“The game is up.”

Cymbeline, William Shakespeare, 1623

Late last week, the Federal Energy Regulatory Commission ("FERC") issued a stern warning to regulated transmission companies in the energy industry about, among other things, the critical contracts underlying shipper relationships. FERC repeated its previously issued warning that any material deviation from the pro forma service agreements must be reviewed and approved by the Commission. However, unlike the boy who cried wolf, FERC has now put a marker on the table and declared that it will seek civil penalties against future offenders.

FERC repeated its previous clarifications on the definition of material deviation, and stated that any provision in a service agreement that "(1) goes beyond filing in the blank spaces with the appropriate information allowed by the tariff and (2) affects the substantive rights of the parties" is considered a material deviation. Furthermore, the Commission cited its 2003 Policy Statement that "[s]ince there would appear to be no reason for the parties to use language different from that in the form of service agreement other than to affect the substantive rights of the parties, this effectively means that all language that is different from the form of service agreement should be filed with the Commission."

The Order Suggested the Following:

  1. Regulated transmission companies should establish written policies and procedures to ensure that all contracts containing nonconforming terms and conditions are filed with the Commission. Guidance on developing a comprehensive regulatory compliance program can be obtained from Compliance with Statues, Regulations and Orders, 125 FERC 61,058 at P 13-21 (2008) (Compliance Policy) or through either of two recent settlements In re Edison Mission, 123 FERC ¶ 61,170 (2008) or Duquesne Light Company, 123 FERC ¶ 61,221 (2008). The Compliance Policy contemplates significant credit to companies that have vigorous compliance programs.
  2. The Commission reiterated that its enforcement policy favors self reporting by companies. Violations discovered by the Commission in an audit or otherwise will be treated less favorably Revised Policy Statement on Enforcement, 123 FERC ¶ 61,159 at P 61-64 (2008).