Rules Concerning Certification of the Electric Reliability Organization; and Procedures for the Establishment, Approval, and Enforcement of Electric Reliability Standards, 53117-53133 [05-17752]

Agencies

• DEPARTMENT OF ENERGY
• Federal Energy Regulatory Commission

[Federal Register Volume 70, Number 172 (Wednesday, September 7, 2005)]
[Proposed Rules]
[Pages 53117-53133]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-17752]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 38

[Docket No. RM05-30-000]


Rules Concerning Certification of the Electric Reliability 
Organization; and Procedures for the Establishment, Approval, and 
Enforcement of Electric Reliability Standards

September 1, 2005.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: Pursuant to Subtitle A (Reliability Standards) of the 
Electricity Modernization Act of 2005, which added a new section 215 to 
the Federal Power Act (FPA), the Commission is proposing to amend its 
regulations to incorporate:
    (1) Criteria that an entity must satisfy in order to qualify to be 
the Electric Reliability Organization (ERO) that will propose and 
enforce Reliability Standards for the Bulk-Power System in the United 
States, subject to Commission approval;
    (2) Procedures governing enforcement actions by the ERO and the 
Commission;
    (3) Criteria under which the ERO may enter into an agreement to 
delegate authority to a Regional Entity for the purpose of proposing 
Reliability Standards to the ERO and enforcing Reliability Standards;
    (4) Procedures for the establishment of Regional Advisory Bodies 
that may provide advice to the Commission, the ERO or a Regional Entity 
on matters of governance, applicable Reliability Standards, the 
reasonableness of proposed fees within a region, and any other 
responsibilities requested by the Commission;
    (5) Regulations governing the issuance of periodic reliability 
reports by the ERO that assess the reliability and adequacy of the 
Bulk-Power System in North America; and
    (6) Regulations pertaining to the funding of the ERO.

DATES: Comments are due October 7, 2005.

ADDRESSES: Comments may be filed electronically via the eFiling link on 
the Commission's Web site at https://www.ferc.gov. Commenters unable to 
file comments electronically must send an original and fourteen (14) 
copies of their comments to: Federal Energy Regulatory Commission, 
Office of the Secretary, 888 First Street, NE., Washington, DC 20426. 
Refer to the Comment Procedures section of the preamble for additional 
information on how to file comments.

FOR FURTHER INFORMATION CONTACT: William Longenecker (Technical 
Information), Office of Markets, Tariffs and Rates, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 502-8570.
    David Miller (Technical Information), Office of Markets, Tariffs 
and Rates, Division of Reliability, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
6473. Jonathan First (Legal Information), Office of the General 
Counsel, Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8529.
    Christy Walsh (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6523.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    1. Pursuant to Subtitle A (Reliability Standards) of the 
Electricity Modernization Act of 2005,\1\ which added a new section 215 
to the Federal Power Act (FPA), the Commission is proposing to amend 
its regulations to incorporate:
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    \1\ H.R. 6, Title XII, Subtitle A, 109th Cong. (2005).
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    (1) Criteria that an entity must satisfy in order to qualify to be 
the Electric Reliability Organization (ERO), which the Commission will 
certify as the organization that will propose and enforce Reliability 
Standards for the Bulk-Power System in the United States, subject to 
Commission approval;
    (2) Procedures under which the ERO may propose new or modified 
Reliability Standards and procedures to enforce such standards, for 
Commission review;
    (3) Procedures governing enforcement actions by the ERO and the 
Commission;
    (4) Criteria under which the ERO may enter into an agreement to 
delegate authority to a Regional Entity for the purpose of proposing 
Reliability Standards to the ERO and enforcing Reliability Standards;
    (5) Procedures for the establishment of Regional Advisory Bodies 
that may provide advice to the Commission, the ERO or a Regional Entity 
on matters of governance, applicable Reliability Standards, the 
reasonableness of proposed fees within a region, and any other 
responsibilities requested by the Commission;
    (6) Regulations governing the issuance of periodic reliability 
reports by the ERO that assess the reliability and adequacy of the 
Bulk-Power System in North America; and
    (7) Regulations pertaining to the funding of the ERO.

II. Background

A. Commission Reliability Activity Prior to the Electricity 
Modernization Act of 2005

    2. The Electricity Modernization Act of 2005 was enacted into law 
by President George W. Bush on August 8, 2005. Subtitle A of the 
Electricity Modernization Act amended the FPA by adding a new section 
215, titled ``Electric Reliability.'' Prior to enactment of section 
215, the Commission had acted primarily as an economic regulator of 
wholesale power markets and the interstate transmission grid. In this 
regard, the Commission acted to promote a more reliable electric system 
by promoting regional coordination and planning of the interstate grid 
through regional independent system operators (ISOs) and regional 
transmission organizations (RTOs), adopting transmission pricing 
policies that provide price signals for the most reliable and efficient 
operation and expansion of the grid, and providing pricing incentives 
at the wholesale level for investment in grid improvements and assuring 
recovery of costs in wholesale transmission rates. Section 215 of the 
FPA buttresses the Commission's efforts to strengthen the reliability 
of the interstate grid through the grant of new authority which 
provides for a system of mandatory Reliability Standards developed by 
the ERO and reviewed and approved by the Commission. The ERO can 
initiate an enforcement action and impose penalties for the violation 
of Reliability Standards, subject to Commission review; or the 
Commission can initiate its own enforcement action.

B. Voluntary Reliability Standards

    3. In the aftermath of the 1965 blackout in the northeast United 
States, the electric industry established the North American Electric 
Reliability Council (NERC), a voluntary reliability organization. Since 
its inception, NERC has developed Operating Policies and Planning 
Standards that provide

[[Page 53118]]

