On January 22, 2014, the staff (Staff) of the Office of Enforcement of the Federal Energy Regulatory Commission (FERC of the Commission) issued a Staff Notice of Alleged Violations (Preliminary Notice) relating to a September 8, 2011, blackout in the Southwest.  The outage affected 2.7 million customers in parts of Arizona, Southern California, Baja California and Mexico. In the Preliminary Notice, Staff alleges that the blackout resulted from violations of one or more reliability standards by each of Arizona Public Service Company, the California Independent System Operator Corporation, Southern California Edison Company, Imperial Irrigation District (IID), the Western Area Power Administration's Desert Southwest division, and the Western Electricity Coordinating Council's reliability coordinator. The issuance of the Preliminary Notice follows the April 2012 release of a joint report (Joint Report) by the staffs of FERC and the North American Electric Reliability Corporation (NERC), which found that adequate real-time situational awareness and operations planning could have prevented the event. The Joint Report, however, made no findings with regard to whether there had been violations of the reliability standards.

NERC, which operates under FERC oversight, has the primary responsibility for enforcement of the reliability standards. However, FERC also has the authority to enforce the reliability standards, either on its own or in collaboration with NERC.  Such investigations are conducted in accordance with FERC’s regulations under 18 C.F.R. pt. 1b, which are the same procedures used for regulatory and tariff violations. FERC directly participates in relatively few reliability investigations; it usually gets involved only when a reliability event results in actual harm, such as a major outage. 

IID has already announced that it expects to reach an approximately $12 million settlement agreement with FERC this week. It is currently unknown if other entities named in the Preliminary Notice will settle. However, the pattern has been for entities to settle in reliability investigations in which FERC has been directly involved.¹ If one of the entities chooses not to settle, then this case will be the first example of a formal FERC enforcement action for a reliability violation, and potentially the first opportunity to see how FERC applies its Penalty Guidelines in the reliability context.