Energy: New Enforcement Power for FERC

The Energy Policy Act of 2005 gave the Federal Energy Regulatory Commission (FERC) expanded power to impose civil monetary penalties on companies that do not comply with electricity and natural gas  marketing regulations. The agency has increased enforcement spending by 25 percent during the past two  years and now dedicates approximately 150 persons to enforcement matters. This year, FERC has imposed the first penalties under its new authority:

• Five electric utilities were fined a total of $22.5 million for violations of tariff and market rules. Four of  the five companies self-reported their violations, and FERC emphasized that their penalties could have  been much higher if they had not done so.

• FERC fined a Maine-based natural gas company $1 million and the marketing arm of an independent  generator $4.5 million for self-reported violations of the “shipper must have title” rule.

FERC also has  initiated numerous audits of both regulated electric utilities and natural gas pipelines as well as  nontraditional sellers such as power marketers for compliance with trading and operations regulations.

FERC’s new enforcement power to levy fines of up to $1 million daily means that energy companies and  their counsel must develop effective compliance programs. Today’s volatile energy prices increase  pressure on regulators to investigate market behavior. Companies that foster a culture of compliance,  prepare a written compliance plan and train all appropriate personnel to observe it have the best chance to avoid violations, minimize their chances of an investigation and mitigate penalties if violations occur.