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U.S. Appeals Court Concludes FERC Lacks Authority to Fine Federal Entities for Reliability Violations

August 22, 2014 posted by Eric Christensen

In a ruling that could have far-reaching implications for the electric reliability here in the Pacific Northwest, the U.S. Court of Appeals for the District of Columbia Circuit today found that the Federal Power Act does not authorize the Southwest Power Administration ("SWPA") to pay fines for admitted violations of mandatory electric reliability standards.

The decision turns on the doctrine of sovereign immunity. In its modern form, the doctrine bars federal government liability unless Congress provides a clearly-expressed statutory waiver of sovereign immunity. Today's decision applies this doctrine to Section 215 of the Federal Power Act, the provision Congress added to the Act in 2005 to create a system of mandatory electric reliability standards. Section 215 authorizes the Federal Energy Regulatory Commission ("FERC") to impose fines on "users, owners and operators" of the Bulk Electric System if they violate electric reliability standards developed by the North American Electric Reliability Corporation ("NERC"). Carefully parsing the language of Section 215, today's decision finds no clear expression of Congressional intent to allow federal entities such as SWPA to pay fines for violations of reliability standards.

As a result, SWPA will not be required to pay a $19,500 penalty for uncontested reliability violations. The decision is of particular significance in the Pacific Northwest because federal entities including the Bonneville Power Administration, the U.S. Army Corps of Engineers, and the U.S. Bureau of Reclamation play outsized roles in the region's electric generation and transmission sectors. And the amounts involved are potentially far larger that in SWPA's case. For example, FERC recently approved a settlement requiring California's Imperial Irrigation District to pay a $12 million fine for reliability violations that contributed to a major blackout in the Southwest on September 8, 2011.