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Sanctioning Guidelines

Sanctioning Guidelines. Carm Phillips Compliance and Dispute Resolution Division Market Assessment and Compliance Division. Agenda. Stakeholder Plan Changes Terms of Reference Guideline Review Review Action Items and Next Steps. Revised Stakeholder Plan. Timing

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Sanctioning Guidelines

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  1. Sanctioning Guidelines Carm Phillips Compliance and Dispute Resolution Division Market Assessment and Compliance Division

  2. Agenda • Stakeholder Plan Changes • Terms of Reference • Guideline Review • Review Action Items and Next Steps

  3. Revised Stakeholder Plan • Timing • Comments requested by April 20, 2007 • One follow up session • Broader audience review with comment period • Timing will be tight for manual baseline, however, guidelines can be in effect for June 1, 2007 and incorporated into next baseline.

  4. Terms of Reference Comments /Questions?

  5. Background • Mandatory and enforceable market rules since market opening – May 2002 • Market rule provide little guidance on establishing penalties for egregious behaviour described in Chapter 3, section 6.6.13. • High Risk or System emergency • Market Suspension • Severe impact to market or reliability • High frequency of breaches or past breaches

  6. Transitional Issues • NERC and NPCC have yet to establish risk factors and severity levels for all requirement of a standard. MACD will use severity level and risk factors when available.

  7. Proposed Guidelines Objectives • Applicable to all market rules • Clear & definitive but flexible • Reasonably aligned with NERC guidelines • Penalty has relationship to seriousness • Criteria must capture egregious behaviour

  8. Proposed MACD Guidelines • Method is similar to a number of matrices: WECC, Alberta, NERC, NPCC • Principles differ but similar to NERC guidelines

  9. Process Overview • Penalty Range • Non-compliance Level • Impact Level • Adders • Base Penalty • Impact • Time Horizon • Final Penalty • Case factors

  10. Determine base penalty $6K $20K $12K $4K $8K $2K $10K $4K $5K $3K $6K $2K $15K $300K $13K $100K $1M $625K $100K $335K $125K $100K $25K $10K Apply aggravating and mitigating factors to get final penalty $2K $2K $30K $30K $6K $8K Low Low Low Low High High High High Establish starting range Apply adders to get final range Process Overview Non-Compliance Level Impact Level Low High Severe Moderate Low Medium High

  11. Step 1: Initial Penalty Range Initial penalty range: = Non-compliance Level + Impact Level A. Non-Compliance Level (across matrix): • Higher of breach history or severity B. Impact Level (down matrix): • All impacts

  12. $3K $2K $2K $4K $10K $4K $6K $5K $12K $20K $8K $300K $335K $100K $15K $100K $13K $25K $10K $1M $625K $125K $2K $2K $30K $30K Low Low Low Low High High High High Establish initial range Step 1: Determining Initial Penalty Range Non-Compliance Level Impact Level Low High Severe Moderate Low Medium High

  13. Part A: Non-Compliance Levels Non-Compliance Level: = Higher of breach history or severity Breach History Contributions: • Combinations of breaches (related or unrelated) e.g., • One continuing • One consecutive • Failure to comply with an order • Two repetitive Severity (as defined by NERC Severity Factor or MACD): • Extent of breach (may have a duration component) • Frequency of breaches (rate of non-compliance)

  14. Determining Non-Compliance Levels Non-Compliance Level Low High Severe Moderate Breach History 1 3 4 2 Low High Severe Moderate Severity

  15. Part B: Impact Level Breaches of Reliability Standards: • Other market participant(s) • Markets • Actual or potential impact on reliability • Caused IESO standards breach • Any other impacts MACD deems appropriate • If available, NERC risk factor used to establish impact on reliability • Other impacts may increase Impact Level

  16. Part B: Impact Level All other breaches of market rules: • Other market participant(s) • Potential impact on markets • Actual or potential impact on reliability* • Any other impacts MACD deems appropriate *Not all breaches that cause impacts to reliability are breaches of reliability standards

  17. None or negligible Material Severe Determining Impact Level Impact Level Low Medium High

  18. Step 1: Determining Final Penalty Range Final Penalty Range: = Initial penalty range + Adders C. Adders (across matrix): • One or more of: • Benefit • Corporate Intent • Duration

