The Federal Energy Regulatory Commission (FERC) issued an order on June 12, 2007 approving a settlement that includes a $2 million civil penalty imposed on Louisiana investor-owned utility Cleco and its affiliates.1 The penalty resulted from violations of Cleco’s Code of Conduct governing the relationships between its regulated and unregulated businesses. Significantly, FERC’s order explained that the violations resulted in no harm to third parties, but harmed the “regulatory process.”
The Cleco settlement is the latest use by FERC of the civil penalty authority granted to FERC by the Energy Policy Act of 2005. (Click here to read our recent Legal Alert on FERC’s stepped-up enforcement efforts under the Energy Policy Act of 2005). With the Cleco settlement, FERC has approved $32 million in civil penalties under that authority. The Cleco settlement indicates the importance of fostering a “culture of compliance” to avoid violations and mitigate penalties. The Cleco penalty also underscores that the absence of harm to third parties does not preclude the imposition of penalties.
The settlement resulted from an investigation by FERC’s Office of Enforcement concerning Cleco’s compliance with the terms of a 2003 settlement agreement that had resolved an earlier Enforcement Staff investigation of certain violations by Cleco. In general, Cleco’s strict Code of Conduct (adopted pursuant to the 2003 settlement agreement) requires Cleco’s regulated utility and its unregulated power marketers and generators to function independently of one another. In this investigation, FERC Enforcement Staff alleged that Cleco’s regulated electric utility and its unregulated affiliated generators had violated the 2003 settlement agreement and the Code of Conduct by sharing operating personnel and market information during the period 2003 through 2005. The investigation also found that Cleco had failed to disclose those violations to FERC Enforcement Staff, as required under the 2003 settlement agreement.
In the order, FERC accepted the Stipulation and Consent Agreement between Cleco and the FERC Enforcement Staff. As part of the Agreement, Cleco agreed to pay a $2 million civil penalty (which may not be recovered from its ratepayers). Cleco also agreed to abide by additional reporting requirements, to undergo an audit by an outside (independent) auditor, to adopt a stricter Code of Conduct, and to establish an internal “Hotline” for the anonymous reporting of infractions.
In approving the Agreement, FERC noted that the Cleco violations had not resulted in any harm to ratepayers or competitors, but that the “regulatory process” had been harmed. In addition, although Cleco had self-reported some of the violations and had taken steps to prevent recurrence of similar types of violations, Enforcement Staff explained that Cleco had not fostered a “culture of compliance.” In these circumstances, according to FERC, a $2 million penalty was a “fair and equitable resolution” of the matter.