The Federal Energy Regulatory Commission (FERC) Office of Enforcement (OE) has historically focused on four “priorities,” as described in its annual Report on Enforcement. Those four priorities included (1) fraud and market manipulation; (2) serious violations of Reliability Standards; (3) anticompetitive conduct; and (4) conduct that threatens the transparency of regulated markets. In the 2021 Report on Enforcement, however, the OE included a new enforcement priority: “threats to the nation’s infrastructure and associated impacts on the environment and surrounding communities.”
This priority is likely part of a larger push based on the political pressures of a new administration and its wish to focus on infrastructure and environmental concerns. Indeed, over the past year, the OE has issued some fairly significant enforcement orders in furtherance of this objective. While many of the cases were actually products of investigations that began long before the new presidential administration, it seems likely that the way the cases were ultimately resolved or issued was in no small part shaped by the new administration’s priorities and focus on infrastructure and its environmental and community impacts. These cases may provide some insight as to what regulated entities can expect as OE continues to focus on this new priority.
For example, in PacifiCorp, 175 FERC ¶ 61,039 (2021), FERC issued an Order to Show Cause and Notice of Proposed Penalty based on PacifiCorp’s failure to comply with certain reliability standards that require transmission owners to establish and have facility ratings consistent with its Facility Ratings Methodology (FRM). Id. at P 1. According to the OE Report attached to FERC’s order, OE’s investigation began in 2012 following the Wood Hollow Fire, which the Utah Department of Public Safety determined was caused by inadequate clearance between two PacifiCorp transmission facilities. Id. at App’x A, OE Report at 2. Ultimately, OE recommended a civil penalty at the upper end of possible ranges, at $42,000,000 “in light of the serious nature and scope” of the violations and their harmful impacts. Id. at 7.
In another case, Rover Pipeline, LLC, 177 FERC ¶ 61,182 (2021), FERC issued an Order to Show Cause and Notice of Proposed Penalty to Rover Pipeline for violating the Natural Gas Act (NGA), FERC regulations, and its certificate by intentionally including diesel fuel and other toxic substances and unapproved additives in the drilling mud during its horizontal directional drilling operations in Stark County, Ohio. Id. at P 1. The Commission’s order directed Rover and Energy Transfer Partners, L.P. to show cause why they should not be assessed a civil penalty of $40,000,000. Id. at Ordering P (B).
Finally, in still another case, Boyce Hydro Power, LLC, 175 FERC 61,049 (2021), FERC issued a Notice Assessing Penalty against Boyce Hydro Power for failing to begin a Commission-directed forensic study and failing to conduct engineering safety studies and to file certain required reports with the Commission. Id. at P 1. The forensic investigation and safety inspections had been ordered by FERC following the breach of the Michigan-based Edenville and Sanford dams in May of 2020. Id. at PP 16, 24. FERC had earlier issued an Order to Show Cause as to why Boyce Hydro should not be assessed a civil penalty of $15,000,000 for its violations. In its Order Assessing Penalty FERC found that Boyce had “failed to respond to the factual record” in the order. Id. at P 10. FERC therefore found “summary disposition” to be appropriate and assessed a $15,000,000 penalty. Id. The Commission noted that Boyce’s bankruptcy plan of liquidation “subordinates any claim made by the Commission, including any claim based on the civil penalty assessed herein” and that it agreed to such subordination so as to not “imperil any direct recovery of damages by victims of the dam breaches and flooding.” Id. at P 60.
All in all, the combination of the newly announced “priority” and the stiff penalties in these cases signal that regulated entities can expect more enforcement investigations in new areas, or at least areas where historically there have not been many enforcement investigations and resulting penalties. First, entities can expect more investigations concerning reliability violations that have infrastructure impacts, that impose harmful environmental impacts or are exacerbated by the effects of global warming. Second, entities can expect more investigations regarding compliance with pipeline certificates and the NGA from an environmental impact perspective. Entities may face more enforcement scrutiny as to the representations they make in their certificate applications. Entities can expect more enforcement investigations in hydro licensing cases, even where non-compliance did not result in personal injures but instead threatened the environmental wellbeing of surrounding communities. Any case that involves some sort of improper conduct pertaining to use of fuel types that produce carbon (as opposed to other types of resources) may get outsized attention. Any conduct that could be deemed to frustrate environmental protection interests that seem to be seeping into FERC policy will likely get a strong look from enforcement. We’ll see. The proof will take a few years to emerge given that the life of an investigation that turns into an enforcement action can be years. But, industry participants would be well advised to make sure their FERC compliance programs are pointed directly at these areas.
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The Energy Enforcement team at McGuireWoods is rooted in an elite Government Investigations and White Collar Litigation Department that was recognized as a Law360 Practice Group of the Year. We also leverage the capabilities of our broader firm-wide Energy team, including more than 100 interdisciplinary lawyers, who have been serving a broad spectrum of energy clients for nearly 50 years. We also represent about 30% of the nation’s utilities. We represent many of the top commodity trading houses and financial institutions. The firm has earned nationwide ranking for its energy regulatory and litigation work in Chambers USA’s guide.
The team includes a former top enforcement official at FERC who led some of the most high profile cases that agency brought in recent years as well as multiple partners and associates with direct experience in energy enforcement at the agencies and in the courts. The team is also diverse – including several women and lawyers of color who are actually experienced in energy enforcement. The expertise of our team was recognized when we were recently called upon by the Edison Electric Institute to completely redesign its on-line member training on Anti-Market Manipulation Rules. We literally “wrote the book” in the form of our unique, FERC Enforcement Reporter.