  19. $3K $2K $20K $12K $10K $4K $8K $6K $4K $5K $2K $6K $1M $13K $100K $125K $15K $10K $625K $100K $100K $300K $25K $335K Low Low Low Low High High High High Apply adders to get final range Step 1: Determining Final Penalty Range Non-Compliance Level Impact Level Low High Severe Moderate Low Medium $2K $30K High

  20. Part C: Adders • Any of the following may result in an increase in penalty range from the initial assessment of non-compliance level and impact: • Duration (when serious) • Benefit obtained or could have obtained either as a result of lack of due diligence or deliberate; not disgorgement • Corporate intent

  21. Step 2: Base Amount • Once final penalty range is determined, the base penalty amount within that range is assessed • Base amount considers the impact of the breach and the time horizon of the impact Base Amount = Impacts +/- Time Horizon

  22. Step 2: Base Amount (Impact) Impacts to: • Other market participant(s) • Potential impact on markets • Actual or potential impact on reliability • Sanction that may be imposed on IESO as a result of reliability standard • Any other impacts MACD deems appropriate

  23. Step 2: Base Amount (Time Horizon) Time Horizon • Considers whether or not the breach would cause immediate impact Example • Planning requirements do not cause an immediate impact to reliability whereas real time requirements do.

  24. Assess impact and time horizon to find base penalty within the final range $4K $6K $10K $4K $8K $5K $12K $20K $2K $3K $2K $300K $13K $1M $625K $125K $100K $100K $25K $15K $10K $335K $8K Low Low Low Low High High High High Step 2: Determining Base Amount Non-Compliance Level Impact Level Low High Severe Moderate Low Medium $2K $30K High

  25. Step 3:Final Penalty (Case Factors) Final Penalty = Base Amount +/- Case Factor Adjustments • Case factors can be added (aggravating) or subtracted (mitigating) from base amount • Final penalty must be within the previously determined final range • Factors used exclude those used to fix base penalty amount (impact factors and time horizon) • List of factors are the same as those used to fix penalties for less serious breaches (market rules section 6.6.7), with the addition of one factor: Quality and Presence of Compliance Program

  26. Range Aggravating Base $8K Mitigating $5K $2K $2K $3K $6K $10K $4K $8K $12K $20K $6K $4K $100K $335K $25K $15K $625K $300K $1M $10K $13K $100K $100K $125K Final $6K Low Low Low Low High High High High Step 3: Determining Final Amount Impact Level Non-Compliance Level Low High Severe Moderate Base penalty Low Medium $2K $30K $8K High

  27. Example 1 – ORA Failure Failure to activate 10 min operating reserve • collapse of local electrical island containing 300 MW occurred during cold winter days • 48 hours to restore all load loss • disclosure of incident was timely and voluntary correction taken to address the cause of the operator error • actual severe impact to reliability as confirmed by IESO Board • first breach of same or related rules and no other breach history of unrelated rules • Reason for breach: operator error that could have been avoided by the exercise of due diligence • Activation did not occur by 30 minutes after request when island collapsed

  28. Step 1- Penalty Range Part A Non-compliance Level = “low” • Severity and Breach History does not qualify for any level Part B Impact Level = High • small volume of load loss, however, significant duration of load loss during cold winter Range: $ 4,000 - $ 125,000

  29. Step 1- Penalty Range – Part C -Adders • Adders to Non-Compliance Level = None • No corporate intent • Duration- increase to level not required • No benefit gained by the breach Range selection = $4,000 to $125,000

  30. Step 2- Base Amount Part A - Impact Assessment • Impact is at the lower third of the range due to small volume of load loss, however, the duration of the load loss and cold weather moves the base just above the lower third. Part B- Time Horizon • Real time requirement - immediate correction of the ORA failure was required and posed an immediate impact. This will increase the base amount further into the middle third of the range Base Penalty Amount = $50,000

  31. Step 3 - Final Penalty - Case Factors Cases Factors: • Mitigating: self disclosure, voluntary correction, breach history • Aggravating: duration; activation not accomplished by 30 minutes Mitigating factors outweigh the aggravating factor. Breach history has contributed mainly to the reduction Final Penalty Amount: $ 30,000

  32. End

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