On 6 May 2011 the Federal Energy Regulatory Commission (FERC) approved Midwest Independent Transmission System Operator, Inc.'s (MISO) request to recover US$7,000 in reliability penalty costs from certain MISO Tariff Customers over several Customers' protests. FERC's approval of MISO's request marks the first time FERC has allowed a nonprofit entity—which generally have no reserves from which to pay penalties—to recover costs associated with a violation of the North American Electric Reliability Corporation (NERC) Reliability Standards from its customers.

MISO agreed to pay a US$7,000 penalty as part of a non-public settlement agreement with ReliabilityFirst (the designated NERC Regional Entity) to resolve issues concerning MISO's compliance with a Critical Infrastructure Protection Reliability Standard. Although later remedied by a supplemental public filing, several Tariff Customers protested MISO's cost-recovery request citing inadequate notice because all of MISO's identifying information had been redacted from the public version of MISO's initial filing.

FERC approved MISO's addition of Schedule 34 to its tariff in September 2009. Schedule 34 permits MISO to make a filing with FERC to seek recovery of penalty costs from NERC Reliability Standards violations subject to FERC approval. Under the schedule, MISO may directly assign penalty costs from a violation to individual Tariff Customers if NERC or a Regional Entity finds that the Tariff Customers directly contributed to or were the root cause of a confirmed violation. Alternatively, in instances where a penalty cannot be directly assigned or MISO is at fault for the violation, MISO may seek to recover the penalty costs from all of its Members pursuant to a FERC-approved methodology.

In this case, MISO requested FERC approval to recover the penalty costs from all its Tariff Customers taking Network and Point-to-Point service. MISO proposed to allocate the costs on pro rata basis based on each Customer's share of total Network Load or Reserved Capacity Transmission Service calculated the month immediately following FERC's approval of MISO's request. Ultimately, FERC approved the request because:

  1. MISO provided sufficient information concerning its internal compliance program (e.g., MISO provides incentives and bonuses to encourage compliance with the NERC standards);

  2. MISO's violations were not intentional nor grossly negligent, and did not involve management personnel; and

  3. In the Notice of Penalty for the violations, NERC stated that the violations were self-reported, MISO was cooperative, and MISO did not attempt to conceal the violations.

In addition to approving MISO's cost-recovery request, FERC also provided guidance regarding the minimum information to be included in cost-allocation requests in the future to give adequate notice to affected parties. Lastly, FERC rejected alternative penalty allocation methodologies proposed by protestors.

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