FERC announced September 16 its approval of a modified version of its proposed Penalty Guidelines. This approval comes after months of fielding and reviewing industry comments against its original proposal, which would have imposed standards and guidelines on the penalties that the agency could impose for violations of its regulations and policies. Based on the U.S. Sentencing Guidelines, the proposed Guidelines assigned a “base level” number to violations. The base level could then be adjusted up or down based on factors such as the specific facts at issue and the offending company’s response to the violation.
The electric power industry in particular sharply criticized the proposed Penalty Guidelines as a scattershot attempt to achieve civil penalty consistency without sufficient explanation or analysis about how the Guidelines would be used and how they interacted with the penalty systems of NERC. FERC attempted to allay industry concerns by hosting several technical conferences in order to explain the Penalty Guidelines, but finally decided in April 2010 to suspend the effectiveness of the proposed Guidelines in order to seek industry input and comment.
The now-approved, modified Penalty Guidelines will apply to penalties that FERC assesses for violations of its rules, regulations and policies (though FERC notes that it retains discretion to depart from the Penalty Guidelines when it deems appropriate). FERC also made clear that adoption of the Penalty Guidelines will not impact its ability to exercise discretion and close investigations (including self-reports) that do not warrant sanctions. The significant modifications made to the Penalty Guidelines by FERC include:
- The “base level” is reduced for reliability violations and monetary damages for reliability violations based on the value of a loss of load are eliminated.
- Partial compliance credit reducing penalties can be extended to entities that FERC believes have effective compliance programs that may not meet every requirement listed in the Penalty Guidelines.
- Partial credit reducing penalties can be extended for mitigation, including partial credits for self-reports, cooperation, avoidance of trial-type hearings and acceptance of responsibility.
- Penalties for misrepresentations and false statements are confined to instances of intentional acts or acts carried out with a reckless disregard for the truth.
According to FERC, the Penalty Guidelines will assign specific and transparent weight to each factor, which FERC believes will benefit targets by providing them with more. Whether version 2.0 of the Penalty Guidelines provides any more clarity to the industry remains to be seen, but FERC’s emphasis on transparency is a welcome step in the right direction.