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EPAct Makes FERC 'Regulator with Teeth,' Attorney Says

Although it's still unclear how far or how fast FERC will take its new enforcement authority, the Commission clearly has become a "regulator with teeth" under broadened powers given to it by the Energy Policy Act of 2005 (EPAct), according to a Washington, DC-based attorney who analyzed the new law and has experience dealing with Securities and Exchange Commission (SEC) enforcement, from which FERC's newfound authority is modeled.

At this stage there is very little clarity on where the line is drawn between acceptable and unacceptable actions by an energy company, said R. Michael Sweeney, Jr. But it is clear that FERC now can impose criminal penalties, including up to $1 million/day in fines, and up to five years in prison, for violations of the Federal Power Act and the Natural Gas Policy Act.

"Where is the difference between 'aggressive' business strategy and abusive, illegal behavior?" he asked rhetorically at the Law Seminars International conference, "Buying and Selling Electric Power in the West," last Friday in Seattle.

Three sections of the 1,700-page new federal energy law (No. 220, 221, and 222 of the Federal Power Act) deal with four specific areas for FERC, said Sweeney, a partner in the Washington, DC, office of Hunton & Williams LLP. They include the commission's greatly expanded oversight, price transparency requirements, market manipulation enforcement and a so-called "false statements" rule-setting that Sweeney thinks was patterned after similar SEC requirements.

Included in this broader authority are provisions requiring public-sector utilities and energy providers to provide more information to FERC on an ongoing basis. An example is the requirement now that "senior management" -- whether in a corporate or public-sector agency -- be directly involved in FERC compliance processes.

As an outgrowth, corporate compliance with FERC requirements is going to take more time and people in utilities -- both public-sector and private-sector ones, Sweeney said. Divided equally between electric and natural gas, the new provisions are designed to allow FERC "to evolve into more of a regulatory body in the form of the SEC," he said.

EPAct reflects Congress's view "that the natural gas and electricity markets have become increasingly commoditized, so the goal of the new regulatory authority is akin to what is in place to regulate the commodities, commodity futures and securities markets," Sweeney said.

For anyone in the energy industry with enough time or funds for legal reviews, EPAct provides what Sweeney called a "blueprint" for: (1) how FERC intends to apply its expanded enforcement authority under the new law, and (2) the regulatory commission's expectations regarding ongoing and future regulatory compliance matters.

Officers and directors of energy firms reporting to FERC need to pay attention, Sweeney emphasized. The new provisions allow for a lot of "self-reporting" on a company or agency's own initiative, but that can be a two-edged sword as can be everything in the regulatory world, the attorney said.

"Self-reporting and cooperation are significant factors in deciding appropriate enforcement remedies," said Sweeney, who added that FERC Chairman Joseph Kelliher cited a lot of other regulatory procedures in other industries when he outlined many of the new steps included in EPAct. "The criteria defining 'uncooperative' conduct draws a much tougher line than FERC articulated under its historic enforcement policies."

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