add 4 

(D) More than $30,000 add 6 

(E) More than $70,000 add 8 

(F) More than $120,000 add 10 

(G) More than $200,000 add 12 

(H) More than $400,000 add 14 

(I) More than $1,000,000 add 16 

(J) More than $2,500,000 add 18 

(K) More than $7,000,000 add 20 

(L) More than $20,000,000 add 22 

(M) More than $50,000,000 add 24 

(N) More than $100,000,000 add 26 

(O) More than $200,000,000 add 28 

(P) More than $400,000,000 add 30 

(2) If more than one of the following enhancements applies, use only the greatest. 

If the violation-- 

(A) involved more than 70,000 MMBtus of natural gas or more than 10,000 MWh of 

electricity, or equivalent volumes of natural gas related or electricity related 

transactions, increase by 2 levels 

(B) involved more than 140,000 MMBtus of natural gas or more than 20,000 MWh 

of electricity, or equivalent volumes of natural gas related or electricity related 

transactions, increase by 4 levels 

(C) involved more than 700,000 MMBtus of natural gas or more than 100,000 MWh 

of electricity, or equivalent volumes of natural gas related or electricity related 

transactions, increase by 6 levels 

If the violation-- 

(D) continued for more than 10 days, increase by 2 levels 

(E) continued for more than 50 days, increase by 4 levels 

(F) continued for more than 250 days, increase by 6 levels 
Docket No. PL10-4-000 - 111 - 

(3) If the violation involved conduct that presented a serious threat to market transparency 

and the total violation level is less than level 16, increase to level 16. 

Commentary

Application Notes:

1. This Guideline is based on United States Sentencing Guidelines Section 2B1.1 and terms 

used in this Guideline are intended to have the same meaning as they do in Section 

2B1.1. Section (b)(2) provides various enhancements for the scope and extent of the 

violation. If more than one of the enhancements is applicable, only the greatest 

enhancement should be used. 

2. Loss Under Subsection (b)(1).—This application note applies to the determination of loss 

under subsection (b)(1). 

(A) General Rule.—Subject to the exclusions in subdivision (D), loss is the greater of 

actual loss or intended loss. 

(i) Actual Loss.—"Actual loss" means the reasonably foreseeable pecuniary 

harm that resulted from the violation. 

(ii) Intended Loss.—"Intended loss" (I) means the pecuniary harm that was 

intended to result from the violation; and (II) includes intended 

pecuniary harm that would have been impossible or unlikely to occur. 

(iii) Pecuniary Harm.—"Pecuniary harm" means harm that is monetary or 

that otherwise is readily measurable in money. Accordingly, pecuniary 

harm does not include emotional distress, harm to reputation, or other 

non-economic harm. 

(iv) Reasonably Foreseeable Pecuniary Harm.—For purposes of this 

guideline, "reasonably foreseeable pecuniary harm" means pecuniary 

harm that the entity knew or, under the circumstances, reasonably should 

have known, was a potential result of the violation. 

(B) Gain.—The Commission will use the gain that resulted from the violation as an 

alternative measure of loss only if there is a loss but it reasonably cannot be 

determined. 

(C) Estimation of Loss.—The Commission need only make a reasonable estimate of 

the loss. 

 (D) Exclusions from Loss.—Loss does not include the following: 

(i) Interest of any kind, finance charges, late fees, penalties, amounts based 

on an agreed-upon return or rate of return, or other similar costs. 

(ii) Costs to the government of, and costs incurred by victims primarily to 

aid the government in, the prosecution and investigation of a violation. 
Docket No. PL10-4-000 - 112 - 

(E) Credits Against Loss.—Loss will be reduced by the following: 

(i) The money returned, and the fair market value of the property returned 

and the services rendered, by the entity or other persons acting jointly 

with the entity, to the victim before the violation was detected. The time 

of detection of the violation is the earlier of (I) the time the violation was 

discovered by a victim or the Commission; or (II) the time the entity 

knew or reasonably should have known that the violation was detected or 

about to be detected by a victim or the Commission. 

(ii) In a case involving collateral pledged or otherwise provided by the 

entity, the amount the victim has recovered at the time of penalty from 

disposition of the collateral, or if the collateral has not been disposed of 

by that time, the fair market value of the collateral at the time of penalty. 
Docket No. PL10-4-000 - 113 - 

Guideline for Intentional or Reckless Misrepresentations and False Statements 

To the Commission or Commission Staff 

§2C1.1 

(a) Base Violation Level: 18 

(b) Specific Violation Characteristics 

 

(1) If the violation resulted in substantial interference with the administration 

of justice, increase by 3 levels. 

(2) If the violation (A) involved the destruction, alteration, or fabrication of a 

substantial number of records, documents, or tangible objects; (B) 

involved the selection of any essential or especially probative record, 

document, or tangible object, to destroy or alter; or (C) was otherwise 

extensive in scope, planning, or preparation, increase by 2 levels. 

Commentary

Application Notes:

1. This Guideline requires a showing of scienter. It applies to intentional or reckless 

misrepresentations and false statements that mislead, or attempt to mislead, the 

Commission’s or staff’s efforts. 

2. Definitions.—For purposes of this guideline: 

"Records, documents, or tangible objects" includes (A) records, documents, or tangible objects 

that are stored on, or that are, magnetic, optical, digital, other electronic, or other storage 

mediums or devices; and (B) wire or electronic communications. 

"Substantial interference with the administration of justice" includes a premature or improper 

termination of a Commission investigation; any official action based upon perjury, false 

testimony, or other false evidence; or the unnecessary expenditure of substantial governmental or 

Commission resources.