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FERC Announces Beefed-Up Enforcement Program

Energy Law Update

May 19, 2008

On May 15, 2008, the Federal Energy Regulatory Commission ("FERC") clarified its position on enforcement and announced a new “enforcement package.”  As a result, it is likely that FERC will increase the number of enforcement actions it brings in the coming year and further, that the penalties will be more severe. FERC, through this "enforcement package," has outlined to  regulated entities how it makes enforcement decisions, provides expanded rights, and offers more access to "No-Action Letters."  These changes, while highlighting FERC's stepped-up enforcement agenda, also arm regulated businesses with powerful new weapons. If used effectively, these weapons could influence the direction of an ongoing investigation or minimize the business impact of a completed investigation. The Revised Policy Statement on Enforcement supersedes FERC’s 2005 policy statement.  While it expounds upon FERC's enforcement program generally, its most useful insights are on how FERC determines whether to launch an investigation, and how it decides whether, and how much of, a penalty is appropriate in an enforcement action.

FERC also proposes a new rule that would permit enforcement staff and regulated entities to communicate directly with FERC's Commissioners while an investigation is pending and before the Commission has decided whether it will bring an enforcement action.  In addition to the proposed rule, FERC amended its existing rules to give regulated entities the right to be notified, in advance, that the enforcement staff intends to seek a show-cause order from the Commission and to provide a response to the staff’s recommendation within 30 days of such notice.

Currently, regulated entities may request and obtain staff "No-Action Letters" with respect to whether the enforcement staff would recommend that the Commission take no enforcement action with respect to specific categories of issues.  Under FERC’s new Interpretive Order Modifying No-Action Letter Process and Reviewing Other Mechanisms for Obtaining Guidance, regulated entities may now seek guidance on any issue that falls within FERC's jurisdiction, except for issues relating to the licensing of: (i) hydroelectric projects, (ii) certification of natural gas pipelines, (iii) operation of LNG terminals, and (iv) enforcement of mandatory reliability standards.  Individuals and entities are also now entitled to an opportunity to respond to proposed enforcement actions before FERC initiates such proceedings, permitting investigative targets to take preemptive steps to influence those contemplated actions before the Commission initiates public enforcement proceedings.

By providing more insight into its processes, expanding the rights of regulated entities, and offering more assistance through the issuance of "No-Action Letters", FERC has provided the community it regulates with invaluable tools to ensure compliance.  However, with more insight and more rights comes more responsibility.  As such, regulated entities who violate rules and regulations within FERC's jurisdiction can expect heightened scrutiny and stiffer penalties than those meted out over the past two years.  It would appear that FERC's enforcement division is hitting full stride and has put everyone on notice of its intention to expand its enforcement activities.  Should your company get contacted by FERC's enforcement staff or if you have any questions respecting FERC's new enforcement policies, the prudent course would be to contact counsel to discuss how to respond.