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Penalty Guidelines Approved for Violations of Gas, Power Regulations

FERC last Thursday approved a policy statement that sets out the guidelines the agency will follow when imposing civil penalties for violations of its natural gas and electricity regulations.

The guidelines are modeled after the two-step process for determining penalty ranges in the United States Sentencing Guidelines, with adjustments made by the Federal Energy Regulatory Commission (FERC) to account for agency-specific considerations [PL10-4].

"The sentencing guidelines provide an appropriate and well-tested model to adapt to Commission purposes," said FERC Chairman Jon Wellinghoff. "One similarity is that the sentencing guidelines focus on factors that the Commission is statutorily required to consider and that are central to our enforcement program, such as the seriousness and remediation of a violation. The sentencing guidelines also provide sufficient flexibility to permit departures from the indicated penalty range where necessary, and our penalty guidelines follow that example."

The federal sentencing guidelines require calculation of a base fine, which "is the greater of the gain to the organization [company], the loss caused by the conduct, or a predetermined amount that is generated by the offense level and is enumerated in the guidelines," according to the FERC order.

The federal guidelines also produce "multiplier range for the base fine, which requires an analysis of the organization's culpability, [weighing] factors similar to those the Commission considers, such as whether the organization has a prior history of violations, whether high-level management was involved in the offense, whether the organization has self-reported and accepted responsibility for its conduct, whether the organization had an effective compliance program at the time it committed its offense, and whether the organization cooperated with government authorities," the order said. The multiplier and the base fine would then be combined to calculate a fine range for the alleged violation.

The Commission's policy statement follows four years of FERC experience with new and expanded penalty authority under the Energy Policy Act of 2005. That statute expanded the agency's civil penalty authority under the Federal Power Act (FPA) and, for the first time, provided civil penalty authority to cover violations of the Natural Gas Act (NGA). It also raised the maximum civil penalty to $1 million per day per violation for any violations of the Natural Gas Policy Act, the NGA or the FPA.

Although the guidelines represents a change in how the Commission will determine civil penalties, they use many of the factors previously considered, such as the seriousness of a violation and remediation of a violation, when determining the amount of a penalty to be imposed. This approach promotes consistency by basing penalty calculations on a set of uniform factors that are weighted similarly for similar types of violations and similar types of violators.

The guidelines also will provide specific credit to regulated companies for self-reporting violations and for implementing robust compliance programs. FERC said it retains the discretion to impose a penalty that is not based on an application of the penalty guidelines.

The new guidelines provide greater "fairness, consistency and transparency" by giving notice to regulated companies of how FERC will determine civil penalties, according to Wellinghoff. The penalty guidelines will apply to all future violations and any pending investigation where FERC's enforcement staff has not entered into settlement negotiations.

To familiarize the energy industry with the guidelines, Wellinghoff said he has directed the staff of the Office of Enforcement to conduct several workshops in the near future.

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