Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Compliance Program Guidance

The industry debates how far FERC should go.

Fortnightly Magazine - April 2009

indicate the issues result from an inadequate model provided by FERC.

Industry stakeholders also have raised concerns about the value of self-reporting and have suggested rules behind the application of penalties aren’t clear enough and could benefit from further FERC guidance. Companies need to understand the consequences of non-compliance and how self-reporting might impact a settlement. The overarching issue across each of these areas of concern is that some industry participants believe that FERC is perpetuating uncertainty as to how they best can meet their compliance obligations, while at the same time mitigating the magnitude of potential penalties should they be found to be in contravention of the rules.

Varying Regulatory Demands

Capacity release-related violations provide a specific example of the difficulty the industry is facing in the application and implementation of compliance. In 2008, FERC settled four investigations resulting in $12.7 million in penalties for capacity release-related violations. 5 All four were self-reported violations with the largest penalties levied on two entities that practiced “flipping” of long-term capacity. Prior to these settlements, many people in the industry viewed this as common practice and wouldn’t have had compliance measures in place either to detect or prevent it.

In addition to the uncertainty plaguing common industry practices, there’s lack of clarity as to what’s expected of the regulatory-compliance infrastructure of a company to prevent non-compliance. Of the more than 20 investigations settled over the past two years, only two companies have been required to develop comprehensive regulatory compliance plans. 6 The focus of these plans has been on remedying specific issues of concern identified during the respective FERC staff investigations. Along with developing plans of action to mitigate the risk of future non-compliance, the companies also have been directed to develop action plans that will be used to reinforce a culture of compliance throughout their organizations. The other enforcement-related settlement agreements entered into with FERC also have called for compliance plans to be filed with the regulators, but these plans were limited in scope to particular areas found to be deficient, such as training, controls, documentation, or procedures. Among all of these enforcement actions, however, only 10 percent of the settlements have required comprehensive plans to be prepared for FERC’s review. What was unique about the settlements requiring comprehensive plans was the apparent absence of an appropriate tone from the top leadership reinforcing a commitment to compliant practices.

The development of compliance programs is the industry’s response to the expectations of regulators, which commenced with FERC’s October 2005 Enforcement Policy Statement, that companies have adequate infrastructure and practices in place to demonstrate a consistent adherence to compliance and a track record of compliance performance ( i.e., a compliance program). Many companies have chosen to be proactive in developing compliance programs because not only was it encouraged by FERC, but it also has been deemed by companies as the preferred way of effectively mitigating compliance risks. The question for companies now is whether what they’re doing is sufficient to meet FERC’s expectations.

FERC’s Guidance and Actions

One could argue that the compliance-policy guidance