A few months back, the Federal Energy Regulatory Commission directed Deutsche Bank Energy Trading LLC to show cause why it shouldn’t be assessed a civil penalty of $1.5 million and be made to...
Compliance Program Guidance
The industry debates how far FERC should go.
The market rules don’t lend themselves well to the same structured engineering approach that was taken when crafting the NERC standards and penalty matrix. The activities and dynamics in energy markets aren’t like planning and operational activities that are geared toward the preservation of infrastructure security and reliability. Markets by their nature evolve as do the companies that operate in them, balancing commercial return against other less quantifiable risks. Compliance guidance should afford flexibility for companies to decide their preferred governance structure, the breadth of their compliance-performance reporting, the types of controls put in place, the type of issue-resolution process used, the kind of training provided to personnel or how often they audit and test their practices, controls, and transactions for compliance. This is consistent with the guidance that other federal agencies such as the EPA, SEC, and the Department of Health and Human Services, among others, have provided to the entities they regulate. All have acknowledged that the main limitation to providing more prescriptive guidance has been the recognition of significant diversity among companies.
Change Comes to FERC
The arrival of a new executive administration brings change. In this most recent case, the inauguration of President Barack Obama has brought a change in the leadership at FERC with the appointment of commissioner Jon Wellinghoff as the acting FERC chairman, replacing Joseph Kelliher, who for five-plus years has been an ardent proponent of regulatory compliance. Throughout much of his tenure, former Chairman Kelliher called for companies to be proactive about establishing a culture of compliance and not waiting for FERC or other market participants to raise questions or concerns about their market behavior or their compliance practices. In spite of Kelliher’s passion for regulatory compliance, he firmly believed that “developing model guidance would be nearly impossible because the commission is charged with overseeing such a diversity of stakeholders.” 10 The director of the FERC Office of Enforcement also has acknowledged that “one size doesn’t fit all … that it has been a struggle … to advise [the industry] as to what makes a good compliance program” 11
On the other side of this debate sits Commissioner Philip Moeller, who has called for FERC to issue a “model compliance program.” 12 The new acting FERC chairman had not been as vocal as these two commissioners or the other seated commissioners, so there is some ambiguity as to what direction he would lean as it relates to regulatory compliance. Some of this ambiguity was lifted when Wellinghoff stated at an industry-sponsored event in February 2009 that “there is no standard formula for an effective compliance program.” 13 It also appears clear that Wellinghoff will remain a staunch advocate for energy consumers and finding effective ways to ensure that consumer interests are protected. In the past, he advocated co-operative owned utilities and increased utility choices with the goals of providing consumers with reliable, lower utility costs. He has focused a majority of his career on renewable energy development and hinted at his leaning toward encouraging utilities through regulation to stimulate the growth of renewable energy