Academic journal article Energy Law Journal

Compliance Programs, Penalty Mitigation and the Ferc

Academic journal article Energy Law Journal

Compliance Programs, Penalty Mitigation and the Ferc

Article excerpt


Corporate exposure to criminal and civil penalties has grown in recent years. Many corporations have responded by strengthening their compliance programs to reduce the potential for violations, but these programs also present risks because they detect and reveal violations that would not otherwise be uncovered by the government. Many federal regulators have recognized this dilemma and adopted policies that reduce (or, in some cases, eliminate) penalties for corporations that adopt effective compliance programs. The Federal Energy Regulatory Commission (FERC) recently moved in this direction by articulating certain general factors on penalty mitigation for effective compliance programs. This article urges the FERC to go one step further and adopt a more formalized policy on penalty mitigation. Specifically, it suggests a policy under which the FERC would decline to impose a penalty for a nonserious violation if the corporation: (i) adopted reasonable preventive measures to deter misconduct, (ii) detected and reported the violation promptly, and (iii) took appropriate remedial action in response to the violation. As this article was being printed, the Commission adopted a formal policy on compliance programs that is, in many important respects, consistent with this recommendation.


The problem of corporate wrongdoing has long been a matter of serious social concern. Both large bureaucratic organizations and smaller firms have the capacity to inflict serious harm, and often a strong competitive motive to cut corners in terms of legal compliance.

[P]rosecutors have exploited their virtually unchecked power to extract and coerce ever greater concessions [from corporations], jeopardizing the very nature of our adversary system.... It [is] a state-sponsored shakedown scheme in which corporations are extorted to pay penalties grossly out of proportion to any actual misconduct.2

Corporate exposure to civil or criminal wrongdoing by employees has grown sharply in recent years.3 Congress has increased the penalties for corporate crime4 and high-profile prosecutions are now commonplace.5 Civil enforcement is stronger as well, with federal agencies receiving enhanced penalty authority and upgrading their enforcement programs.6

The FERC recently joined this trend. In 2005, in the wake of the California electricity crisis and market manipulation by Enron, Congress gave the FERC significant new civil penalty authority7 and the FERC quickly adopted a modern enforcement regime, including a formal policy statement on enforcement and a no-action letter process.8 Not surprisingly, it also started imposing significant civil penalties.9

This transition has not been without controversy. There have been criticisms of the fairness of the process, as well as suggestions that the penalties are too high. This latter criticism has included allegations that cooperation and self-reporting are not sufficiently valued in calculating civil penalties and are sometimes used more as "sticks" than "carrots."10 The FERC recently responded to some of these criticisms by adopting a package of enforcement reforms in May 2008, including strengthening due process for the subjects of an investigation, increasing opportunities for compliance guidance, and, relevant here, increasing the prominence of corporate compliance programs in the determination of civil penalties."

This latter policy shift began in 2007, when Chairman Kelliher released his first lengthy statement on enforcement, in which he emphasized that "[i]t is a personal priority for me as Chairman to strengthen compliance programs in the regulated community"12 and stated that "[i]t is the combination of a strong compliance program and self-reporting that provides a regulated company the best opportunity for avoiding a significant civil penalty, or perhaps avoiding a penalty altogether."13 The FERCs reforms in May 2008, embraced Chairman Kelliher' s increased focus on compliance programs, "mak[ing] it clear that the commitment of a company to compliance will be one of the two most important factors in our determination of civil penalty amounts, along with seriousness of the offense. …

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