UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

North American Electric Reliability)Docket No. RR12-8-000

Corporation)

MOTION TO INTERVENE AND COMMENTS OF THE ISO/RTO COUNCIL

In accordance with Rules 212 and 214 of the Commission’s Rules of Practice and

Procedure, the ISO/RTO Council (“IRC”)1 respectfully submits this motion to intervene and its
comments in support of one component2 of the Petition of the North American Electric
Reliability Corporation for Approval of Revisions to its Rules of Procedure (“Petition”).
Specifically, the IRC supports the Petition’s proposed addition of a new provision to
Appendix 4C, i.e., the Compliance Monitoring and Enforcement Program (“CMEP”) rules, of
the North American Electric Reliability Corporation’s (“NERC”) Rules of Procedure (“ROP”).
The new CMEP provision, Section 5.11, “Special Procedures for an Enforcement Action Against
an ISO/RTO Where the Monetary Penalty May Be Allocated by the ISO/RTO to Other Entities,”
addresses an issue that has been a longstanding concern of the IRC. While the Commission has
provided a means for ISOs and RTOs to involve entities in enforcement proceedings that may
have an ISO/RTO penalty directly allocated to them, this has involved a petition to the
Commission, and the NERC ROPs have not provided for a more-efficient solution to date.3
Section 5.11 will help to ensure that there is an efficient means for specific participants within

1 The IRC was unable to confirm that one of its members, the Electric Reliability Council of

Texas, Inc. (“ERCOT”) was joining in these comments before the Commission’s 5:00 PM filing deadline. The IRC will inform the Commission of ERCOT’s status as soon as possible.

2 The IRC is not taking a position on the various other components of the Petition at this time.

3 While the means afforded by the Commission is effective and has been utilized in one case to date, the proposed changes to the ROP will potentially streamline the process, while petition to the Commission remains an option where necessary.

Independent System Operators (“ISOs”) and Regional Transmission Organizations (“RTOs”) to participate in enforcement proceedings, which is a prerequisite of the Commission’s orders allowing the allocation of the cost of NERC penalties among certain market participants,
specifically where actions of a market participant, rather than the ISO/RTO, caused the penalty to be incurred. Section 5.11 is consistent with Commission policy and precedent, and with the dictates of due process, and should be approved as NERC requested.

I.COMMUNICATIONS

Correspondence and communications regarding this filing should be addressed to the

undersigned as follows:

Nancy SaracinoMatthew Morais*

General CounselAssistant General Counsel

Roger CollantonElectric Reliability Council of Texas,

Assistant General Counsel-Litigation andInc.

Mandatory Standards2705 West Lake Drive

Anna McKenna*Taylor, Texas 76574

Senior Counselmmorais@ercot.com

California Independent System Operator Corporation

151 Blue Ravine Road

Folsom, California 95630

amckenna@caiso.com

Raymond W. HepperStephen G. Kozey*

Vice President, General Counsel, andVice President, General Counsel, and

SecretarySecretary

Theodore J. Paradise*Midwest Independent Transmission

Assistant General Counsel, Operations andSystem Operator, Inc.

PlanningP.O. Box 4202

ISO New England Inc.Carmel, Indiana 46082-4202

One Sullivan Roadskozey@midwestiso.org

Holyoke, Massachusetts 01040

tparadise@iso-ne.com

Carl F. Patka*

Assistant General Counsel Raymond A. Stalter

Director of Regulatory Affairs

New York Independent System Operator, Inc.

10 Krey Blvd

Rensselaer, New York 12144

cpatka@nyiso.com

Paul Suskie*

Senior Vice President, Regulatory Policy and General Counsel

Southwest Power Pool, Inc.

415 North McKinley, Suite 140 Little Rock, Arkansas 72205

psuskie@spp.org

* = persons designated to receive service

II.MOTION TO INTERVENE

Brian Rivard*

Manager - Regulatory Affairs & Sector Policy Analysis

Ontario’s Independent Electricity
System Operator

655 Bay Street, Suite 410
Toronto, Ontario M5G 2K4

brian.rivard@ieso.ca

The IRC is comprised of the Alberta Electric System Operator (“AESO”), the California
Independent System Operator Corporation (“California ISO”), Electric Reliability Council of
Texas (“ERCOT”), the Independent Electricity System Operator of Ontario, Inc., (“IESO”), ISO
New England, Inc. (“ISO-NE”), Midwest Independent Transmission System Operator, Inc.,
(“MISO”), New York Independent System Operator, Inc. (“NYISO”), PJM Interconnection,
L.L.C. (“PJM”), Southwest Power Pool, Inc. (“SPP”), and New Brunswick System Operator
(“NBSO”). Because they are not subject to the Commission’s jurisdiction, NBSO, AESO, and
ERCOT do not join in these comments. Further, these comments do not constitute agreement or
acknowledgement by IESO or NBSO that they can be subject to the Commission’s jurisdiction.
The IRC’s mission is to work collaboratively to develop effective processes, tools, and standard methods for improving the competitive electricity markets across North America. In fulfilling this mission, it is the IRC’s goal to provide a perspective that balances Reliability

Standards with market practices so that each complements the other, thereby resulting in

efficient, robust markets that provide competitive and reliable service to customers.

