On October 16, 2008, the Federal Energy Regulatory Commission (FERC) issued a supplemental Policy Statement on Compliance with its rules and regulations (Docket No. PL09 - 1 - 000) (Policy Statement). The Policy Statement states that if a company acts "aggressively to adopt, foster, and maintain" an effective culture of compliance, and has in place “rigorous procedures and processes that provide effective accountability for compliance,” FERC may reduce–or even eliminate–the civil penalty that would otherwise be imposed if a violation occurs. In supplementing its May 2008 Revised Policy Statement on Enforcement, FERC provides additional guidance on the “four hallmarks of effective compliance practices” that FERC will take into account when determining whether to impose a civil penalty. We provide a brief summary of the four factors below.
1. Actions of Senior Management
FERC stated that the "responsibility for a culture of compliance rests squarely on the shoulders of senior management," and that in order to create a sound compliance plan, senior management must be actively involved. In addition to ensuring allocation of resources for management, FERC indicated that senior management also should communicate frequently to its employees, both formally and informally, its commitment to compliance. FERC also expects that senior management will set aside the time necessary to address compliance issues and will ensure that designated compliance personnel are actively included in new business ideas and initiatives. FERC noted that the compliance official's independence is an "important hallmark" of a strong commitment to compliance. This is a point that FERC has raised in previous statements regarding compliance and enforcement.
2. Effective Preventative Measures
It is not enough that a company creates a compliance program that appears to be strong in theory; the company must implement the program with "effective accountability for compliance and periodic review and evaluation of the effectiveness of the program." Recognizing that companies vary in their size, structure and available resources, and that compliance program measures can be expensive, FERC stated that it will take into account the size of a company and the nature and extent of its jurisdictional activities when considering whether the preventative measures taken are suitable.
3. Prompt Detection, Cessation and Reporting of the Offense
In general, FERC noted that there is no set time by which a company must find or report a violation in order to be considered prompt. However, FERC will normally give credit to companies whose violations are uncovered as a result of systematic internal auditing and supervision programs. In addition, a company will receive credit for prompt reporting if it reports a violation to FERC Enforcement Staff shortly after discovery, or if it calls Enforcement Staff to let them know that they are investigating a matter.
FERC stated that it will consider a company's response to misconduct when determining penalties. It will evaluate on a case-by-case basis the extent to which the company's efforts to remediate a violation warrant a reduction in the civil penalty that would otherwise be imposed.
Implications for Determining Monetary Penalties
FERC stated that given the fact that there are many potential mitigating factors to consider, penalties will be assessed on a case-by-case basis. However, FERC noted that "where a violation is not serious, that is, the violation does not involve serious 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."
The Policy Statement emphasizes FERC’s focus on the need for a culture of compliance, and it suggests that FERC plans to reward companies that develop a strong compliance program. Therefore, it is critical to have as much guidance as possible regarding what factors FERC wants to see in a strong compliance program. While the Policy Statement is a helpful supplement to previous statements that FERC has issued, many generalities remain. Commissioner Philip D. Moeller, in a concurring statement and at the FERC meeting held yesterday, noted that he thinks more can be done to develop a basic compliance model containing the essentials that every program should contain. Accordingly, he encouraged trade associations within the industries regulated by FERC to consider developing their own model programs, expecting that perhaps an industry-wide model program or programs may eventually be established.