If you were in southeast Florida on February 26, 2008 you might remember being without power for about an hour. I wasn't in Florida at the time but I remember the national news broadcasts of the southern two thirds of Florida being without power. Because of that one hour of outage, Florida Power & Light (FPL) announced in early October 2009 it agreed to a record settlement in the amount of $25 million that it will pay to the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC).

Background

According to a press release from FPL:

• NERC had conducted two prior reliability readiness evaluations of FPL reliability practices and performance. These audits found FPL had the appropriate plans, processes, procedures and personnel in place to ensure reliability.
• An independent investigation was conducted by the Florida Reliability Coordinating Council (FRCC), which a delegated authority from NERC performed a detailed analysis of all technical and human aspects of the Feb. 26, 2008, outage and identified no FPL violations of reliability standards.
• FPL also commissioned an independent investigation by ICF International, a consulting firm that is nationally recognized for its expertise on grid operations, energy security and infrastructure protection. ICF concluded that FPL did not violate reliability standards.

Let's take a look at what happened. According to the (FERC) report, a Protection and Control Engineer was troubleshooting a switch that had malfunctioned a few days before the outage event. The engineer -- without authorization and contrary to FPL's policies and procedures -- disabled the primary and backup equipment that prevents electrical failures at a switch from spreading. A failure occurred at the switch, and because both levels of protective equipment had been disabled by the engineer, power was lost for nearly two-thirds of southern Florida.

The spirit versus the letter of the regulation

Point: FERC's Office of Enforcement had asserted alleged violations of the electric reliability standards in connection with the event.

Counterpoint: FPL believes it was in compliance at all times.

Result: As part of the settlement agreement, FERC does not conclude that FPL violated any reliability standards or laws, and FPL does not admit any violations or liability in connection with the outage. Wow! Both parties concur that there were no violations! So why has FPL agreed to pay $25 million? FPL CEO Armando J. Olivera, in the press release mentioned above, said:

“…it could take several more years and be very costly to resolve through litigation with a federal regulatory agency. Litigation would require the time and attention of the same people who are responsible for the reliability of the grid. As a result, we believe a settlement is an appropriate course of action."

So, what can you conclude from this? From my informal summary, using the NERC data, the dollar amount of the fines are increasing. With the first round of audits being completed, NERC's leniency is ending. They are getting very serious about enforcing the reliability standards by imposing fines. So, if you think you are spending too much on your compliance efforts, then compare those costs with the risk of potential fines or even a settlement like the one in this case, and maybe you'll reconsider.