News October-December 2005
News Release: October 20, 2005 | View Printable PDF Version |
Docket Numbers: RM06-3, PL06-1, and RM06-2 |
Commission proposes rules on market manipulation, outlines
policy on civil penalties and enforcement
In two orders today implementing provisions of the Energy Policy
Act of 2005, the Federal Energy Regulatory Commission proposed
rules detailing broad prohibitions on energy market manipulation
and outlined the Commission's policy on assessing civil penalties.
In a third order, the Commission proposed to allow companies to
challenge the findings of staff operational audits before a final
order is issued.
"Our purpose is firm but fair enforcement of our rules and regulations,"
Chairman Joseph T. Kelliher said. "The Commission's goal is compliance.
These orders will provide the industry with clarity and regulatory
certainty."
The Energy Policy Act bars "any manipulative or deceptive device
or contrivance" in wholesale natural gas and electricity commodity
and transportation or transmission markets. In today's notice
of proposed rulemaking, the Commission proposes to track the language
of the Securities Exchange Act, as Congress directed in sections
315 and 1283 of the Energy Policy Act. This will serve to provide
greater certainty to the industry because of the large body of
case law interpreting the meaning of these terms.
Under the proposal, it would be unlawful for any entity, directly
or indirectly, in connection with the purchase or sale of electric
energy or natural gas, or in providing transmission or transportation
services subject to the Commission regulation: (1) to defraud
using any device, scheme or artifice; (2) to make any untrue statement
of material fact or omit a material fact; or (3) to engage in
any act, practice or course of business that operates or would
operate as a fraud or deceit.
Pursuant to the new statutory authority granted to the Commission,
the proposed regulations would apply to any entity, not just jurisdictional
market-based rate sellers, natural gas pipelines or holders of
blanket certificate authority. "Any entity" includes governmental
utilities and other market participants.
Concurrently, the Commission today issued a Policy Statement
on Enforcement, outlining factors the Commission will consider
when assessing civil penalties or developing remedies for violations
of the statutes, orders, rules, and regulations the Commission
administers. The Policy Statement also identifies factors to be
weighed in determining the seriousness of the violation, and indicates
what consideration will be given for mitigating factors, such
as adopting strong internal compliance programs, voluntarily reporting
violations, and cooperating with staff investigations.
"The Energy Policy Act gave the Commission enhanced enforcement
authority, and we intend to use the tools Congress provided to
safeguard the nation's energy consumers," Chairman Kelliher said.
"However, it is important to emphasize that the Commission will
approach this in a fair and even-handed manner, as demonstrated
in our civil penalty assessment policy, which states: 'We encourage
regulated entities to have comprehensive compliance programs,
to develop a culture of compliance within their organizations,
and to self-report and cooperate with the Commission in the event
violations occur,'" Chairman Kelliher said.
The Commission noted that while it has a variety of enforcement
tools at present, such as the ability to order disgorgement of
illegal profits or to condition, suspend, or revoke market-based
rate authority, pipeline certificate authority or blanket certificate
authority, the Energy Policy Act enhanced the Commission's civil
penalty authority both by extending it across all of the substantive
provisions of the Federal Power Act and the Natural Gas Act, and
by increasing the maximum civil penalty under these statutes to
$1 million per day per violation. Entities will be subject to
the full array of possible enforcement tools and the Commission
will exercise its discretion in a "fair, reasonable and appropriate
manner," the Commission said in its policy statement.
In a separate notice of proposed rulemaking, the Commission proposes
to permit any audited company to challenge an audit finding before
the Commission issues an order on disputed matters in the audit.
The Commission has traditionally conducted financial audits to
determine compliance with its accounting regulations. The Commission's
regulations currently allow such audited companies an opportunity
to challenge the staff's financial audit findings before they
are made public. In recent years, the Commission has begun conducting
operational audits to assure compliance with the Commission's
Standards of Conduct and Codes of Conduct. Today's proposed rule
would extend the same procedural opportunity to challenge staff
findings in operational and other audits as is currently afforded
for financial audits.
"This proposed rule would advance the due process rights of all
audited persons by providing an effective procedure for them to
challenge staff audit findings," Chairman Kelliher said. "Companies
seeking to challenge a staff audit finding may choose either a
paper hearing or a trial-type proceeding if there are material
issues of fact to resolve before we issue an order on the audit
findings."
Comments on today's order, Prohibition of Energy Market Manipulation,
are due within 21 days of publication in the Federal Register.
Comments on Procedures for Disposition of Contested Audit
Matters are due within 21 days after publication in the Federal
Register (www.gpoaccess.gov).
R-05-71
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