RTO Liability for Damages Associated with RTO Violations of the RTO Tariff

To date, the Legal Work Group has not given attention to the important concern that has been raised regarding RTO liability for damages that result from the RTO’s issuance of operational orders (to SCs or generators) that are inconsistent with the RTO's authorities under the Tariff.  To the contrary, the standing recommendation in one of the Legal Group’s white papers is that the RTO should have very limited liability for violating its tariff, with RTO liability possibly limited to only replacement energy costs.  

It would be entirely unacceptable commercially, and it would be very bad public policy as well, to allow the service provider (i.e., the RTO) to violate the terms of its tariff with impunity and to impose the costs of those violations on the customers who are damaged by those violations.  As a matter of policy:

(i)	The RTO must be incited, through exposure to the financial consequences of its actions, to comply with its tariff.

(ii)	Scheduling Coordinators (SCs), Generators and possibly Participating Transmission Owners (PTOs) who suffer damages as the result of compliance with RTO instructions must be fully compensated by the RTO for all damages, both direct and consequential.

(iii)	The RTO (not individual SCs, Generators or PTOs) must acquire liability insurance that will provide for full compensation to parties that are wronged by RTO errors, negligence, and/or non-compliance with the RTO Tariff.

Either: (i) the RTO must be required to fully compensate parties who are harmed through their compliance with invalid dispatch orders, or (ii) grid users must have the right to disobey a disputed dispatch order if disobeying the order would not compromise reliability, and they must be fully compensated for harm stemming from compliance with invalid dispatch order which can not be disobeyed.  In particular: 

•	If the RTO Tariff takes the tack of stating that compliance with RTO dispatch instructions is mandatory in all events (even if an RTO dispatch instruction is not valid, and even if non-compliance with the invalid instruction would not compromise reliability), then the RTO must be liable for making the harmed parties whole for all costs (including replacement power costs, equipment damage cost, cost of lost opportunities and consequential damages) that stem from compliance with the disputed dispatch instruction.

•	Alternatively, if the RTO will not have such liability, then SCs, Generators and PTOs must have the right to disobey a disputed operational instruction (if disobeying the disputed instruction would not create an operational security problem).  The parties would subsequently determine (through the RTO’s dispute resolution processes) which party had violated the tariff and whether any penalties would be appropriate.

Proposed Tariff Language:  Compliance with RTO Dispatch Instructions

Each PTO, SC, and Generating Unit within the RTO Grid shall comply fully and promptly with valid Dispatch Instructions, unless such compliance would impair public health or safety, result in damage to equipment, or if the Dispatch Instruction is not in compliance with the Tariff.

In the event that the recipient of a Dispatch Instruction believes that compliance with a Dispatch Instruction would impair public health or safety, result in damage to equipment, or is otherwise not in compliance with the Tariff, the recipient of the Dispatch Instruction must immediately notify the RTO and the following procedures shall apply:

i)	If non-compliance with the Dispatch Instruction would not threaten the security of the RTO Grid or create a threat of bodily harm:  the SC, Generating Unit or PTO may choose to not comply with the Dispatch Instruction; however, the SC, Generating Unit or PTO shall remain liable for failure to meet its obligations under the Tariff and shall remain liable for any charges or penalties resulting from such failure, should the final outcome of the RTO’s dispute resolution process conclude that the Dispatch Instruction was valid, and that the assessment of such charges or penalties would be appropriate in light of the facts surrounding the disputed Dispatch Instruction.

ii)	If (a) non-compliance with the Dispatch Instruction would threaten the security of the Grid or create a threat of bodily harm; and (b) compliance with the Dispatch Instruction would not result in damage to the SC’s, Generating Unit’s or PTO’s equipment or create a threat of bodily harm: the SC, Generating Unit or PTO must comply with the Dispatch Instruction; however, the SC, Generating Unit or PTO shall be entitled to compensation for any Demonstrable Costs and damages resulting from such compliance.

iii)	If (a) non-compliance with the Dispatch Instruction would threaten the security of the Grid, but not create a threat of bodily harm; and (b) compliance with the Dispatch Instruction might reasonably result in damage to the SC’s, Generating Unit’s or PTO’s equipment but not create a threat of bodily harm: the SC, Generating Unit or PTO shall inform the RTO of the potential for such damage.  The RTO may choose to re-issue the Dispatch Instruction and if so, the SC, Generating Unit or PTO must comply with the Dispatch Instruction; however, the SC, Generating Unit or PTO shall be compensated for any Demonstrable Costs and damages resulting from compliance with the reissued Dispatch Instruction.

iv)	If (a) non-compliance with the Dispatch Instruction would threaten the security of the Grid, but not create a threat of bodily harm; and (b) compliance with the Dispatch Instruction might reasonably result in damage to the SC’s, Generating Unit’s or PTO’s equipment and might create a threat of bodily harm:  the SC, Generating Unit or PTO shall inform the RTO of the potential for such damage and the potential threat of bodily harm.  If the RTO chooses to re-issue the Dispatch Instruction, the SC, Generating Unit or PTO may choose to not comply with the Dispatch Instruction solely on the ground of the potential threat of bodily harm; however, the SC, Generating Unit or PTO must demonstrate, through the RTO’s dispute resolution process, that it had compelling reason to believe that compliance with the Dispatch Instruction would have created a potential threat of bodily harm.

v)	If the RTO believes that non-compliance with the Dispatch Instruction would create a threat of bodily harm, while the SC, Generating Unit or PTO believes that compliance with the Dispatch Instruction would create a threat of bodily harm: the RTO and SC, Generating Unit or PTO shall immediately confer and attempt to agree upon a course of action which minimizes the potential threat of bodily harm. 

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Proposed Definition of Demonstrable Costs

Demonstrable Costs are defined to be all costs, including variable production costs, equipment damage costs and the costs of foregone opportunities, incurred by an SC in providing a service to the RTO; provided that: (i) the SC must provide reasonable justification to support its claim of costs, which may include direct cost data or indirect data such as published market prices or indices; (ii) such costs may be subject to caps or floors imposed by contracts or by FERC or other regulatory authorities; and (iii) the final determination of whether a cost has been sufficiently demonstrated will be subject to arbitration under the terms of the RTO Tariff. 

[CFI  NWRTO-liability.rtf  070800]