voluntary guidelines for operating and planning the North American 
bulk-power system. In April 2005, NERC adopted ``Version 0'' 
reliability standards that translated the NERC Operating Policies, 
Planning Standards and compliance requirements into a comprehensive set 
of measurable standards. While NERC has developed a compliance 
enforcement program to ensure compliance with the reliability standards 
it has developed, industry compliance is still voluntary and not 
subject to mandatory enforcement penalties. Although NERC's efforts 
have been important in maintaining the reliability of the nation's 
bulk-power system, NERC itself has recognized the need for mandatory, 
enforceable reliability standards and has been a proponent of 
legislation to establish a Commission-jurisdictional ERO that would 
propose and enforce mandatory reliability standards.
    4. A common cause of the past three major regional blackouts was 
violation of NERC's then Operating Policies and Planning Standards. 
During July and August 1996, the west coast of the United States 
experienced two cascading blackouts caused by violations of voluntary 
Operating Policies.\2\ In response to the outages, the Secretary of 
Energy convened a task force to advise the U.S. Department of Energy 
(DOE) on issues needed to be addressed to maintain the reliability of 
the bulk-power system. In a September 1998 report, the task force 
recommended, among other things, that federal legislation should grant 
more explicit authority for the Commission to approve and oversee an 
organization having responsibility for bulk-power reliability 
standards.\3\ Further, the task force recommended that such legislation 
provide for Commission jurisdiction for reliability of the bulk-power 
system and Commission implementation of mandatory, enforceable 
reliability standards.
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    \2\ The Electric Power Outages in the Western United States, 
July 2-3, 1996, at 76 (ftp://www.nerc.com/pub/sys/all_updl/docs/
pubs/doerept.pdf) and WSCC Disturbance Report, For the Power System 
Outage that Occurred on the Western Interconnection August 10, 1996, 
at 4 (ftp://www.nerc.com/pub/sys/all_updl/docs/pubs/AUG10FIN.pdf).
    \3\ Maintaining Reliability in a Competitive U.S. Electricity 
Industry, Final Report of the Task Force on Electric System 
Reliability, Secretary of Energy Advisory Board, U.S. Department of 
Energy (September 1998), at 25-27, 65-67.
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    5. On August 14, 2003, a blackout affected significant portions of 
the Midwest and Northeast United States, and Ontario, Canada. This 
blackout affected an area with an estimated 50 million people and 
61,800 megawatts of electric load. A joint U.S.-Canada task force 
studied the causes of the August 14, 2003 blackout and determined that 
several entities violated NERC's then Operating Policies and Planning 
Standards, and those violations directly contributed to the start of 
the blackout.\4\ The joint task force, in its recommendations to 
prevent or minimize the scope of future blackouts, identified the need 
for legislation to make reliability standards mandatory and 
enforceable, with penalties for non-compliance.\5\
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    \4\ The joint team, known as the U.S.-Canada Power System Outage 
Task Force, issued a Final Report on the August 14, 2003 Blackout In 
the United States and Canada: Causes and Recommendations (Final 
Blackout Report) on April 5, 2004, which presented an in-depth 
analysis of the causes of the blackout and recommendations for 
avoiding future blackouts.
    \5\ Final Blackout Report, at 140-42.
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    6. In the wake of the August 14, 2003 blackout, the Commission has 
taken a more direct and pro-active role in transmission reliability 
matters. Commission staff helped to lead and conduct the joint U.S.-
Canada investigation of the August 2003 blackout. In April 2004, the 
Commission issued a Reliability Policy Statement,\6\ which clarified 
its power grid reliability policies and objectives, and completed 
several Commission-designated recommendations of the 2003 Task Force.
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    \6\ Policy Statement on Matters Related to Bulk Power System 
Reliability, 107 FERC ] 61,052, order on clarification, 108 FERC ] 
61,288 (2004).
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    7. Also, as part of the Commission's efforts to promote grid 
reliability, the Commission has created a new Division of Reliability 
within the Office of Markets, Tariffs and Rates. One task of this new 
division has been to participate in NERC's Reliability Readiness 
Reviews of balancing authorities, transmission operators and 
reliability coordinators in North America to determine their readiness 
to maintain safe and reliable operations. The Commission also directed 
transmission owners to report, by June 2004, on the vegetation 
management practices they use for transmission lines and rights-of-
way.\7\ The Commission's Reliability Division has also engaged in 
studies and other activities to assess the longer-term and strategic 
needs and issues related to power grid reliability. The Commission has 
held several workshops and technical conferences to address reliability 
issues including transition to the NERC reliability standards, operator 
tools, and reactive power.
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    \7\ Reporting By Transmission Providers on Vegetation Management 
Practices Related To Designated Transmission Facilities, 107 FERC ] 
61,053 (2004). This order was issued pursuant to FPA section 311, 
which authorizes the Commission to secure information necessary or 
appropriate as a basis for recommending legislation. The Commission 
submitted a report to Congress in September 2004 that set forth the 
Commission's findings and recommendations, including the need for 
mandatory, enforceable reliability rules.
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    8. Stakeholders in the electric utility industry have also 
participated in dialogues on the international implications of the ERO 
and Cross-Border Regional Entities during three public bilateral 
workshops held in the United States and Canada. On August 9, 2005, the 
Federal-Provincial-Territorial (FPT) Working Group in Canada and DOE 
jointly submitted to the Commission ``Principles for an Electric 
Reliability Organization that Can Function on an International Basis'' 
(bilateral principles) based on these stakeholder dialogues \8\ A 
number of bilateral principles are incorporated into the NOPR, and the 
Commission asks questions and seeks comment on the bilateral 
principles. In this regard, we note that the Commission's proposed rule 
would allow the approved ERO or a Cross-Border Regional Entity to take 
appropriate steps to be recognized in Mexico or Canada as embedded in 
the principles. For example, in accordance with section 215(c)(2)(E) of 
the FPA, we expect the ERO and any Regional Entities to take such steps 
as relevant Mexican and Canadian authorities may require to have 
standing in those nations.\9\
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    \8\ A copy of these principles has been placed in the public 
record of this docket. We invite comments on these principles.
    \9\ In addition, this proposed rule is consistent with many of 
the other bilateral principles, such as the requirement for the 
independence of the ERO's board; the requirement that all owners, 
users and operators of the bulk-power system must comply with 
approved reliability standards; and a number of the suggested 
Enforcement Principles. Also, the fact that the statute does not 
authorize the U.S. Government to appoint members to the ERO's board 
is consistent with the bilateral principles. Similarly, we propose 
to preclude Commission officials from serving on the board.
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C. Electric Reliability Legislation

    9. Electric reliability legislation was first proposed after 
issuance of the September 1998 task force report,\10\ and was a common 
feature of comprehensive electricity bills since that time. A stand-
alone electric reliability bill was passed by the Senate unanimously in 
2000.\11\ In 2001, President Bush proposed making electric Reliability 
Standards mandatory and enforceable as part of the National Energy 
Policy.\12\ On August 8, 2005, the Electricity Modernization Act of 
2005

