New NGL Pipeline and Renewable Generation Interconnection Settlements Highlight FERC's Expanded Enforcement Focus
In Short
The Situation: Recent Federal Energy Regulatory Commission ("FERC") enforcement settlements—one involving a natural gas liquids ("NGL") pipeline's compliance with reporting requirements, the other a renewable generator's compliance with the grid interconnection process—reflect FERC's expansion of its enforcement focus.
The Result: FERC-regulated entities face investigation and enforcement action risk based on a broader scope of regulated activities than has historically been the case.
Looking Ahead: FERC-regulated entities should carefully evaluate whether their FERC compliance programs are broad enough to address the full scope of their regulated activities, as areas traditionally handled outside of the enforcement process now may be subject to investigations and civil penalties.
On June 24, 2022, FERC issued orders approving settlement agreements resolving two investigations. The first involves whether a renewable generation developer, sPower Development Company, violated PJM Interconnection LLC's ("PJM") tariff by failing to report the termination of its option to buy land for a new solar project, which would have interconnected with PJM's system. The second involves whether the owners and operators of an NGL pipeline, M3 Ohio Gathering, Utica East Ohio Midstream, and UEOM NGL Pipelines, violated the Interstate Commerce Act ("ICA") by failing to file a FERC Form No. 6 for a six-year period. Neither settlement includes large civil penalties (only $24,000 and $30,000 respectively). But both reflect deliberate decisions by FERC to expand the focus of its enforcement efforts.
FERC's Historical Enforcement Focus
FERC has authority to investigate regulated entities' compliance with the Federal Power Act, the Natural Gas Act ("NGA"), the Natural Gas Policy Act, and the ICA, and to impose civil penalties and other remedies for violations of these statutes. While this authority is broad in scope, allowing the agency to open up investigations and seek remedies for violations covering the full range of FERC-jurisdictional conduct, FERC's enforcement efforts have historically focused on certain types of violations fitting within its stated priorities—for example, market manipulation, serious tariff violations resulting in unjust profits, statements to ISOs/RTOs or FERC that violated the "duty of candor" rule, 18 C.F.R. § 35.41, and NGA capacity release violations. The overwhelming majority of settlements and enforcement actions since the Energy Policy Act of 2005 ("EPAct 2005") fit into these categories.
Recent Orders Reflecting Expanded Enforcement Priorities
This current Commission has aggressively focused on these traditional priorities, but now has expanded them to match new regulatory and policy initiatives. The first major step in that regard is the addition of a new stated enforcement priority announced in the 2021 Report on Enforcement—"[t]hreats to the nation's energy infrastructure and associated impacts on the environment and surrounding communities"—which explains FERC's aggressive expansion of its enforcement of NGA certificate violations.
These two new settlements continue that expansion trend. The NGL pipeline settlement appears to be the first time in nearly 40 years that FERC has assessed civil penalties on a liquids pipeline for an alleged violation of the ICA. There have been self-reports and nonpublic investigations of oil and NGL pipeline violations in the past, but even those have been rare. Until now, however, FERC has not seen fit to bring an enforcement action (through an approved settlement) over an NGL pipeline records-keeping violation.
While one case does not make a trend, FERC surely intended to send a message to oil and NGL pipeline operators—just as its newly stated enforcement priority sent a message to NGA certificate holders—that lack of compliance may result in investigations and civil penalties.
The renewable generator interconnection settlement may seem more routine, as FERC regularly investigates and seeks civil penalties for violations of RTO tariffs. But nearly all of those investigations and settlements have involved conduct relating to generator offers into power markets, improper recovery of costs and uplift payments, and capacity market payments that FERC determined were unjustified. This settlement, however, appears to be the first of its kind since EPAct 2005. What appears to be deliberate rather than coincidental is that this settlement was issued right at the same time that FERC has made alleviating the substantial generator interconnection backlogs that exist on the grid a key priority, as reflected in the recent Notice of Proposed Rulemaking. Notably the settlement itself emphasized that the tariff provision at issue is important to PJM's effective management of the interconnection queue.
In sum, now that FERC is increasing its regulatory focus on NGA certificate compliance, approval of fossil fuel pipelines, and generator interconnection, there appears to be a deliberate agency effort to ensure that its enforcement office follow suit.
Carefully Consider Whether Your Compliance Program Matches Your FERC-Regulated Business Activity
Regulated entities should ensure their compliance programs are robust and sufficiently broad in scope to address FERC's new and future regulatory priorities—as those priorities now may have enforcement implications. Fortunately, the core components of a well-designed and implemented compliance program addressing, for example, market manipulation, record-keeping, FERC forms, and RTO tariff compliance, can be readily translated into the full scope of FERC-regulated business conduct. But market participants should know that areas that have been traditionally unlikely to result in an investigation and civil penalties should no longer be considered off FERC enforcement's radar screen.
Two Key Takeaways
- In its most recent enforcement actions, FERC is signaling its intent to ensure that its enforcement priorities better match its regulatory priorities—including NGL and oil pipelines' compliance with the ICA and generators' compliance with the RTO interconnection process.
- Regulated entities should therefore take steps to review their compliance programs to ensure they are carefully aligned with the scope of FERC's current and likely enforcement priorities.
