In a Compliance Process Bulletin issued yesterday, the North American Electric Reliability Corporation (NERC) provided guidance to entities registered for compliance with the mandatory and enforceable Reliability Standards on delegating reliability tasks to third parties. In sum, NERC will hold a registered entity responsible for compliance with, and accountable for any violations of, the Reliability Standards, even if the registered entity has contractually assigned its performance obligations to a third party. The third-party assignee may have contractual liability to the registered entity for any penalties resulting from violations of the Reliability Standards, but the registered entity would bear the liability in the first instance. To ensure greater clarity in the allocation of responsibility and accountability, NERC offered guidance to registered entities seeking to assign their performance obligations to third parties.

Background

In NERC Compliance Process Bulletin # 2010-004, “Guidance for Entities that Delegate Reliability Tasks to a Third Party Entity,” NERC explained by way of background that, under the NERC Rules of Procedure and relevant federal laws, an entity registered with NERC is responsible for compliance with all Reliability Standard requirements applicable to the functions for which the entity is registered. As a result, the entity is held accountable for any sanctions, including monetary penalties, for violations of those requirements. Notwithstanding this “compliance responsibility and violation accountability” assigned to the registered entity, the registered entity may contract with another entity to delegate the performance of some or all of the activities for which it is responsible. In the event of such a contractual delegation, the parties can agree that the registered entity “retains full compliance responsibility and violation accountability” or can agree that the third party accepts the compliance responsibility and violation accountability. Even where the third party accepts such responsibility and accountability, however, only the registered entity would be held responsible or accountable by NERC.