[[Page 53119]]

was enacted into law by President Bush. This important new energy 
legislation adds to the FPA a new provision which buttresses the 
Commission's efforts to strengthen the reliability of the interstate 
transmission grid. Specifically, the new section 215 of the FPA 
provides for a system of mandatory, enforceable Reliability Standards. 
Reliability Standards are to be developed by the ERO, subject to 
Commission review and approval; and, once approved, standards may be 
enforced by the ERO, subject to the Commission's review.
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    \10\ See supra n. 3.
    \11\ S. 2071, 106th Cong. (2000). An identical bill, H.R. 4881, 
was not voted on by the House of Representatives.
    \12\ Report of the National Energy Policy Development Group, May 
2001, at p. 7-6.
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    10. The statute directs the Commission to issue a final rule to 
implement the requirements of section 215 no later than 180 days after 
enactment, or by February 5, 2006. Below, we summarize the provisions 
of Subtitle A of the Electricity Modernization Act of 2005:
    11. Section 215(a) defines relevant terms used in the Act.
    12. Section 215(b) (Jurisdiction and Applicability) provides that, 
for purposes of approving Reliability Standards and enforcing 
compliance with such standards, the Commission shall have jurisdiction 
over the certified ERO, any Regional Entities, and all users, owners 
and operators of the bulk-power system, including but not limited to 
the public and governmental entities described in section 201(f) of the 
FPA.\13\ Section 215(b)(2) requires the Commission to issue a final 
rule to implement the requirements of the section no later than 180 
days after the date of enactment.
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    \13\ Section 201(f) of the FPA, 16 U.S.C. 824(f), as modified by 
Subtitle H, section 1291(c) of the Energy Policy Act of 2005, states 
that ``[n]o provision in this Part shall apply to, or be deemed to 
include, the United States, a state or any political subdivision of 
a State, an electric cooperative that receives financing under the 
Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.) or that 
sells less than 4,000,000 megawatt hours of electricity per year, or 
any agency, authority, or instrumentality of any one or more of the 
foregoing, or any corporation which is wholly owned, directly or 
indirectly, by any one or more of the foregoing, or any officer, 
agent, employee of any of the foregoing acting as such in the course 
of his official duty, unless such provision makes specific reference 
thereto.''
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    13. Section 215(c) (Certification) authorizes the Commission to 
certify a person as an ERO, provided that the applicant meets specified 
criteria.
    14. Section 215(d) (Reliability Standards) provides the process for 
the ERO to propose Reliability Standards, subject to Commission review 
and approval. This subsection also directs the Commission to adopt 
rules to provide fair processes for the identification and timely 
resolution of any conflict between a Reliability Standard and any 
function, rule, order, tariff, rate schedule, or agreement accepted, 
approved, or ordered by the Commission applicable to a transmission 
organization.
    15. Section 215(e) (Enforcement) authorizes the ERO, after notice 
and opportunity for hearing, to impose a penalty for a violation of a 
Reliability Standard; subject to review by the Commission. This section 
also provides for enforcement initiated by the Commission on its own 
motion. This subsection also requires that the Commission issue 
regulations under which the ERO will be authorized to enter into an 
agreement to delegate authority to a qualified Regional Entity for the 
purpose of proposing Reliability Standards to the ERO and enforcing 
such standards. Further, section 215(e) requires that any penalty 
imposed shall bear a reasonable relation to the seriousness of the 
violation and take into consideration timely remedial efforts.
    16. Section 215(f) (Changes In Electric Reliability Organization 
Rules) requires Commission approval of any proposed ERO rule or 
proposed rule change.
    17. Section 215(g) (Reliability Reports) requires that the ERO 
conduct periodic assessments of the reliability and adequacy of the 
North American bulk-power system.
    18. Section 215(h) (Coordination With Canada and Mexico) urges the 
President to negotiate international agreements with the governments of 
Canada and Mexico to provide for effective compliance with Reliability 
Standards and the effectiveness of the ERO in the United States and 
Canada or Mexico.
    19. Section 215(i) (Savings Provisions) states that the ERO shall 
have authority to develop and enforce compliance with Reliability 
Standards for only the bulk-power system and makes clear that section 
215 of the FPA shall not be construed to preempt any authority of any 
state to take action to ensure the safety, adequacy, and reliability of 
electric service within that state, as long as such action is not 
inconsistent with any Reliability Standard.
    20. Section 215(j) (Regional Advisory Bodies) requires the 
Commission to establish Regional Advisory Bodies upon petition of at 
least \2/3\ of the states within a region that have more than \1/2\ of 
their electric load served within the region; such Regional Advisory 
Bodies may provide advice to the ERO, a Regional Entity, or the 
Commission.
    21. Section 215(k) (Application to Alaska and Hawaii) provides that 
section 215 of the FPA does not apply to Alaska or Hawaii.
    22. Subtitle A of the Electricity Modernization Act of 2005 also 
includes two reliability-related provisions that are not part of new 
section 215 of the FPA. First, section 1211(b) of the Act provides that 
the ERO certified by the Commission as well as Regional Entities are 
not departments, agencies or instrumentalities of the United States 
Government. Second, section 1211(c) provides that federal agencies 
responsible for approving access to electric transmission or 
distribution facilities located on lands within the United States 
shall, in accordance with applicable law, expedite any federal agency 
approvals that are necessary to allow the owners or operators of such 
facilities to comply with a Commission-approved Reliability Standard 
that pertains to vegetation management, electric service restoration, 
or resolution of situations that imminently endanger the reliability or 
safety of the facilities.

III. Discussion

A. The Commission's Reliability Proposal

    23. The Commission's proposed reliability regulation is entitled, 
Rules Concerning Certification of the Electric Reliability 
Organization; and Procedures for the Establishment, Approval and 
Enforcement of Electric Reliability Standards. The proposed regulation 
is generally limited to developing and implementing the processes and 
procedures that section 215 of the FPA directs the Commission to 
develop and undertake with regard to the formation and functions of the 
ERO and Regional Entities. Section 215(b) obligates all users, owners 
and operators of the bulk-power system to comply with Reliability 
Standards that become effective pursuant to the processes set forth in 
the statute. The complete text of the proposed rule is provided in the 
Attachment to this notice of proposed rulemaking (NOPR).
    24. The proposed regulation is organized into twelve sections:

Section 38.1--Definitions;
Section 38.2--Jurisdiction and Applicability;
Section 38.3--Electric Reliability Organization Certification;
Section 38.4--Approval of Reliability Standards;
Section 38.5--Enforcement of Reliability Standards;
Section 38.6--Enforcement of Commission Rules and Orders;
Section 38.7--Delegation of Certain Electric Reliability Organization 
Authority to Regional Entities;
Section 38.8--Changes in Electric Reliability Organization Rules and 
Regional Entity Rules;
Section 38.9--Process for Resolution of Conflicts With a Reliability 
Standard;

[[Page 53120]]

Section 38.10--Procedures for Establishment and Recognition of Regional 
Advisory Bodies;
Section 38.11--Reliability Reports;
Section 38.12--Review of State Action, and
Section 38.13--Funding of the Electric Reliability Organization.

