Compliance with Dodd-Frank might not be as complicated as feared; however, companies must be vigilant in order to maintain the relevant exemptions.
Guidelines in Practice
The Federal Energy Regulatory Commission (FERC) owns more than one enforcement tool. Besides civil penalties, it can require compliance plans or disgorgement of unjust profits, or condition, suspend, or revoke market-based rate authority, NGA certificate authority, or NGA blanket certificate authority. And lacking criminal penalty authority itself, FERC can refer matters to the U.S. Department of Justice for criminal prosecution. Moreover, while defining an organization as any entity other than a natural person, FERC nevertheless will continue to determine civil penalties for natural person violators, looking to the guidelines for guidance in setting such penalties. In that context, the policy statement shows civil penalty fine ranges for several hypothetical gas and electric industry organization violators, thus:
• $8,750-$35,000 fine range for a local gas distribution company’s (LDC) interstate pipeline capacity release violation.1 The hypothetical LDC self-reports shipper-must-have-title2 violations for transporting gas on three interstate pipelines during a two-year period ( i.e., base violation level of 6 for capacity release violation plus 6 levels for violations exceeding 250 days). The hypothetical violations seriously affected applicable market transparency (adding 4 levels), but the LDC didn’t profit and didn’t cause identifiable harm to other market participants. In this case a total violation level of 16 equals $175,000 on the violation level base penalty table. In culpability terms, senior management wasn’t involved, there was no prior history of FERC violations by the LDC, no order specifically directed at the LDC was violated, and the LDC didn’t obstruct justice, yielding a base culpability score of five with no adjustments.
The LDC lacked an effective compliance program at the time of the violations, but cooperated fully with the enforcement staff, settled the matter, and demonstrated an affirmative acceptance of responsibility for its misconduct, reducing its culpability score to zero (base culpability score of 5 – 5 = 0 culpability score). The final culpability score of zero sets the minimum and maximum multipliers at 0.05 and 0.20, respectively, and when the violation level base penalty of $175,000 is applied, the final penalty fine range becomes $8,750-$35,000.
• $2.52 million-$5.04 million fine range when a 200-employee corporation providing electric transmission services violates its FERC-approved open access transmission tariff.3 In this hypothetical case, the corporation denied transmission access for almost a full year to unrelated organizations without a valid reason, in favor of its affiliate. The affiliate made $1.7 million in favorable sales in a market where it otherwise couldn’t participate without the corporation’s transmission service. This yields a base violation level of six for the tariff violation plus 16 levels for the $1.7 million pecuniary gain plus six levels for a greater-than 250-day violation. The total violation level of 28 results in $6.3 million on the violation level base penalty table. In culpability terms, the corporation self-reported its violations and senior management wasn’t involved, but the corporation had committed the same type of violations less than two years earlier, which increased its