On January 18, 2007, the Federal Energy Regulatory Commission ("Commission") issued five orders that, for the first time, imposed civil penalties under the expanded civil penalty authority provided by the Energy Policy Act of 2005 ("EPAct 2005"). Under EPAct 2005, the Commission may impose civil penalties of up to $1 million per day for any statutory violation or violation of the Commission's rules, regulations, policies, and orders. The five orders approved settlements in which electric utilities agreed to pay civil penalties totaling $22.5 million.

The new orders indicate that, when considering the imposition of penalties, the Commission will place emphasis on whether the entity self-reported the violation, whether the entity cooperated with the Commission's investigation of the violation, and the extent of the harm caused by the violation. A number of Commissioners made public statements indicating that they paid particular attention to these factors when evaluating these cases. For example, Chairman Joseph T. Kelliher stated, "We will seek maximum penalties when they are called for by application of these factors, such as when the harm caused by the violation is very significant, where there is complicity of senior corporate management, or the company obstructed our investigation." The Commission's focus on these factors is similar to the analysis employed by other federal agencies, including the Securities & Exchange Commission, the Commodity Futures Trading Commission and the U.S. Department of Justice, in assessing alleged violations of its rules and regulations.

The orders also impose compliance obligations on the five electric utilities and make clear that the Commission places great weight on an entity's "culture of compliance." In the five cases, evaluation of these factors resulted in the imposition of civil penalties less than the $1 million per day maximum allowed by EPAct 2005. As a result of the orders, we recommend that our clients — and all entities regulated by the Commission — ensure that their compliance plans are comprehensive and ongoing. In addition, if a company obtains information indicating that it may be violating a Commission rule or policy, the company's compliance officer should investigate the reported violation and, if the compliance officer determines that a violation has occurred, give serious consideration to self-reporting the matter to the Commission.

Compliance and mitigation of sanctions are two of the topics addressed in an article by our partner, Allan Horwich, published in the Energy Law Journal (Vol. 2, No. 2, 2006) titled "Warnings to the Unwary: Multi-Jurisdictional Federal Enforcement of Manipulation and Deception in the Energy Markets after the Energy Policy Act of 2005" (PDF 551KB). In addition, our partner Barry Hyman recently spoke to these issues at a meeting of the American Bar Association Section of Antitrust, as a member of a panel, with Susan Court, the Director of FERC's Office of Enforcement, and Jade Eaton, a Senior Trial Attorney in the Energy Section of the DOJ's Antitrust Division. As such, we have substantial knowledge and experience with these kinds of issues and welcome your inquiries.

A brief summary of the five orders follows:

• PacifiCorp — Agreed to pay a $10 million civil penalty to settle violations of the utility's open-access transmission tariff ("OATT") and Standards of Conduct. PacifiCorp also agreed to retain a third-party auditor to conduct a comprehensive review of its business practices.
• SCANA Corporation — Agreed to pay a $9 million civil penalty and to disgorge $1.4 million in profits to resolve an investigation into violations of the utility's OATT. The company further agreed to credit $400,000 in foregone revenues to retail customers, and to undertake a compliance program to ascertain the company's continuing compliance with its OATT.
• Entergy Corporation — Agreed to pay a $2 million civil penalty and to contribute $1 million to a hurricane relief fund to settle violations of its OATT and the Commission's record retention and posting regulations.
• NorthWestern Corporation — Agreed to pay a $1 million civil penalty to settle violations of its OATT. NorthWestern also agreed to undertake a compliance program to ascertain the company's continuing compliance with its OATT. As these first four cases show, the Commission is taking a renewed interest in OATT compliance.
• NRG Energy, Inc. — Agreed to pay a $500,000 civil penalty to settle violations of Commission Market Behavior Rules that resulted from the misrepresentation of a reliability-must-run generation facility in ISO-New England. NRG also agreed to undertake a compliance program involving semi-annual filings for one year containing the results of an audit of plant outages for the previous six-month period.