Energy Markets Face Expanded Enforcement

Following the Enron bankruptcy and West Coast energy crisis of 2001-2002, Congress gave the Federal Energy Regulatory Commission (FERC) more powerful enforcement tools to prevent unlawful and manipulative activities in energy markets. The Energy Policy Act of 2005 (EPACT) gave FERC the authority to assess penalties under the Natural Gas Act and Federal Power Act of up to $ 1 million per day per violation. See 15 U.S.C.A. ' 717t-1; 16 U.S.C.A. ' 825o-1. FERC has expanded its Office of Enforcement, called for heightened industry compliance programs and self-disclosure of misconduct, and is newly focused on enforcement rather than on traditional ratemaking. Two years into the EPACT era, FERC has used its newly acquired authority vigorously:

• In July 2007, FERC issued proposed penalties and disgorgement remedies in two different proceedings (Amaranth and Energy Transfer Partners) totaling $458 million, for alleged market manipulation and other violations.
• FERC's action in Amaranth included proposed penalties against two individual energy traders totaling $32 million.
• Since January 2007, FERC has approved 12 consent agreements to terminate enforcement investigations, which collectively required payments of more than $40 million in penalties and disgorgements.

Major questions remain about FERC's enforcement policies, including: the scope of FERC's jurisdiction; the scope of the penalties to be associated with particular violations; and whether respondents facing penalty awards are entitled to a de novo hearing in district court. FERC has also not indicated whether it will exercise its long-standing authority to refer willful violations of its major statutes to the Department of Justice (DOJ) for criminal prosecution, particularly given that the potential monetary penalties and terms of imprisonment were significantly increased under EPACT. However, FERC's actions under EPACT suggest some benchmarks for companies active in the energy industry seeking to avoid or minimize liability under this new regime.