FERC last Thursday issued modified penalty guidelines aimed at enforcing standards for the reliability of the electric transmission system, and it made more general guideline changes that would apply to all regulated industries.

The modified policy statement, which comes six months after the agency issued its original policy statement in March, will primarily apply to violations of the reliability standards, but not to the Federal Energy Regulatory Commission’s (FERC) review of notices of penalty submitted by the North American Electric Reliability Corp. (see NGI, March 22). None of the revised guidelines appeared to be specific to the natural gas industry, said a Commission spokeswoman, but she noted that some of the changes were general in nature and thus would impact multiple regulated industries, including gas.

Among other things, the modified penalty guidelines would:

The March policy statement set out the guidelines the agency will use 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 U.S. Sentencing Guidelines, with adjustments made by the Commission to account for agency-specific considerations [PL10-4].

The industry’s reaction to the policy statement — which it thought was too focused on the penalty side — was immediately negative, so the Federal Energy Regulatory Commission suspended it in April to receive more comments.

This time around, the agency tried to dispel industry’s fears. “FERC is interested in compliance. FERC is not interested or motivated by [assessing] penalties,” said Commissioner Marc Spitzer.

“It was probably mischaracterized,” said Commissioner John Norris, referring to the use of the federal criminal statute to determine penalties. “This in no way meant we were criminalizing the reliability violations,” he noted.

“Both the policy statement and guidelines certainly make clear that the central goal of our enforcement program is achieving compliance…not assessing penalties,” agreed Commissioner Cheryl LaFleur.

FERC said the revised penalty guidelines would not affect the Office of Enforcement (OE) staff’s exercise of its discretion to close investigations or self-reports without sanctions. The OE staff also can recommend downward or upward departures from the penalty guidelines’ penalty range.

The revised penalty guidelines will apply to all future violations and any pending investigation where FERC’s enforcement staff has not entered into settlement negotiations. FERC enforcement staff said it will convene a technical conference in one year to discuss how well the penalty guidelines have worked in practice.

The Commission’s original policy statement followed 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 represent a change in how the Commission will determine civil penalties, the guidelines will continue to 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 guidelines are intended to provide greater “fairness, consistency and transparency” by giving notice to regulated companies of how FERC will determine civil penalties, according to the agency. The penalty guidelines will apply to all future violations and any pending investigation where FERC’s enforcement staff has not entered into settlement negotiations.

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