FERC Approves $375,000 Civil Penalty Against Portland General Electric Co. for Violation of OATT and OASIS Requirements

(Docket No. IN10-2-000)

On June 4, 2010 FERC issued an Order Approving the Stipulation and Consent Agreement between the Office of Enforcement and Portland General Electric Co. (“PGE”).  The Stipulation and Consent Agreement provides for PGE to pay a civil penalty of $375,000 and submit at least two semi-annual compliance monitoring reports to the Office of Enforcement.  This process began as an audit by the Office of Enforcement's Division of Audits in Docket No. PA06-9-000, but the Division of Audits referred it to the Division of Investigations to address concerns relating to PGE’s compliance with its Open Access Transmission Tariff (“OATT”), in particular the manner in which PGE reserved transmission service for its own use and provided transmission service to itself.  The order is significant for two reasons.  First, it demonstrates FERC’s continued concerns with misuse of transmission service by transmission providers, which is an issue that has not received much attention in the last year or so.  Second, it reflects FERC’s policy of referring to the Office of Enforcement's Division of Investigations matters that it discovers in the course of relatively routine audits.  Following is a summary of the principal issues that are discussed in the Stipulation and Consent Agreement.

Reserving Capacity for Native Load Without Adequate Designated Resources

PGE violated sections 28.2 and 29.2 of its OATT by setting aside transmission capacity for its own use without designating network resources for which the transmission capacity was needed.  Under section 28.2 of PGE’s OATT, PGE must designate network resources and loads for its native load customers in the same manner as any network service customer under the OATT.  Under section 29.2 of PGE’s OATT, a network service applicant must provide a “[d]escription of purchased power designated as a Network Resource including source of supply, Control Area location, transmission arrangements and delivery point(s) to the Transmission Provider’s Transmission System.”  The transmission provider is supposed to set aside transmission capacity to serve the customer’s network load from its designated network resources.

In December 2001, PGE’s merchant function (“PGEM”), which is responsible for serving retail load obligations of PGE, submitted an Application for Network Transmission Service in which it described its external Network Resources, internal Network Resources and forecasted native load.  PGEM identified its network resources outside of PGE’s Network as having 2,216 MW of total generating capacity.  However, PGE’s transmission function (“PGET”) did not rely on the information provided to allocate capacity for PGEM’s network service. Instead, between January 2001 and January 1, 2006, PGET set aside as much as 5,151 MW of transmission capacity in connection with PGEM’s external network resources, including 1,651 MW of capacity across interfaces with respect to which PGEM had not designated any network resources at all.  It appears that the excessive set-asides of transmission capacity did not have a significant effect on other transmission customers, since the Commission identified only 745 MWh of denied transmission service as a result of PGE’s actions.

Use of Non-Public Transmission Reservation and Scheduling Options

Between January 1, 2002 and October 30, 2008, PGE provided undue preference to PGEM by allowing it to schedule transmission service on multiple legs of a transmission paths using single reservations, while not providing information to non-affiliated customers indicating that they could make similar reservations.  For instance, PGE permitted PGEM to reserve and schedule transmission service using a single reservation for three legs of a transmission transaction:  transmission on the PGE system, on BPA’s system and on PGE’s Intertie.  PGE transmitted more than 2.5 million MWh of power in this way.  Unaffiliated transmission customers were not informed of the possibility of combining multiple legs of a transmission path into a single reservation.  However, FERC concluded that PGE did not benefit from this practice by avoiding multiple transmission charges or by charging other customers multiple transmission charges for similar service.

Other Issues

The Division of Investigations also concluded that from October 2005 until March 2008, PGET accepted 22 requests for secondary network service for delivery of power to non-network loads.  However, in 21 of these instances, PGET stopped the transactions before power flowed, and in the 1 instance where power did flow, no customers had service interrupted.  The issue of the misuse of network service to serve non-network loads has been a continuing concern of the Commission.

The Stipulation and Consent Agreement also states that in December 2005, PGE violated Section 29.2 of its OATT by accepting four power purchase agreements from PGEM as designated network resources before it had confirmed the supporting transmission service arrangements, as required by its OATT.  However, the transmission arrangements ultimately were confirmed and FERC concluded that no harm had occurred.

Finally, the Division of Investigations also determined that PGE violated Section 37.6(b)(3)(ii)(A) of FERC’s regulations from January 2006 through April 2007 because PGET understated the available transmission capability on one of its paths by as much as 3,550 MW.  However, during that time period, PGET did not deny any transmission requests based on a lack of capacity on this path.

Lessons Learned

OATT Compliance:  The Commission continues to investigate indications of lack of compliance with the requirements of the OATT, and it will assess significant penalties for such violations even if little or no harm resulted from the non-compliance.  The Commission’s concern with compliance with the OATT requirements also is demonstrated by the fact that in its recent requests for information in the course of audits, it has been requesting information on utilities’ OATT compliance programs.  This is a significant issue because while FERC’s regulations require utilities to have programs for compliance with the Standards of Conduct, there is no such regulation with respect to compliance with OATT requirements.  Each utility that manages an OATT or that owns transmission capacity that is administered as part of another utility’s OATT should review its OATT practices and consider adding periodic training on OATT matters to its compliance training program.

Penalty Levels:  FERC’s assessment of a $375,000 civil penalty was based in significant part on the fact that although PGE did not receive unjust profits or cause a significant amount of quantifiable harm, its actions impeded transparency in the market.  Based on past penalty assessments, it is likely that the penalty would have been significantly higher if PGE’s actions had resulted in significant harm to others or benefit to itself.

Compliance costs:  As often is the case with Division of Investigations proceedings, the compliance costs to PGE are likely to far outweigh the civil penalty.  This proceeding began in early 2006, with an audit of PGE’s compliance with several FERC requirements, including OATT and OASIS posting obligations.  The audit concluded in July 2008 with numerous findings of violations and requirements for corrective action.  The related Enforcement Investigation concluded with the issuance of this Order.  The Stipulation and Consent Agreement requires PGE to make semi-annual compliance reports to Enforcement for one year, and to make compliance semi-annual compliance reports for an additional year if Enforcement staff requires them.  The total process therefore is likely to last at least 5½ and perhaps 6½ years.  Utilities would be far better off if they devote sufficient time to OATT and OASIS compliance measures before FERC audits, rather than doing so only after FERC identifies concerns in the course of audits.  This advice applies to non-public utilities as well as public utilities, since FERC can review non-public utilities’ compliance with their OATT and OASIS commitments as part of its oversight of the “reciprocity” conditions imposed on customers taking transmission service from public utilities.

To access the order, please click here.