While we have yet to see action on last year's proposed Duty of Candor rules, a recent settlement between the Federal Energy Regulatory Commission's (FERC) Office of Enforcement (OE) and a pipeline operator reminds us that FERC puts a premium on truthfulness. The settlement and $1.2 million civil penalty are a serious reminder to the natural gas and electric industry, and those practicing before FERC, that: (1) FERC will use its existing regulations and penalty authority to ensure compliance with its statutory requirements and transparent dealing with the Commission, even when no harm is caused to third parties; (2) even if a company is minimally regulated, it must stay on top of its regulatory obligations; and (3) outside lawyers are not safe from public scrutiny by the regulator.
On September 13, 2023, the Commission issued an order approving a stipulation and consent agreement between OE and Georgia-Pacific Crossett LLC (GPC). The order resolves OE's investigation into whether GPC violated the Commission's regulations in connection with GPC's abandonment of a 19.5-mile interstate pipeline that transports solely natural gas from Louisiana to GPC's plant in Arkansas. GPC decided to abandon the pipeline in September 2019 and performed work to do so from December 2020 to March 2021. It was not until November 2021, however, that GPC filed an abandonment application for the pipeline. In its application, it stated it had future plans to perform the physical abandonment work that it had, in fact, performed months prior. Post-application filings made between November 2021 and June 2022 also contained inaccurate statements about the status and timing of the abandonment work.
OE determined that the GPC employees who assisted with and approved the application were aware that the physical abandonment work had already occurred. The order and the consent agreement also mention that GPC retained a law firm to prepare the application, and the application was signed and filed by that law firm. Only on August 5, 2022, nine months later, GPC filed a supplement to its application which disclosed that the "activities described in the Application to physically abandon the [pipeline] have already taken place, with the exception of remediation and monitoring activities" and "acknowledge[d] that undertaking these physical abandonment activities, without obtaining the Commission's certificate abandonment authorization first, was inconsistent with section 7(b) of the NGA." FERC's settlement order asserts that "GPC was not authorized to physically abandon the Crossett Pipeline or perform the work described ... prior to receiving an order approving the abandonment."
OE determined that GPC committed two violations: (1) abandoning a pipeline without prior Commission approval, contrary to section 7(b) of the NGA, and (2) filing an abandonment application lacking "pertinent data and information necessary for a full and complete understanding of the proposed project," lacking "information and supporting data necessary to explain fully the proposed project," and lacking a "full and complete explanation of the data submitted," in violation of 18 C.F.R. §§ 157.5(a), 157.7(a), and 157.18. GPC agreed to pay a civil penalty of $1.2 million, near the statutory per-violation maximum of about $1.5 million per day.
First, the settlement shows that FERC will use its existing regulations and penalty authority to ensure compliance with its statutory requirements and transparent dealing with the Commission, even when no harm is caused to third parties. $1.2 million is a high penalty for violations resulting from what might be considered a single event when the statutory maximum per violation is currently just under $1.5 million. This is especially so considering that here no third parties were harmed because the pipeline was a "feeder pipeline" and served only GPC for its own facilities, not any other shippers or customers. The case is thus one solely of "regulatory harm"—the general harm caused to the public and regulated industry by non‑compliance with FERC's rules. FERC reminds us that regulatory compliance is fundamentally a strict liability issue: a party either complied with the regulations, or it did not. And here, FERC put a premium on compliance and truthfulness by imposing a high civil penalty.
Second, the settlement order also highlights that even if a company is minimally regulated within FERC's jurisdiction, it must stay on top of its regulatory obligations. When it comes to compliance with regulatory obligations, there is no such thing as partially regulated. GPC's pipeline was only a feeder pipeline to GPC's own facilities and, thus, was exempt from many of FERC's regulations—but it was still subject to the requirements of the Natural Gas Act. As the settlement shows, for compliance purposes, it does not matter whether a pipeline serves third parties or not. Any FERC-jurisdictional entity needs to keep up with its regulatory obligations.
Finally, the settlement echoes the Commission's proposed Duty of Candor call out that outside lawyers are not safe from scrutiny by the regulator. As we previously discussed, FERC proposed to impose a duty of candor even where an entity relies upon a non-employee agent for the submission of a filing. As an example, the Commission pointed to the common occurrence of outside counsel submitting documents to the Commission on behalf of a company. In such a circumstance, both the company and counsel are expected to exercise "due diligence." But even without a final Duty of Candor rule, FERC does not intend to let lawyers off the hook for their client's incorrect filings.
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