United States: FERC Provides Guidance Through Enforcement Reforms

FERC policy statement on compliance and final rule on ex parte communications and separation of functions provide guidance and clarity on FERC's enforcement program.

On October 16, 2008, the Federal Energy Regulatory Commission (FERC) provided additional guidance and clarity on its enforcement program by supplementing its Revised Policy Statement on Enforcement issued on May 15, 2008. In the Policy Statement, FERC first identifies the four factors that it considers important in establishing a successful compliance program. Second, it addresses the effect of a compliance program on the potential for civil penalties.

According to the Policy Statement, FERC will consider four factors in evaluating a compliance program:

In assessing the first factor, FERC will consider the role of senior management in embracing and developing a compliance program. More specifically, senior management should be actively involved in any comprehensive compliance program through frequent communication of their commitment to compliance, setting aside time to address compliance issues as they arise, encouraging employees to seek advice regarding compliance issues and establishing a compliance position within the company structure.

The second factor demands that a compliance program must also include effective preventative measures "such as careful hiring, training, accountability, and supervision." In other words, FERC expects companies to have more than just a strong compliance program on paper, and to support the program through active, preventative steps such as proper supervision and ensuring accountability.

The third factor considers the method by which the company detects a violation and the subsequent actions it takes to end the conduct and report the same. FERC specifically notes that "violations discovered as a result of systematic internal auditing and supervision programs normally will be given substantial credit." Going further, to receive credit for prompt reporting, FERC encourages companies to inform Enforcement staff after the discovery of a violation or inform Enforcement staff during the conduct of an internal investigation.

The final factor that FERC will consider is the manner in which the company remedies the misconduct. Here, FERC recognizes the case-specific nature of remediation, and will assess the steps taken by the company, including reprimand, suspension, compensation impacts and termination, in determining the reduction, if any, of any civil penalty.

In considering the effect of a vigorous compliance program on the imposition of civil penalties, FERC states that it will follow the approach similar to that of the Federal Sentencing Guidelines and the U.S. Environmental Protection Agency. If a company is able to affirmatively demonstrate that its violation is not serious and that it has a strong compliance program that meets all four factors identified herein, then FERC may agree to a "complete elimination of a civil penalty." FERC goes on to note that "reduction of the penalty will be considered where the company meets some but not all of the requirements." Finally FERC reiterates that other sanctions such as disgorgement of unjust profits and compliance monitoring may still be imposed.

Final Rule on Ex Parte Communications and Separation of Functions

In addition to the Policy Statement on Compliance, FERC issued a final rule on ex parte communications and separation of functions in the context of non-public investigations, adopting the proposal outlined in a May 2008 Notice of Proposed Rulemaking. The rule codifies that the rules limiting contact with commissioners and decisional staff apply equally to outside parties as it does to FERC's litigation staff. Moreover, the rule codifies that, from the time that FERC initiates a proceeding, no FERC employee or agent assigned to work on that proceeding shall serve as a decisional employee, "except as a witness or counsel in public proceedings." In addition, the rule clarifies that interventions in FERC proceedings arising out of non-public investigations are not available "as of right." This is an expansion of the existing regulations, which only refer to intervention not being available as of right in the actual investigation.

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