B. Summary of the Commission's Reliability Rule Proposal

1. Definitions--Section 38.1
    25. Section 38.1 of the proposed regulations defines relevant terms 
used in the Act. Each definition is based on a corresponding definition 
contained in section 215 of the FPA, except as otherwise noted.
    26. The term ``Bulk-Power System'' means facilities and control 
systems necessary for operating an interconnected electric energy 
transmission network (or any portion thereof), and electric energy from 
generating facilities needed to maintain transmission system 
reliability. The term does not include facilities used in the local 
distribution of electric energy.
    27. The term ``Cross-Border Regional Entity'' means a Regional 
Entity for which the size and scope includes a portion of Canada or 
Mexico.
    28. The term ``Cybersecurity Incident'' means a malicious act or 
suspicious event that disrupts, or was an attempt to disrupt, the 
operation of those programmable electronic devices and communications 
networks including hardware, software and data that are essential to 
the Reliable Operation of the Bulk-Power System.
    29. The term ``Electric Reliability Organization'' or ``ERO'' means 
the organization certified by the Commission the purpose of which is to 
establish and enforce Reliability Standards for the Bulk-Power System, 
subject to Commission review.
    30. The legislation distinguishes between the terms ``Reliability 
Standards'' and ``rules.'' The former refers to Commission-approved, 
substantive standards that provide for Reliable Operation of the Bulk-
Power System. In contrast, ``rules'' refer to the internal procedures 
of the ERO or any particular Regional Entity. Accordingly, to maintain 
this distinction, the Commission proposes the following definition of 
the term ``ERO Rules'' for purposes of this NOPR: the bylaws, rules of 
procedure and other organizational rules and protocols of the ERO. The 
Commission proposes to define the term ``Regional Entity Rules'' as the 
bylaws, rules of procedure and other organizational rules and protocols 
of a Regional Entity.
    31. The term ``Interconnection'' means a geographic area in which 
the operation of Bulk-Power System components is synchronized such that 
the failure of one or more of such components may adversely affect the 
ability of the operators of other components within the system to 
maintain Reliable Operation of the facilities within their control.
    32. The term ``Regional Advisory Body'' is used in the statute but 
not defined. For purposes of our regulations, the Commission proposes 
to define the term as follows: an entity established upon petition to 
the Commission pursuant to section 215(j) of the FPA that is organized 
to advise the ERO, a Regional Entity, or the Commission regarding 
certain reliability-related matters in accordance with section 38.9 of 
the proposed regulation.
    33. The term ``Regional Entity'' means an entity having enforcement 
authority pursuant to section 38.6 of the proposed regulation.
    34. The term ``Reliable Operation'' means operating the elements of 
the Bulk-Power System within equipment and electric system thermal, 
voltage, and stability limits so that instability, uncontrolled 
separation, or cascading failures of such system will not occur as a 
result of a sudden disturbance, including a Cybersecurity Incident, or 
unanticipated failure of system elements.
    35. The term ``Reliability Standard'' means a requirement, approved 
by the Commission under the instant proposed regulation, to provide for 
Reliable Operation of the Bulk-Power System. The term includes 
requirements for the operation of existing Bulk-Power System 
facilities, including cybersecurity protection, and the design of 
planned additions or modifications to such facilities to the extent 
necessary to provide for Reliable Operation of the Bulk-Power System. 
The term does not include any requirement to enlarge such facilities or 
to construct new transmission capacity or generation capacity.
    36. The term ``Transmission Organization'' means an RTO, ISO, 
independent transmission provider, or other Transmission Organization 
finally approved by the Commission for the operation of transmission 
facilities.
2. Jurisdiction and Applicability--Section 38.2
    37. Proposed regulation section 38.2 provides for Commission 
jurisdiction over the ERO, any Regional Entities, and all users, owners 
and operators of the Bulk-Power System within the United States (other 
than Alaska and Hawaii) including, but not limited to, the entities 
described in section 201(f) of the FPA, for the purposes of approving 
and enforcing Reliability Standards established by the Commission in 
accordance with this new regulation.
3. Electric Reliability Organization Certification--Section 38.3
    38. Proposed regulation section 38.3 provides that any person may 
submit an application to the Commission for certification as the ERO 
within sixty (60) days following the issuance of a new final 
regulation. This provision provides for the Commission to certify one 
applicant as the ERO, if the Commission determines such applicant meets 
certain criteria. Paragraph (b)(1) of proposed section 38.3 provides 
that the applicant must demonstrate that it has the ability to develop 
and enforce Reliability Standards that provide for an adequate level of 
reliability of the Bulk-Power System.
    39. The Commission interprets section 215 of the FPA to mean that 
an ERO certified by the Commission shall comply with the certification 
criteria on an ongoing basis, and that a violation of the certification 
criteria constitutes a violation of the FPA. Accordingly, as discussed 
below with respect to section 38.6(a) and (b), the Commission will 
conduct periodic compliance audits and, if it finds a violation of the 
ERO certification criteria, the Commission may suspend the ERO's 
certification or decertify the ERO and solicit new applications for ERO 
certification.
    40. Section 38.3(b)(2) provides that the applicant must document 
that it has established rules that assure its independence of the 
users, owners and operators of the Bulk-Power System while assuring 
stakeholder representation in the selection of its directors and 
balanced decisionmaking in any ERO committee or subordinate 
organizational structure. Pursuant to section 215(c)(2)(B) of the FPA, 
section 38.3(b)(2)also provides that such ERO rules allocate equitably 
reasonable dues, fees and charges among end users for all activities 
under this new reliability regulation. Section 38.3(b)(2) further 
provides that such ERO rules are to be fair and impartial procedures 
for enforcement of Reliability Standards through the imposition of 
penalties, including limitations on activities, functions or 
operations, or other appropriate sanctions.
    41. In addition, section 38.3(b)(2) provides that such ERO rules 
are to provide for reasonable notice and opportunity for public 
comment, due process, openness, and balance of