The IRC’s members conduct their operations in compliance with the NERC Reliability
Standards. ISOs/RTOs operate the bulk power system, administer the organized wholesale
electricity markets, and act as the planning authorities within their respective regions. The
Commission has recognized the importance of ISOs/RTOs in “providing transmission service,
enhancing reliability and administering electric energy markets throughout the country.” It has
also acknowledged that ISOs/RTOs, “to the extent they operate as not-for-profit organizations
funded by their customers, may have insufficient reserves to pay penalties assessed pursuant to
section 215 of the [Federal Power Act].” Accordingly, the Commission has established special
rules and procedures governing penalties assessed against ISOs/RTOs as Registered Entities
under NERC procedures.

Proposed new Section 5.11 of the CMEP rules would conform NERC’s procedural rules to the Commission’s requirements regarding the recovery of ISO/RTO penalty costs. The IRC thus has a direct and material interest in this proceeding that cannot be adequately represented by any other party and should be permitted to intervene herein.

III.BACKGROUND

In its March 2008 Guidance Order the Commission created a “road map” for allowing
the allocation of the costs of penalties assessed against an ISO/RTO under section 215(e) of the
FPA for a violation of a mandatory reliability standard.4 The Commission provided further
guidance in a September 2008 ruling on a related PJM filing.5 Together, the Guidance Order

4 Reliability Standard Compliance and Enforcement in Regions with Regional Transmission
Organizations or Independent System Operators, 122 FERC ¶ 61,247 (2008) (“Guidance Order”).

5 See PJM Interconnection, L.L.C. 124 FERC ¶ 61,260 (2008) (“PJM Order”).

and the PJM Order established that ISOs/RTOs could seek to directly assign the costs of
reliability-related penalties on a case-by-case basis. They give an ISO/RTO the ability to
“directly allocate penalty costs, or a portion thereof . . . ,” to another entity that it deemed
responsible for the underlying violation, if the following three conditions were satisfied:

• The target market participant receives notice and an

opportunity to fully participate in the Compliance Monitoring and Enforcement Program conducted by NERC or NERC’s Regional Entities.

• The NERC Compliance Monitoring and Enforcement Program
holds a proceeding that finds that the target Members at least in
part “contributed … to the NERC Reliability Standards
violation(s)”, and files this finding with the Commission.

• NERC also files a root cause filing with the Commission,

“identifying the Member’s or Members’ conduct as causing or contributing to the Reliability Standards violation charged
against PJM.”6

These reliability penalty cost recovery principles have subsequently been incorporated into the tariffs of multiple IRC members.7

In early 2009, the IRC identified several inconsistencies between the Commission’s
rulings and the existing CMEP rules governing interventions in penalty proceedings. Most
significantly, the CMEP rules prohibited entities other than respondents and compliance staff
from intervening in enforcement hearings (absent a case-specific Commission authorization).
When it accepted this rule, the Commission reasoned that third party interventions should
generally not be allowed because reliability enforcement hearings would generally be non-public

6 Id. at P 12.

7 See, e.g., Midwest Independent Transmission System Operator, Inc., 128 FERC ¶ 61,229

(2009); New York Independent System Operator, Inc., 127 FERC ¶ 61,196 (2009); PJM Interconnection, L.L.C., 124 FERC ¶ 61,260 (2008).

and “third-party contributions to such hearings would likely be minimal.”8 The Commission

stated that it would be sufficient for it to review individual third party intervention requests on a case-by-case basis.9

Under this approach, however, if an ISO/RTO were alleged to have violated a reliability
standard there would be no guarantee that a market participant that was actually responsible for
the violation would be able to “fully participate” in an enforcement hearing without petition to
the Commission. Accordingly, the CMEP intervention rule as drafted at the time had the
potential to prevent ISOs/RTOs from satisfying the conditions that the Commission stated must
be met before direct assignments of penalty costs would be permitted. Petition to the
Commission has provided a means to address this issue under the existing CMEP. Nevertheless,
revisions to the CMEP have the potential to be more efficient by conforming the CMEP process
to recognize the Commission’s Guidance Order. Specifically, the proposed revisions would
provide a process for participation in the enforcement proceedings by entities that may have
caused an ISO/RTO to violate a standard and, may, therefore have a penalty directly allocated to
them.

The IRC promptly raised its concern with NERC and a lengthy dialogue ensued. In

2011, the issue was addressed in a Commission proceeding regarding an attempt by FirstEnergy to intervene in a reliability enforcement hearing in which an RTO was the respondent but in
which FirstEnergy was potentially implicated and subject to a direct assignment of penalty costs. The IRC filed comments supporting FirstEnergy’s intervention, which was ultimately

8 Monongahela Power Co., et al., 135 FERC ¶ 61,226 at P 4 (2011), citing North American Electric Reliability Corp., 119 FERC ¶ 61,060 at P 160 (2007) (“Monongahela Power Co.”).

