FERC Audit Report Finds That WECC Failed to Provide Adequate Separation Between Its RE, RC and IA Functions

On August 20, 2010, the FERC issued an order approving a report by its Division of Audits of WECC’s compliance with its reliability-related obligations.  The audit was conducted to determine whether WECC was adequately segregating its Regional Entity (RE) functions from its other functions as Reliability Coordinator (RC) and Interchange Authority (IA).  FERC found that WECC had failed to provide adequate separation in five respects:

1. It did not adequately separate funds for its IA functions from funds for its RE functions.

 

2. It failed to list its IA functions in its Regional Delegation Agreement with NERC.

 

3. It had inadequate safeguards to prevent the WECC Compliance Committee (WCC) from exercising undue influence over WECC in its RE functions.  FERC found documentation indicating that the motivation of some parties in creating the WCC was to obtain more influence over WECC’s RE functions and that they wanted greater access to confidential information from NERC and WECC in its role as the RE.

 

4. It tried to reduce the backlog in its CMEP program by accepting mitigation plans without verifying whether the plans had been successfully implemented.  It also does not have procedures to address situations in which previously-accepted plans were not actually implemented.

 

5. It does not have a procedure to address inappropriate communications between WECC Staff involved in CMEP activities and the registered entities.  Also, CMEP staff does not have adequate training or procedures to protect them from undue influence.  FERC pointed out that this was a particular problem for WECC because it has market participants in oversight roles for the CMEP.

The most significant issue is item (iii), the FERC’s concerns with the lack of independence of the WECC CMEP functions.  FERC recommends that WECC revise the WCC charter to ensure the independence of the CMEP function and the confidentiality of CMEP data, and to submit the charter for review by Audit staff; and that it provide a written description of how WECC intends to ensure the independence and confidentiality of the CMEP, including a process for informing FERC when it proposes changes to the WCC charter.  FERC has raised the “independence” issue in all of its audits of REs.  However, most REs do not perform IA or RC functions, and the independence issue therefore is of greater importance for WECC than it is for other REs.

The report states that while WECC strongly disagrees with the report findings, it has accepted the findings “as a way to strengthen WECC’s internal controls.”  It has already begun implementing some of the recommended actions and will provide Division of Audit staff with a non-public implementation plan by October 19, 2010.  Once WECC informs FERC that it has fully implemented the recommendations, the Division of Audits will make a return site visit to verify the changes.  The Division of Audits will also conduct a second audit of WECC in fiscal year 2012.

To access the order, please click here.

For more information, please contact Jesse Halpern at jyhalpern@brudergentile.com or 202-296-1500.