United States: FERC Issues New Civil Penalty Guidelines Based On U.S. Sentencing Guidelines

In another step in the evolution of its enforcement program, the Federal Energy Regulatory Commission (FERC or the "Commission") recently announced a statement of policy that revises the Commission's approach to imposing civil penalties for violations of its statutes and regulations by adopting the approach of the United States Sentencing Guidelines for organizations.

The "Policy Statement on Penalty Guidelines,"¹ represents a change in FERC's approach to civil penalties by adopting the formula approach of the United States Sentencing Guidelines, which are used to determine sentences and fines in federal criminal cases. In a separate statement, FERC Chairman Jon Wellinghoff explained that the revised Penalty Guidelines are expected to increase fairness, consistency and transparency in the enforcement program.

In the past, FERC used a case-by-case approach to assessing civil penalties, which has been criticized for the "black box" nature of the outcomes. The revised Penalty Guidelines use a set of objective characteristics to determine penalties. In particular, the Penalty Guidelines generate a range for penalties using a numerical formula that takes into account the seriousness and impact of a violation, along with an organization's efforts to remedy it. The Policy Statement provides explicit numerical credit for companies that self-report violations and implement internal programs to promote compliance with regulatory authority. The Policy Statement also provides some specific hypothetical examples to illustrate how FERC may apply the Penalty Guidelines.

As explained in the Policy Statement, use of the guideline approach will enable organizations to gain a greater understanding of the types of violations the Commission views as most important, which, in turn, will help organizations allocate resources to the most important compliance objectives.

According to the Policy Statement, application of the Penalty Guidelines is discretionary, not mandatory, so that deviations in penalties can be made to account for the specific facts and circumstances of a violation if the Penalty Guidelines produce a penalty that does not fit the violation. Experience under the Penalty Guidelines will be necessary to understand how much discretion the Commission is prepared to exercise, but the Policy Statement states that the Commission does not intend to depart from the Penalty Guidelines regularly.

The Penalty Guidelines represent the latest step in the Commission's ongoing development of its enforcement program since passage of the Energy Policy Act of 2005 (EPAct 2005). EPAct 2005 expanded FERC's authority to issue civil penalties under the Federal Power Act and the Natural Gas Act. It also required FERC to consider certain factors to determine the amount of a particular penalty. Previously, the Commission had expressly refused to use a guidelines approach to apply the various factors. As explained in the Policy Statement, the Commission has changed its approach because it now has sufficient experience with various types of enforcement actions to implement the guidelines approach.

The Penalty Guidelines will apply to all future violations and any pending investigation where FERC's Enforcement staff has not entered into settlement negotiations.

Footnote

1. Enforcement of Statutes, Orders, Rules and Regulations, 130 FERC ¶ 61,220 (2010).

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