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Penalty Predictability

Bringing fairness to FERC enforcement.

Fortnightly Magazine - July 2010

agency, directed at the organization was violated; 4) whether the organization obstructed justice or encouraged obstruction during investigation or resolution of the violation—or knew of such obstruction, but failed to take reasonable steps to prevent it; 5) whether the base score can be reduced due to the existence of an effective compliance and ethics program at the time of a violation. Such a program would consist of active senior management engagement and leadership, effective preventive measures, prompt detection, cessation, and voluntary reporting of violations, and remediation of misconduct; 9 or 6) whether self-reporting, cooperation, acceptance of responsibility, and resolution of the matter without need for a trial-type hearing support specific, transparent, and measurable credit to decrease the culpability score. If an organization self-reports, exhibits full cooperation during an investigation, admits the violation and resolves it without trial-type hearing, FERC will reduce its culpability score five points. 10

The last two considerations reveal an organization’s compliance culture, which if developed can reduce its penalty exposure. A senior FERC official has declared the agency’s focus on compliance thus: “The first and foremost goal is to foster compliance … in the market arenas,” which are “any place that attracts a great deal of money… Industry needs to take compliance seriously … [because the] culture of compliance … takes work. Compliance is important.” 11

Such adjustments to the base culpability score produce a final culpability score, which corresponds to the guidelines ch. § 1C2.4 minimum and maximum multipliers. Multipliers range from a minimum multiplier range of 0.05 to 0.20 (from a culpability score of zero or less), to a maximum multiplier range of 2.00 to 4.00 (from a culpability score of 10 or more), with various ranges in between.

• As the final step, multiply the base penalty by the minimum and maximum multipliers to produce the ch. § 1C2.5 guideline penalty fine range for organizations.

Meeting of the Minds

Considering its March 18, 2010, action as interim, on April 15 FERC suspended the policy statement and application of the guidelines, inviting comments from interested entities by June 14, 2010. Recasting FERC’s emphasis on the importance of industry compliance, a senior agency official observed that a “meeting of the minds” on the guidelines with affected energy industry constituents would be appreciated. 12

The proposed guidelines furnish the opportunity for improved regulation. Using the guidelines’ more practical, more consistent characteristics to determine penalty fine ranges serves the public interest by increasing penalty predictability for gas and electric industry violations of the NGA, the NGPA, or the FPA. The guidelines foster FERC’s application of its EPAct 2005 civil penalty authority because they make FERC’s exercise of that authority more transparent. Finally, working through detailed guidelines mechanics helps ensure fair FERC penalty assessments.

 

Endnotes:

 1. Enforcement of Statutes, Orders, Rules, and Regulations, Policy Statement on Penalty Guidelines ,130 FERC ¶ 61,220 (Policy Statement), text paras. (PP) 1-2, 5.

2. Enforcement of Statutes, Orders, Rules, and Regulations , Order Regarding Policy Statement On Penalty Guidelines, 131 FERC ¶ 61,040 (2010).

3. Policy Statement, PP 2-3, 26-27, 30, 32 (FERC