# 132 FERC ¶ 61,216: Revised Policy Statement On Penalty Guidelines > Federal · Agency guidance · In force URL: https://www.frixlaw.com/law-library/statutes/FERC_PL10_4_000 ## Section - **Citation:** 132 FERC ¶ 61,216 - **Heading:** Revised Policy Statement On Penalty Guidelines - **Jurisdiction:** Federal - **Kind:** Agency guidance - **Status:** In force - **Text as of:** August 14, 2026 - **Source:** Compiled text - **Location:** FERC Policy Statements / Revised Policy Statement On Penalty Guidelines ## Text 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 (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 alty 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 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 tors 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 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 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 used 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 ncreasingly 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 t 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 . . r 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 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 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) 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 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 he 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 deed, 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 faithfu entional 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 i ity 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. o 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 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 e, 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. m 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 olations 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 . . 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. 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 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 most 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. 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 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 , 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 rranted 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 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. he 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-of- ordinary” 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-of- ordinary” circumstances when we might apply the Penalty Guidelines when reviewing Notices of Penalty.84 53 he 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-of- ordinary” 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 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-the- ordinary 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. 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 ustified, 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 tion 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. 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 pt 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 ed 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 0,000 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 ity 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. ; 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 well- established 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 tilities.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 non- load 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 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 non- load 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 ISO- NE 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. y factor.”119 ISO- NE 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 ehalf 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 . . uted 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 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 y 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). 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 sier 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 ion 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 vertent 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 uidelines 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 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 ll 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. 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 ance 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 grees 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 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 use 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). emo 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 .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 gram 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 State [Text truncated at 120,000 characters. 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Check the current official text before relying on it. Not legal advice.