FERC recently approved a stipulation and consent agreement between the Los Angeles Department of Water and Power (LADWP) and Office of Enforcement and Regulatory Accounting to resolve an investigation into potential violations of the North American Electric Reliability Corporation (NERC) Rules of Procedure (ROP) and FERC regulations during a 2020 audit by the Western Electricity Coordinating Council. The settlement, and with it the large monetary penalty and additional compliance obligations, underscores the critical importance of transparency, accuracy, and truthfulness in reliability compliance monitoring and enforcement.
The Office of Enforcement found that LADWP, the largest municipal power utility in the United States, submitted false, inaccurate, or misleading information to the Western Electricity Coordinating Council, violating NERC’s requirements under the ROP for providing timely and accurate information.
NERC ROP Section 401.3 requires Bulk Power System owners, operators, and users, including LADWP, “to [provide] NERC and the applicable Regional Entity such information as is necessary to monitor compliance with the Reliability Standards.” Section 403.10 further requires that LADWP “submit timely and accurate information when requested by the Regional Entity or NERC.” The Office of Enforcement also found that the same conduct violated FERC’s regulations pursuant to 18 CFR § 39.2(b) requiring compliance with applicable NERC and Regional Entity rules.
The investigation revealed that LADWP, with the assistance of a third-party consultant, developed false audit responses to conceal information about a 2018 Testing Event involving cyber assets. The involvement of senior LADWP personnel in the submission of false information highlights the need for high-level accountability in compliance matters. The role of the third-party consultant in crafting the false responses further emphasizes the responsibility of external advisors to ensure their guidance aligns with regulatory obligations.
LADWP agreed to pay a civil penalty of $350,000 to the United States Treasury and undertake additional compliance obligations, including submitting annual compliance monitoring reports for up to three years. LADWP neither admitted nor denied the violations, but agreed to the facts of the settlement.
While the penalties reflect the seriousness of the violations, pursuant to FERC’s Revised Policy Statement on Penalty Guidelines the penalties may have been higher if imposed on a for-profit entity. The settlement serves as a reminder of the stringent requirements for compliance and the potential consequences of failing to adhere to them, reinforcing the importance of maintaining integrity in all aspects of regulatory compliance.