Sanctioning GuidelinesSanctioning Guidelines

Carm PhillipsCompliance and Dispute ResolutionDivision 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

1. Penalty RangeA. Non-compliance LevelB. Impact LevelC. Adders

2. Base PenaltyA. ImpactB. Time Horizon

3. Final Penalty– Case factors

10

$6K $100K

Process Overview

Non-Compliance LevelImpactLevel

Low

Medium

High

Low

HighLow

Moderate

HighLow

High

HighLow

Severe

HighLow

$2K $10K $2K $13K $3K $15K $5K $25K

$2K $30K $4K $100K $10K $335K

$4K $125K $8K $300K $12K $625K $20K $1M

$6K $100K

Apply adders to get final rangeEstablish starting range

$2K $30K $6K

Apply aggravating and mitigating factors to get final penalty

Determine base penalty

$8K

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

Step 1: Determining Initial Penalty Range

Non-Compliance LevelImpactLevel

Low

Medium

High

Low

HighLow

Moderate

HighLow

High

HighLow

Severe

HighLow

$2K $10K $2K $13K $3K $15K $5K $25K

$2K $30K $4K $100K $6K $100K $10K $335K

$4K $125K $8K $300K $12K $625K $20K $1M

Establish initial range

$2K $30K

13

Part A: Non-Compliance LevelsNon-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

BreachHistory

Non-Compliance LevelLow Moderate High Severe

Severity

1 2 3 4

Low Moderate High Severe

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

Determining Impact Level

ImpactLevel

Low

Medium

High

None or negligible

Material

Severe

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

Step 1: Determining Final Penalty Range

Non-Compliance LevelImpactLevel

Low

Medium

High

Low

HighLow

Moderate

HighLow

High

HighLow

Severe

HighLow

$2K $10K $2K $13K $3K $15K $5K $25K

$2K $30K $4K $100K $6K $100K $10K $335K

$4K $125K $8K $300K $12K $625K $20K $1M

Apply adders to get final range

$6K $100K

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

Step 2: Determining Base Amount

Non-Compliance LevelImpactLevel

Low

Medium

High

Low

HighLow

Moderate

HighLow

High

HighLow

Severe

HighLow

$2K $10K $2K $13K $3K $15K $5K $25K

$2K $30K $4K $100K $6K $100K $10K $335K

$4K $125K $8K $300K $12K $625K $20K $1M

Assess impact and time horizon to find base penalty within the final range

$8K

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

$4K $100K

ImpactLevel

Non-Compliance Level

Low

Medium

High

Low

HighLow

Moderate

HighLow

High

HighLow

Severe

HighLow

$2K $10K $2K $13K $3K $15K $5K $25K

$2K $30K $6K $100K $10K $335K

$4K $125K $8K $300K $12K $625K $20K $1M

Base penalty

$8K

Step 3: Determining Final Amount

$6K $100K

$8KBase Aggravating

Range

Mitigating Final $6K

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 BImpact 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 minutesMitigating factors outweigh the aggravating

factor. Breach history has contributed mainly to the reduction

Final Penalty Amount: $ 30,000

32

End