[[Page 53121]]

interests in developing Reliability Standards, and otherwise exercising 
its duties. Paragraph (b)(2) of proposed section 38.3 provides that 
such ERO rules must include appropriate steps, after certification by 
the Commission as the ERO, to gain recognition in Canada and Mexico.
    42. Paragraph (c) of section 38.3 requires an ERO certified by the 
Commission to periodically submit to the Commission an application to 
be recertified as the ERO. We seek comments on what would constitute a 
reasonable length of time for such periodic certification to be 
effective. For example, is a five-year certification period 
appropriate? How far in advance should an ERO be required to submit its 
application for recertification before its current certification period 
expires?
    43. In addition to seeking comment on the above proposal, we seek 
comments on whether the term ``end users'' should be defined for 
purposes of the ERO's equitable allocation of reasonable dues, fees and 
charges among end users? Should ``end users'' be defined as customers 
using net energy for load? Should the term ``end users'' be defined in 
terms of those who directly or indirectly use the transmission system 
since ``Bulk-Power System'' is defined to exclude facilities used in 
local distribution of electric energy? Should ``end users'' be limited 
to entities transmitting electricity through the transmission 
facilities of others? Or, might ``end users'' include the transmission 
facility owners and operators whose businesses depend on the reliable 
operations of the interconnected Bulk-Power System?
4. Approval of Reliability Standards--Section 38.4
    44. Paragraph (a) of proposed regulation section 38.4 provides that 
the ERO must consider and develop Reliability Standards and 
modifications to be applicable to the entire Bulk-Power System or a 
particular region or Interconnection. The ERO shall file each 
Reliability Standard or modification to a Reliability Standard that it 
proposes to be made effective under this section with the Commission. 
The ERO's filing shall state the purpose of the standard and a summary 
of its development.
    45. Section 215(d)(2) of the FPA requires that the Commission give 
due weight to the technical expertise of the ERO with respect to the 
content of a proposed Reliability Standard or modification to a 
Reliability Standard. Likewise, the statute requires that the 
Commission give due weight to the technical expertise of a Regional 
Entity organized on an Interconnection-wide basis with respect to a 
Reliability Standard to be applicable within that Interconnection. 
Further, section 215(d)(3) of the FPA provides for a rebuttable 
presumption that a Reliability Standard or a modification to a 
Reliability Standard to be applicable on an Interconnection-wide basis 
is just, reasonable, not unduly discriminatory or preferential, and in 
the public interest, if such proposal is from a Regional Entity 
organized on an Interconnection-wide basis.
    46. The statute, however, is silent regarding deference to Regional 
Entities not organized on an Interconnection-wide basis. Accordingly, 
the Commission interprets sections 215(d)(2) and (3) as not requiring 
the Commission to give due weight to the technical determinations of 
Regional Entities not organized on an Interconnection-wide basis or 
creating a presumption with regard to the reasonableness of any 
Reliability Standard proposed by such Regional Entities for 
consideration by the ERO. In addition, the Commission expects a greater 
level of uniformity among Reliability Standards approved for Regional 
Entities not organized on an Interconnection-wide basis.
    47. Paragraph (b) provides that that the Commission may approve by 
rule or order a proposed Reliability Standard or a modification to a 
Reliability Standard if it determines that the standard is just, 
reasonable, not unduly discriminatory or preferential, and in the 
public interest. The Commission generally anticipates that it will 
provide notice and opportunity for hearing of any proposed Reliability 
Standard or a modification to a Reliability Standard. The Commission 
shall give due weight to the technical expertise of the ERO with 
respect to the content of a proposed Reliability Standard or 
modification to a Reliability Standard and give due weight to the 
technical expertise of a Regional Entity organized on an 
Interconnection-wide basis with respect to a Reliability Standard to be 
applicable within that Interconnection.
    48. Proposed Section 38.4(b)(3) provides that the Commission will 
not defer to the ERO or a Regional Entity with respect to the effect of 
a Reliability Standard or modification to a Reliability Standard on 
competition. How should the Commission define ``competition'' in this 
context? Commenters are asked to provide examples regarding the effect 
of a Reliability Standard on competition.
    49. Paragraph (c) provides that an approved Reliability Standard or 
a modification to a Reliability Standard shall take effect as approved 
by the Commission. Paragraph (d) provides that the ERO shall rebuttably 
presume that a proposal from a Regional Entity organized on an 
Interconnection-wide basis for a Reliability Standard or a modification 
to a Reliability Standard to be applicable on an Interconnection-wide 
basis is just, reasonable, not unduly discriminatory or preferential, 
and in the public interest, if such proposal is from a Regional Entity 
organized on an Interconnection-wide basis.
    50. Consistent with section 215(d)(4) of the FPA, paragraph (e) of 
proposed regulation section 38.4 provides that the Commission shall 
remand to the ERO for further consideration a proposed Reliability 
Standard or modification to a Reliability Standard that the Commission 
disapproves in whole or part.
    51. Paragraph (f) provides that the Commission may, upon its own 
motion or a complaint, order the ERO to submit a proposed Reliability 
Standard or modification to a Reliability Standard that addresses a 
specific matter if the Commission considers such a new or modified 
Reliability Standard appropriate to carry out section 215 of the FPA.
    52. Paragraph (g) provides that the Commission may, upon its own 
motion or complaint, review a previously-approved Reliability Standard. 
If, after notice and opportunity for hearing, the Commission determines 
that the Reliability Standard, or any provision of the Reliability 
Standard, no longer meets the statutory (and regulatory) standard for 
approval of Reliability Standards, i.e., it is found to be unjust or 
unreasonable, unduly discriminatory or preferential, or not in the 
public interest, the Commission may remand it to the ERO or the 
relevant Regional Entity. The statute allows us to order the ERO to 
submit a modification to a Reliability Standard, and we construe this 
authority as allowing a remand of a previously-approved Reliability 
Standard.
    53. Because the Commission's options are limited by FPA section 215 
to either accepting or remanding a proposed Reliability Standard, the 
Commission is concerned that, while a circumstance may arise where it 
is necessary to remand a proposed Reliability Standard to the ERO, this 
may result in a period of time in which there is no mandatory, 
enforceable standard in place for a particular area of bulk system 
reliability. Accordingly, to minimize this possibility, paragraph (h) 
provides that the Commission, when remanding a Reliability Standard, 
may state a deadline by which the ERO must

[[Page 53122]]

