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 culpability score by two (i.e., base culpability score of 5 + 2 = 7). No order specifically directed at the corporation was violated, it didn’t obstruct justice, and it lacked an effective compliance program at the time of the violations (no adjustments). The corporation cooperated fully with the enforcement staff, settled the matter, and demonstrated an affirmative acceptance of responsibility for its misconduct, reducing its culpability score by five (i.e., culpability score 7 – 5 = 2). The final culpability score of 2 sets the minimum and maximum multipliers at 0.40 and 0.80, respectively, and when the violation level base penalty of $6.3 million is applied, the final penalty fine range becomes $2.52 million to $5.04 million.
• $90 million to $180 million fine range for a 450-employee organization’s violation of FERC’s anti-market manipulation regulation.4 Hypothetically, the enforcement staff learned, through a call to the enforcement hotline and later data responses, that such an organization manipulated a specific market and caused a loss of $75 million to other market participants through multiple violations on each day of a three-week period. This results in a base violation level of 6 for market manipulation plus 24 levels for the $75 million pecuniary loss plus two levels for violations exceeding 10 days but less than 50 days; total violation level of 32 = $17.5 million on the violation level base penalty table, but the $75 million pecuniary loss is used for the base penalty, as it is the larger dollar amount. In culpability terms, senior management condoned the manipulative conduct in the organization of more than 200 but less than 1,000 employees, which increased its culpability score by three (i.e., base culpability score of 5 + 3 = 8). There was no prior history of FERC violations, no order specifically directed at the organization was violated, the organization didn’t obstruct justice, and an effective compliance program wasn’t in place at the time of the violation (no adjustments). Although the organization settled, it refused to demonstrate an affirmative acceptance of responsibility for its violations, but it did cooperate fully throughout the enforcement staff’s investigation and avoided a trial-type hearing, reducing its culpability score by two (i.e., culpability score of 8 – 2 = 6). The final culpability score of six sets the minimum and maximum multipliers at 1.2 and 2.4, respectively, and when the violation level base penalty of $75 million is applied, the final penalty fine range becomes $90 million to $180 million.–JMM
Endnotes: 1. See Endnote #5 of main article (Penalty Predictability), P 55; $175,000 x 0.05 = $8,750; $175,000 x 0.20 = $35,000.
2. To monitor how interstate pipeline capacity is used, FERC requires that the shipper of record and the owner of the gas must be the same throughout the course of the transportation or storage service.
3. Policy Statement, P 54; $6.3 million x 0.40 = $2.52 million; $6.3 million x 0.80 = $5.04 million. With a base violation level of 16, the guidelines also describe (P 56) a $12 million-$24 million penalty range for a hypothetical electricity transmission owner violating the important Reliability Standards for the Bulk Electric System of North America by failing to implement its annual plan for vegetation management work to ensure system reliability.
4. Id., P 53; $75 million x 1.20 = $90 million; $75 million x 2.40 = $180 million.