United States: FERC Imposes Civil Penalties And Proposes Modification To Standards Of Conduct

On Thursday, January 18, 2007, the Federal Energy Regulatory Commission (FERC) voted to exercise for the first time its expanded authority granted under the Energy Policy Act of 2005 to impose civil penalties on entities that violate FERC rules and filed tariffs. With this initial exercise of its expanded authority, the FERC hopes to encourage regulated utilities to pay close attention to the need for rigid compliance with FERC rules.

The FERC voted to assess a total of $22.5 million in civil penalties against five companies ranging from $10 million to $500,000 as follows: (a) PacifiCorp—$10 million; (b) SCANA Corporation—$9 million; (c) Entergy Corporation—$2 million; (d) NorthWestern Corporation—$1 million; and (e) NRG Energy, Inc.—$500,000.

These penalties were the result of negotiated resolutions of enforcement actions between the FERC Staff and the affected companies, and were intended to follow the guidelines adopted in the Policy Statement on Enforcement which was issued in Docket No. PL06-1-000 in October 2005. In addition to these civil penalties, certain companies agreed to credit specified revenues to retail customers, and one company agreed to make a $1 million charitable contribution.¹

The enforcement orders themselves are available here.

A copy of an FERC press release is available here.

The prepared statement of FERC Chairman Kelliher regarding assessment of these penalties is available here.

During the discussion of these orders, the Commissioners were clearly concerned with the potential for the existence of weak compliance cultures with regard to FERC rules and tariff requirements. In particular, one company was cited for violations of its open access transmission tariff which resulted from what was perceived to be a weak compliance culture, even though there was no apparent harm to the market and the violations were unintentional. To the extent warranted, the various settlements provide for adoption of remedial actions to strengthen the internal compliance policies of the affected utilities.

Three of the enforcement actions involved violations of the utility's open access transmission tariff—including use of network integration transmission service to support off-system power sales of the utility's marketing entity, while requiring competitors to rely on point-to-point transmission service and failure to act on transmission service requests in a timely manner. The Commissioners also noted that a penalty was being imposed on another company for misrepresentation of the availability of a generating unit, even though it was an isolated incident and no harm had been experienced.

The Commissioners also noted during the discussion of these items that four of the five enforcement actions were the result of self-reporting of violations by the affected entities (the fifth enforcement action was initiated through a report to the FERC Hotline), and that entities that self-report violations may be given credit for doing so in negotiation of appropriate penalties. However, the credit to be given for self-reporting of violations will diminish as the company self-reports subsequent violations.

Also at the January 18, 2007 FERC meeting, the Commissioners voted to issue a Notice of Proposed Rulemaking (NOPR) to address various issues arising under its Standards of Conduct.

• FERC’s Standards of Conduct were adopted in FERC Order No. 2004, and require safeguards to be established between Transmission Providers (including both electric transmission companies and natural gas pipelines) and their Energy Affiliates that may not have any marketing functions.

• In November 2006, the United States Court of Appeals ruled that there was no basis for imposing restrictions on the relationship between natural gas pipelines and their Energy Affiliates in this manner. Because the appeal did not involve application of Order No. 2004 to Energy Affiliates of electric transmission companies, the Court of Appeals did not address this issue.

• In the NOPR, the FERC is proposing, among other things, to review whether there is any reason for continuing to apply the Standards of Conduct to non-marketing Energy Affiliates of electric transmission companies.

• Therefore, the FERC is also proposing to relax the Standards of Conduct by establishing two categories of employees that would be permitted to have access to non-public transmission information and would be allowed to talk to transmission function employees: (1) planning employees and (2) employees engaged in competitive solicitation of power to serve bundled retail service customers.

The Press Release regarding the NOPR is available here.

Commissioner Kelliher’s statement regarding the NOPR is available here.

The NOPR is available here.

Comments on this NOPR are due to be filed at the FERC within 65 days after the date of publication in the Federal Register.

Thelen Reid Brown Raysman & Steiner’s Energy Regulatory attorneys can assist you in meeting the compliance and other challenges presented by these new developments, including assisting you in establishing, reviewing, or updating relevant compliance programs and plans, or in addressing comments to the FERC regarding the NOPR. To discuss these and related matters further, please contact the authors of this report.

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