On October 16, 2008, the Federal Energy Regulatory Commission (FERC) issued a Policy Statement on Compliance providing additional guidance on compliance with FERC's governing statutes, regulations and orders. FERC stressed the importance of developing "rigorous compliance programs that will help minimize the potential for violations of applicable requirements" and indicated that it would "give significant weight to those programs when [it] determine[s] whether to assess a civil penalty or other remedy for a violation." FERC adopted the policy "that if a company acts aggressively to adopt, foster, and maintain a[n] effective corporate culture of compliance, and has in place rigorous procedures and processes that provide effective accountability for compliance, but a violation nonetheless occurs, the Commission may provide a significant reduction in, or even in some cases the elimination of, the civil penalty that otherwise would be imposed." It would behoove public utilities to establish and implement rigorous compliance programs to avoid, mitigate against and possibly eliminate violations and FERC-imposed civil penalties.
FERC identified four "key compliance factors" that might lead to a reduction or elimination of civil penalties. Further, FERC stated that "[w]here a violation is not serious, that is, the violation does not involve significant harm, risk of significant harm, or damage to the integrity of the Commission's regulatory program, and all four elements of vigorous compliance are present, the Commission may reduce the level of civil penalty that otherwise would be imposed to zero." FERC preserved its "discretion to determine whether the actions taken by a company are sufficient to meet the requirements." The four compliance factors identified are:
1. Actions of Senior Management: FERC emphasized the "critical importance of the role of senior management in fostering a strong compliance ethic within a company." In addition to adequately funding compliance programs, FERC identified several common steps senior management can take to instill a culture of compliance: communicate corporate commitment to compliance frequently, formally and informally; set aside time necessary to address compliance issues should they arise; actively encourage employees to raise questions about compliance; and assure that designated compliance personnel are actively included in the development of new business initiatives and transaction structures.
2. Effective preventive measures: FERC stated that "systematic and effective preventive measures (such as careful hiring, training, accountability, and supervision), is fundamental to an effective compliance program." The emphasis is on follow through and implementation "with effective accountability for compliance and periodic review and evaluation of the effectiveness of the program."
3. Prompt detection, cessation and reporting of an offense: FERC requires prompt detection, cessation and reporting of any violations that do occur. It noted that "[p]rompt detection may result from a high quality and comprehensive internal monitoring system, or actively-promoted company hotline, or other measures to ensure that transactions are reviewed for conformance to regulatory requirements on a real-time basis." FERC indicated that "violations discovered as a result of systematic internal auditing and supervision programs normally will be given substantial credit" in determining penalties. It also stated that "[a] company will receive credit for prompt reporting if it reports a violation to Enforcement staff shortly after discovery, or if it calls Enforcement staff to let staff know the company is investigating a matter." With respect to self-reporting, FERC also admitted that implementing an aggressive compliance program might result in an increase in violations reported to FERC. While maintaining that there is no "blanket waiver" of sanctions in self-report situations, FERC stated that "companies that fail to report violations discovered as a result of improved compliance monitoring can expect to be penalized far more severely than if they self-report such violations."
4. Remediation: FERC described remediation as inherently case-specific, but stated that it will weigh the remedial response of each company to misconduct in determining whether a reduction in civil penalties is appropriate.
While expecting "companies to invest appropriate time and effort in the creation, monitoring, and growth of strong internal compliance programs," FERC also recognized that depending on a particular entity's size or organizational structure, "the nature and complexity of the company's involvement in activities subject to Commission regulation, and the range of compliance risks resulting from those activities, a comprehensive and effective compliance program may be time and resource intensive." FERC emphasized that "there is no one template or approach" for a good compliance program, and stated that it would take into account the size of a company and the nature and extent of its jurisdictional activities in reviewing the adequacy of its compliance program.
For More Information
Follow these links for an additional report on recent actions taken by the Federal Energy Regulatory Commission:
- FERC Moves to Strengthen Competition in Organized Power Markets
- FERC Adopts Significant Revisions to the Standards of Conduct for Transmission Providers
- FERC Continues to Support Transmission Investments by Approving Rate Incentives for Two Major Transmission Projects
- Final Rule on Electronic Tariff Filings Issued, also Triggering Small Generator Interconnection Procedures and Agreement Filing Requirement