resubmit the proposed Reliability Standard with revisions that address 
the reasons for the remand. Failure to meet such a deadline would 
constitute a violation of the FPA.
    54. In addition to seeking comment on the above proposal, the 
Commission seeks comment on whether the Commission has authority to 
void a previously-accepted Reliability Standard. If the Commission has 
such authority, is it beneficial to have such a provision in the 
Commission's regulations?
    55. Section 215(d) of the FPA and proposed regulation section 38.4 
provide that the Commission may approve a proposed Reliability Standard 
or modification to a proposed Reliability Standard if it determines 
that the standard is ``just, reasonable, not unduly discriminatory or 
preferential, and in the public interest.'' The Commission seeks 
comment on how this standard should be applied in the context of 
reviewing proposed Reliability Standards.
    56. We note that the bilateral principles specify that membership 
in the ERO should not be a condition for participation in the ERO's 
reliability development process. We seek comments on whether membership 
in the ERO or a Regional Entity should not be a condition for 
participation in the ERO's or a Regional Entity's standards development 
processes.
    57. The Commission notes that the bilateral principles include a 
provision that if a standard is remanded by a regulatory authority, the 
ERO should notify all relevant regulatory authorities and should work 
to ensure that all concerns of such regulatory authorities are 
addressed prior to resubmission of the standard to the Commission and 
authorities in Canada. (1) Should the proposed rule specify this 
process? (2) What are the implications of the remand by a Canadian 
authority of a Reliability Standard that has been approved by the 
Commission? Also, should the ERO certification criteria specify that 
the number of board members representing each participating country in 
the ERO, and the opportunities for each country to have an equitable 
number of members on all committees, must be in rough proportion to 
total load?
5. Enforcement of Reliability Standards--Section 38.5
    58. Paragraph (a) of proposed regulation section 38.5 provides that 
the ERO or a Regional Entity meeting the requirements of section 
215(e)(4)(A), (B) and (C) may impose, subject to paragraph (d), a 
penalty on a user, owner or operator of the Bulk-Power System for a 
violation of a Reliability Standard approved by the Commission if the 
ERO or the Regional Entity, after notice and opportunity for hearing, 
finds that the user, owner or operator has violated a Reliability 
Standard approved by the Commission and files notice and the record of 
the ERO's or the Regional Entity's proceeding with the Commission.
    59. Paragraph (b) provides that a Regional Entity shall file notice 
with the ERO of any enforcement action it takes. Paragraph (c) provides 
that any notice of an enforcement action, whether by the ERO or a 
Regional Entity, shall consist of the name of the entity against whom 
the action was taken, and include statements describing the enforcement 
action and findings of fact with respect to the act or practice that 
led to the enforcement action, the sanction imposed, the record of the 
proceeding and other relevant matters.
    60. Paragraph (d) provides that a penalty imposed under paragraph 
(a) may take effect not earlier than the thirty-first (31st) day after 
the ERO files with the Commission notice of penalty and the record of 
the proceedings. Such penalty shall be subject to review by the 
Commission, either on its own motion or upon application by the user, 
owner or operator of the Bulk-Power System that is the subject of the 
penalty filed within thirty (30) days after the date such notice is 
filed with Commission. If the review process is not initiated during 
the 30-day period, the enforcement action will be confirmed by 
operation of law.
    61. Paragraph (d) also provides that an application to the 
Commission for review, or the initiation of review by the Commission on 
its own motion, shall not operate as a stay of such penalty unless the 
Commission otherwise orders upon its own motion or upon application by 
the user, owner or operator that is the subject of such penalty. In any 
proceeding to review a penalty imposed under paragraph (a), the 
Commission, after notice and opportunity for hearing (which hearing may 
consist solely of the record before the ERO and the opportunity for the 
presentation of supporting reasons to affirm, modify, or set aside the 
penalty), shall by order affirm, set aside or modify the penalty and, 
if appropriate, remand to the ERO for further proceedings.
    62. Section 215(e) of the FPA as well as proposed section 38.5 of 
our regulations regarding enforcement of Reliability Standards provides 
for public notice and opportunity for a hearing with respect to both 
the ERO (or Regional Entity) enforcement proceedings and proceedings 
before the Commission involving review of a proposed penalty. Paragraph 
(d)(8) of proposed section 38.5 would provide a limited exception to 
this notice requirement and allow non-public proceedings for 
enforcement actions that involve a Cybersecurity Incident, unless the 
Commission determines on a case-by-case basis that such protection is 
not necessary. The Commission has in place procedures to prevent the 
disclosure of sensitive information, such as the use of protective 
orders and rules establishing critical energy infrastructure 
information (CEII). However, the Commission believes that the specific, 
limited area of Cybersecurity Incidents requires additional protections 
because it is possible that system security and reliability would be 
further jeopardized by the public dissemination of information 
involving incidents that compromise the cybersecurity system of a 
specific user, owner or operator of the Bulk-Power System. The specific 
user, owner or operator would be notified of the enforcement action and 
provided an opportunity for a hearing. The Commission believes that 
this will provide acceptable due process to the specific owner, user or 
operator while preventing a further compromise in reliability.
    63. The Commission seeks comment on this proposal and, in addition, 
seeks comment on (1) whether the proposal provides sufficient due 
process and (2) the identification of other specific events that should 
be subject to non-public hearing procedures.
    64. Further, section 215(e)(2) of the FPA directs the Commission to 
implement expedited hearing procedures for the review of penalties 
imposed by the ERO or Regional Entities. Accordingly, paragraph (d), 
subparagraphs (5) through (7), set forth expedited procedures for 
Commission review of penalties.
    65. Paragraph (e) of proposed regulation section 38.5 provides 
that, on its own motion or upon complaint, the Commission may order 
compliance with a Reliability Standard and may impose a penalty against 
a user, owner or operator of the Bulk-Power System, if the Commission 
finds, after notice and opportunity for hearing, that the user, 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.
    66. Paragraph (f) provides that any penalty imposed for the 
violation of a Reliability Standard shall bear a reasonable relation to 
the seriousness of the violation and shall take into

[[Page 53123]]