9 Id. at 5, citing North American Electric Reliability Corp., 122 FERC ¶ 61,245 at P 82.

permitted.10 In its order, the Commission reiterated that the Guidance Order had “contemplated
that an entity ‘targeted’ for a direct assignment” of a reliability penalty “should have an
opportunity to participate in the underlying enforcement proceeding in which the RTO or ISO is
a respondent.”11 It emphasized that a “targeted entity’s” due process rights included the ability
to “participate in a regional Enforcement Hearing where its liability may be implicated.”12

IV.COMMENTS

Proposed new Section 5.11 would allow ISOs/RTOs to ask the relevant Compliance

Enforcement Authority to determine that one or more other entities were potentially responsible,
in whole or in part, for the violation and should be permitted to participate in the enforcement
process.13 It states that the new rule would implement the framework established by the
Guidance Order and subsequent Commission precedent. Appropriately, and consistent with the
Guidance Order, the proposed Section 5.11 would also leave the actual determination as to
whether an ISO/RTO will be permitted to directly assign penalty costs in a particular case to the
Commission. That is, the proposed provisions only address the issue of participation in the
enforcement proceedings and a Section 205 filing is required per the Guidance Order for an ISO
or RTO to have any specific allocation approved. The Petition accurately notes that proposed
Section 5.11 is the product of “extensive discussions between NERC and the [IRC]” as well as
other NERC stakeholders.14 The various subsections of proposed Section 5.11 describe how the
new intervention and cost-assignment related procedures would operate in detail.

10 Motion to Intervene Out-of-Time and Comments of the ISO/RTO Council, Docket No. RC11-3-
000 (filed June 7, 2011).

11 Monongahela Power Co. at P 15, citing Guidance Order at PP 22-23.

12 Id.

13 See Petition at 57-58.

14 Id.

The IRC supports Section 5.11 in its entirety and urges the Commission to approve it

without modification or condition.15 An allowance for third party interventions in ISO/RTO

direct assignment cases under the NERC ROP is warranted as a potentially more efficient means
to fulfill the purposes of the Guidance Order. While the Commission has provided a means for
third parties to participate on petition as was utilized in the case of the PJM Order, the NERC
ROP should conform, rather than conflict with the Commission’s case law in this area.
Section 5.11 is necessary to protect the due process rights of third parties that might be subject to
direct assignments of penalty costs. It is also necessary to conform the CMEP to the procedures
the Commission has prescribed to govern the recovery of ISO/RTO reliability penalty costs.
Without Section 5.11, the CMEP could be inconsistent with the Guidance Order and later
rulings.

15 The IRC notes that under the Petition, the CMEP would continue to allow third parties to

intervene in reliability enforcement proceedings by order of the Commission without reference to

determinations by a CEA under proposed new Section 5.11. See CMEP, Attachment II at section 1.2.21
(Petition at Attachment 4A). This is an appropriate procedural safeguard that should be approved by the
Commission.

/s/ Nancy Saracino

Nancy Saracino
General Counsel
Roger Collanton

Assistant General Counsel-Litigation and Mandatory Standards

Anna McKenna
Senior Counsel

California Independent System Operator Corporation

151 Blue Ravine Road
Folsom, California 95630

/s/ Raymond W. Hepper

Raymond W. Hepper

Vice President, General Counsel, and Secretary

Theodore J. Paradise

Assistant General Counsel, Operations and Planning

ISO New England Inc.

One Sullivan Road

Holyoke, Massachusetts 01040

/s/ Carl F. Patka__

Carl F. Patka

Assistant General Counsel Raymond A. Stalter

Director of Regulatory Affairs

New York Independent System Operator, Inc.

10 Krey Blvd

Rensselaer, New York 12144

/s/ Matthew Morais

Matthew Morais

Assistant General Counsel

Electric Reliability Council of Texas, Inc.

2705 West Lake Drive
Taylor, Texas 76574

/s/ Stephen G. Kozey

Stephen G. Kozey

Vice President, General Counsel, and Secretary

Midwest Independent Transmission

System Operator, Inc.

P.O. Box 4202

Carmel, Indiana 46082-4202

/s/ Brian Rivard_____

Brian Rivard

Manager - Regulatory Affairs & Sector Policy Analysis

Ontario’s Independent Electricity System Operator

655 Bay Street, Suite 410
Toronto, Ontario M5G 2K4

/s/ Paul Suskie

Paul Suskie

Senior Vice President, Regulatory Policy and General Counsel

Southwest Power Pool, Inc.

415 North McKinley, Suite 140
Little Rock, Arkansas 72205

Dated: May 29, 2012

CERTIFICATE OF SERVICE

I hereby certify that I have this day caused the foregoing document to be served upon

each person designated on the official service list compiled by the Secretary in this proceeding in accordance with the requirements of Rule 2010 of the Rules of Practice and Procedure, 18 C.F.R. § 385.2010 (2011).

Dated at Washington, DC this 29th day of May, 2012.

By:/s/Catherine A. Karimi

Catherine A. Karimi

Hunton & Williams LLP

2200 Pennsylvania Avenue, NW Washington, D.C. 20037