It uses the basics of seismic hazard studies, but usually places a set earthquake on a specific fault, most likely near a high-population area.
Some earthquake scenarios follow some of the latest methodologies from the nuclear industry, namely a Seismic Margin Assessment (SMA).
[1] In the process, a Review Level Earthquake (RLE) is chosen that challenges the system, has a reasonable probability, and is not totally overwhelming.
In general, areas west of the Rockies use urban earthquakes of M7 (moment magnitude), and eastern cities use an M6.
As an example, the Greater Toronto area in Ontario, Canada has a local seismicity[4] with about as much a chance for an M6 as most of the moderate earthquake zones of Eastern North America (ENA), including New York City.