consideration efforts of such user, owner or operator of the Bulk-Power 
System to remedy the violation in a timely manner. The Commission 
believes that the imposition of penalties should not be limited to 
monetary penalties and may include limitations on activities, 
functions, operations, or other appropriate sanctions, including the 
establishment of a publicly available reliability watch list composed 
of major violators. Monetary penalties shall be paid in a timely 
manner. The Commission may also consider intensive compliance audits 
for entities that have a high incidence of violations or whose 
violations are serious or the installation of Commission staff onsite 
to monitor entities that have a high incidence of violations or whose 
violations are particularly serious.
    67. In order that the Commission is able to perform its oversight 
function with regard to Reliability Standards that are proposed by the 
ERO and established by the Commission, it is essential that the 
Commission receive timely information regarding all potential 
violations of Reliability Standards. While section 215 of the FPA 
contemplates the filing of the record of an ERO or Regional Entity 
enforcement action, the Commission needs information regarding 
violations and potential violations at or near the time of occurrence. 
Accordingly, paragraph (g) of proposed section 38.5 requires that the 
ERO and all Regional Entities have in place procedures to notify the 
Commission of all violations and potential violations of Reliability 
Standards when the ERO or Regional Entity first notifies the user, 
owner or operator of the violation or potential violation. Such 
procedures must be submitted to the Commission within an application 
for certification as the ERO or an agreement to delegate authority to a 
Regional Entity. The Commission intends that notices of violations and 
potential violations will be filed electronically. All such reports of 
violations and potential violations shall include the entity's name, 
when the violation or potential violation occurred, what standard was 
violated or potentially violated, and the name of a person 
knowledgeable about the violation or potential violation to serve as a 
point of contact to provide the Commission with further details on the 
matter, as they develop, on an ongoing basis. The Commission will 
provide more details on the format of such electronic filings in the 
final rule.
Enforcement and Penalty Questions for Public Comment
    68. In addition to comment on the above proposed rules, the 
Commission seeks comment on a number of enforcement and penalty issues. 
The ERO's and Regional Entities' enforcement role under new section 215 
of the FPA is similar in some ways to the enforcement roles of existing 
self-regulatory organizations (SROs). For example, the National 
Association of Securities Dealers (NASD) and the National Futures 
Association (NFA), and securities and commodities exchanges, such as 
the New York Stock Exchange (NYSE), New York Mercantile Exchange 
(NYMEX), and the Chicago Board of Trade (CBOT), are SROs in the 
securities and commodities industries that are experienced in the 
enforcement of standards, assessment of penalties, and have penalty 
appeal processes, as summarized below.
    69. In general terms, individuals or firms doing securities 
business with the American public must register with NASD. Similarly, 
all persons and organizations that intend to do business as futures 
professionals must register with the NFA under the Commodity Exchange 
Act. The National Adjudicatory Council (NAC), the adjudicatory body of 
the NASD, has established the NASD Sanction Guidelines that provide 
direction for adjudicators in imposing sanctions consistently and 
fairly.\14\ The Sanction Guidelines also provide for non-monetary 
sanctions including: suspensions, bars, and expulsions. The NFA 
Compliance Rules also provide for both monetary and non-monetary 
sanctions, which may be imposed at the conclusion of a disciplinary 
hearing or appeal.\15\
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    \14\ Depending on the violation, the Sanction Guidelines provide 
for monetary sanctions up to $100,000, and in certain egregious 
cases, the NASD may consider a monetary sanction in excess of 
$100,000. Schedule A to the Sanction Guidelines specifies that 
violations are generally not subject to non-monetary sanctions when 
monetary sanctions of $5,000 or less are imposed.
    \15\ The NFA Compliance rules provide for monetary fines not to 
exceed $250,000 per violation and the following non-monetary 
penalties: expulsion or suspension for a specified period from NFA 
membership; bar or suspension for a specified period from 
association with an NFA Member; censure or reprimand; order to cease 
and desist; and any other fitting penalty or remedial action not 
inconsistent with the NFA Compliance rules.
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    70. The NYSE, NYMEX, NASD, and the CBOT all have internal 
disciplinary procedures and rules, including the right to appeal a 
disciplinary decision.\16\ Following a plenary disciplinary proceeding, 
the appellate processes at the above-mentioned SROs are largely the 
same. First, the respondent files a notice of appeal to the SRO within 
a specified time which stays any penalty imposed pending the outcome of 
the appellate review. Second the matter goes before an appellate 
committee of the SRO comprised of at least two disinterested parties 
who evaluate the decision, evidence and penalty. Third, the appellate 
committee renders its decision in writing. With the exception of the 
CBOT, this decision is the final determination of the SRO.\17\ Fourth, 
the respondent may appeal the decision of the appellate committee (the 
Board of Directors in the case of CBOT) to the relevant federal 
regulatory body. The notice of appeal to the relevant regulatory body 
does not act as a stay of the complained of determination made by the 
self-regulatory organization unless the regulatory body otherwise 
orders. Finally, following a review by the relevant federal regulatory 
body, the respondent may pursue an appeal in the U.S. Courts of 
Appeals.
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    \16\ See NASD Rule 9311: Appeal by Any Party; NYSE Rule 476: 
Disciplinary Proceedings Involving Charges Against Members, Member 
Organizations, Allied Members, Approved Persons, Employees, or 
Others; NYMEX, NYMEX.com: Exchange Rule Book, Rule 8.13 Appeals; 
CBOT, Rules & Regulations: Chapter 5 Disciplinary Proceedings, 
540.05 Appeals from a Decision of a Disciplinary Committee.
    \17\ A CBOT appellate committee's decision can be appealed to 
the CBOT's Board of Directors.
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    71. With the above discussion in mind, the Commission invites 
public comment on the following questions regarding penalties or 
sanctions for violations of reliability rules:
    (1) What is the appropriate appeals process, if any, of an ERO or 
Regional Entity decision to impose a penalty? Would it be appropriate 
for the ERO or a Regional Entity with delegated enforcement authority 
to adopt enforcement, penalty and appeals processes similar to the SRO 
processes discussed above? Should appeals within the ERO be allowed 
before appeal to the Commission; should appeal of a penalty imposed by 
a Regional Entity be taken through the Regional Entity itself, with 
further appeal to the Commission; or should the appeal be through the 
ERO in the first instance, then to the Commission?
    (2) Should the Commission approve a penalty range or guidelines 
before the ERO can levy any penalty or sanction for violations, and, if 
so, should the penalty range or guidelines for a violation be submitted 
for Commission approval at the same time that the corresponding 
Reliability Standard is submitted to the Commission for approval?

[[Page 53124]]

