The Los Angeles Department of Water and Power (LADWP) has agreed to pay a $350,000 penalty to the U.S. Treasury, FERC said in an Oct. 2 filing alleging that the utility withheld information from WECC and provided false information to the regional entity during a 2020 compliance audit (IN25-11).

FERC’s Office of Enforcement and Regulatory Accounting wrote in the filing that LADWP neither admitted to nor denied the accusations but agreed to pay the penalty and other compliance obligations, including submitting annual compliance monitoring reports for at least two years.

The case involved the infringement of NERC’s Rules of Procedure as they stood at the time, specifically sections 401.3 and 403.10. Section 401.3 required utilities to “provide to NERC and the applicable [RE] such information as is necessary to monitor compliance with the reliability standards,” while 403.10 directed registered entities to “submit timely and accurate information when requested by the [RE] or NERC.”

LADWP provides electricity and water services to the city of Los Angeles, with a generation, transmission and distribution system that extends across California, Arizona, New Mexico, Nevada and Oregon. The utility’s generation system has a total nameplate capacity of more than 8 GW.

According to FERC, the alleged violation arose from an incident in October 2018 when LADWP granted a third-party consultant access to some cyber assets for a test, the details of which were not discussed in the commission’s filing. NERC’s reliability standards required that LADWP perform quarterly reviews to ensure only authorized individuals access their cyber systems. However, LADWP’s review for the fourth quarter of 2018 did not include any information about this testing event and consequently never was finalized.

WECC later issued a data request during a routine audit for the utility in 2020 that LADWP failed to satisfy because to do so would require sending the incomplete quarterly review. Instead, LADWP told the RE it could not locate the material and later indicated the quarterly review for that period had never been done at all.

According to the filing, LADWP developed this response with a third-party audit consultant, which warned the utility that “the language … could be perceived as hiding information or not being completely forthcoming with WECC.” FERC wrote that members of LADWP’s management responsible for compliance and risk management knew about the testing event, its omission from the quarterly review and the false responses submitted to WECC’s request.

After an internal investigation, LADWP self-reported this sequence of events to WECC in 2023. FERC noted that during its own subsequent investigation, the utility “fully cooperated with” OERA.

OERA concluded that LADWP violated 401.3 and 403.10 by withholding information from NERC and WECC, emphasizing that this finding did not include any potential violations of NERC’s reliability standards associated with the 2018 testing event or discovered in the 2020 WECC audit.

OERA also called the audit consultant’s role in the violations “problematic,” because it provided the language for the utility’s false response to WECC’s information request and acknowledged that the information was not accurate. The consultant thereby “involved itself in the submission of false, inaccurate and misleading information … and the concealment of relevant information,” behavior that “was inconsistent with the obligation of third-party consulting firms to advise … only truthful, accurate and complete responses.”

Monitoring Report Required

In addition to the financial penalty, which is to be paid within 10 days of the effective date of the agreement, LADWP also agreed to submit an annual compliance monitoring report to OERA for at least the next two years. The first report is to be filed no later than 60 days after one year following the effective date, with the second to be filed a year after the first. OERA may determine that a third report is needed based on the first two.

Each report must include:

• • Any known violations subject to FERC’s jurisdiction during the prior year, along with any mitigation actions taken.
  • Any compliance measures and procedures instituted or modified by LADWP related to its participation in FERC-jurisdictional markets.
  • All commission-related compliance training administered by LADWP during the prior year.
  • Additional mitigation and compliance measures performed with WECC related to any standard violations implicated by the 2018 testing event and the 2020 WECC audit.

LADWP also must submit an affidavit with each report, executed by an officer of the utility, that states the report is true and accurate.

In a statement to ERO Insider, LADWP staff said they have “worked proactively with FERC, NERC and WECC to resolve any non-compliances associated with the responses” to the 2020 WECC audit. They noted the utility appointed Joanne Martin as chief risk and compliance officer this year “to lead and strengthen [LADWP’s] regulatory compliance procedures and practice.”

“LADWP leadership and the board have, at all intervals, encouraged complete cooperation with federal investigators and have worked to improve compliance functions,” staff said. “LADWP takes seriously its ongoing compliance obligations to FERC, NERC [and] WECC and will continue to work to demonstrate its commitment to compliance moving forward.”