Overview
On February 16, 2021, with much of the country still seized by extreme weather conditions and far-below-freezing temperatures, the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC) announced that they were initiating a joint inquiry into the operations of the bulk-power system during the extreme weather.[1] This open-ended inquiry "will work with other federal agencies, states, regional entities and utilities to identify problems with the performance of the bulk-power system and, where appropriate, solutions for addressing those issues."[2] The announcement comes one day after FERC Chairman Richard Glick issued a statement reflecting the ongoing public safety threats associated with power outages during these extreme weather conditions. Chairman Glick prioritized "restoring power as quickly as possible and keeping people safe during this incredibly challenging situation,"[3] and confirmed that FERC will be "examining the root causes of . . . reliability events" that have occurred throughout the country, in particular in the regions served by the Electric Reliability Council of Texas (ERCOT), SPP, and MISO.[4]
It is not uncommon for FERC and NERC to undertake joint inquiries following significant reliability events, including those caused by extreme cold.[5] The reports that followed such events sometimes highlighted activity that might be subject to investigation by FERC or NERC under their respective enforcement programs. For instance, the report concerning outages in California and Arizona on September 8, 2011 "describe[d] conduct which may warrant future investigations under Part 1b of the Commission's regulations, or actions by NERC under its Compliance Monitoring and Enforcement Program."[6] Several joint FERC and NERC investigations followed that announcement, resulting in settlement agreements with civil penalties totaling nearly $40 million against five separate entities.[7] FERC and NERC also imposed significant non-monetary sanctions in connection with those settlements, including requiring settling parties to undertake a host of mitigation activities related to planning, modeling, and emergency operations, and also requiring semi-annual compliance reports that place a settling party under heightened regulatory scrutiny on a prospective basis.[8]
At this early stage, it is difficult to predict how the current joint FERC/NERC inquiry will proceed. Nevertheless, recent statements by Chairman Glick suggest that FERC's Office of Enforcement may take an active role. For instance, when FERC's annual enforcement report was released during the Commission's November 2020 open meeting, then-Commissioner Glick stated his concern that the Commission had "gone AWOL" on enforcement, opining that it was "worth asking whether the Commission remains committed to its enforcement responsibilities," and adding that "I've had my doubts."[9] This comment followed then-Commissioner Glick's response to a written inquiry from several US Senators, stating that FERC's "commitment to preventing manipulation and penalizing bad behavior appears to be waning."[10] Together, these comments may presage heightened enforcement scrutiny for this week’s continuing cold weather event.
In addition, given that the past joint FERC/NERC inquiry into the January 17, 2018 cold weather event did not result in any public charges or penalties, it is possible that the current Commission might conclude that the ongoing 2021 reliability-related weather events require more robust regulatory scrutiny than in the past. If such scrutiny results in the identification of alleged violations, FERC and NERC may weigh the perceived need to send a strong signal to the industry through penalties. This historical backdrop, combined with the national attention on this week's cold weather events,[11] and predictions that extreme weather will continue to negatively impact the bulk electric system,[12] suggest that the newly-initiated inquiry might be quite active.
Chairman Glick's comments at the Commission's February 18, 2021 Open Meeting, which were made after this alert was initially published, support this view. While acknowledging that the "short-term focus must be on restoring power to grid," Commissioner Glick noted that the Commission "ha[s] a responsibility to ensure that this does not happen again."[13] He indicated that an approach that differs from some prior joint inquiries would be appropriate, and commented that "we need ensure the results of the inquiries don't just sit on the shelf gathering dust." Put another way, he said the Commission could not just "do what happened after the 2011 event in Texas and Arizona, [as] we don't have to guess how effective that was." While stating it was important to await the results of any inquiry, he alluded to significant changes including, among other things, potential new mandatory standards across the industry.
It also appears that Congress may jump into the fray in some form. On February 16, 2021, Rep. Joaquin Castro (D-TX) sent a letter, on which he was joined by nine members of the Texas Congressional Delegation demanding answers from ERCOT and the Public Utility Commission of Texas leadership as to the cause, duration, and equitable distribution of power outages across Texas.
Steptoe's Enforcement team has significant experience representing clients in reliability-related inquiries from NERC, FERC, and Congress, as well as experience in joint FERC and Regional Entity reliability investigations. Our team has also assisted clients in all phases of regulatory enforcement proceedings, from a company's receipt of an initial data preservation directive, through the government's fact-finding phase and, as necessary, in public proceedings before FERC, before Congress, and in federal court. These types of events also sometimes lead to civil litigation claims, which our Steptoe team is likewise experienced in handling.
We stand ready to assist companies impacted by the new FERC/NERC joint inquiry, any Congressional inquiry, or other regulatory or civil claims that might be associated with the impact of the ongoing severe weather conditions on the power industry.
[1] "FERC, NERC to Open Joint Inquiry into 2021 Cold Weather Grid Operations," available here.
[2] Id.
[3] "Statement of FERC Chairman Rich Glick on Weather-Related Grid Reliability,” available here.
[4] Id.
[5] See, report concerning January 17, 2018 cold weather event in south-central United States; report concerning February 1-5, 2011 cold weather event in southwest United States.
[6] "Arizona-Southern California Outages on September 8, 2011" at 10, available here.
[7] See Western Electricity Coordinating Council, 151 FERC ¶ 61,175 (2015) ($16 million civil penalty); Arizona Public Service Company, 148 FERC ¶ 61,009 (2014) ($3.25 million civil penalty); Imperial Irrigation District, 148 FERC ¶ 61,108 (2014) ($12 million civil penalty); Southern California Edison Company, 149 FERC ¶ 61,061 (2014) ($650,000 civil penalty); California Independent System Operator, 149 FERC ¶ 61,189 (2014) ($6 million civil penalty).
[8] E.g., WECC, 151 FERC ¶ 61,175 at Stipulation and Consent Agreement ¶¶ 25-56; APS, 148 FERC ¶ 61,009 at Stipulation and Consent Agreement ¶¶ 16-27.
[9] "FERC penalties drop again, adding to perception of relaxed enforcement," available here.
[10] Id.
[11] See, e.g., "New Winter Storm Threatens Fragile Power Grids in Texas, Other Parts of US," available here.
[12] See "A Glimpse of America’s Future: Climate Change Means Trouble for Power Grids," available here ("Systems are designed to handle spikes in demand, but the wild and unpredictable weather linked to global warming will very likely push grids beyond their limits.").
[13] Quotations in this paragraph come from the live transcript that was provided to participants during the Commission's February 18, 2021 open meeting.