    (3) Should a single monetary penalty be prescribed for a violation 
of a particular standard or should a schedule of monetary penalties be 
prescribed from which to select at the time of an infraction depending 
upon relevant circumstances such as the number of repeat offenses or 
length of time before adequate corrections are made to bring the 
violator into compliance?
    (4) The Commission interprets section 316A of the FPA, as amended 
by Congress in the Electricity Modernization Act of 2005, as 
establishing limits on monetary penalties for violation of Reliability 
Standards that may be imposed by the ERO, Regional Entities and the 
Commission. The Commission seeks comment on this interpretation.
    (5) Paragraph (d)(1) of proposed section 38.5 provides that the 
Commission will review a penalty on its own motion, or upon application 
of the entity that is the subject of the penalty. Should the Commission 
determine by rulemaking that certain categories of penalties should be 
automatically subject to Commission review? For example, should 
penalties above a certain dollar threshold automatically require 
Commission review?
    (6) What types of nonmonetary penalties, if any, are appropriate?
    (7) Who should receive, and what should be done with monies 
collected as monetary penalties? Should the monetary penalties 
collected by the ERO or Regional Entity be used to defray the cost of 
its enforcement program, or allocated to some other use? Would allowing 
the ERO or Regional Entity to use penalty money to fund an enforcement 
program create an appearance of impropriety?
    (8) The Commission notes that the bilateral principles include a 
provision calling for rigorous audits by the ERO and Regional Entities 
to ensure the capability to comply with and actual compliance with the 
Reliability Standards. The bilateral principles also provide for the 
ERO to take steps to ensure that auditors are properly trained and that 
the same audit standards apply to all audits conducted by the ERO and 
Regional Entities. Should the proposed rule specify these audits 
requirements as part of the ERO certification requirements and the 
Regional Entity certification and delegation requirements?
    (9) The Commission notes that the bilateral principles provide that 
RTOs and ISOs should not become Regional Entities, and that the 
Regional Entities should be distinct from the operators of the system, 
such as RTOs and ISOs. Should the proposed rule mandate this? What are 
the enforcement implications of an RTO or ISO that is a Regional 
Entity? Are there ways for an RTO or ISO to adequately separate its 
enforcement function from its ownership, use or operation of the Bulk-
Power System to fully ensure the independence of the enforcement unit? 
What process should such an enforcement unit follow to insulate itself 
from its RTO or ISO organization so that it may undertake any 
enforcement actions that become necessary against the RTO or ISO? How 
would this comport with the requirements of section 215 of the FPA?
    (10) Paragraph (e) of proposed section 38.5 states that the 
Commission may order compliance with a Reliability Standard and may 
impose a penalty if the Commission finds that the user, 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. Should the Commission clarify in the rule that, 
in a situation where an entity is about to engage in an act that will 
constitute a violation of a Reliability Standard, Commission action 
will be in the form of a compliance order with the goal of preventing 
the violation from occurring; and further clarify that an entity that 
has engaged in an actual violation may be subject to both penalties and 
a compliance order? Are there situations that may warrant penalties 
where an entity is about to engage in activity that would violate a 
Reliability Standard but the activity was ultimately averted?
    (11) Paragraph (g) of proposed section 38.5 requires that the ERO 
and all Regional Entities have in place procedures to notify the 
Commission of all violations and potential violations of Reliability 
Standards when the ERO or Regional Entity first notifies the user, 
owner or operator of the violation or potential violation. We seek 
comment on what confidentiality protections may be needed, particularly 
with regard to potential violations. For example, the Commission 
currently maintains confidential protection of other types of 
enforcement-related investigations pursuant to section 1b or our 
regulations, 18 CFR 1b (2005). Are similar protections needed here?
    72. The Commission recognizes that the Nuclear Regulatory 
Commission (NRC) has developed a nuclear power plant assessment program 
to enable it to arrive at objective conclusions about a licensee's 
safety performance. The NRC's assessments of plant performance are 
based on inspections, as well as analysis of certain performance 
indicators reported by the licensees. With this information, the NRC 
assigns each plant to one of five categories in an Action Matrix. A 
plant's position in the Action Matrix determines the NRC's response, 
which may include actions ranging from performing supplemental 
inspections, to meeting with management, to ordering a plant to be shut 
down. A summary of the Action Matrix is posted on the NRC website and 
is updated quarterly. In addition, the NRC communicates its assessment 
of plant performance in letters to licensees, typically semi-annually. 
These letters are also posted on the NRC's website. The Commission 
seeks comment on the feasibility and appropriateness of adopting a 
reliability assessment program similar to the NRC's nuclear power plant 
assessment program. Also, should the Commission establish a reliability 
watch list modeled on the NRC's Action Matrix? What features of the NRC 
program should the Commission adopt? What other features might be 
added?
    73. The Commission also recognizes that the nuclear electric 
utility industry has formed the Institute of Nuclear Power Operations 
(INPO). The INPO is a technical organization whose mission is to 
promote the highest levels of safety and reliability--to promote 
excellence--in the operation of nuclear electric generating plants.\18\ 
All U.S. utilities that operate commercial nuclear power plants are 
members of the INPO. The INPO complements the regulatory role of the 
NRC by providing a technical forum for the industry to collectively 
ensure reliable and safe nuclear operations. The INPO's programs 
include an information sharing network, an equipment failure database, 
a national academy for nuclear training, events analysis, 
accreditation, operations evaluations, and monitoring of performance 
indicators. The Commission asks commenters to discuss which aspects of 
the INPO's programs would serve as useful models for the ERO. What 
lessons can be drawn from INPO's complementary role with the NRC?
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    \18\ See https://www.eh.doe.gov/inpo/.
---------------------------------------------------------------------------

6. Enforcement of Commission Rules and Orders--Section 38.6
    74. Paragraph (a) of section 38.6 provides that the Commission may 
take such action as is necessary and appropriate against the ERO or a 
Regional Entity to ensure compliance with a Reliability Standard or any 
Commission order affecting the ERO or a Regional Entity. The first 
clause of this provision tracks section 215(e)(5) of the FPA. In 
addition, paragraph (a) states

[[Page 53125]]

that the possible remedial action taken pursuant to this provision 
includes, but is not limited to, suspension or rescission of the ERO's 
certification or a Regional Entity's delegation of authority, and 
violations of the FPA may mean possible imposition of civil penalties. 
Entities will be provided notice and opportunity for comment before the 
Commission takes such remedial action.
    75. Paragraph (b) of proposed section 38.6 provides that the 
Commission will periodically audit and review the ERO's and Regional 
Entities' compliance with the statutory and regulatory criteria for 
certification and delegation of functions, respectively.
    76. What mechanism of review and methods of oversight should be 
used to assure the Commission that the ERO or a Regional Entity is 
meeting its responsibilities for monitoring compliance with the 
Reliability Standards?
    77. With respect to any monetary penalties levied directly by the 
Commission against the ERO or a Regional Entity for violation of the 
FPA, should the ERO or a Regional Entity be able to recover such 
penalties through dues, fees, or other charges?
    78. Section 215(e)(5) of the FPA provides that, ``[t]he Commission 
may take such action as is necessary or appropriate against the ERO or 
a Regional Entity to ensure compliance with a Reliability Standard or 
any Commission order affecting the ERO or Regional Entity.'' Since the 
ERO and Regional Entity provisions of the Electricity Modernization Act 
of 2005 are modeled on the SRO provisions of the securities law, and 
under those provisions, the Securities and Exchange Commission can 
impose monetary and nonmonetary penalties on SRO board members, should 
the Commission adopt the same approach with respect to the board 
members of the ERO and Regional Entities?
7. Delegation of Certain Electric Reliability Organization Authority to 
Regional Entities--Section 38.7
    79. Paragraph (a) of proposed regulation section 38.7 provides that 
the ERO may enter into an agreement to delegate authority to a Regional 
Entity for the purpose of proposing Reliability Standards to the ERO 
and enforcing Reliability Standards under section 38.5. Paragraph (b) 
provides that a delegation agreement shall not be effective until it is 
approved by the Commission. Paragraph (c) provides that the ERO must 
file the delegation agreement with the Commission for approval. Such 
filing must also demonstrate that: the Regional Entity is governe