By Tom Kleckner

SPP last week reiterated its plans to recover the costs of a NERC penalty for reliability violations by dipping into its employee compensation pool (ER19-97).

In a heavily redacted filing shared with SPP stakeholders at 4:47 p.m. on July 3 — just before the Independence Day holiday — SPP said its board of directors determined the best way to recover the penalty’s costs was to “offset the cost with funds that were approved and allocated to the SPP employee compensation pool,” rather than charging members and market participants.

SPP paid the fine, which NERC approved in the RTO’s role as a registered entity (RE), last year out of a 2017 surplus “that was sufficient to pay the full amount of the monetary penalty.”

The RTO said recovering the penalty cost from authorized employee compensation funds “essentially holds members, market participants, and customers harmless from the cost of the reliability penalty.”

The amount of the fine and the reason for the penalty have not been disclosed. SPP requested confidential treatment for the filing as privileged material and/or critical electric/energy infrastructure information “in order to mitigate potential risks to the reliability of the bulk-power system under SPP’s control.” Seven of the 29 pages in SPP’s filing were fully redacted and two pages were partially redacted.

SPP told RTO Insider that company policy keeps it from commenting on “such matters.”

“Anything we could say publicly is already stated in the filing,” spokesman Derek Wingfield said.

In FERC Order 672, the commission said that NERC violations “generally will be made public after the matter is filed … as a notice of penalty or resolved by an admission that the user, owner, or operator of the bulk-power system violated a reliability standard or a settlement or other negotiated disposition.”

But SPP noted the order also allows a filer, if it believes information on the violation “could jeopardize the security of the bulk-power system if publicly disclosed,” to “fully support” its confidentiality claim in the non-public version of its proposal to recover penalty costs.

SPP added the language in its filing after FERC last year denied its request for waivers from regulations guiding the confidential treatment. The commission said SPP must allow intervenors to sign nondisclosure agreements to access information that the RTO believes should be withheld from the general public. FERC said its CEII regulations “recognize that intervenors in a commission proceeding … may need access to information that the applicant believes should be withheld from disclosure to the general public in order to participate effectively in the proceeding.” (See FERC Rejects SPP Confidentiality over NERC Fine.)

SPP is a NERC RE in the Midwest Reliability Organization and Western Electricity Coordinating Council. It is required to compliance with NERC reliability standards for its roles as a balancing authority, planning authority/planning coordinator, reliability coordinator, reserve sharing group, and transmission service provider.

Under Attachment AP of SPP’s Tariff, the RTO may seek recovery of reliability penalty costs by either directly assigning them to the responsible members or market participants or by allocating the costs to all members or market participants.

As justification for its decision to pay the penalty from its employee compensation fund, SPP cited FERC’s 2008 “Guidance Order,” in which the commission said RTOs could tie employee compensation to compliance with reliability standards as one possible way of “prevent[ing] the incurrence of penalties.”

SPP cited the order’s statement that “Bonuses and other incentives received by senior management could also be made contingent on penalty-free operations” and that in reviewing RTO filings, FERC will consider whether the RTO has implemented “personnel policies that place incentives on employees and management to comply with the rules or risk adverse actions.”

SPP said using the existing surplus to pay the reliability penalty “promptly” was an appropriate and reasonable action. The RTO said, “Doing so enabled SPP to pay the penalty in a timely manner as required without having to expend additional time, effort, and resources to file for commission authorization to allocate the costs … prior to paying the penalty, and then invoicing and collecting the funds from the same entities who contributed to the 2017 surplus” through their payment of SPP’s administrative charges.